Frequently Asked Questions

In the complex world of business, one wrong financial turn can push even the most promising companies to the edge. If you’re in Indonesia, you’ve probably heard the terms PKPU and Bankruptcy tossed around when a company can’t meet its obligations. But what do they really mean? And more importantly — which one could save your business, and which one means it’s game over? In this guide, we break down for you, based on Indonesia’s legal framework, best practices, expert strategies, and crafted it to help you make the smartest strategic choices.

Key Takeaways

• PKPU offers companies a structured way to negotiate and reorganize debts, avoiding liquidation.
• Bankruptcy leads directly to liquidation and usually marks the end of a company’s life.
• Indonesian Law No. 37/2004 governs both processes but applies them differently depending on the situation.
• Creditors and debtors have distinct roles and rights in PKPU vs. Bankruptcy.
• Professional legal advice is essential to navigate both systems without making costly mistakes.

Why Knowing the Differences Matters

No one plans to fail, but when debts pile up and cash runs dry, knowing your legal options can mean the difference between survival and collapse.

That’s why understanding PKPU and Bankruptcy is so crucial. These aren’t just legal processes — they are life-saving (or life-ending) mechanisms for companies in distress. If you’re a business owner, creditor, investor, or even an employee, understanding these tools can protect your interests and help you navigate turbulent times.

Understanding PKPU (Penundaan Kewajiban Pembayaran Utang)

PKPU, short for Penundaan Kewajiban Pembayaran Utang, translates to “Postponement of Debt Payment Obligations.” At its heart, PKPU is designed to give debtors breathing space — a temporary pause that allows them to propose a repayment plan, restructure debts, and avoid the full force of bankruptcy.

Key facts:

• Governed under Law No. 37/2004.
• Filed through the Commercial Court.
• Involves the appointment of a Supervisory Judge and Administrator (Pengurus).
• The debtor’s goal is to reach an agreement with creditors (composition plan).
• It can last up to 270 days.

In short, PKPU is about restructuring — not liquidating.

Legal Requirements to File for PKPU

To file for PKPU, certain legal conditions must be met:

• The debtor must have at least two creditors.
• There must be at least one debt that is due and payable.
• The debtor (or creditor) must file a petition to the Commercial Court.

Once the court accepts the petition, a temporary PKPU is granted (usually 45 days), during which the debtor prepares a repayment proposal.

How the PKPU Process Works

1. Filing the Petition → Initiated by debtor or creditor.
2. Appointment of Supervisory Judge and Administrator → The court appoints officials to oversee the process.
3. Temporary PKPU Period (45 Days) → The debtor formulates a composition plan.
4. Extension to Permanent PKPU (max 270 Days) → If necessary, the court can extend the period.
5. Creditors’ Meeting → Creditors vote on whether to accept the composition plan.
6. Outcome → If approved, the composition plan is executed. If rejected, bankruptcy proceedings may follow.

The beauty of PKPU? It buys time to negotiate and restructure, keeping the company alive.

Understanding Bankruptcy (Kepailitan)

Bankruptcy, or Kepailitan, is the legal process where a court declares a debtor insolvent, triggering the liquidation of its assets. Unlike PKPU, Bankruptcy isn’t about recovery — it’s about settlement.

The goal is to sell off the debtor’s assets and distribute the proceeds fairly among creditors.

Key facts:

• Also governed by Law No. 37/2004.
• Results in the appointment of a curator (trustee) who takes over the debtor’s assets.
• Assets are liquidated to pay creditors.
• Typically leads to the end of the business.

In Bankruptcy, the focus is on asset liquidation and creditor settlement, not on saving the business.

Legal Requirements to File for Bankruptcy

To file for Bankruptcy, certain legal conditions must be met:

• The debtor has at least two creditors.
• There is at least one debt due and payable.
• The Commercial Court must declare the debtor bankrupt.

Once declared, the debtor loses control over its assets, which pass into the hands of a Curator (Trustee / Kurator).

How the Bankruptcy Process Works

1. Filing the Petition → Typically by creditors, but sometimes by the debtor.
2. Court Decision → The Commercial Court formally declares bankruptcy.
3. Appointment of Curator → This person manages, sells, and liquidates assets.
4. Asset Liquidation → Physical and financial assets are sold.
5. Debt Settlement → Creditors are paid in a legally determined order.
6. Closure → Once debts are paid, the bankruptcy process closes, and the debtor’s legal status is resolved.

The Legal Framework Governing PKPU and Bankruptcy in Indonesia

Both processes fall under:

• Law No. 37 of 2004 on Bankruptcy and PKPU (Suspension of Debt Payment Obligations).
• Jurisdiction of the Commercial Court.
• Oversight by the Supreme Court of the Republic of Indonesia.

This law ensures fair treatment of creditors while offering a chance for debtor recovery where possible.

Who Can File PKPU and Bankruptcy

Interestingly, both debtors and creditors can initiate PKPU and Bankruptcy proceedings. Additionally, certain government bodies or regulatory agencies can sometimes petition the court, especially when public interest or financial stability is at stake.

Detailed Comparison Table: PKPU vs. Bankruptcy

Strategic Advantages of PKPU for Businesses

PKPU is more than just a legal maneuver — it’s a strategic lifeline:

• Avoids asset fire sales.
• Preserves jobs and key contracts.
• Buys time to attract investors or buyers.
• Maintains relationships with critical creditors.

But be warned: PKPU only works if the debtor has a viable business recovery plan and a poorly planned PKPU can quickly spiral into bankruptcy.

When Bankruptcy Becomes the Only Viable Option

Sometimes, no matter how creative or determined your business are, bankruptcy is inevitable:

• The business has no realistic path to profitability.
• There’s evidence of fraud or mismanagement.
• Creditors are unwilling to negotiate or extend trust.

In such cases, bankruptcy allows for an orderly, legal settlement, protecting creditor rights especially for setting debts, and minimizing chaos.

READ MORE:

• Debt Collection in Indonesia: Legal Strategies & Best Practices
• How to Deal with a Breach of Contract in Indonesia

Strategic Considerations in PKPU and Bankruptcy

Businesses need to consider:

• Is the business fundamentally healthy but facing temporary cash flow issues?
• Do creditors trust the debtor’s recovery plan?
• Are there assets worth preserving through restructuring?

If yes, PKPU is worth pursuing. But if the business is sinking with no life raft, Bankruptcy may be the safer legal route.

Common Legal Mistakes in PKPU and Bankruptcy Cases

• Waiting too long to act.
• Failing to prepare a strong composition plan.
• Ignoring creditor dynamics.
• Underestimating legal complexities.

These mistakes can derail both PKPU and Bankruptcy processes — which is why expert legal guidance is critical.

Practical Comments from Kusuma & Partners Law Firm

At Kusuma & Partners, we have handled many of PKPU and Bankruptcy cases, helping clients navigate:

• Negotiated complex PKPU composition plans.
• Represented major debtors and creditors in PKPU and Bankruptcy settlements.
• Protected client assets, recovery strategies, and legal rights under Indonesian law.
• Acted as Administrator (Pengurus) during PKPU process and/or acted as Trustee (Kurator) in Bankruptcy process.

Our advice? Move quickly, work with legal experts, and maximize your legal leverage.

Conclusion

Understanding PKPU and Bankruptcy is not just a legal decision — it’s about business survival, protecting livelihoods, and navigating one of the most critical moments a company can face.

With the right legal partner, you can turn crisis into opportunity.

How We Can Help

Facing financial distress or facing unpaid account receivable? Fill in the form below to get legal expert guidance on PKPU and Bankruptcy strategies that protect your future.

“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.”

In the dynamic landscape of Indonesian business, establishing clear and legally binding agreements among shareholders is paramount. A Shareholders Agreement in Indonesia serves as a cornerstone document, delineating the rights, responsibilities, and relationships between shareholders and the company. This guide explores the legal framework, essential components, and best practices for drafting effective shareholders agreements within the Indonesian context.

Key Takeaways

• Shareholders Agreement is vital for defining shareholder relationships and company governance.
• Indonesian law recognizes these agreements under the principle of freedom of contract.
• They complement but do not replace the Articles of Association.
• Key clauses include shareholding structures, rights and obligations, and dispute resolution mechanisms.
• Legal counsel is essential to ensure compliance and enforceability.
• Notarization, while not mandatory, enhances the agreement’s legal standing.
• Tailoring the agreement to specific business needs prevents future conflicts.
• Minority shareholders can protect their interests through specific provisions.
• Regular reviews and updates keep the agreement aligned with business changes.
• Kusuma & Partners offers expert legal services for drafting and reviewing Shareholders Agreements.

