Contents:
This article is a continuation of "Legalizing the Unlegalizable in Bali."
Previously, we discussed questions like "How to open a company with prohibited activities, what investigation I started, and how exactly the 'monkey money' system works in Indonesia." If you haven't read it yet, here’s the FIRST PART OF THE ARTICLE - https://bali-legal.com/en/legal-bali-one-en.
Since then, I’ve continued to explore the nuances and details of engaging in activities prohibited by law in Bali.
As a reminder, or for those who are unaware – the penalties for conducting illegal activities include hefty fines (approximately $10,000), imprisonment, or deportation (depending on the severity of the offense). Once again, I urge you to engage in business activities in a fully legal and compliant manner.
2 – Hiring Foreign Employees for Positions They Are Not Allowed to Hold
Here is the LIST OF POSITIONS legally available to foreign workers – https://bali-legal.com/en/legalizaciya-na-bali-en.
However, some entrepreneurs use a system known as protection to allow foreign employees to work illegally in foreign companies.
Here's what someone close to the immigration office shared with me regarding this matter:
All entrepreneurs who start a business that is illegal under the law in Bali (as well as employees working in such businesses) pay a monthly fee directly to the immigration office. This officer has access to two types of information:
The scheduled and unscheduled inspection timetable;
A list of locations subject to inspection.
How Protection Works?
The business owner pays a monthly fee (this amount varies for each company and is determined by the officer). If inspections begin for any reason, the owner receives a CALL FROM IMMIGRATION, and they must SUSPEND OPERATIONS UNTIL THE INSPECTIONS ARE OVER.
The last round of inspections lasted for two months, and many illegal businesses had to pause their activities. It’s not the most pleasant situation for a business, but our focus is on implementing this scheme, which is currently a nuance.
After the inspections are complete, the business resumes its operations.
IMPORTANT!
THIS DOES NOT PROVIDE YOU WITH ANY GUARANTEE OF PROTECTION. HERE'S HOW A PERSON CLOSE TO THE TAX OFFICE COMMENTED ON THESE SCHEMES:
This is a temporary measure from local people or those who control and "protect" this area. IF THE GOVERNMENT DISCOVERS SUCH ACTIVITIES AND CONDUCTS AN INVESTIGATION, THEY (LOCALS) WILL NOT BE ABLE TO DO ANYTHING. However, we do not know when the government will conduct checks; usually, this happens if someone reports to the authorities.
THIS IS WHY WE DO NOT RECOMMEND BREAKING LOCAL LAWS!
How Much Does It Cost?
In financial terms, it looks something like this (amounts can vary for each business):
The fee set for protection by the immigration officer is 30,000,000 IDR;
Number of employees: 6 people;
For each employee, the manager collects a fee of 5,000,000 IDR (this can be deducted from the salary or paid in advance; each individual decides for themselves);
Based on my surveys, the monthly payment for an illegal worker ranges from 3 to 4,000,000 IDR. I know of cases where a lower payment of 1,500,000 IDR was made, but those are rare.
After that, the money is handed over to the officer. Typically, this is not done in person (business owners are rarely allowed to handle such matters directly) but through a local Indonesian. This person is likely connected to the immigration management system, such as a visa agent or lawyer who helps resolve these issues.
Sometimes, to employ someone under protection, an investor KITAS must be issued for them. Additionally, the following information must be submitted:
Type of activity;
Passport (copy);
District. This is very important. Payments must be made specifically to the immigration department in your district. Otherwise, you could simply get caught and deported;
If someone arrives on the island seeking work and their activity cannot be legalized in the traditional way, their employment will likely follow this system.
3 – Construction in Restricted Zones
It's a widely accepted practice on the island to build in prohibited areas. So far, the government has not interfered much with construction on restricted territories. Typically, to build a structure in a famous tourist area like Canggu (where construction is generally prohibited), you only need PERMISSION FROM THE LOCAL SELF-GOVERNMENT LEADER (BANJAR) along with a fee.
Contributions to the Banjar are voluntary and are necessary for maintaining order, repairing roads, building infrastructure, and conducting ceremonies.
How Much Does It Cost?
I recommend making the voluntary contribution regardless of whether you are running a legal or illegal business. Each head of Banjar determines your contribution based on their discretion and does not rely on a specific amount. There is no fixed tax; it can be anywhere from 1 to 100,000,000 IDR per year.
What Are the Risks?
The Indonesian government can legally DEMOLISH ANY BUILDING IN AN ILLEGAL AREA, even if that building is yours based on a rental agreement or rights transfer for construction. This applies even if you simply rent someone else's structure in a prohibited area.
ADVICE!
AVOID OPENING (WHEN POSSIBLE) A BUSINESS IN AREAS WHERE COMMERCIAL ACTIVITIES ARE PROHIBITED OR WHERE AN ILLEGAL STRUCTURE EXISTS. After all, you may pay rent for a space for 10 to 20 years and risk losing your investments and the property itself within just one month due to government orders.
CHECK THE PROPERTY BEFORE RENTING OR PURCHASING IT!
4 – Accepting Payments for Illegal Services and Tax Reporting
If you run a business in Indonesia, try to receive payments into your own company account. This will greatly simplify your reporting system.
The main criterion for submitting final reports is the basis for receiving the payment — the reason why the money came to you.
Many businesses do not indicate illegal activities as the basis for receiving payments. There is a wonderful phrase “BUSINESS CONSULTING”—a type of activity permitted for foreigners in Indonesia. This is a vague term that can mean almost anything.
If you add this as one of the business activities when opening a company, you will be able to submit final tax reports and pay a tax of 0.5% on income each month for the first three years of the company’s existence.
WARNING! Having protection in your business does not exempt you from the need to pay taxes. There is even a special tax, PPH 23, for services that I am allegedly trying to legalize under my story.
You can read about the taxes you will pay and calculate them yourself HERE - https://bali-legal.com/en/nalogi-v-indonezii-en.
Summary
Implementing such a scheme (NOT LEGALIZING, BUT IMPLEMENTING) is indeed POSSIBLE, even though it is not allowed by law. However!
From my experience with people I’ve spoken to, making this choice will always keep you in a state of anxiety, simply because:
The Indonesian government regularly conducts checks on illegal businesses and holds periodic raids that result in the deportation of our compatriots;
Indonesia is aware of what is happening on the island, and therefore, every 1-2 years, the government reviews key positions and changes personnel, departments, and even ministries;
Your business will depend on the inspection schedule, which you cannot influence;
The penalty for breaking the law is deportation. You must initially come to terms with the idea that someone may want to frame you, eliminate you as a competitor, or report you out of a sense of civic duty.
IT'S BETTER NOT TO CHOOSE THIS PATH, or to proceed with a clear understanding of the main pitfalls that you will undoubtedly encounter along the way.
If you have any questions, want to open a company, learn more about legalizing your activities, or receive advice from English-speaking specialists, simply CONTACT US via WHATSAPP or TELEGRAM for quick communication.
Together, we will make life on the island comfortable.
