Guide to Sole Proprietorship in Indonesia: Everything Entrepreneurs Must Know in 2025
Starting a business in Indonesia often begins with the simplest structure — the sole proprietorship, locally known as Usaha Dagang (UD) or Perusahaan Perorangan. This model is straightforward, cost-effective, and best suited for small-scale entrepreneurs, freelancers, and independent consultants. Since it is owned and managed by a single individual, the business and the owner are legally considered the same entity. However, it is important to note that this structure is only available to Indonesian citizens, making it a popular choice for locals who wish to kick-start their entrepreneurial journey with minimal complexity.
Why Choose a Sole Proprietorship?
If you want to set up a business as quickly as possible and you don’t have any intention to have partners, this could be the option for you. Sole proprietorships have no statutory provisions or special requirements governing the setup. With minimal legal restrictions, sole proprietorships are easy to establish and easy to dissolve if needed.
What are the Advantages of Choosing a Sole Proprietorship in Indonesia?
The sole proprietorship (Usaha Dagang/Perusahaan Perorangan) remains one of the most attractive business structures for entrepreneurs in Indonesia due to its simplicity, affordability, and flexibility. Below are the key advantages:
1. Ease of Establishment and Dissolution
Setting up a sole proprietorship is a quick and straightforward process, with minimal legal formalities. Likewise, dissolving the business is simple, making it a flexible option for entrepreneurs who may want to pivot or explore new ventures.
2. Full Control and Autonomy
The owner has direct and complete control over all aspects of the business — from operations to strategic decisions. This independence allows entrepreneurs to be agile and responsive to market trends without needing approval from partners or shareholders.
3. Low Operational Costs
Compared to other business entities, a sole proprietorship incurs lower startup and maintenance costs, as there are fewer administrative and compliance requirements. This makes it particularly ideal for startups and small businesses with limited capital.
4. Complete Profit Retention
All profits generated belong solely to the owner, with no requirement to share earnings with partners or shareholders. This ensures maximum financial benefit for the business owner.
5. Fewer Regulatory Burdens
A sole proprietorship is subject to fewer legal restrictions and reporting requirements than larger corporate structures. This reduces paperwork and allows owners to focus more on growing the business.
6. Simplicity in Taxation
Profits are taxed as the owner’s personal income, eliminating the risk of double taxation often associated with corporate structures. This keeps compliance straightforward and cost-effective.
7. Easy Ownership Transferability
Ownership of the business can be transferred or sold with relative ease, giving entrepreneurs flexibility in succession planning or exit strategies.
What are the Characteristics of a Sole Proprietorship in Indonesia?
- It is relatively easy to set up and dissolve.
- Liability is unlimited and can involve personal property.
- There are no taxes; there are levies and fees.
- All benefits are enjoyed alone.
- Difficult to regulate the company’s wheels because it is regulated by yourself.
- Small profits often require sacrificing a larger income.
- The period of a business entity is unlimited or for life.
- At any time, it can be transferred.
What Are the Different Types of Sole Proprietorship in Indonesia?
Licensed Sole Proprietorship
Have an operational permit from the technical department. For example, if an individual company is engaged in trade, it can have licenses such as the Trade Business Registration Certificate (TDUP), the Business Trading License (SIUP).
Unlicensed Sole Proprietorship
For example, individual businesses carried out by street vendors, grocery stores, etc.
As the sole owner, you have the discretion to determine the minimum capital required. If you have a smaller capital to start with, this could be the ideal option for you. The advantages of this entity include:
- Ease of ownership transfer whenever you need.
- You get to enjoy all the benefits and the profits.
- You have full control over how your business is run.
- The start-up cost can be relatively low.
- An unrivalled level of privacy, as you retain complete control over all information related to your business.
What are the Disadvantages of a Sole Proprietorship?
No business entity is without its risks. A sole proprietorship is no exception. The disadvantages include:
- Your profits are smaller.
- You are personally liable for the debt and losses incurred (if any).
- There is no safety net and no health insurance.
- You risk losing your investments if the business fails.
- As the sole owner, you are at risk of liability for injuries, where your injuries mean the business might not be able to operate.
- Possible lost opportunities if you cannot spare the time and effort, since you are the only one running your business.
How Do I Set Up a Sole Proprietorship in Indonesia?
- Register Your Business Name
Choose a unique and appropriate name for your business, then register it with the relevant government authority. This not only gives your business a legal identity but also helps build your brand presence. - Obtain an Employer Identification Number (EIN)
Even as a sole proprietor, you must register for an Employer Identification Number (EIN). This is essential for tax purposes, hiring employees, and opening a business bank account. - Trademark Your Business Name
To safeguard your brand identity and prevent others from using your business name, it is advisable to get your name trademarked. This step provides legal protection and adds credibility to your business. - Apply for Necessary Business Licenses and Permits
Depending on the nature of your business and where you operate, you may be required to secure specific business licenses or permits. These ensure your operations comply with local, state, or industry regulations. - Maintain Proper Documentation
Although not mandatory everywhere, keeping records such as contracts, invoices, and receipts from the very beginning will help in building credibility and making financial management easier.
What Happens After Setting Up a Sole Proprietorship in Indonesia?
Once you’ve set up your business, you need to identify your target audience. You would then need to determine the most effective way to reach them. Identify the services or products you can offer, and provide incentives to encourage customers to engage with your services or purchase your products.
Differences Between Sole Proprietorship and Limited Liability Company (LLC)
| Differences | Sole Proprietorship | Limited Liability Company (PT) |
| Ownership | Individual | Minimum 2 shareholders |
| Legal entity status | Not a legal entity | Legal entity |
| Responsibility | Unlimited, to personal property | Limited, limited to paid-up capital / limited shares owned |
| Owner and management functions | The owner is generally the party responsible for running the business. | There is a separation of tasks between shareholders and management/directors |
Want to Set Up a Sole Proprietorship in Indonesia?
3E Accounting can help. We listen to what your business needs are and provide unbeatable, tailor-made solutions. We prioritise the success of your company. Tap into our expertise for your business advantage and let us help you find your success in Indonesia. For more information about our range of services, contact our team today.
