Starting a Foreign-Owned Business in Indonesia: Important FAQs

Incorporating a company in Indonesia is an exciting opportunity, especially for global investors seeking growth in an expanding economy. Although Indonesia offers vast potential, setting up a company in Indonesia requires navigating regulatory frameworks and complying with the country’s specific legal processes.

Indonesia’s investment climate means rules and procedures are frequently updated. Staying informed and compliant is essential to avoid unnecessary delays or setbacks.

This guide addresses the most important questions foreign entrepreneurs ask before launching their business in Indonesia, helping you build with confidence and clarity.

Indonesia at a Glance

Important FAQs Related to Starting a Foreign-Owned Business in Indonesia

 

1. What are Some Key Considerations Before You Start Your Business in Indonesia?

Before you set up company in Indonesia it is essential to understand that the country has unique legal, regulatory, and cultural dynamics that directly impact how foreign businesses operate. Proper planning at this stage can save time, money, and compliance issues later.

Below are some of the key factors you must consider before beginning your incorporation process in Indonesia:

 

1. Check Industry Restrictions

Some sectors have restrictions on foreign investment. Refer to Indonesia’s Positive Investment List to verify if your business is permitted and whether a local partner is needed.

 

2. Choose a Legal Structure

Your main options are:

PT PMA: Fully or partially foreign-owned limited liability company.

Representative Office: Allows market research and promotion, but no commercial activities.

Local PT (PMDN): Domestic limited liability company for citizens or joint ventures.

 

3. Meet Capital Requirements

For a PT PMA, a minimum authorised capital of IDR 10 billion is required, with at least 25 % paid-up. For some visas (e.g., Investor KITAS), a minimum investment of IDR 10 billion (≈ approximately USD 620,000–1,000,000) is also required.

 

4. Observe Local Regulations

– Register your company online via the OSS system, which includes obtaining your company name, Deed of Incorporation, legal approval, Tax ID (NPWP), Business ID (NIB), and any necessary licenses.
– Some sectors (e.g., mining, real estate, finance) may require additional approvals beyond OSS.

 

5. Select Your Location and Office Type

Choose your office based on business needs and industry regulations, with industrial zones reserved for production-based companies and representative offices in major urban centers.

 

6. Hire the Right Talent

Indonesia has a large and young workforce, but skill levels vary significantly across different regions. Hiring foreign staff requires demonstrating a need and pairing them with local employees for knowledge transfer.

2. Why do foreigners choose Indonesia to set up their company?

Indonesia is a strategically located country in Southeast Asia, offering access to regional markets. Its strategic in Singapore, Malaysia, and Australia.

• It is a growing economy with increasing consumer demand and infrastructure improvements.
• It offers investment incentives, which include tax breaks, exemptions, and Special Economic Zones (SEZs).
• Indonesia enhances the ease of doing business through online licensing (OSS), thereby reducing bureaucracy.
• English-friendly business environment and access to land under specific regulations.

 

3. Which Sectors in Indonesia Restrict Foreign Ownership?

Indonesia has identified specific industries where foreign ownership is either restricted or entirely prohibited. These restrictions are usually imposed to protect local industries, preserve cultural integrity, or ensure public interest in critical sectors.

 

Industries closed to foreign investors include:

• Media and broadcasting (TV, radio, print)
• Traditional retail businesses (such as small local shops or minimarts)
• Education services (particularly formal institutions)
• Maritime and fisheries in certain zones
• Transportation and logistics services involving public safety
• Agricultural businesses in specific regions
• Weapons, ammunition, and defence-related industries
• Gambling, casinos, and other activities are deemed unethical.

 

In restricted sectors, foreign investors may be allowed to hold a minority stake, typically up to 49% or 67%, while an Indonesian citizen or company must have majority ownership. In closed sectors, foreign participation is entirely prohibited.