Introduction to Shareholders Agreement

A Shareholders Agreement is a private contract among a company’s shareholders that outlines the management structure, operational protocols, and the rights and obligations of each shareholder. Unlike the Articles of Association, which are public and often standardized, a shareholders agreement offers flexibility and confidentiality, allowing parties to tailor provisions to their specific needs and circumstances.

Legal Framework of Shareholders Agreement in Indonesia

In Indonesia, the legal foundation for shareholders agreement is primarily based on:

• Law No. 40 of 2007 on Limited Liability Companies (Company Law): While it doesn’t explicitly mandate shareholders agreement, it recognizes the principle of freedom of contract, allowing shareholders to enter into agreements that govern their relationships, provided they don’t contravene existing laws or public order.
• Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata): Specifically, Article 1338 acknowledges that all legally executed agreements shall bind the parties as law.

These legal provisions affirm that shareholders agreements are valid and enforceable, provided they meet the general requirements of a contract: mutual consent, legal capacity, a definite object, and a lawful cause.

Importance of Shareholders Agreement

Implementing a Shareholders Agreement in Indonesia is crucial for several reasons:

• Clarifying Roles and Responsibilities: It delineates the duties and expectations of each shareholder, reducing ambiguities.
• Preventing Disputes: By setting clear guidelines for decision-making and conflict resolution, it minimizes potential disagreements.
• Protecting Minority Shareholders: Provisions can be included to safeguard the interests of minority stakeholders.
• Facilitating Investment: Clear agreements can make the company more attractive to potential investors by showcasing structured governance.

Key Provisions in Shareholders Agreements

A well-drafted shareholders agreement typically encompasses the following clauses:

a) Shareholding Structure

This section outlines the distribution of shares among shareholders, detailing the percentage of ownership and any classifications of shares, such as common or preferred shares.

b) Rights and Obligations of Shareholders

It specifies the rights each shareholder possesses, including voting rights, rights to dividends, and obligations such as capital contributions or non-compete commitments.

c) Decision-Making Processes

This clause defines how decisions are made within the company, including the required majority for various resolutions and the process for convening meetings.

d) Transfer of Shares

To control the entry of new shareholders, the agreement may include:

• Right of First Refusal: Existing shareholders have the first opportunity to purchase shares before they are offered to external parties.
• Tag-Along Rights: Allow minority shareholders to join in the sale if a majority shareholder sells their stake.
• Drag-Along Rights: Permit majority shareholders to compel minority shareholders to sell their shares in the event of a sale.

e) Dividend Policies

This section details the company’s approach to profit distribution, including the timing and proportion of dividends.

f) Non-Compete and Confidentiality Clauses

To protect the company’s interests, shareholders may be restricted from engaging in competing businesses and obligated to maintain confidentiality regarding sensitive information.

Shareholders Agreement vs. Articles of Association

While both documents are fundamental to a company’s governance, they serve different purposes:

• Articles of Association (AoA): A public document filed with the Ministry of Law and Human Rights, outlining the company’s structure, purpose, and statutory regulations.
• Shareholders Agreement: A private contract that provides detailed arrangements between shareholders, offering flexibility to address specific concerns not covered in the AoA.

It’s essential that the shareholders agreement does not conflict with the AoA or Indonesian law; in case of discrepancies, statutory provisions and the AoA prevail.

READ MORE:

• Understanding Shareholders’ Rights and Duties in a Limited Liability Company (PT)
• PT PMA vs PT PMDN in Indonesia: Key Differences, Legal Framework, and Setup Guide
• Setting Up a PT PMA in Indonesia: A Complete Guide for Foreign Investors

Drafting and Enforceability

Role of Legal Counsel

Engaging experienced legal professionals is critical to ensure that the shareholders agreement complies with Indonesian laws and effectively captures the shareholders’ intentions. Legal counsel can assist in drafting, reviewing, and negotiating terms to prevent future disputes.

Notarization and Registration

While not mandatory, notarizing the shareholders agreement can enhance its legal standing and enforceability. Notarization provides a formal acknowledgment of the agreement’s authenticity and the parties’ consent.

Common Pitfalls and How to Avoid Them

• Using Generic Templates: Standardized agreements may not address specific business needs, leading to gaps in governance.
• Lack of Clarity: Ambiguous terms can result in differing interpretations and conflicts.
• Ignoring Minority Rights: Failing to protect minority shareholders can lead to legal challenges and dissatisfaction.
• Overlooking Dispute Resolution Mechanisms: Absence of clear procedures for resolving disagreements can escalate conflicts.

To mitigate these risks, it’s advisable to customize the agreement to the company’s unique context and seek legal expertise during the drafting process.

Practical Comment from Kusuma & Partners Law Firm

At Kusuma & Partners, we have assisted numerous clients in preparing shareholders agreement that align with their business objectives and comply with Indonesian regulations. Our approach involves:

• Comprehensive Consultation: Understanding the client’s business model, shareholder dynamics, and long-term goals.
• Tailored Drafting: preparing agreements that reflect the specific needs and protect the interests of all parties involved.
• Ongoing Support: Providing legal advice for amendments, dispute resolution, and enforcement of the agreement.

Our experience underscores the importance of proactive legal planning in fostering harmonious shareholder relationships and sustainable business growth.

Conclusion

A well-structured Shareholders Agreement in Indonesia is instrumental in establishing clear governance, protecting shareholder interests, and ensuring the smooth operation of a company. By addressing key aspects such as shareholding structures, decision-making processes, and dispute resolution mechanisms, shareholders can mitigate risks and build a solid foundation for their business endeavors.

How We Can Help

If you’re seeking expert legal assistance in drafting or reviewing a Shareholders Agreement in Indonesia, Kusuma & Partners Law Firm is here to help. With deep expertise in Indonesian corporate and commercial law, we ensure your shareholders agreement is legally sound, tailored to your business, and compliant with the latest regulatory standards. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

Indonesia is one of Southeast Asia’s largest digital economies, driven by a young, tech-savvy population and a surge in mobile internet penetration. With more than 270 million people and increasing online purchasing habits, the Indonesian e-commerce market is forecast to reach over USD 80 billion by 2025. Platforms like Tokopedia and Shopee dominate online retail, while digital wallets like GoPay, OVO, and DANA facilitate seamless transactions.

But behind the convenience lies a growing web of legal obligations. Every business involved in digital transactions must navigate Indonesian laws on electronic information, personal data, online trade, and consumer protection. This article explores the legal aspects of e-commerce and digital transactions in Indonesia and how businesses can remain compliant.

Key Takeaways

• Indonesia has a comprehensive regulatory framework for e-commerce.
• Law No. 1 of 2024 (UU ITE) governs digital information, contracts, and liability.
• Compliance with data privacy and cybersecurity laws is mandatory.
• Business licensing via OSS and NIB is required for online commerce.
• E-contracts and electronic signatures are legally recognized.
• FinTech and digital payments are supervised by OJK and Bank Indonesia.
• Cross-border e-commerce must comply with customs, tax, and jurisdiction rules.
• IP protection is crucial for online platforms and marketplaces.
• Legal disputes in digital transactions can be resolved through litigation or ADR.
• Kusuma & Partners provides expert guidance in Indonesian e-commerce law.

Regulatory Landscape of E-Commerce in Indonesia

a) Law No. 1 of 2024 on Electronic Information and Transactions (UU ITE)

The main legal framework for digital transactions in Indonesia is Law No. 1 of 2024 on Electronic Information and Transactions (commonly referred to as UU ITE). This updated law replaces and amends the previous UU ITE Law No. 11 of 2008 and its amendments. UU ITE regulates electronic contracts, digital communications, defamation, content moderation, and digital evidence.

Key Provisions:

• Legality of electronic contracts (e-contracts)
• Recognition of electronic signatures
• Validity of digital evidence in court
• Liability for unlawful online content

UU ITE is the cornerstone for regulating the behavior of individuals and businesses in the digital ecosystem.

b) Consumer Protection Law

Law No. 8 of 1999 on Consumer Protection applies to both offline and online transactions. It mandates fair business practices, product guarantees, and transparency. E-commerce businesses must provide:

• Clear product descriptions
• Return and refund policies
• Protection of consumer data

Violations may lead to administrative sanctions or civil lawsuits.

c) Trade Law and Government Regulations

• Law No. 7 of 2014 on Trade includes e-commerce activities under its scope.
• Government Regulation No. 80 of 2019 on Trading Through Electronic Systems (PP PMSE) is highly relevant.
• Minister of Trade Regulation No. 50 of 2020 regulates domestic and foreign e-commerce platforms operating in Indonesia.

These rules mandate the registration of online business actors and impose content, pricing, and advertising obligations.

Key Legal Requirements for E-Commerce Businesses

a) Business Licensing (NIB, OSS System)

Under the Online Single Submission (OSS) system, all businesses—including e-commerce operators—must obtain:

• Business Identification Number (NIB)
• Sectoral licenses depending on the type of service (logistics, FinTech, retail, etc.)

