Yes, but only in sectors fully open under the Positive Investment List.
Thinking of building a business in Indonesia? Indonesia’s rapidly growing economy, rich resources, and strategic location make it a magnet for foreign and local investors. But here’s the kicker: establishing a company in Indonesia isn’t just about having capital or a solid business idea. There are common — and often costly — mistakes that even seasoned investors make.
This article unpacks the key mistakes to avoid when establishing a company in Indonesia, based on legal insight, on-ground practice, and real-world experience. Whether you’re a startup founder, a corporate investor, or an overseas entrepreneur, this guide is your legal playbook for building a compliant and successful business in Indonesia.
Indonesia ranks among Southeast Asia’s top destinations for investment. With over 270 million people and a government open to foreign direct investment (FDI), the potential is massive. But it also comes with a complex legal and regulatory framework.
New investors often underestimate the bureaucratic intricacies involved. Indonesian business regulations are governed by the Investment Law (Law No. 25 of 2007), the Omnibus Law (Law No. 6 of 2023), and sectoral regulations.
Here’s the truth: success in Indonesia starts with understanding the law — and avoiding costly missteps from day one.
Choosing the right legal structure is the foundation of your operations. Many investors go wrong right here.
PT PMA vs. PT PMDN: Know the Difference
Some foreign investors try to register a PT PMDN by using nominee Indonesian shareholders to get around restrictions. That’s risky and illegal under Indonesian law. The government is cracking down on such structures.
Always align your business type with your actual ownership structure to avoid being flagged by BKPM (Indonesian Investment Coordinating Board).
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This is one of the top key mistakes to avoid when establishing a company in Indonesia. The minimum paid-up capital for a PT PMA is IDR 10 billion (approx. USD 650,000).
Some investors attempt to “simulate” this capital without really injecting it:
Indonesia’s Positive Investment List (Presidential Regulation No. 10 of 2021) specifies which sectors are open to foreign ownership.
Mistakes often happen when investors start operations in a sector that is:
Conduct a legal review of the investment list or consult a law firm before deciding your business sector.
Whether you’re setting up from scratch or acquiring an existing business, failure to perform due diligence can lead to:
Engage a legal expert to perform a tax and legal diagnostic review before you proceed.
Indonesia operates under the Online Single Submission (OSS) system. Yet, many companies:
This leads to revoked NIBs (Business Identification Numbers) or heavy fines from the Ministry of Trade, BKPM, or regional governments.
Thus, it is advisable to match your KBLI code with the actual business you intend to run. One wrong code could invalidate your business license.
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Certain industries — especially in construction, mining, manufacturing, and telecommunications — require compliance with local content requirements (TKDN).
Failure to comply leads to:
In restricted sectors, foreign investors may consider using an Indonesian nominee. But this is very risky if not structured properly.
Thus, it is advisable that a nominee structure must involve legal safeguards:
Always consult a professional law firm. Illegal nominee arrangements may be declared null and void.
Indonesia has a rigid labor framework under Law No. 13 of 2003, as revised by the Omnibus Law.
Common labor-related mistakes include:
This can lead to labor disputes, lawsuits, or government sanctions.
Every company in Indonesia must:
Failure to do so may lead to tax audits, fines, and even business closure.
Ensure you engage a tax consultant to assist with your setup and monthly reporting.
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Your Articles of Association (AoA) define your business operations and must be:
Many businesses fail to update their AoA when changes occur — like capital increase or director replacement — which leads to legal invalidity.
Once incorporated, don’t forget these must-have registrations:
Delays here can prevent you from opening bank accounts, hiring staff, or securing operational permits.
At Kusuma & Partners, we’ve helped our clients — from startups to multinationals — navigate Indonesia’s legal maze. We’ve seen million-dollar investments nearly collapse over simple legal oversights.
Our advice?
We provide end-to-end services: incorporation, tax advisory, legal opinion, licensing, corporate structuring — all under one roof.
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Establishing a company in Indonesia is exciting — but it comes with real risks if you’re unaware of the legal terrain. From choosing the wrong business entity to ignoring tax and labor obligations, each step matters. Avoiding these key mistakes when establishing a company in Indonesia can save you from penalties, revoked licenses, and legal battles.
Ready to start your business in Indonesia with confidence? Contact us today.
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“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.”
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