The restaurant and cafe business in numbers

Despite the claims of many business owners running cafes and restaurants in Bali, the profitability and potential of these businesses remain a contentious topic.

Many newcomers to Bali consider opening their own Warung (a small local eatery), as it seems like a great idea in terms of initial investment and potential monthly returns. Moreover, if things don't go as planned, selling such a project seems relatively easy.

But what’s the reality?

Two clear trends have emerged in the market:

1 — Small cafes and restaurants are often opened by individuals with no prior experience in the food business.

2 — Those who have previously run cafes or restaurants tend to prefer more profitable investments such as direct construction investments, which offer faster returns and passive involvement.

Learn more about the development business in Bali here — https://bali-legal.com/en/kak-proverit-zastrojshhika-samostoyatelno-en.

Sample Data on Running Cafe and Restaurant Businesses in Bali, Based on Randomly Selected Projects:

These numbers indicate that the average cafe owner often “consumes” their profit rather than recovering their investment. Today, it’s not enough just to have some money to start.

The competition is growing, and you must consider factors such as:

OPENING A LEGAL CAFE OR RESTAURANT IN BALI: STEP-BY-STEP GUIDE

STEP 1 - COMPANY REGISTRATION AND LICENSING

To earn an income, you need to officially register its source. For a foreigner, this means either running their own business or working/freelancing. In this case, the choice is obvious.

Detailed information on business registration can be found here — https://bali-legal.com/en/kitas-company-en

Costs at this stage depend on the owner's request, but minimally you would spend around $1,200 - $2,000 USD for company registration, and up to $5,000 USD if you need a residence permit, a bank account, and business support.

Obtaining an alcohol license for beverages over 9% alc is often the most challenging part. If your restaurant plans to sell strong alcohol, the cost for this license will be around 25-30 million IDR (up to $2,000 USD additionally).

STEP 2 - LAND CHECK AND LEASE AGREEMENT

There are at least three main risks associated with land for cafes/restaurants::

Learn more about the risks and procedures here — https://bali-legal.com/en/proverka-zemli-en 

Depending on the type of investment and the owner's approach, businesses can be categorized into two types:

SMALL “TEST” PROJECTS WITH MINIMUM BUDGETS

This category includes small cafes or Warungs with initial investments of $10,000 - $25,000 USD. These projects are usually launched to:.

For such projects, every dollar invested counts, and the cost of land verification, which eats up 10-20% of minimal investments, feels more like a luxury than a necessity.

Entrepreneurs understand the initial risks and often opt to skip formal land checks, relying instead on informal agreements.

IMPORTANT!

For this type of business, at a minimum, verify the landowner’s documents and their land certificate.

LARGE-SCALE LONG-TERM PROJECTS WITH SIGNIFICANT CAPITAL INVESTMENTS

In this category, the business owner's objectives typically include:

If your business falls into this category, land and lease agreement checks are an investment necessity. Learn more here: — https://bali-legal.com/en/proverka-zemli-en. 

The lease agreement check procedure is detailed here: https://bali-legal.com/en/sostavlenie-dogovorov-arendyi/pokupki-nedvizhimosti-na-bali-en.

Costs involved in land checks and deal support:

Land check: 300 USD per plot.

Deal support up to the start of construction: 1-2% of the transaction amount. 

EXAMPLE OF COST ESTIMATION AT THIS STAGE:

— Land lease cost: 1,000,000,000 IDR;

— Number of plots: 2;

— Land check cost: 9,000,000 IDR;

— Notary expenses: 1% of 1,000,000,000 IDR = 10,000,000 IDR;

— Deal support: 2% of 1,000,000,000 IDR = 20,000,000 IDR;

— Total expenses: 39,000,000 IDR (approx. 2,600 USD).

STEP 3 - CONSTRUCTION

You probably already know that foreigners, or even foreign companies, cannot fully own real estate in Bali. Learn more here: https://bali-legal.com/en/land-on-bali-en.

Construction Costs: Construction costs are highly variable and depend on the project size and availability of construction documentation.

It’s important to remember that construction in Bali comes with its challenges. Without appropriate engineering and technical oversight from your side, the quality of construction is almost guaranteed to be low.

This means that in addition to hiring local builders (which may work well for a small local café but would certainly ruin a large restaurant), you need to establish a robust approach to controlling the process and ensuring the construction plan is followed.