Foreign e-commerce players must comply with local representation requirements.

b) Taxation and Fiscal Obligations

E-commerce operators are subject to:

• Value Added Tax (VAT) and Income Tax
• Stamp duty on digital documents
• Cross-border e-commerce may trigger digital services tax

The Indonesian Directorate General of Taxes (DGT) monitors compliance and may require tax registration for foreign digital companies.

c) Electronic Contracts and Digital Signatures

UU ITE recognizes electronic contracts as legally binding as long as they meet:

• Mutual consent
• Lawful object
• Competency of parties

Digital signatures certified by a trusted Certification Authority (CA) have legal force and are increasingly used in B2B and B2C transactions.

Data Protection and Cybersecurity Regulations

a) Protection of Personal Data

Law No. 27 of 2022 on Personal Data Protection (PDP Law) is Indonesia’s first comprehensive data privacy regulation. It:

• Regulates the collection, storage, use, and transfer of personal data
• Requires explicit consent from data owners
• Imposes data breach notification duties
• Sanctions violations with administrative fines or imprisonment

E-commerce platforms must adopt strong privacy policies, encrypt user data, and secure cloud infrastructure.

b) Cybersecurity Measures

Indonesia does not yet have a standalone cybersecurity law. However, cybersecurity provisions are embedded in:

• UU ITE Law No. 1 of 2024
• PDP Law
• Sectoral regulations (e.g., Bank Indonesia, OJK)

Businesses are advised to implement strong firewalls, conduct periodic IT audits, and train staff on data handling.

Digital Payment Systems and Financial Technology (FinTech)

a) E-Money, E-Wallets, and Payment Gateways

Bank Indonesia and the Financial Services Authority (OJK) regulate payment services. Businesses must:

• Obtain a payment system operator license
• Meet capital, risk management, and reporting standards
• Use licensed payment gateways (e.g., Xendit, Midtrans)

E-wallet operators must comply with customer fund protection rules and anti-money laundering (AML) obligations.

b) OJK and Bank Indonesia Regulation

OJK oversees lending-based FinTech (e.g., peer-to-peer lending), while Bank Indonesia supervises payment systems. Both regulators:

• Issue sandbox approvals
• Enforce Know-Your-Customer (KYC) and data integrity protocols
• Limit foreign ownership in sensitive sectors

READ MORE:

• Navigating Indonesia’s Personal Data Protection Law: Compliance Essentials for Businesses
• Franchise Businesses in Indonesia: A Legal and Strategic Guide
• OSS RBA (Online Single Submission Risk-Based Approach) in Indonesia: How It Works and Why It Matters

Cross-Border E-Commerce Legal Challenges

a) Import Regulations and Customs Duties

Online sellers importing products into Indonesia face:

• Customs clearance requirements
• Import licensing
• VAT and import duties

Platforms like Amazon and Alibaba must appoint local representatives for compliance.

b) Jurisdictional and Enforcement Issues

Foreign websites selling to Indonesian customers must comply with Indonesian laws. However, jurisdictional enforcement remains challenging without:

• Mutual legal assistance treaties (MLATs)
• Local representation
• Registration in the OSS system

Intellectual Property Protection in E-Commerce

Copyright, Trademark, and Trade Secrets

Digital businesses must:

• Register trademarks with the Indonesian Directorate General of Intellectual Property (DGIP)
• Monitor counterfeit goods and online IP infringement
• Use watermarking or blockchain to protect digital content

Platforms are liable if they fail to remove infringing listings upon notice.

Dispute Resolution in Digital Transactions

Arbitration, Mediation, and Court Litigation

Disputes in online transactions may be resolved through:

• Online Dispute Resolution (ODR)
• Arbitration via BANI or SIAC
• Litigation in Indonesian courts

E-contracts may include dispute resolution clauses specifying forum and governing law.

Sanctions and Legal Liabilities

Violations of e-commerce laws may result in:

• Administrative sanctions (fines, revocation of licenses)
• Civil liabilities (compensation to consumers)
• Criminal penalties (fraud, illegal data use, defamation)

Directors and company management may be held personally liable in serious violations.

Practical Comment from Kusuma & Partners

At Kusuma & Partners Law Firm, we have advised numerous startups, digital platforms, and multinational corporations entering the Indonesian market. From obtaining OSS licenses and structuring compliance frameworks, to drafting online terms & conditions and privacy policies, we ensure your business runs legally and smoothly. Never copy-paste templates. Ensure all legal documentation reflects your actual business model and complies with Indonesian law.

Conclusion

The legal aspects of e-commerce and digital transactions in Indonesia are evolving rapidly. Businesses must navigate complex requirements related to electronic contracts, data privacy, licensing, and taxation. The enforcement of Law No. 1 of 2024 (UU ITE), the PDP Law, and sector-specific rules requires businesses to adopt a proactive legal strategy.

How We Can Help

Need help navigating e-commerce laws in Indonesia? Reach out to Kusuma & Partners Law Firm. Our expert legal team is ready to support your compliance journey. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

Have you ever wondered what your business needs to do to legally collect, store, and use personal data in Indonesia? With the full enforcement of Indonesia’s Personal Data Protection Law (PDP Law) taking effect in October 2024, businesses operating in Indonesia—or those processing the data of Indonesian citizens—must understand and comply with this landmark regulation. The law not only establishes individuals’ data rights but also places clear and enforceable obligations on businesses. This article offers a deep dive into Indonesia’s PDP Law, explores compliance essentials, and highlights practical steps businesses must take to remain lawful and trustworthy in a data-driven economy.

Key Takeaways

• Indonesia’s PDP Law was enacted in 2022 and is fully effective by October 2024.
• It provides comprehensive rules on personal data collection, processing, and protection.
• Businesses must obtain explicit consent and ensure transparency.
• Non-compliance may lead to administrative, civil, or criminal sanctions.
• Cross-border data transfers are permitted with safeguards.
• Appointing a Data Protection Officer (DPO) is recommended for compliance.
• Companies must establish privacy policies and standard operating procedures (SOPs).
• Foreign businesses handling Indonesian data subjects must comply.
• Regular audits and staff training are essential for legal compliance.
• Kusuma & Partners offers tailored legal support for PDP compliance.

Understanding the Foundation of Indonesia’s Personal Data Protection Law

Indonesia’s PDP Law, enacted as Law No. 27 of 2022, is a transformative step in national digital governance. Modelled after the European Union’s GDPR but adapted to local values and legal principles, the law aims to:

• Protect individual privacy.
• Ensure lawful, fair, and transparent processing of personal data.
• Encourage data governance best practices.
• Strengthen national data sovereignty.

The law took effect in October 2022, with a two-year transition period. By October 2024, all organizations handling personal data must comply. This includes both digital and manual data processing.

Key Definitions under the PDP Law

Understanding the legal terminology of the PDP Law is critical:

• Personal Data: Any data, whether alone or combined, that identifies or can identify an individual directly or indirectly.
• Data Subject: An individual whose personal data is being processed.
• Data Controller: A person or organization that determines the purpose and means of processing.
• Data Processor: A person or organization that processes data on behalf of the controller.

Understanding these definitions is vital, as each role carries specific legal responsibilities under Indonesia’s Personal Data Protection Law.

Scope and Applicability of the PDP Law

The PDP Law has both territorial and extraterritorial reach. It applies to:

• All domestic businesses and public institutions collecting or processing personal data.
• Foreign entities, including digital service providers (e.g., apps, websites), that target or handle the data of Indonesian citizens.

Even if your servers are located outside Indonesia, if you serve Indonesian users, you are subject to this law.

Rights of Data Subjects:

The PDP Law gives Indonesian citizens strong rights over their personal data, aiming to ensure autonomy and control.

a) Right to Access and Correction

Data subjects may request:

• Details on what personal data is held.
• Clarification on processing purposes.
• Correction or completion of inaccurate data.

b) Right to Erasure and Consent Withdrawal

Subjects may request data deletion if:

• Consent is withdrawn.
• Data is no longer needed.
• Processing is unlawful.

Failure to honor such requests may result in regulatory or legal action.

Obligations of Data Controllers and Data Processors

Controllers and processors must uphold transparency, lawfulness, and accountability:

a) Legal Basis for Data Processing

Data must be processed based on:

• Explicit, documented consent.
• Contractual necessity.
• Legal obligation.
• Vital interests.
• Public interest.
• Legitimate interest (with balancing test).

Consent must be clear, informed, and revocable.

b) Privacy Policy Requirements

Controllers must:

• Publish clear, concise, and accessible privacy policies.
• Include the purpose of collection, retention periods, data sharing practices, and user rights.
• Update policies as practices evolve.