 

4. What is the Time Limit to Start a Business in Indonesia?

It takes one to three months to set up your business in Indonesia. Although there is no strict deadline by which one should start the company, there are regulatory expectations you should be aware of before you start the incorporation.

• Company Name Reservation – 1-3 Working days
• Deed of Incorporation- 3-5 Working days 
• Legal Approval from Ministry of Law- 3-5 Working days
• Tax ID issuance- 2-5 working days

You should consider planning your launch within 2-3 months after setup.

5. What are the Steps to Launch Your Business in Indonesia?

If you are ready to start your business in Indonesia, here are the essential steps involved:

 

1. Select a Company Name:

Your business name must contain at least three unique words. While local companies are required to use the Indonesian language, foreign-owned companies (PT PMA) are allowed to use names in English or other foreign languages.
To reserve the name, apply through the Ministry of Law and Human Rights Legal Entity Information System.

 

2. Appoint Key Company Personnel:

Indonesian law requires at least two shareholders, one director, and one commissioner. While local companies are required to have Indonesian shareholders, PT PMAs permit foreign ownership.

 

3. Prepare and Submit Legal Documents:

With the help of a notary, draft the Articles of Association, which should include:

• Capital structure (authorised, issued, and paid-up)
• Company objectives
• Registered office address
• Board structure
• Shareholder rights and obligations
• Incorporation period

These documents must be signed by all shareholders and submitted to the Ministry of Law and Human Rights for approval.

 

4. Obtain a Domicile Letter:

Outside Jakarta, businesses must get a domicile certificate from the local district government (Surat Keterangan Domisili Perusahaan) to confirm the company’s registered address.

 

5. Register for a Taxpayer ID (NPWP):

A company must register with the Indonesian Tax Office to obtain a Taxpayer Identification Number (NPWP), which is necessary for tax reporting, license applications, and opening a corporate bank account.

 

6. Apply for a Business Identification Number (NIB):

Register through the OSS (Online Single Submission) platform to get your NIB. This 13-digit number serves as your company’s unique identifier and is required for obtaining operational permits and conducting lawful business activities.

 

6. How to Obtain a Domicile Letter in Indonesia?

A Domicile Letter is an official document issued by the local government office that confirms the physical address of your business in Indonesia.

It is one of the mandatory requirements for company registration, especially during the early stages when setting up a PT PMA (foreign-owned company) or a local PT. This letter acts as proof that your business operates at a valid and approved location.

To obtain a domicile letter in Indonesia:

• Lease or rental agreement (or virtual office agreement)
• Building permit (IMB) or function certificate (SLF) for the property
• Letter of permission from the property owner (if applicable)
• Company documents—Deed of Establishment, ID of director/shareholder
• Submit to kelurahan or the local office where the business address is located

Processing time: Usually takes 3–5 working days, depending on the district.

7. Why Is a Domicile Letter Important When Starting a Business in Indonesia?

A Domicile Letter (Surat Keterangan Domisili Perusahaan) is one of the essential documents needed during the early stages of setting up a company in Indonesia. Issued by the local sub-district office, it serves as official confirmation of your business’s registered address.

This document plays a crucial role in several legal and administrative processes, including:

 

1.Company Incorporation

It is one of the required documents when applying for business establishment through the Ministry of Law and Human Rights.

 

2.Tax ID (NPWP) Registration

To obtain a corporate taxpayer number, a domicile letter must be presented to the tax office.

 

3.OSS Registration

Registering your business on the Online Single Submission system, which is Indonesia’s integrated licensing platform, also requires this letter.

 

4.Opening a Corporate Bank Account

Banks typically ask for a domicile letter to verify your company’s physical address before allowing you to open an account.

 

5.License Applications

Various sectoral licenses, including operational and commercial licenses, may not be issued without proof of a valid business address.

 

6.Legal Recognition in a District or City

It formally affirms your business’s existence and presence within a specific region, which is important for regulatory and local compliance.

