How to Register a Sole Proprietorship (Usaha Dagang) in Indonesia

Starting out as a freelancer or independent contractor in Indonesia can be appealing. You get flexibility, lower costs, and full control of your work. Registering as a sole proprietorship is simpler than setting up a company, though paperwork and licensing can still feel bureaucratic. The main challenges are handling permits, taxes, and local rules that can differ by region. The benefits include ease of setup, low costs, and independence.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in Indonesia?

In Indonesia, a sole proprietorship is called Usaha Dagang (UD). It may also be referred to as a sole trader, self-employed worker, or independent contractor. All describe the same model: one person legally running a business without forming a separate legal entity.

How does a sole proprietorship (Usaha Dagang) work in Indonesia?

Usaha Dagang vs. other business structures in Indonesia

A Usaha Dagang (UD) is the simplest option, but not the only one. Many entrepreneurs choose a limited liability company (Perseroan Terbatas, PT) if they want to protect personal assets, bring in investors, or scale more formally.

Step-by-Step guide: How to register a sole proprietorship in Indonesia

Step 1: Check your eligibility

You must be an adult and legally competent. Foreigners need a valid residence permit.

Step 2: Choose a business name

You can operate under your own name or a trade name. Trade names must be unique and may need to be checked with local authorities.

Step 3: Gather documents

Typical requirements include:

• Identity document (identity card, passport, and/or residence permit for foreigners)
• Taxpayer number (Nomor Pokok Wajib Pajak) – register at DJP
• Proof of business address (domicile certificate)
• Relevant licences depending on the sector

Step 4: Register with authorities

To formally register your Usaha Dagang, you must first apply for a tax number (NPWP) through the Directorate General of Taxes using the online Coretax system. Next, register your business in the Online Single Submission (OSS) system to obtain a Business Identification Number (Nomor Induk Berusaha, or NIB), which serves as your official business ID and determines any risk-based licences required for your sector. Depending on where you operate and the nature of your business, you may also need to secure additional permits from the local government.

Step 5: Pay fees and contributions

NPWP registration is free. Licence costs vary by business type and location.

Step 6: Meet post-registration obligations

Once your Usaha Dagang is registered, you must maintain clear financial records and file annual income tax returns with the DJP. As a PKP, you must issue electronic tax invoices (faktur pajak elektronik) for every taxable transaction and submit periodic VAT reports, if applicable. Even if you are not VAT-registered, it is still good practice to issue invoices or receipts for clients and customers, as these support your bookkeeping, demonstrate professionalism, and are required in case of tax audits. In addition, make sure to keep your licences and permits current by renewing them before expiry.

Financial and tax obligations for sole proprietors in Indonesia

You are responsible for:

• Income tax: Residents pay progressive rates from 5% to 35% depending on income bracket. Non-residents are generally taxed at a flat 20% on Indonesian-source income. Annual returns are filed with the DJP.
• VAT (PPN): The standard VAT rate is 11%, with an increase to 12% on certain goods such as motor vehicles and luxury items starting in 2025. VAT registration is mandatory if turnover exceeds IDR 4.8 billion, and optional below that threshold. Businesses registered for VAT must issue e-invoices (faktur pajak elektronik) and file periodic VAT returns.
• Social security contributions: Sole proprietors are not automatically enrolled but must register with Badan Penyelenggara Jaminan Sosial (BPJS) if they hire employees. Independent workers may also voluntarily join BPJS Health or BPJS Employment to access healthcare and retirement coverage. Contributions are generally fixed monthly amounts depending on the program and class chosen.
• Record-keeping: You must maintain proper accounts of income, expenses, and supporting documents. Invoices should include your tax number (NPWP), date, business and client details, description of goods or services, and VAT (if applicable). Invoices must be sequentially numbered, issued for every transaction, and stored for audit purposes.

Launch your contracting career and stay compliant with Deel

Registering a sole proprietorship gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required to start a Usaha Dagang?
None.

Do Usaha Dagang need to register for VAT?
Yes, if annual turnover exceeds IDR 4.8 billion, or voluntarily below that.

How much are contributions or taxes?
Progressive rates apply: 5 % to 35 % of taxable income.

Can a Usaha Dagang hire employees?
Yes, but you must comply with labor laws and social security obligations.

How long does registration take?
NPWP can be obtained quickly online; full licensing can take days to weeks.

Can foreign nationals register as a Usaha Dagang?
Yes, but only with valid residence permits and subject to sector restrictions.

Do Usaha Dagang need a separate bank account?
Not required, but strongly recommended.

What happens if I stop operating?
You must deregister with DJP, cancel licences, and file a final tax return.

Are there government incentives?
No specific incentives.

Can I use Deel as a Usaha Dagang to get paid internationally?
Yes. Deel enables secure, compliant payments in multiple currencies.

Does Deel generate compliant invoices?
Yes, invoices meet Indonesian requirements, including VAT if applicable.

Can Deel help with taxes?
Yes, Deel provides tax reports and payment records to simplify compliance.

Does Deel offer compliant contracts?
Yes, with templates adapted to Indonesian law.

Can I access benefits through Deel?
Yes, including health insurance, retirement savings, and more.