READ MORE:

• Understanding Shareholders’ Rights and Duties in a Limited Liability Company (PT)
• Indonesia’s Positive Investment List vs. Negative Investment List: A Guide for Foreign Investors
• Key Amendments in the Omnibus Law and Their Impact on Businesses

Cross-Border Data Transfers

International data transfers are permitted but regulated. Organizations must:

• Ensure the receiving country has adequate data protection laws.
• Enter into binding contracts or standard contractual clauses (SCCs).
• Obtain explicit data subject consent if no safeguards exist.

Multinational corporations and cloud-based services must prioritize this when transferring data outside Indonesia.

Data Breach Notification Obligations

In the event of a data breach:

• Notify the data protection authority within 72 hours.
• Inform affected data subjects with details and remedial actions.
• Maintain internal documentation and an incident register.

Proactive breach response demonstrates accountability and may reduce penalties.

Sanctions and Penalties for Non-Compliance

The PDP Law introduces a layered enforcement model:

• Administrative Sanctions: Written warnings, temporary suspensions, data deletion orders.
• Civil Liability: Compensation claims by affected individuals.
• Criminal Sanctions: Up to 5 years imprisonment and fines reaching IDR 6 billion for serious violations, such as intentional data abuse or illegal transfers.

These sanctions serve as strong deterrents and reflect the seriousness of compliance.

Practical Steps for Business Compliance

Adopting a compliance framework is not optional. Here are key steps:

a) Conducting a Data Audit

Map your data lifecycle:

• What data you collect
• Where it is stored
• How it is processed
• Who can access it

b) Appointing a Data Protection Officer (DPO)

While not mandatory for all, having a DPO ensures:

• Legal compliance
• Internal governance
• Regulatory communication

c) Employee Training and SOPs

Equip staff with data protection knowledge:

• Include PDP Law in onboarding and training
• Create written SOPs for data processing
• Implement regular compliance drills

Comparison with GDPR and Global Standards

The PDP Law shares many similarities with GDPR but differs in structure:

Understanding these nuances helps multinationals align global compliance strategies.

How the PDP Law Affects Foreign Companies Operating in Indonesia

Foreign businesses—especially tech companies, payment platforms, and B2C e-commerce—must:

• Comply with PDP Law when serving Indonesian users.
• Designate a local representative in Indonesia.
• Prepare for potential audits or enforcement actions.

Cross-border compliance isn’t just about legality; it is about customer trust and brand integrity.

Practical Comment from Kusuma & Partners Law Firm

“From our legal practice, many clients—especially SMEs and foreign investors—underestimate the breadth of Indonesia’s PDP Law. Early compliance reduces long-term risks. We advise implementing holistic data protection programs tailored to your business size and industry.”

We assist clients in:

• Legal audits
• Drafting privacy policies and consent forms
• Navigating cross-border compliance

Let our legal team at Kusuma & Partners help you build a data protection culture that supports business growth.

Conclusion

Indonesia’s Personal Data Protection Law is a significant shift toward global digital accountability. Businesses that treat compliance as a core value—not just a legal hurdle—will enjoy improved consumer trust, stronger brand loyalty, and reduced legal risks.

Whether you’re a local startup or a global enterprise, acting now positions your business as responsible, modern, and resilient.

How We Can Help

Need help aligning with Indonesia’s PDP Law? Reach out to Kusuma & Partners Law Firm. Our expert legal team is ready to support your compliance journey. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

Termination of employment in Indonesia is a critical issue governed by comprehensive labor laws aimed at protecting both employers and employees. In recent years, understanding the legal framework surrounding employment termination in Indonesia has become essential for businesses operating in Indonesia, especially in the context of compliance, industrial relations, and risk mitigation.

This article explores the types of employment termination under Indonesian law, the rights afforded to employees, and the challenges faced in implementing these regulations. It also provides insights to help employers and HR professionals make informed decisions aligned with national labor standards.

Key Takeaways:

• Employment termination in Indonesia must follow labor laws under the Manpower Law, Omnibus Law, and related regulations.
• Employers can only terminate employees for legal reasons, such as company closure, efficiency, misconduct, resignation, or retirement.
• Termination requires written notice and may involve bipartite negotiation, mediation, or court proceedings if disputed.
• Depending on the reason, employees may receive severance pay, long service pay, and other rights based on their tenure.
• Non-compliance can lead to reinstatement or legal sanctions. Employers should always follow due process.
• Professional legal advice helps ensure compliance and reduces the risk of labor disputes.

1. Legal Framework Governing Termination in Indonesia

The primary legislation governing termination of employment in Indonesia includes:

• Law No. 13 of 2003 on Manpower, as amended by Law No. 6 of 2023 on Job Creation (Omnibus Law);
• Government Regulation No. 35 of 2021 concerning Fixed-Term Employment Agreements, Outsourcing, Working Time and Rest Time, and Termination of Employment;
• Relevant provisions of the Indonesian Civil Code and court decisions from the Industrial Relations Court.

These regulations aim to balance the interests of employees and employers, while ensuring fairness in the process of ending employment relationships.

2. Types of Employment Termination in Indonesia

Indonesian labor law recognizes various types of employment termination, each with distinct legal implications and compensation entitlements. Below are the key categories:

a) Company Merger, Consolidation, and Acquisition

In cases where a company undergoes a merger, consolidation, or acquisition, employment may be terminated if the employee is unwilling to continue employment under the new ownership or corporate structure. It is also applied vice versa for the employer.

b) Company Efficiency

Employers may carry out termination due to efficiency efforts aimed at reducing costs and preventing financial losses or if the company experienced losses in 2 consecutive years. This typical situation called efficiency because the company still operates.

c) Company Closes

If the company permanently shuts down, whether due to internal decisions or external factors, or due to experienced losses in 2 consecutive years.

d) Company Suspension of Debt Payment

If a company is placed under suspension of debt payment (Penundaan Kewajiban Pembayaran Utang – PKPU), termination may take place with full compensation, provided that the employer complies with labor court approval and procedural fairness.

e) Company Bankrupt

In the event of a bankruptcy declared by a commercial court, employment may be terminated with severance pay and other entitlements. The amount is subject to verification by the bankruptcy trustee (Kurator), and claims are paid according to bankruptcy law priorities but the formula of compensation principally follows the applicable labor law.

f) Employee Request to Terminate Employment Agreement Due to Employer’s Wrongdoing

Employees have the right to unilaterally terminate their employment if the employer commits serious violations, such as unpaid wages for three consecutive months, abusive behavior, or instructing the employee to commit an unlawful act. Employees are entitled to full compensation in such cases.

g) Employee’s Resignation

Employees may voluntarily resign by giving written notice at least 30 calendar days in advance. Resigning employees are generally not entitled to severance or long service pay, but may receive separation pay if stipulated in the employment contract or company policy, along with compensation of rights (e.g., unused leave).

h) Employee Absence Without Permission

An employee who is absent for five consecutive working days or more without written explanation and supporting evidence, the employment will automatically be terminated.

i) Employee Violating Employment Agreement, Company Regulation, or Collective Labor Agreement

An employee who is violating those agreement/regulation and company already give a lesson with warning letter but the employee still repeats the violation event until the third warning letter has issued, so the Employer can terminate the employment. Also, Serious violations, including theft, fraud, assault, or gross negligence, may justify immediate termination.

j) Employee Prolonged Illness or Disability

If an employee is medically unable to work for more than 12 consecutive months, the employer and employee may lawfully terminate the employment relationship. Compensation includes severance pay, long service pay, and compensation of rights, based on medical records and proper procedures.

k) Employee Criminal Conviction

An employee alleged or convicted a criminal act so the employee unable to continue working, then the Employer can terminate the employment and the compensation is differ based on the situation.

l) Employee Pension

An employee who reached pension age will automatically the employment come to an end and the employee has a right to get certain amount of compensation.

m) Termination Due to Employment Contract Expiry

For fixed-term employment agreements (Perjanjian Kerja Waktu Tertentu/PKWT), the contract ends automatically upon the agreed expiration date. No severance or long service pay is owed, but the employee is entitled to a compensation of one month’s wage per year of service, calculated proportionally (as per PP No. 35/2021).

READ MORE:

• Employment in Indonesia: Types and Regulations
• How to Hire Employees Legally in Indonesia: A Guide for Employers
• Key Amendments in the Omnibus Law and Their Impact on Businesses

3. Employee Rights Upon Termination

Employees terminated under Indonesian law are entitled to several types of compensation, which vary depending on the reason for termination. Furthermore, there is a range formula based on how long the employees works, the range formula is as follow:

a) Severance Pay (Uang Pesangon)

A fundamental right calculated based on the employee’s years of service, the range is from one to nine months of wages.

b) Long Service Pay (Uang Penghargaan Masa Kerja)

Granted to employees who have worked for more than three years, with increasing values based on tenure.

c) Compensation of Rights (Uang Penggantian Hak)

Includes benefits such as unused annual leave and other entitlements stipulated in the employment agreement, company regulation, or collective labor agreement.

d) Separation Pay (Uang Pisah)

Sometimes granted to employees who not eligible for severance pay, especially in resignation cases, as a goodwill gesture based on company regulation or collective labor agreement.

