Indonesia has emerged as one of Southeast Asia’s most compelling destinations for foreign direct investment. With a population exceeding 270 million, a rapidly expanding middle class, abundant natural resources, and competitive labour costs, the country continues to attract multinational companies, regional groups, and foreign entrepreneurs seeking long-term growth in ASEAN.
For a foreign company in Indonesia, however, market potential must be matched with regulatory precision. Indonesia maintains a structured investment regime that differentiates sharply between foreign and domestic entities, imposes sector-based ownership rules, and requires strict compliance across corporate, tax, and manpower regulations. The principal legal vehicle through which foreign investors may conduct commercial activities is the Perseroan Terbatas Penanaman Modal Asing (PT PMA).
This article provides a comprehensive, investor-focused overview of how a foreign company can be established in Indonesia through a PT PMA. It outlines the legal framework, sector restrictions, capital requirements, licensing procedures, governance obligations, and strategic considerations that foreign investors should evaluate before entering the Indonesian market.
Understanding the Concept of a Foreign Company in Indonesia
From a regulatory perspective, Indonesia does not recognise a “foreign company” operating directly within its territory without localisation. Any foreign individual, foreign corporation, or foreign government body intending to conduct profit-generating activities in Indonesia must do so through an Indonesian legal entity.
Under Law No. 25 of 2007 on Investment, foreign investment is defined as investment activities conducted by foreign investors for the purpose of carrying out business within Indonesia’s jurisdiction. In practice, this means that a foreign company must establish or acquire an Indonesian-incorporated entity, most commonly a PT PMA, to legally engage in commercial operations.
The PT PMA is regulated primarily under Law No. 40 of 2007 on Limited Liability Companies and is treated as an Indonesian legal entity, notwithstanding its foreign ownership.
PT PMA as the Primary Vehicle for Foreign Investment
A PT PMA is the only corporate structure that allows a foreign company in Indonesia to:
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Generate revenue locally
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Issue invoices and receive payments
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Employ staff directly
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Enter into commercial contracts
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Hold operational licences
A PT PMA may be:
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Wholly foreign-owned, or
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Partially foreign-owned, depending on sectoral restrictions
It is important to distinguish a PT PMA from a Representative Office (KPPA). While a representative office may be used for market research, liaison activities, or coordination, it is strictly prohibited from engaging in sales, revenue generation, or operational activities.
Key Strategic Question: PT PMA or Representative Office?
Before entering Indonesia, foreign investors should address two foundational questions.
1. Will the foreign company generate revenue in Indonesia?
If the answer is yes, whether through sales, services, or commercial transactions, a PT PMA is mandatory. Representative offices are limited to non-commercial activities and cannot issue invoices or sign revenue-generating contracts.
2. Is the intended business sector open to foreign investment?
Not all sectors in Indonesia are fully open to foreign ownership. This assessment must be completed before incorporation to avoid costly restructuring later.
Sector Restrictions and Foreign Ownership Rules
Indonesia regulates foreign participation through a sector-based framework administered by the Indonesia Investment Coordinating Board (BKPM), now operating through the Online Single Submission (OSS) system.
Historically governed by the Negative Investment List (Daftar Negatif Investasi), sector restrictions are now embedded in successive presidential regulations that define:
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Fully open sectors
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Conditionally open sectors
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Sectors reserved for domestic enterprises
Where a sector is conditionally open, the regulation specifies the maximum percentage of foreign ownership permitted. In such cases, a foreign company in Indonesia must partner with a local Indonesian shareholder to meet ownership thresholds.
Sector eligibility should always be reviewed prior to investment, as the list is subject to periodic revision and policy recalibration.
Establishment Routes for a Foreign Company in Indonesia
Foreign investors may establish their presence in Indonesia through one of two primary routes:
1. Incorporating a New PT PMA
This involves establishing a new Indonesian legal entity from inception, including shareholder structuring, capital commitments, licensing, and tax registration.
2. Acquiring an Existing Company
A foreign investor may acquire:
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An existing PT PMA, or
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A locally owned PT, which must then be converted into a PT PMA
Acquisition may reduce setup timelines but requires extensive legal and tax due diligence, particularly around historical liabilities.
Licensing and Regulatory Process
The incorporation and licensing of a foreign company in Indonesia is administered through BKPM and coordinated across multiple government institutions. While regulatory reforms have improved transparency, the process remains procedurally complex, particularly for first-time investors.
