Entering the Indonesian market involves more than establishing a company. Once incorporated, a business must also navigate the business license framework that determines whether and how it can legally carry out its activities.
For foreign investors and international companies, this can be one of the more technical parts of setting up a business in Indonesia. The licensing requirements depend not only on what a company does, but also on how that activity is classified and the level of risk associated with it.
Indonesia’s current system follows a Risk-Based Approach (RBA), which was further reinforced by Government Regulation (PP) No. 28 of 2025 on the Implementation of Risk-Based Business Licensing. Under this framework, different business activities can trigger different licensing and compliance obligations.
Here are three factors companies should understand before applying for their business licences.
Understanding PP No. 28 of 2025
PP No. 28 of 2025 strengthens Indonesia’s Risk-Based Business Licensing (Perizinan Berusaha Berbasis Risiko/PBBR) framework.
Rather than applying one licensing requirement to every company, the Government assesses individual business activities according to their potential risks. The assessment considers the nature of the activity, the scale of the business and the potential hazards associated with its operations.
For businesses, this means that licensing should not begin with simply asking, “Which permit do we need?” The better starting point is to establish exactly what the company will do, how it will do it and at what scale.
3 Key Factors That Determine Business Licensing
1. Risk Level of the Business Activity
The risk level attached to a business activity is one of the main factors determining its licensing requirements.
Under PP No. 28/2025, risk is assessed by considering factors including the potential harm associated with an activity, the likelihood of that harm occurring and its possible impact.
The assessment generally involves:
- Identifying the business activity;
- Identifying the business scale;
- Assessing potential hazards; and
- Assessing the likelihood of those hazards occurring.
Based on this assessment, activities are generally categorised as low, medium-low, medium-high or high risk.
The higher the risk, the more requirements a business may need to fulfil before it can fully commence operations.
2. Choosing the Correct KBLI
The Klasifikasi Baku Lapangan Usaha Indonesia (KBLI), or Indonesian Standard Industrial Classification, provides the classification for economic activities based on the goods or services produced.
KBLI selection is therefore more than an administrative formality. It helps establish what a company is legally registered to do and can influence the licences, standards and approvals applicable to its operations.
Each business activity may also be subject to different Norms, Standards, Procedures and Criteria (NSPK) depending on its sector and the relevant government authority.
For foreign investors establishing a company in Indonesia, choosing the appropriate KBLI from the outset can help prevent licensing complications later.
3. Understanding Business Scale
Business scale is another consideration within Indonesia’s risk-based licensing framework.
The applicable classification is determined in accordance with regulations concerning the facilitation, protection and empowerment of cooperatives and micro, small and medium enterprises (MSMEs).
Further provisions concerning business scale and Risk-Based Business Licensing are regulated under Minister of Investment and Downstreaming/BKPM Regulation No. 5 of 2025.
For companies, correctly identifying business scale alongside the relevant KBLI and activity is important because these elements contribute to determining the licensing obligations that apply.
How Risk Level Determines Your Business Licence
Once the business activity, KBLI and business scale have been identified, the relevant risk level can be determined.
Under PP No. 28/2025, the general structure is:
| Risk Level | Business Licensing Requirement |
| Low Risk | Business Identification Number (NIB) |
| Medium-Low Risk | NIB + Standard Certificate |
| Medium-High Risk | NIB + Standard Certificate, subject to verification |
| High Risk | NIB + Business Licence (Izin) |
For low-risk activities, the NIB serves as the principal business identification and legal basis for conducting the activity. Higher-risk businesses may need to satisfy additional standards, approvals or licences before beginning full operations.
This is why obtaining an NIB should not necessarily be viewed as the end of the licensing process. Depending on the company’s activities, further sector-specific compliance may still be required.
The Business Licensing Process in Indonesia
The framework can be simplified into a straightforward sequence:
Business Activity → KBLI → Business Scale → Risk Assessment → Risk Level → Required Licence
For foreign investors and companies expanding into Indonesia, getting this sequence right at the beginning can make a significant difference. An incorrect business classification may result in additional applications, amendments or delays when the company is already preparing to operate.
More importantly, corporate compliance does not end when the licence is issued. Businesses must continue to maintain the relevant standards, reporting requirements and permits throughout their operations.
Register Your Trademark with LMI Consultancy
Business licensing is only one part of establishing a compliant commercial presence in Indonesia. For companies launching a new brand, protecting the name, logo or other distinctive elements of the business should also form part of the market-entry strategy.
LMI Consultancy assists foreign investors and businesses with Immigration Consultation, Legal and Business Setup Consultation, and Tax Consultation in Indonesia and ASEAN. Our support can extend from establishing and licensing a business to protecting the intellectual property behind it.