4. Legal Procedures and Industrial Relations Mechanisms

Basically, all parties shall give the best effort to prevent employment termination in Indonesia, however if the employment termination inevitable the procedure shall follow the applicable laws. Here is the procedure:

1. Employer shall inform the reason of termination to the employee.
2. The information shall in written letter lately 14 days before the termination day. Except for the employee in probation period whereas the written letter shall be delivered to the employee lately 7 days before the termination day.
3. No objection from employee: then employer shall report to the authorize party in government who responsible in the Manpower matter (Ministry of Manpower/Manpower institution).
4. Objection from employee: employee can submit an objection letter to the employer lately 7 days after received the written letter of termination. The objection from employee shall be negotiated among the parties in Bipartite.
5. The Indonesian labor law emphasizes dispute prevention through bipartite negotiations, if the bipartite dead lock and failed so the negotiation will continue with mediation or conciliation by the Manpower Institution. If unresolved, the dispute may escalate to the Industrial Relations Court, and ultimately the Supreme Court.

Employers must ensure procedural compliance, including issuing termination letters, engaging in negotiation, and documenting all efforts to resolve the dispute amicably.

5. Common Challenges in Terminating Employment

a) Prolonged Legal Disputes

Companies shall follow detailed procedures before terminating employees. Failure to comply can lead to legal disputes and reinstatement orders. Bipartite negotiations, and if unresolved, proceed to mediation, conciliation, or even the Industrial Relations Court. Court proceedings can be lengthy and resource-consuming, especially if termination is not backed by clear evidence or due process.

b) Unclear Employment Agreements

Ambiguities in employment contracts often lead to disputes. Clear and legally compliant contracts/employment relationship are crucial.

c) Reputational Risk

Poorly managed terminations can damage company reputation, lower employee morale, and increase employee turnover. This is particularly critical for a corporation with strong brand value.

d) Regulatory Uncertainty Post-Omnibus Law

Although the Omnibus Law aimed to simplify labor regulations, its implementation has faced criticism and judicial review, creating uncertainty for both employers and employees.

Practical Comment from Kusuma & Partners Law Firm

At Kusuma & Partners, we often see that legal disputes arise not just from the grounds of termination, but from poor communication and lack of proper documentation. To minimize legal risks, we strongly advise employers to:

• Clearly document all reasons for termination.
• Engage early in bipartite negotiations to avoid escalation.
• Ensure that employment contracts and company policies are regularly updated and compliant with current labor laws, especially after the Omnibus Law reforms.

Our firm assists clients in preparing compliant termination letters, guiding through dispute resolution, and defending your interests in Industrial Relations Court when necessary.

Conclusion

Understanding the intricacies of employment termination in Indonesia is vital for maintaining legal compliance and healthy labor relations. Companies must carefully assess the grounds for termination, follow due process, and respect the rights of employees to avoid legal exposure and reputational risks. The key point to settle employment termination in Indonesia is a good communication and strong negotiation position with a clear purpose of termination itself.

How We Can Help

Our firm specializes in Labor and Employment Law, ensuring full compliance with Indonesian regulations. We provide strategic legal guidance, manage regulatory approvals, and protect our client’s interests at every stage. With extensive experience in Labor and Employment Law, we ensure a compliance, harmonize labor relation, and efficient action.

Our Services Include:

• Legal Advisory on termination process and procedure
• Assistance in labor dispute resolution
• HR policy review and regulatory updates

Partner with us for reliable, professional, and strategic legal solutions that safeguard your business from confusing of Labor Law and resolve the dispute with the best solution. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.“

Franchise businesses in Indonesia have become one of the most attractive and scalable models for local and foreign investors looking to tap into Southeast Asia’s fourth-largest population. From fast-food giants to retail and education, franchising offers a structured path to brand expansion with minimized operational risks. However, entering the Indonesian franchise market is not as simple as replicating a global business concept—it requires full compliance with Indonesia’s legal framework, including the latest Government Regulation No. 35 of 2024 on Franchising. This guide explores the legal landscape, key regulations, registration requirements, tax obligations, and strategic insights you need to know before launching or expanding your franchise business in Indonesia. Whether you’re a foreign franchisor or a local franchisee, understanding these rules is crucial for ensuring legal certainty and long-term business success.

Key Takeaways

• Franchise Law in Indonesia — Governed by GR 35/2024 and MoT Reg 71/2019
• Franchise Registration — STPW is mandatory for both franchisors and franchisees
• Foreign Franchisors — Can operate via master franchise, direct franchise, or joint venture
• Intellectual Property — Must be registered (not pending) prior to registration
• Taxation — VAT and WHT apply to franchise fees/royalties
• Legal Risks — Non-compliance can result in sanctions or license revocation
• Local Content Requirement — Preference for using Indonesian-made goods and services

Understanding Franchise Business in Indonesia

Franchise businesses in Indonesia have experienced significant growth, becoming a vital component of the nation’s economy. The franchise model allows a franchisor to grant a franchisee the rights to operate under its brand, utilizing established systems and intellectual property, typically in exchange for fees or royalties. This model benefits both parties: the franchisor expands market reach, while the franchisee gains access to a proven business concept.

Legal Definition of a Franchise under Indonesian Law

According to Government Regulation No. 35 of 2024 (GR 35/2024), a franchise is defined as:

“A special right owned by an individual or a business entity to use the business system with certain characteristics in marketing goods and/or services that has proven successful and can be utilized and/or used by another party based on a franchise agreement.”

This definition emphasizes the necessity of a proven business system and a formal agreement between the franchisor and franchisee.

Governing Laws and Regulations

Franchise operations in Indonesia are governed by several key regulations:

• Government Regulation No. 35 of 2024 (GR 35/2024): This is the primary regulation overseeing franchise activities, introducing significant changes to the previous legal framework.
• Minister of Trade Regulation No. 71 of 2019: This regulation complements GR 35/2024 by detailing the procedures for franchise registration and operation.
• Law No. 20 of 2008 on Micro, Small, and Medium Enterprises: This law supports the development of MSMEs, which are often involved in franchise operations.
• Law No. 7 of 2014 on Trade: This law provides a broader context for trade activities, including franchising.
• Intellectual Property Laws: These laws ensure the protection of trademarks and other IP assets crucial to franchise businesses.
• Tax Laws: These laws govern the taxation aspects of franchise operations, including VAT and income tax obligations.

Key Requirements to Start a Franchise in Indonesia

To establish a franchise in Indonesia, both franchisors and franchisees must meet specific requirements:

Requirements for Franchisors (Local & Foreign)

1. Proven Business Model: The business must have been operational and profitable for at least three consecutive years, supported by audited financial statements for the last two years.
2. Registered Intellectual Property: All relevant IP rights, such as trademarks, must be registered with the Directorate General of Intellectual Property (DGIP) before applying for a Franchise Registration Certificate (STPW).
3. Franchise Offering Prospectus: A comprehensive prospectus must be prepared, detailing the franchisor’s business system, financial performance, and other critical information.
4. Franchise Registration Certificate (STPW): The franchisor must obtain an STPW through the Online Single Submission (OSS) system before entering into a franchise agreement.
5. Certificate of Franchise Continuity: Foreign franchisors must provide a certificate from the Indonesian Trade Attache or Representative Office in their home country, verifying the continuous operation of the franchise business.

Requirements for Franchisees

1. Legal Entity: The franchisee must be established as a legal entity in Indonesia, such as a PT (Perseroan Terbatas).
2. Franchise Agreement: A formal agreement must be signed with the franchisor, outlining the rights and obligations of both parties.
3. Franchise Registration Certificate (STPW): The franchisee must obtain an STPW by submitting the franchise agreement through the OSS system.

READ MORE:

• PT PMA vs PT PMDN in Indonesia: Key Differences, Legal Framework, and Setup Guide
• Top 5 Mistakes to Avoid When Signing a Commercial Lease Agreement

Franchise Registration and Disclosure Documents

Proper documentation is crucial for legal compliance in franchise operations:

Franchise Offering Prospectus

The prospectus must be provided to prospective franchisees at least 14 calendar days before signing the franchise agreement. It should include:

• Identity and legal status of the franchisor
• Business history and organizational structure
• Detailed business system
• Audited financial statements for the past two years
• Number and locations of existing franchise outlets
• List of current franchisees (if applicable)
• Rights and obligations of both franchisor and franchisee
• Certificates of registered intellectual property rights

Franchise Registration Certificate (STPW)

The STPW serves as the official license for franchise operations. Under GR 35/2024, the STPW is valid indefinitely unless revoked due to specific circumstances, such as termination of the franchise agreement, cessation of business, or non-compliance with regulations.