In general, the establishment of a PT PMA involves the following stages:
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Investment approval and business licensing
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Notarial establishment of the company
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Legalisation by the Ministry of Law and Human Rights
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Tax and corporate registrations
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Manpower and reporting obligations
Although timelines vary by sector, a standard PT PMA setup typically requires eight to ten weeks, excluding sector-specific licences.
Core Licences and Registrations for a PT PMA
While requirements vary depending on industry, a foreign company in Indonesia will typically require:
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Business identification and licensing through BKPM/OSS
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Deed of Establishment and Articles of Association
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Legal entity approval from the Ministry of Law and Human Rights
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Domicile registration
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Tax Identification Number (NPWP) and VAT registration (if applicable)
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Company registration and reporting credentials
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Manpower and employment compliance filings
Certain industries, such as financial services, energy, healthcare, or logistics, require additional operational licences and approvals.
Corporate Governance and Shareholding Structure
Indonesian company law requires a PT PMA to have:
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A minimum of two shareholders
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A Board of Directors
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A Board of Commissioners
At least one shareholder must be a foreign individual or foreign legal entity. Directors are responsible for day-to-day operations, while commissioners exercise supervisory oversight.
Where foreign directors reside and work in Indonesia, they must obtain appropriate immigration permits and register for personal tax compliance.
Deed of Establishment and Articles of Association
The Deed of Establishment is a foundational legal document that must be executed before a licensed Indonesian notary and subsequently approved by the Ministry of Law and Human Rights.
It includes detailed information on:
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Founders and shareholders
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Share capital structure
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Directors and commissioners
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Corporate purpose and activities
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Governance provisions
Accuracy at this stage is critical, as amendments post-establishment require formal approvals and incur additional time and cost.
Capital Requirements for a Foreign Company in Indonesia
Indonesia imposes minimum capital thresholds for PT PMA entities to ensure that foreign investment is substantive and aligned with national economic objectives.
The current minimum investment requirement is:
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IDR 10 billion per business classification
Of this amount, at least 25% (IDR 2.5 billion) is typically required as paid-up capital. In practice, many sectors allow capital commitments to be declared via a capital statement rather than immediate cash injection, although this is not permitted in regulated industries such as banking or insurance.
Capital structuring should be assessed carefully, as it affects licensing eligibility, banking relationships, and future expansion.
Tax and Employment Considerations
Once operational, a foreign company in Indonesia is subject to ongoing compliance obligations, including:
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Corporate income tax reporting
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VAT and withholding tax compliance
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Employee payroll tax
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Annual corporate and individual tax filings
Foreign directors and expatriate employees who qualify as Indonesian tax residents must register for personal tax identification and comply with annual reporting requirements.
Risks and Common Challenges for Foreign Investors
Foreign investors frequently encounter challenges such as:
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Misalignment between business plans and sector regulations
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Inadequate capital planning
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Delays in licensing approvals
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Inconsistent documentation across authorities
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Immigration and manpower compliance gaps
These risks can result in operational delays, penalties, or forced restructuring if not managed proactively.
The Value of Professional Advisory Support
Establishing a foreign company in Indonesia is not merely an administrative exercise. It requires coordination across legal, tax, investment, and manpower frameworks, each governed by distinct authorities and evolving policies.
Professional advisory support provides:
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Regulatory interpretation aligned with current practice
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Risk-based structuring from inception
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Efficient engagement with authorities
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Long-term compliance planning
How LMI Consultancy Supports Foreign Companies in Indonesia
LMI Consultancy provides integrated advisory services for foreign investors entering and operating in Indonesia and ASEAN, covering:
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PT PMA establishment and licensing
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Foreign ownership structuring
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Tax registration and compliance
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Immigration and expatriate advisory
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Ongoing corporate secretarial support
By combining legal, tax, and business advisory under one platform, LMI Consultancy enables foreign companies to focus on growth while maintaining regulatory certainty.
Expand Your Business to Indonesia Now
Indonesia remains a high-potential but highly regulated market. For a foreign company in Indonesia, success depends not only on commercial opportunity, but on regulatory readiness and compliance discipline.
A PT PMA provides the legal foundation for sustainable operations, but its establishment requires careful planning, sector analysis, and professional execution. With the right structure and advisory support, foreign investors can navigate Indonesia’s regulatory environment confidently and position their businesses for long-term success.
For tailored guidance on establishing and managing a foreign company in Indonesia, LMI Consultancy stands ready to support your market entry and expansion strategy.