This phase represents the largest cost component, with investments averaging from 40,000 USD. For large restaurants, figures typically range between 100,000 to 200,000 USD.

Feel free to reach out if you have questions or need further clarification on these steps!

STEP 4 - HIRING STAFF

One of the main challenges in this stage is finding a good head chef. This is the number one issue in Bali.

Local chefs, in 95% of cases, are ABSOLUTELY unable to cook, and the quality of food will be terrible. Moreover, they are unlikely to establish proper organization within the team, resulting in a restaurant with awful food in a high-traffic location. This kind of operation will only work if you can attract tourists on organized tours, as this audience is usually less demanding and not picky.

If your goal is to run a business with quality food aimed at building a loyal customer base, you will most likely need to hire an international head chef.

Work permit costs: Around 3,000 USD per year. More on working as a foreigner in Bali can be found here — https://bali-legal.com/en/zarabotat-na-bali-en.

Head chef salary: Approximately 3,000 USD per month.

Local waiter: Around 300 USD per month.

Local manager: From 500 USD per month.

Local cook: From 500 USD per month.

For more details on hiring local staff, click here - https://bali-legal.com/en/uvolnenie-balijczev-en.

TAXES FOR OPERATING RESTAURANTS AND CAFES

In Indonesia, there are two main types of taxes: local tax and central tax. Both must be paid by restaurants and cafes.

For more details on the tax system in Bali and types of taxes, click here — https://bali-legal.com/en/nalogi-v-indonezii-en.

Overall, running a restaurant or cafe is more complex than other types of businesses in terms of tax legislation, as they are required to pay almost all known types of taxes. As a result, many entrepreneurs struggle to understand their future tax burden.

LOCAL TAX (paid to the local tax office where the business operates)

This tax applies when a business has a physical location and is on the list of business types required to pay local taxes, such as restaurants, cafes, hotels, massage parlors, spas, horseback riding establishments, and discos. Often mistakenly referred to as a "tourist tax," this is not correct.

This tax is collected from customers by adding it to the total bill amount.

Local tax rate for restaurants and cafes: — 10%.

Example Calculation of Local Tax:

Bill amount: 100,000 IDR.

Service charge in the bill: 5% — 5,000 IDR.

Local tax 10%: (100,000 + 5,000) * 10% = 10,500 IDR.

Total price for the customer: 100,000 + 5,000 + 10,500 = 115,500 IDR.

The service charge varies by company and is usually used as a bonus when calculating an employee's salary.

 

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CENTRAL TAX (paid to the central tax office according to the business registration location)

Central tax can be divided into two subtypes:

For incoming payments:

1 — Income Tax (PPh) - 0.5%: This is a tax on all incoming payments the business receives.

Usually, if a company’s turnover exceeds 4.8 billion IDR (around 320,000 USD) per year, they become liable to pay VAT at 11%.

IMPORTANT!!! This rule does not apply if the restaurant sells goods (clothes, hats, accessories, etc.).

If the revenue from these goods exceeds 4.8 billion IDR, VAT at 11% will be applied to these items.

For outgoing payments:

2 — Tax No. 21 - Payroll Tax - 5 - 35%

This tax applies to the OFFICIAL salary paid by the business. The minimum salary is 3,000,000 IDR, and the maximum allowed salary without tax is 4,500,000 IDR (300 USD).

3 — Tax No. 23 - Service Tax

For local services: 2 — 6%.

For overseas services:  31%.

This tax is applied to any payment made from the business account for using any service, such as internet connection, marketing, repair work, legal services, etc. The rate depends on whether the company (or individual) providing the service has a license and whether they are a local or foreign company. The tax on foreign services is considered particularly high.

4 — Tax No. 4.2 - Tax on Rent and Dividends — 10%

When signing a lease agreement for a property (or land under the property), a 10% tax on the contract value arises. This tax is paid when the payment is made and is calculated based on the payment amount.

When distributing dividends, each co-founder must pay a tax of 10 to 20% (depending on residency status in Indonesia) on the dividend amount.

For more on the tax system in Bali and types of taxes, click here — https://bali-legal.com/en/nalogi-v-indonezii-en.

Together, we will make life on the island comfortable and legal!