Types of Franchise Structures in Indonesia

Franchise businesses in Indonesia can adopt various structures:

Direct Franchising

The franchisor grants rights directly to the franchisee to operate under its brand. This model is straightforward and allows for close control over franchise operations.

Master Franchising

The franchisor appoints a master franchisee, who then has the right to sub-franchise within a specified territory. This model is suitable for rapid expansion and leveraging local market knowledge.

Joint Ventures

The franchisor partners with a local entity to establish a new company, sharing ownership and responsibilities. This model can help navigate local regulations and cultural nuances.

Licensing & IP Protection for Franchises

Intellectual property rights are fundamental to franchise businesses. Under GR 35/2024:

• All relevant IP rights must be registered or recorded before applying for an STPW.
• Pending applications for IP registration are no longer sufficient; proof of registration is mandatory.
• The franchise agreement must include provisions confirming the registration of IP rights.

Ensuring robust IP protection helps prevent infringement and maintains brand integrity.

Taxation Aspects of Franchise Businesses

Franchise operations in Indonesia are subject to various tax obligations:

• Value Added Tax (VAT): Generally applied at 11% on royalties and franchise fees.
• Income Tax (PPh Article 23): A 20% withholding tax on royalties paid to foreign franchisors, which may be reduced under applicable tax treaties.
• Permanent Establishment (BUT): Foreign franchisors with significant presence in Indonesia may be deemed to have a permanent establishment, subjecting them to local tax obligations.

Proper tax planning and compliance are essential to avoid penalties and ensure smooth operations.

Opportunities for Foreign Investors

Indonesia presents a lucrative market for foreign franchise investment due to:

• Large Consumer Base: With a population exceeding 270 million, Indonesia offers a vast market for various franchise sectors.
• Growing Middle Class: Increasing disposable income and urbanization drive demand for diverse products and services.
• Government Support: Initiatives like the OSS system streamline business registration and licensing processes.

Sectors with high growth potential include food and beverage, retail, education, health and wellness, and technology services.

Challenges in the Indonesian Franchise Market

Despite the opportunities, foreign investors may face challenges such as:

• Regulatory Compliance: Navigating complex legal requirements and ensuring timely registration and reporting.
• Cultural Differences: Adapting business models to align with local consumer preferences and practices.
• Supply Chain Management: Meeting the requirement to prioritize locally produced goods and services, as stipulated in GR 35/2024.
• Intellectual Property Protection: Safeguarding against potential IP infringements in a developing legal environment.

Engaging local legal and business experts can help mitigate these risks and facilitate successful market entry.

Practical Comment from Kusuma & Partners

As a leading corporate and commercial law firm in Indonesia, Kusuma & Partners has advised numerous foreign and local clients in successfully establishing and expanding their franchise businesses in Indonesia. Based on our years of hands-on experience, we offer the following strategic and legal best practices:

1. Start with a Legally Compliant Foundation

Many franchisors underestimate the importance of aligning their global franchise model with Indonesian legal requirements. We always advise franchisors to localize their Franchise Offering Prospectus and Franchise Agreement to comply with GR 35/2024 and MoT Regulation No. 71/2019, rather than merely translating existing documents.

2. Secure Your Intellectual Property (IP) Early

A common pitfall is attempting to register a franchise without a registered trademark. Best practice dictates that the franchisor’s trademark must already be registered in Indonesia (not pending) before applying for an STPW. We assist clients in conducting IP due diligence and fast-tracking trademark registration to ensure there are no legal obstacles to franchising.

3. Structure Your Franchise Model Strategically

Whether you choose a direct franchise, master franchise, or joint venture, the legal and tax consequences differ. We always recommend early structuring consultations to optimize for compliance, control, and tax efficiency, especially for foreign franchisors entering the market through a PT PMA entity.

4. Prepare for Regulatory Scrutiny

The Ministry of Trade increasingly reviews Franchise Offering Prospectuses and Franchise Agreements in detail. In our practice, we’ve seen applications rejected due to generic or overly standardized documentation. A tailored, clearly written prospectus with clear disclosures and performance history is key to a smooth STPW issuance.

5. Local Content & Supply Chain Compliance

GR 35/2024 mandates franchisors to prioritize Indonesian-made goods and services. From a compliance standpoint, we encourage franchisors to conduct a supply chain review and work with local suppliers where feasible. This not only meets regulatory requirements but also helps build goodwill and reduce import-related costs.

6. Tax Planning is Crucial

Franchise-related royalties and fees are subject to Withholding Tax (PPh 23) and VAT, and international franchisors must consider Indonesia’s Double Taxation Avoidance Agreements (DTAAs). We frequently assist clients in structuring franchise agreements to ensure compliance with Indonesian tax laws while minimizing unnecessary tax leakage.

7. Avoid Disputes with Clear, Measurable Terms

One of the most frequent causes of franchise litigation in Indonesia is the lack of clarity on performance benchmarks and territorial exclusivity. Our firm ensures that franchise agreements contain precise, enforceable terms, clear renewal and termination clauses, and proper dispute resolution mechanisms (preferably via BANI Arbitration).

8. Monitor Post-Registration Obligations

Obtaining the STPW is not the end. Franchisors and franchisees must comply with ongoing obligations, including business license renewals, periodic audits, and reporting requirements under the OSS system. Our ongoing legal support includes full regulatory compliance management to help clients stay audit-ready.

In short, Kusuma & Partners offers not just legal documentation, but strategic advisory services that combine regulatory compliance, business structure optimization, and risk mitigation—ensuring your franchise venture in Indonesia is built to last.

Conclusion

Franchise businesses in Indonesia offer promising opportunities amid a growing middle class, robust consumer demand, and digital adoption. However, regulatory compliance under Government Regulation No. 35 of 2024 and other supporting laws requires careful planning and execution.

Whether you’re a global brand eyeing Indonesian expansion or a local entrepreneur looking to license a business system, navigating franchise law demands a deep understanding of licensing, taxation, IP protection, and business structuring.

How We Can Help

At Kusuma & Partners, we help franchisors and franchisees launch and grow compliant franchise businesses in Indonesia. Contact us today to schedule a consultation and ensure your franchise operates with confidence under Indonesian law. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

Hiring employees in Indonesia isn’t just about choosing the right talent. It’s about doing it legally and correctly. Why? Because labor law in Indonesia is strictly regulated, and non-compliance—whether intentional or accidental—can lead to serious consequences including fines, business license revocations, and even criminal charges. Whether you’re a multinational setting up a local entity, or a domestic company scaling up your team, knowing how to hire employees legally in Indonesia can make or break your business.

Key Takeaways

• Indonesian labor law is highly regulated—legal compliance is essential.
• Employment contracts must follow strict legal formalities.
• BPJS and tax registration are mandatory.
• Hiring foreign workers requires a KITAS and IMTA permit.
• Misclassification of workers can result in serious penalties.
• Always put agreements in writing, in Bahasa Indonesia.
• Employers must respect employees’ rights to social protection and fair wages.
• Non-compliance can lead to sanctions, fines, and lawsuits.
• Hiring through a law firm ensures compliance and minimizes risks.

Understanding the Indonesian Employment Legal Framework

Indonesia’s employment law framework is governed primarily by:

• Law No. 13 of 2003 on Manpower (“Labor Law“), as amended by Omnibus Law No. 11 of 2020 then amended by Law No 6 of 2023.
• Government Regulation No. 35 of 2021 on Fixed-Term Employment, Outsourcing, Work Hours, and Rest Time.
• Ministerial Regulations concerning BPJS (Social Security).

These laws ensure that all employment relationships are governed by fair terms and clearly define employer and employee obligations. Understanding this framework is crucial to hire employees legally in Indonesia and protect your business from potential legal disputes.

Types of Employment in Indonesia

Permanent Employees (Karyawan Tetap)

Permanent employees are hired under an indefinite term contract. They are entitled to benefits like severance pay, annual leave, health insurance, and retirement benefits.

Fixed-Term Employees (PKWT)

PKWT (Perjanjian Kerja Waktu Tertentu) is used for temporary roles or project-based employment. This contract must be in writing and registered with the local Manpower Office to be valid.

Outsourced Workers

These workers are not directly employed by the company but by third-party service providers. However, companies must ensure the outsourcing relationship follows Indonesian outsourcing laws to avoid being deemed as direct employers.

