Hiring an Indonesian Lawyer to Set Up Your Company

Before commencing business in Indonesia, foreign investors must understand the distinction between a PT (Perseroan Terbatas, which refers to an Indonesian limited liability company) and a PT PMA (Penanaman Modal Asing, which refers to a foreign investment company). A PT is a standard domestic limited liability company available to Indonesian nationals, while a PT PMA is the corporate vehicle specifically required for companies with any degree of foreign ownership. Understanding this distinction and the broader regulatory environment is essential before entering the Indonesian market.

This article explains the key legal and regulatory considerations that foreign investors should be aware of when setting up a company in Indonesia, and discusses how engaging an experienced Indonesian lawyer early in the process can help businesses navigate Indonesia’s complex regulatory landscape efficiently, avoid common pitfalls, and position themselves for sustainable growth.

This article will cover the following topics:

• Why hiring an Indonesian lawyer matters
• Choosing the right business structure and assisting with company incorporation
• Determining whether your business activity is open to foreign investment
• Selecting the correct business classification
• Licensing and ongoing compliance obligations

Why Does Hiring an Indonesian Lawyer Matter?

Many foreign investors view legal advice primarily as a compliance cost, i.e., a necessary expense to satisfy regulatory requirements. However, in Indonesia’s dynamic regulatory environment, engaging experienced Indonesian legal counsel should be viewed as an investment in reducing uncertainty and protecting the business from the outset. An experienced Indonesian lawyer does far more than file paperwork; they provide commercially focused advice that directly supports informed decision-making and sustainable market entry.

Specifically, an experienced Indonesian lawyer helps businesses to:

• Navigate Indonesia’s evolving regulatory landscape with greater certainty. Indonesian business regulations have undergone substantial reform in recent years, most significantly through the Omnibus Law (Job Creation Law) and its implementing regulations. The main features of the Omnibus Law are that it expands the sectors of business activities that foreign investors can participate in, clarifies capital thresholds, and introduces a more streamlined and predictable licensing process through the Online Single Submission (OSS) system. A lawyer who monitors these developments ensures the business remains compliant with current requirements.
• Provide practical, commercially focused advice that supports both market entry and long-term business growth. Rather than simply identifying legal requirements, experienced counsel are able to advise investors on how they can comply with their regulatory obligations whilst still pursuing their broader commercial strategy. For example, a foreign investor may wish to enter the markets of multiple industries. However, as explained below, for some industries, foreign investors are only able to participate during subsequent business expansion, and not in the establishment phase. As such, the lawyer will be able to advise the investor on how to stagger its entry into the market for the different industries.

In short, legal advice should be viewed not merely as a compliance exercise, but as a strategic investment that reduces uncertainty, protects the business, and positions the investor for success in a complex and evolving market.

Choosing the Right Business Structure and Assisting with Company Incorporation

One of the greatest values an Indonesian lawyer provides is ensuring that the business is structured appropriately from the outset. The choice of business structure has significant implications for foreign ownership rights, capital requirements, permissible business activities, tax treatment, and the ability to raise funding or expand operations in the future. An incorrect structural decision made at incorporation can be difficult and expensive to undo.

An Indonesian lawyer can help foreign investors to:

• Evaluate the most suitable investment structure based on the investor’s commercial objectives, stage of business, and risk appetite. For example, an investor seeking to test the Indonesian market before committing substantial capital may initially prefer a representative office (Kantor Perwakilan Perusahaan Asing, or KPPA), while an investor ready to establish a full commercial presence would typically require a PT PMA.
• Understand the advantages and limitations of different structures. The principal options available to foreign investors include a PT PMA (the standard vehicle for foreign-owned businesses), joint ventures with Indonesian partners (required where 100% foreign ownership is not permitted), representative offices (for market research and liaison purposes only, and these cannot engage in commercial activities directly), and holding structures for investors with operations across multiple Indonesian entities or sectors.
• Avoid selecting a structure that may later restrict expansion, fundraising, or operational flexibility. For instance, establishing a PT PMA with overly narrow KBLI codes (discussed below) may prevent the company from expanding into related business lines without a time-consuming amendment process.
• Establish the company efficiently while ensuring all legal requirements are properly satisfied. Indonesian company law requires compliance with specific procedures at incorporation, and failure to satisfy these can delay or invalidate the establishment of the company.

