Doing Business in Bali: Opportunities, Risks, and The Need for Compliance

Bali is often seen as a land of opportunity for entrepreneurs, particularly among expats drawn by the island’s vibrant economy and its reputation as a global tourist destination.

With over 200,000 foreigners currently residing in Bali, according to Luhut Binsar Pandjaitan, an economic affairs advisor to President Prabowo Subianto, the opportunity to start businesses catering to a diverse, international audience is undeniable. However, this opportunity comes with responsibilities and risks, especially when it comes to compliance with Indonesia’s rules and regulations.

Luhut’s recent revelations, as reported by Jakarta Globe, that many foreign-owned businesses in Bali operate without proper permits or in violation of local laws highlight the pressing need for expats to understand and adhere to the legal frameworks governing business in Indonesia. Breaking the rules not only puts their investments at risk but also undermines Bali’s economy, creates tension with local entrepreneurs, and tarnishes the reputation of the general expatriate community.

Bali’s Business Appeal

Bali’s economy thrives on tourism, contributing significantly to Indonesia’s GDP. The island’s beaches, unique culture, and growing digital nomad scene make it an attractive destination for expats to live and invest. From hospitality and wellness to retail and creative industries, Bali offers numerous opportunities for foreign entrepreneurs.

Terje H. Nilsen, CEO and co-founder of Seven Stones Indonesia, has long emphasised the potential Bali offers for those looking to do business in a sustainable and lawful manner. “Bali is not just about beaches and sunsets. It’s a place with incredible opportunities for those willing to respect the culture, the people, and the regulations,” he said in a past blog on Seven Stones Indonesia.

But as Nilsen points out, the key to success lies in understanding and complying with local laws. Failure to do so not only risks financial loss but also damages relationships with local communities and authorities.

The Risks of Non-Compliance

Luhut’s statement underscores a critical issue: too many foreign-owned businesses are operating illegally in Bali. The State Development Finance Comptroller (BPKP) recently audited businesses on the island, revealing widespread irregularities in permits. Businesses that fail to meet the requirements or violate regulations create unhealthy competition for the local community, often exploiting loopholes or circumventing legal processes altogether.

This lack of compliance has serious real-world consequences. For instance, Jakarta Globe cites an example that a Canadian citizen referred to as JGC, was deported after authorities discovered their fake company in Bali. The business claimed to provide consulting, graphic design, and retail services but was found to have no legitimate office at its registered address. Cases like these harm Bali’s economic ecosystem and fuel resentment among locals who see their opportunities diminished by unfair competition.

In addition, Luhut has highlighted the rise of so-called “nude clubs” and other controversial establishments run by foreigners, further exacerbating tensions. Such activities not only violate cultural norms but also lead to stricter enforcement measures that affect all expats, including those who run legitimate businesses.

Navigating the Legal Framework: What Expats Need to Know

To avoid becoming part of the problem, foreign entrepreneurs in Bali must prioritize compliance. Here are some essential steps to ensure your business operates within the law:

Understand the Permit Process

• All businesses in Indonesia, including Bali, require specific permits, such as the Building Permit (IMB) or its replacement, the Detailed Engineering Plan (PBG).
• Additionally, a Certificate of Functional Feasibility (SLF) is often needed for operational approval. Skipping these steps, as many have, can lead to fines, closures, or even deportation.

Set Up the Right Legal Entity

• Foreigners must establish a company through the appropriate channels, such as a PT PMA (foreign investment company). This ensures compliance with ownership restrictions and taxation laws. Partnering with a reputable local legal advisor can simplify this process and help avoid costly mistakes.

Follow Employment Regulations

• Hiring local staff is a must, but doing so improperly can lead to legal issues. Foreigners cannot take jobs in certain protected sectors, which are reserved for Indonesian nationals. Understanding these rules and providing fair opportunities for local workers can build goodwill and ensure compliance.

Respect Cultural and Legal Norms

• Running a business in Bali isn’t just about meeting legal requirements. It’s also about respecting the culture and traditions that make the island unique. Activities that clash with local values, such as those described by Luhut, can lead to swift enforcement actions.

Building Trust with the Local Community

• Compliance isn’t just about avoiding penalties; it’s about building trust and contributing positively to Bali’s economy. Foreigners who play by the rules and respect local norms are more likely to gain the support of the community and authorities.

Nilsen stresses the importance of collaboration with locals. “If you approach Bali as a place to build meaningful partnerships, you’ll find that the local community is incredibly welcoming and supportive,” he notes. He also emphasizes the role of transparency in fostering trust. Being open about your business intentions and operations goes a long way in creating a positive reputation.

The Consequences of Breaking the Rules

For those who choose to cut corners, be aware … the risks are steep. In addition to financial losses from fines or business closures, violators face the prospect of deportation and a permanent ban from re-entering Indonesia. Moreover, such actions contribute to a negative perception of expats in Bali, which can lead to stricter regulations and enforcement for everyone.

Luhut’s call for tighter supervision and enhanced regulations signals a shift toward greater accountability. Authorities are increasingly scrutinizing foreign-owned businesses, ensuring that permits are in order and operations align with local laws. This heightened enforcement benefits legitimate entrepreneurs by creating a level playing field and protecting Bali’s economic integrity.

Doing Business the Right Way

Bali remains a land of opportunity, but success requires a commitment to doing things the right way. For expats, this means respecting not only the legal requirements but also the cultural and social fabric of the island. Investing in compliance, transparency, and collaboration isn’t just the ethical choice, it’s the smart one.

Nilsen’s advice to aspiring entrepreneurs is simple: “Do your homework. Get good advice. And above all, respect the people and the place you’re investing in.”

By following this approach, expats can not only build successful businesses but also contribute to a thriving, sustainable Bali where locals and foreigners alike can prosper.

If you’d like more information and professional advice on how you can build successful businesses in Bali, get in touch with Seven Stones Indonesia by email: hello@sevenstonesindonesia.com We’d be more than happy to guide you along the right path.

Sources: Jakarta Globe, Seven Stones Indonesia, Indonesia’s Ministry of Investment/BKPM, Bali Immigration Office