Key Steps on How to Hire Employees Legally in Indonesia

1. Prepare a Legally Compliant Employment Contract

A written employment agreement is mandatory. It should include:

• Job title and description
• Salary and benefits
• Working hours and leave entitlements
• Term of employment
• Termination and dispute resolution clauses

For PKWT employees, the maximum duration is five years (including extensions) under the latest regulation.

2. Comply with Indonesian Manpower Reporting Obligations

Once employment contracts are signed, companies must report new hires to the local Manpower Office (Dinas Ketenagakerjaan) within 30 days. Failure to report may expose the company to administrative sanctions.

3. Register for Social Security and BPJS Health

Under Law No. 24 of 2011, employers are required to enroll employees in:

• BPJS Ketenagakerjaan (employment social security)
• BPJS Kesehatan (healthcare insurance)

Contributions must be made monthly and failure to comply may result in penalties and employee claims.

READ MORE:

• Employment in Indonesia: Types and Regulations
• How to Create a Valid Contract in Indonesia
• How to Deal with a Breach of Contract in Indonesia

Mandatory Provisions in Employment Contracts

To ensure you hire employees legally in Indonesia, contracts must contain the following:

• Full identity of the employer and employee
• Job scope and responsibilities
• Base salary and additional benefits
• Work location and duration of employment
• Details on probation period (maximum 3 months for permanent employees)
• Termination and severance clauses

All employment contracts must be drafted in Bahasa Indonesia (or bilingual for foreign companies).

Employment Permits for Foreign Employees

Foreigners working in Indonesia must have the following:

1. RPTKA (Expatriate Manpower Utilization Plan) – approval from the Ministry of Manpower.
2. IMTA (Work Permit) – officially allows the foreigner to work.
3. Limited Stay Visa (VITAS) and KITAS – for residence purposes.

Employers must ensure these are obtained before the foreign employee starts work. Also, companies are required to assign an Indonesian counterpart for knowledge transfer.

Payroll, Tax, and Social Security Compliance

Employers must:

• Deduct income tax (PPh 21) from employee salaries
• Register and contribute to BPJS Kesehatan and BPJS Ketenagakerjaan
• Provide THR (Tunjangan Hari Raya) religious holiday allowance

Filing and payment must comply with Indonesia’s tax calendar.

Understanding Employee Rights and Employer Obligations

Employee rights under Indonesian law include:

• Equal treatment
• Right to rest and leave
• Fair compensation
• Health and safety

Employers have the obligation to provide a safe work environment, pay timely wages, and avoid unlawful dismissals.

Terminating an Employee Legally in Indonesia

Termination must follow due process, including:

• Providing proper notice or compensation in lieu of notice
• Engaging in bipartite negotiations
• Filing with the Industrial Relations Court if no agreement is reached

Severance, long service pay, and compensation must be paid as required by Government Regulation No. 35 of 2021.

Practical Comment from Kusuma & Partners Law Firm

At Kusuma & Partners, we’ve assisted numerous clients—local and international—in hiring employees legally in Indonesia. One common pitfall is overlooking proper employment contract, documentation and social security registration. Our practical advice? Always prepare the draft employment contract terms in writing, register everything with the authorities, and get legal review before hiring employees. It saves time, money, and headaches later.

Conclusion

Successfully hiring employees legally in Indonesia is not just about signing a contract—it’s about aligning with a robust legal framework that protects both employers and employees. This guide provides the essentials, but given the complexity of labor law in Indonesia, professional legal assistance ensures compliance and peace of mind.

How We Can Help

Need help navigating employment laws in Indonesia? Kusuma & Partners Law Firm is here to support you. From drafting and reviewing employment contracts to foreign employment permits. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

When investing in or founding a Perseroan Terbatas (PT)—Indonesia’s Limited Liability Company—understanding your shareholders’ rights and duties is not just advisable; it’s a necessity. Whether you are a majority investor or hold minority shares, your position grants you specific legal powers and responsibilities under Law No. 40 of 2007 concerning Limited Liability Company and as amended by the Job Creation Law (Omnibus Law).

In this guide, we explore what it truly means to be a shareholder in Indonesia, the extent of your shareholders’ rights and duties, how they function in practice, and how to protect your interests in both normal operations and disputes.

What Does It Mean to Be a Shareholder in a PT?

A shareholder is any party—individual or legal entity—that owns one or more shares in a PT. These shares represent ownership in the company and entitle the shareholder to a bundle of rights and impose specific legal duties. The company itself is a separate legal entity, and shareholders do not bear personal liability for corporate obligations except in certain limited circumstances.

Being a shareholder is not a passive role. Your rights allow you to participate in the company’s decision-making and economic benefits, while your duties ensure that corporate governance remains lawful, fair, and transparent.

Overview of Shareholders’ Rights and Duties in Indonesia

Indonesian company law balances the power of shareholders with the operational independence of the board of directors. As a shareholder, your shareholders’ rights and duties stem from:

• The Company Law (UU Perseroan Terbatas)
• The company’s Articles of Association (Anggaran Dasar)
• Shareholders’ agreements
• General corporate governance principles

These legal frameworks give shareholders a voice in governance, a stake in profits, and a shield from undue liabilities—but also hold them accountable for good faith participation.

In-Depth: Shareholders’ Rights in a PT

1. Right to Vote in the General Meeting of Shareholders (GMS)

The right to vote is a cornerstone of shareholders’ rights and duties. It allows shareholders to influence decisions on matters like:

• Appointment/removal of directors and commissioners
• Dividend distribution
• Mergers, acquisitions, or company dissolution
• Amendments to the Articles of Association

Voting power is proportional to the number and class of shares owned.

2. Right to Receive Dividends Proportionate to Ownership

Shareholders are entitled to receive dividends from retained earnings, distributed upon GMS approval. While dividend issuance is not automatic, it is a fundamental economic right based on shareholding.

Note: The company must maintain financial solvency and a minimum reserve before paying dividends.

3. Right to Access and Review Corporate Records

Under Article 50 of the Company Law, shareholders holding at least 10% of total shares may request access to:

• Financial statements
• Board of directors’ decisions
• Corporate contracts and business reports

This transparency measure ensures that shareholders can monitor company management effectively.

4. Right to Participate in Major Corporate Actions

Shareholders must be consulted on fundamental decisions, such as:

• Asset transfers exceeding 50% of net assets
• Mergers, spin-offs, acquisitions
• Voluntary liquidation

These rights ensure that strategic decisions are made democratically.

5. Right to Transfer or Sell Shares

In most cases, shareholders can freely transfer shares, though restrictions may apply through:

• Articles of Association (e.g., Right of First Refusal)
• Shareholders’ Agreements
• Governmental restrictions (for PT PMA entities)

6. Right to File Derivative Suits or Legal Action

If directors or commissioners act against the interests of the company, shareholders can file:

• Derivative suits on behalf of the company
• Lawsuits for annulment of GMS resolutions
• Compensation claims for financial damages

This power protects against mismanagement and abuse of authority.

READ MORE:

• Key Amendments in the Omnibus Law and Their Impact on Businesses
• Top 5 Mistakes to Avoid When Signing a Commercial Lease Agreement
• Buying Property in Indonesia: A Legal Guide for Foreigners

In-Depth: Shareholders’ Duties in a PT

1. Duty to Fully Pay Subscribed Shares

Every shareholder is obligated to fully pay for shares they have subscribed. Unpaid shares not only violate the law but may be voided by the company and subject to damages.

2. Duty to Comply with Articles of Association (AoA)

The Articles of Association act as the “constitution” of the PT. Shareholders must:

• Follow governance structures
• Observe shareholding limits
• Abide by dispute resolution clauses

Non-compliance can lead to exclusion or legal liability.

3. Duty of Loyalty and Avoidance of Conflict of Interest

Shareholders must act in good faith and avoid conflict of interest—especially when also serving as directors or commissioners. They may not:

• Compete unfairly with the company
• Use insider information for personal gain
• Undermine other shareholders

4. Duty to Support Corporate Decisions Made in Good Faith

Even if a shareholder voted against a resolution in the GMS, once it is passed lawfully, it becomes binding. Shareholders must support corporate actions carried out in line with such resolutions.

Minority Shareholders’ Rights and Legal Protections

Indonesian law includes safeguards to protect minority shareholders from being overpowered by majority owners. These include:

• Right to propose GMS agenda items
• Right to file suit if directors act ultra vires
• Right to request company dissolution for prolonged deadlock
• Right to block amendments that would diminish their share value

These protections ensure fair participation and reduce risks of corporate oppression.

Shareholders’ Liability and the Corporate Veil

The general rule is that shareholders are not personally liable for company debts. However, this “corporate veil” can be pierced when:

• Shareholders use the company to commit fraud
• Company and personal assets are mixed
• Acts in bad faith or violations of the law occur

In such cases, courts may impose personal liability on shareholders.