Beyond advising on structure, Indonesian lawyers also manage the incorporation process itself. This includes company name reservation (which must be approved by the Ministry of Law and Human Rights), preparation and notarisation of the company’s deed of establishment (akta pendirian), obtaining regulatory approvals, registration with the OSS system, and submitting licence applications. These steps should be viewed not as isolated administrative tasks, but as supporting the broader objective of establishing the business correctly from day one.

From a practical standpoint, foreign investors should be aware of several key Indonesian company law requirements. For a PT PMA, the minimum paid-up capital is IDR 2.5 billion (approximately USD 150,000). The company must have a registered address in Indonesia, and its deed of establishment must be executed before an Indonesian notary and approved by the Ministry of Law and Human Rights. These requirements differ substantially from Singapore’s comparatively straightforward incorporation process, and the involvement of Indonesian legal counsel ensures they are navigated correctly.

Determining Whether Your Business Activity is Open to Foreign Investment

Not every business activity in Indonesia is open to foreign investment. Certain sectors are subject to foreign ownership restrictions, conditions, or outright prohibitions under Indonesian law. Investors who fail to verify the investment eligibility of their intended business activities before committing resources risk pursuing structures that may ultimately be unavailable. This results in wasted time, capital, and commercial momentum.

Obtaining early advice on investment eligibility provides significant commercial value:

• It prevents investors from pursuing structures that may ultimately be unavailable, saving both time and legal costs.
• It reduces the risk of investing time and capital into an unviable business model. For example, by identifying that a particular retail format requires a local partner before the investor has committed to premises or staff.
• It allows businesses to adjust their investment strategy before significant costs have been incurred. For example, by modifying the proposed ownership structure, selecting an alternative business activity, or restructuring through a joint venture.
• It provides greater confidence when planning market entry, enabling the investor to proceed knowing that the proposed structure is legally sound.

Selecting the Correct Business Classification

One of the most technically complex, yet frequently underestimated, aspects of establishing a business in Indonesia is the selection of appropriate KBLI codes (Klasifikasi Baku Lapangan Usaha Indonesia, which is the Indonesian Standard Industrial Classification). KBLI codes are 5-digit classification codes that determine what business activities a company is legally permitted to engage in, and they have far-reaching regulatory consequences that extend well beyond administrative categorisation.

Selecting the appropriate KBLI codes directly affects:

• Foreign investment eligibility: Whether the business activity is open to foreign ownership, and if so, under what conditions or ownership caps.
• Licensing obligations: What permits, approvals, or certifications the company must obtain before commencing operations.
• Regulatory oversight: Which government ministries or agencies will supervise the company’s activities.
• Permitted business activities: The scope of commercial operations the company may lawfully conduct.
• Future expansion opportunities: Whether the company can diversify into related business lines without requiring a formal amendment to its deed of establishment and re-registration.

The KBLI was updated in 2025 and replaced the previous business classification from 2020. Under the 2025 KBLI, the OSS system can now automatically check for inconsistencies between a company’s selected KBLI classification and its licensing requirements, which may result in potential compliance consequences, including investigations where appropriate. An incorrect KBLI classification can also lead to significant operational and commercial consequences. An incorrectly classified company may experience:

• Licensing delays: Where the OSS system rejects licence applications due to mismatched codes.
• Restrictions on operations: Where the company cannot obtain the permits necessary to conduct its intended activities.
• Regulatory investigations: Where authorities identify discrepancies between the company’s registered activities and its actual operations.
• Costly amendments after incorporation: Requiring notarial deed amendments, re-registration, and potentially new licence applications.

For example, a technology company that intends to provide both software development services and data hosting services would need to ensure that both activities are covered by the appropriate KBLI codes. If the company only registers codes for software development, it may be unable to obtain the data centre or electronic system operator licences required for its hosting services, potentially forcing a costly and time-consuming amendment process.

