How to start a business in Indonesia especially for foreign investors? Indonesia has strengthened its standing as one of Southeast Asia’s leading destinations for foreign investment, driven by regulatory reforms, enhanced digital licensing systems, and continuous improvements in ease-of-doing-business indicators.
With a population of over 275 million, large consumer base, growing economic segments, and dynamic sectors, the nation presents substantial prospects for global investors.
However, to successfully establish a business in Indonesia, you must understand its investment landscape.
Understanding Indonesia’s Investment Framework
Foreign investment in Indonesia is governed primarily by the Investment Law, the Positive Investment List, and regulations issued by the Ministry of Investment / Indonesia Investment Coordinating Board (BKPM). Here is the detail you must keep in mind about these frameworks:
Positive Investment List (Daftar Prioritas Investasi)
Investors must consult the investment list before choosing their sector. This framework itself aims to attract foreign capital while supporting local industry growth.
Meanwhile, Indonesia’s Positive Investment List classifies business sectors into:
- Open to full foreign ownership
- Open with ownership limitations
- Open only through partnerships with local enterprises
- Reserved for micro, small, and medium enterprises (MSMEs)
- Priority sectors eligible for incentives, such as tax holidays, tax allowances, or simplified licensing
Role of BKPM / Ministry of Investment
The Ministry of Investment oversees:
- Foreign company establishment (PT PMA)
- Investment approvals
- Licensing and compliance monitoring
- Investor facilitation services
All foreign investors interact with BKPM through the Online Single Submission (OSS RBA) system for registration and licensing.
Key Legal Requirements for Foreign Investors
- Must establish a foreign-owned limited liability company (PT PMA) to conduct commercial activities
- Must comply with minimum investment requirements
- Must obtain appropriate business identification and operational permits
- Must submit regular investment activity reports (LKPM)
Understanding this framework is crucial to navigating Indonesia’s regulatory landscape effectively.
Business Structures Available for Foreigners
Foreign investors typically choose one of three main legal structures, depending on their objectives such as:
PT PMA (Perseroan Terbatas Penanaman Modal Asing)
The PT PMA is the only legal entity allowing foreign individuals or companies to conduct business activities in Indonesia. This structure is ideal for investors intending to operate commercially, generate revenue, and employ staff.
Key features:
- Full or partial foreign ownership allowed depending on sector
- Required for operational business activities
- Can sponsor visas and work permits for foreign staff
- Eligible for long-term investment incentives
Representative Office (KPPA or KP3A)
A representative office is suitable for investors who want to explore the market without commercial operations. Representative offices also provide a low-risk entry for market research or regional coordination.
Limitations:
- Cannot conduct sales or generate revenue
- Cannot issue invoices
- Limited to promotional, liaison, research, or management functions
Local PT with Nominee Arrangement
Some foreign investors explore nominee structures through local partners. However, nominee arrangements carry legal risks and are not aligned with Indonesian investment law. Instead of this structure, a PT PMA is always the safest and most compliant structure for foreign ownership.
What Foreign Investors Have to Keep in Mind Before Entering the Indonesian Market
Understanding how to start a business in Indonesia requires following a structured process:
Define Your Business Classification (KBLI Code)
Indonesia uses the KBLI (Standard Industrial Classification) to identify business activities. Accurate classification determines licensing requirements, ownership limitations, and sector-specific conditions.
Determine Ownership Structure
Foreign shareholders may be individuals or corporate entities. Ownership percentages depend on the Positive Investment List.
Establish the PT PMA
Company formation includes:
- Deed of establishment executed by a notary
- Ministry of Law and Human Rights approval
- Obtaining a Business Identification Number (NIB) through OSS RBA
- Applying for relevant licences (commercial, operational, and sectoral)
Meet Investment Plan Requirements
According to the new regulation No. 5 of 2025 issued by the Ministry of Investment (BKPM), PT PMAs must commit to a minimum:
- IDR 10 billion total investment per business line, and
- IDR 2.5 billion issued and paid-up capital
These rules apply regardless of business size or sector unless exemptions are granted for certain industries. Failure to meet capital requirements may result in licensing limitations or rejection of company establishment. Also all capital contributions must be traceable and documented.