Shareholders’ Rights and Duties vs Directors’ Powers

The company’s daily operations are managed by the Board of Directors, not shareholders. While shareholders hold ultimate authority via the GMS, they do not directly interfere with management decisions unless specified in the law or AoA.

Understanding the difference between governance (shareholders) and management (directors) is crucial for corporate harmony.

Disputes Between Shareholders: Resolution Mechanisms

Disputes may arise over dividends, share valuation, or corporate strategy. These can be resolved through:

1. Internal GMS resolutions
2. Alternative Dispute Resolution (ADR) via mediation or arbitration
3. Litigation in the Court

To prevent disputes, it is essential to have a clear Shareholders’ Agreement and consistent adherence to corporate governance principles.

Enforcement of Shareholders’ Rights: Legal Remedies

If your shareholders’ rights and duties are violated, you may pursue:

• Civil claims for damages
• Request for annulment of unlawful GMS resolutions
• Injunctions to halt illegal acts
• Criminal complaints, where fraud or embezzlement occurs

Timely legal advice is critical, especially in fast-moving corporate actions.

Updates Under the Omnibus Law: Simplified Corporate Governance

The Omnibus Law has streamlined company procedures, making it easier for shareholders to:

• Convene virtual GMS meetings
• Register changes via OSS (Online Single Submission)
• Establish Single-Shareholder PT Perorangan (for UMKM)

These reforms increase corporate efficiency while maintaining protection of shareholders’ rights and duties.

Practical Comment from Kusuma & Partners

“Whether you’re a foreign investor or local founder, respecting and leveraging your shareholders’ rights and duties can define the success or failure of your business. We’ve seen how early-stage clarity and structured agreements prevent major legal and financial disasters down the road. Engage legal counsel before investing or transferring shares, and ensure every right is enforceable.”

Conclusion

Navigating the landscape of shareholders’ rights and duties in Indonesia requires more than a general understanding—it demands strategic foresight and proper legal safeguards. From voting rights and dividend claims to compliance obligations and liability risks, the stakes are high for every shareholder.

How We Can Help

Need legal assistance asserting your shareholder rights or resolving a dispute?
Contact us today, our team of experienced Indonesian corporate lawyers will help you protect your investments and enforce your rights. Fill in the form below to get legal expert guidance from Kusuma & Partners Law Firm.

“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.”

Indonesia has shifted from the restrictive Foreign Investment Negative List (DNI) to a more open and investor-friendly Positive Investment List (PIL). This change, introduced under the Omnibus Law, aims to boost foreign investment by clearly listing sectors that are open, prioritized, or restricted. In this article, we explain the key differences between the DNI and PIL, their legal basis, and how foreign investors can benefit from the new regime.

Key Takeaways

• Indonesia replaced the Negative Investment List (DNI) with the Positive Investment List (PIL) in 2021.
• The PIL opens up more sectors to foreign investment, promoting economic growth.
• Certain sectors still remain restricted or conditional for foreign investors.
• PT PMA is the most common vehicle for foreign investment in Indonesia.
• The OSS-RBA system must be used for business registration and licensing.
• Presidential Regulation No. 49/2021 is the key legal basis for the PIL.
• Kusuma & Partners Law Firm offers end-to-end assistance for foreign investors navigating the Indonesia regulatory system.

Understanding the Foreign Investment Framework in Indonesia

Foreign investors entering the Indonesian market generally operate through a Foreign Investment Company (PT PMA). Previously, investment limitations were governed by the DNI, which explicitly restricted or prohibited foreign ownership in certain sectors. However, since the enactment of Presidential Regulation No. 10 of 2021 and as amended by Presidential Regulation No. 49 of 2021, the new Positive Investment List now determines which sectors are open to investment—and under what conditions.

This regulatory shift represents a major evolution in Indonesia’s business environment and significantly affects market entry strategies for foreign entities.

What is the Negative Investment List (DNI)?

The Negative Investment List (locally known as Daftar Negatif Investasi or DNI) was the official list that classified business sectors based on their accessibility to foreign ownership. Sectors were either:

• Fully closed
• Partially open with ownership limits
• Open with specific requirements

Key Sectors Previously Restricted Under DNI

Under the DNI regime, many sectors like retail, telecommunications towers, construction services, and healthcare were tightly regulated. For instance, foreign investors were only allowed to hold a minority share in sectors such as distribution and warehousing.

Historical Purpose of the DNI

The goal was to protect local industries and uphold national interests. However, over time, it became apparent that excessive restrictions were stifling economic growth, innovation, and job creation.

What is the Positive Investment List (PIL)?

The Positive Investment List (PIL) replaced the DNI in 2021 and is designed to encourage investment rather than restrict it. Rather than listing what’s prohibited, the PIL focuses on sectors that are prioritized, open, or conditionally open for foreign investors.

Legal Basis: Presidential Regulation No. 49/2021

The PIL is grounded in Presidential Regulation No. 10/2021, as amended by Presidential Regulation No. 49/2021, which was part of the broader Omnibus Law reform agenda. This regulation categorizes investment opportunities into:

• Business sectors open to all investors
• Priority sectors (with incentives)
• Business sectors with certain conditions
• Business sectors closed to investment

Priority Sectors Open to Foreign Investment

These include:

• Digital economy and IT services
• Renewable energy
• Infrastructure and transportation
• Healthcare and pharmaceuticals
• Tourism and hospitality

Investments in these sectors may be eligible for fiscal incentives, tax holidays, and ease of licensing through the OSS-RBA system.

Key Differences Between DNI and PIL

Why the Shift from DNI to PIL Matters

The move from a negative to a positive approach aligns Indonesia’s investment policy with international best practices. It sends a strong message: Indonesia is open for business. Foreign investors now enjoy greater clarity, more opportunities, and streamlined licensing processes.

Business Sectors Fully Open for Foreign Investment Under PIL

Foreign investors can now own 100% of businesses in many previously restricted sectors, such as:

• E-commerce platforms (certain investment thresholds or other conditions may apply, particularly for businesses under a certain size or those targeting specific niche markets)
• Cold storage and warehousing
• Film production and distribution
• Data centre and cloud computing

This openness has made Indonesia’s Positive Investment List a game-changer for multinational companies and venture capital firms.

Sectors with Conditions Under the Positive Investment List

Some sectors are open to foreign investors, but with certain conditions, such as:

• Joint venture requirement with a local partner
• Minimum capital investment thresholds
• Technology transfer obligations
• Special licensing or permits

Examples include:

• Education (subject to licensing by the Ministry of Education)
• Legal services (restricted to certain business forms)
• Construction (subject to technical capacity assessment)

Sectors Still Closed for Foreign Investment

A few sectors remain off-limits to foreign investors, including:

• Arms and explosives manufacturing
• Endangered wildlife trade

These closures are aligned with Indonesia’s national security, morality, and sustainability priorities.

READ MORE:

• Key Amendments in the Omnibus Law and Their Impact on Businesses
• PT PMA vs PT PMDN in Indonesia: Key Differences, Legal Framework, and Setup Guide
• Setting Up a PT PMA in Indonesia: A Complete Guide for Foreign Investors

Implications for PT PMA Setup in Indonesia

Setting up a PT PMA requires adherence to the Positive Investment List. This involves:

1. Selecting a sector aligned with the PIL
2. Meeting minimum capital requirements (IDR 10 billion for most sectors)
3. Registering through the OSS-RBA system
4. Securing location permits, environmental approvals, and business licenses

Failure to comply may lead to rejection or delays in the investment approval process.

Licensing and OSS-RBA Compliance Under the PIL

The Online Single Submission – Risk Based Approach (OSS-RBA) is Indonesia’s centralized licensing platform. It categorizes business sectors into low, medium-low, medium-high, and high risk. Licensing requirements vary based on this risk assessment.

For foreign investors, a solid understanding of the PIL and OSS-RBA compliance is essential to ensure a smooth market entry.

Practical Tips from Kusuma & Partners Law Firm

As seasoned corporate and investment lawyers, we advise foreign investors to:

• Conduct thorough due diligence on sector eligibility
• Review PIL updates regularly, as sector lists may change
• Engage local legal counsel to navigate licensing, partnerships, and regulatory compliance
• Structure your PT PMA to maximize incentives and efficiency

Kusuma & Partners Law Firm has helped clients from overseas establish compliant and successful businesses under the Positive Investment List framework.

Conclusion

The transition from the Negative Investment List to the Positive Investment List reflects Indonesia’s strategic pivot to a more open, investor-friendly regime. With fewer barriers and more clarity, now is an ideal time for foreign investors to explore the vibrant Indonesian market.

How We Can Help

Looking to invest in Indonesia under the Positive Investment List? Let us guide you through every step—licensing, compliance, PT PMA setup, and beyond. Contact us today for a consultation.

“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.”