 

8. What are the Capital Requirements for Starting a Foreign-Owned Business in Indonesia?

To establish a PT PMA, Indonesia has specific minimum capital requirements to ensure that foreign investment generates significant value to the economy.

 

1. Minimum Capital Requirement:

The minimum total investment required to set up a PT PMA is

IDR 10 billion (approximately USD 650,000–700,000), including fixed and working capital.
This amount reflects the government’s intention to attract serious and long-term investors. It applies per business activity, so if your company engages in multiple activities (under different KBLI codes), the capital may need to be adjusted accordingly.

 

2. Paid-Up Capital Requirement:

Out of the IDR 10 billion investment, at least 25% must be paid upfront and shown as paid-up capital during incorporation. This means you must deposit:

IDR 2.5 billion (approximately USD 160,000–180,000) into your Indonesian corporate bank account.

This paid-up capital is recorded in the Deed of Establishment and must be verifiable through a bank statement or a notary declaration, depending on the type of business and the district’s requirements.

 

9. Are there any Exceptions to the Capital Requirements in Indonesia?

The capital requirement can vary based on:

 

1. Business Sector:

Some small-scale or service-based businesses may be permitted to operate with lower investment if they are not classified as high-risk or subject to regulation.
Certain sectors, such as fintech, mining, healthcare, or energy, may have higher capital thresholds or additional financial requirements.

 

2. Business Location:

Companies operating in Special Economic Zones (SEZs) or under government incentive programs may be eligible for capital requirement relaxations or tax benefits.

 

3. Indonesian Partners:

If you choose to partner with a local investor and establish a local PT (not a PT PMA), the capital requirement can be significantly lower, typically starting from IDR 50–100 million (~USD 3,000–7,000). However, this limits your ownership and may not be legal for fully foreign-controlled businesses.

10. What is the Positive Investment List in Indonesia?

The Positive Investment List is a policy document that replaced Indonesia’s old Negative Investment List. It is a key tool used by the government to guide and regulate foreign investment in the country.

This list divides all business activities into four categories:

• Open for 100% foreign ownership.
• Open with certain conditions (e.g. ownership limits or mandatory local partnerships)
• Reserved for small and medium-sized enterprises (SMEs)
• Completely closed to foreign investment

The list was designed to create a more investor-friendly environment while protecting key sectors that are important for national interests. It plays a vital role in helping investors understand where and how they can operate in Indonesia. Before starting a business, it’s highly recommended that foreign investors check whether their business activity is on the list and if there are any restrictions.

 

11. What are Some Common Mistakes to Avoid When Starting a Business in Indonesia?

• Underestimating bureaucracy and capital requirements: Many foreign investors assume that incorporating a company in Indonesia is quick and straightforward. However, navigating through Indonesia’s regulatory framework can be complex, especially when dealing with different government agencies (e.g., BKPM, Ministry of Law, OSS system)

 

• Choosing the wrong location or changing it later: Indonesia is an archipelago with wide regional differences in regulation, cost, and infrastructure. Establishing your business in the wrong area can lead to logistical, legal, and tax complications, especially if you are in sectors requiring specific zoning, like manufacturing or logistics.

 

• Neglecting ongoing compliance (tax filing, licensing): Setting up is just the beginning. Many companies falter when they miss key post-incorporation obligations, such as:

1. Monthly and annual tax filings
2. Reporting to the OSS system
3. Renewing sector-specific licenses
4. Submitting financial reports (in Bahasa Indonesia)

Conclusion—How Can We Help?

Starting a business in Indonesia offers significant potential, but understanding the local regulations, capital requirements, and licensing procedures is crucial. With the proper support, you can launch smoothly and grow confidently.

At 3E Accounting Indonesia, we provide comprehensive assistance, from company registration and paid-up capital setup to legal advisory services, tax registration, and ongoing compliance.

Let us handle the complexities so you can focus on building your business.