Obtain Operational Licenses
Depending on the KBLI code, investors must secure:
- Standard certificates
- Technical licenses
- Regional permits
- Sector-specific approvals such as tourism, construction, trade, manufacturing, etc
Open a Corporate Bank Account
A corporate bank account is essential for depositing paid-up capital and managing daily business operations. It also supports proper financial tracking and ensures compliance with Indonesia’s tax obligations.
Submit Investment Activity Reports (LKPM)
Businesses must submit LKPM on a quarterly or semi-annual basis to report their investment progress. This requirement helps maintain compliance with BKPM monitoring and supports transparent investment oversight.
Licensing & Compliance Requirements
Foreign investors must comply with several regulatory obligations including:
- NIB (Business Identification Number) is mandatory for all companies
- Commercial or operational licenses are required before commencing activities
- Environmental compliance (AMDAL, UKL-UPL, or SPPL) for certain sectors
- Manpower reporting and employment data submissions
- Annual tax filings and financial reports
Non-compliance can result in administrative sanctions, suspension of licenses, or government audits.
Hiring Foreign Workers
Foreign workers may only be employed in positions permitted by the Ministry of Manpower. The hiring process involves:
- Expatriate Placement Plan (RPTKA)
Employers must apply for an RPTKA demonstrating the need for a foreign professional. Some categories of foreign directors or commissioners may be exempt.
- Work Permit (IMTA) and KITAS
The employment approval leads to the issuance of a Limited Stay Permit (KITAS) which authorizes foreign nationals to live and work in Indonesia.
Meanwhile the basic requirements for hiring foreign employees include:
- Must possess relevant expertise and demonstrate skills not easily available in Indonesia
- Must be employed in eligible positions
- Must undergo training or knowledge transfer programs where required
Keep in mind that the foreign workers cannot occupy roles involving:
- Manual labor
- Administrative positions
- Human resources functions
- Logistics handling and warehouse operations
Taxation Requirements
Businesses in Indonesia must follow national tax laws administered by the Directorate General of Taxes (DGT). Key taxes include:
Corporate Income Tax (CIT)
- Standard rate: 22%
- Incentives available for priority sectors or strategic investments
Value Added Tax (VAT)
- Standard rate: 11%, with plans to increase based on fiscal policies
- Applies to goods and services transactions within Indonesia
Withholding Taxes
Applies to payments such as dividends, royalties, service fees, and interest.
Payroll Taxes and Social Contributions
Employers must withhold income tax from employees and contribute to social security programs (BPJS).
Annual Tax Compliance
Companies must submit:
- Monthly and annual tax returns
- Financial statements
- Transfer pricing documentation (if applicable)
Starting a business in Indonesia offers substantial opportunities for foreign investors across diverse sectors. However, to successfully enter the country’s market, you have to understand its investment frameworks. That being the case, navigating how to start a business in Indonesia as a foreign investor becomes far more efficient with the right strategic partner like Watershore.
Partner With Watershore for a Smooth Market Entry Into Indonesia
Watershore provides end-to-end guidance that empowers businesses to unlock their full potential. Starting from entity setup and regulatory compliance to long-term operational optimization.
Our expert consultants at Watershore streamline processes, identify growth opportunities, and help minimize tax exposure while ensuring every requirement is met with accuracy.
With tailored solutions built around your specific goals, Watershore delivers a precise, reliable, and forward-thinking approach that supports sustainable expansion in the Indonesian market.
Partner with Watershore today and discover how our expertise can help you launch, scale, and maximize the value of your business investment in Indonesia.
Sources:
https:// www.cekindo.com/blog/faq-start-a-business-in-indonesia
https:// indonesia.acclime.com/guides/business-structures/
Image source:
https:// pixabay.com/photos/office-desk-table-business-laptop-8828993/