An experienced Indonesian lawyer adds significant value in this area by aligning the company’s intended commercial activities with the most appropriate regulatory classifications. This involves not only understanding the company’s current business plan, but also anticipating future operational needs and selecting codes that provide sufficient flexibility for growth without triggering unnecessary regulatory obligations.

Licensing and Ongoing Compliance Obligations

Once a company has been established and its KBLI codes determined, the next critical step is obtaining the appropriate business licences. Indonesia operates a risk-based licensing system administered through the OSS system, a digital platform that serves as the primary gateway for business licensing in Indonesia.

Under the risk-based licensing framework introduced by Government Regulation No. 5 of 2021, business activities are classified into four risk categories, each carrying different licensing requirements:

• Low risk: The company’s NIB (Nomor Induk Berusaha, which is the Business Identification Number) serves as the business licence. No additional permits are required.
• Medium-low risk: The company must submit a self-declaration (pernyataan standar) confirming compliance with applicable standards, in addition to holding an NIB.
• Medium-high risk: The company must obtain a standard certificate (sertifikat standar) through either self-declaration or third-party verification, depending on the specific activity.
• High risk: The company must obtain a full licence (izin) from the relevant government ministry or agency, which typically involves a substantive review and approval process.

The NIB itself functions as a company’s basic business identification and is issued automatically through the OSS system upon registration. However, the NIB alone does not authorise a company to commence all business activities. Sector-specific permits may still be required depending on the nature of the company’s operations. For example, a food manufacturing company would need to obtain halal certification and food safety permits from BPOM (the National Agency of Drug and Food Control) in addition to its NIB and standard business licence.

Beyond initial licensing, foreign-invested companies in Indonesia are subject to a range of ongoing compliance obligations, including:

• Investment Activity Reports (LKPM): PT PMA companies must submit quarterly LKPM reports to BKPM (the Investment Coordinating Board, now under the Ministry of Investment) detailing the status of their investment activities, employment figures, production outputs, and other operational metrics.
• Annual tax filings: Companies must file annual corporate income tax returns with the Directorate General of Taxes, as well as monthly VAT returns and employee income tax withholding reports.
• Company secretarial obligations: These include maintaining proper corporate records, holding annual general meetings of shareholders, filing annual reports with the Ministry of Law and Human Rights, and ensuring that the company’s registration details (directors, shareholders, registered address) remain current.
• Sector-specific reporting: Depending on the company’s industry, additional reporting obligations may apply. For example, environmental impact reporting for manufacturing companies, or prudential reporting for financial services firms.

Failure to comply with ongoing obligations can result in sanctions ranging from administrative warnings, to the suspension or even revocation of business licences. An Indonesian lawyer helps ensure that the business remains compliant after incorporation by establishing internal compliance systems, monitoring regulatory changes, preparing and filing required reports, and advising on any remedial steps needed to address compliance gaps.

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Setting up a company in Indonesia offers significant commercial opportunities, but foreign investors must navigate a range of complex legal and regulatory issues. These range from investment eligibility and corporate structuring, to KBLI classification, licensing, corporate governance, and ongoing compliance. Each of these areas carries its own requirements, and mistakes at any stage can result in delays, financial penalties, or restrictions on the company’s ability to operate.

Engaging an experienced Indonesian lawyer from the outset helps ensure that the business is established on a sound legal footing, minimises regulatory risk, and supports sustainable growth. Legal counsel provides not only technical regulatory expertise, but also practical, commercially focused guidance that helps investors make informed decisions at every stage of the market entry process.

If you require further advice or guidance on setting up a company in Indonesia, you may wish to contact ACLAW. The firm advises foreign investors, multinational corporations, and international businesses entering the Indonesian market, providing in-depth knowledge of Indonesian law combined with commercially focused advice tailored to the needs of international clients. Whether you are at the early planning stage or ready to proceed with incorporation, ACLAW can guide you through each step of the process with clarity and confidence.