Frequently Asked Questions

Indonesia’s arbitration landscape has long been shaped by the Badan Arbitrase Nasional Indonesia (BANI), the country’s premier arbitration institution. With globalization and the surge of cross-border business, BANI has steadily evolved to align with international best practices. The 2025 BANI Arbitration Rules mark a pivotal shift, representing a bold leap forward toward modernization, transparency, and efficiency.

Why the 2025 BANI Arbitration Rules Matter

If your business is involved in contracts with an Indonesian dispute resolution clause referring to BANI, understanding these new rules isn’t optional—it’s critical. The 2025 updates respond to growing demands for faster, more cost-effective, and tech-integrated proceedings, while reinforcing BANI’s credibility domestically and abroad. These changes aren’t just procedural; they reflect Indonesia’s broader commitment to investor protection and legal certainty.

Key Changes Introduced in the 2025 BANI Arbitration Rules

Let’s explore what’s actually new and why it matters.

1. Digital Transformation and E-Arbitration

BANI now officially embraces virtual hearings, digital submissions, and electronic signatures as standard. The 2025 BANI Arbitration Rules authorize fully virtual proceedings unless parties agree otherwise.

This shift saves costs, accelerates timelines, and ensures accessibility—especially for international parties. In today’s fast-paced environment, that’s a game changer.

2. Enhanced Emergency Arbitrator Procedures

One of the most notable updates is the bolstered Emergency Arbitrator (EA) framework. Now, parties can request urgent relief (such as injunctions) within 48 hours. BANI commits to appointing an emergency arbitrator within one day.

For businesses facing immediate harm or asset dissipation, this mechanism could make the difference between protection and irreversible loss.

3. Transparency and Efficiency in Proceedings

The 2025 BANI Arbitration Rules promote procedural transparency, such as timelines for awards and disclosure obligations. BANI now requires that arbitrators submit awards within 60 days of final submissions unless extended by the institution.

This ensures greater predictability—a major plus for commercial planning and dispute budgeting.

4. Timeframes and Cost Control Mechanisms

Time is money, especially in dispute resolution. New scheduling rules and optional fast-track procedures are designed for efficiency. Arbitrators must now adhere to structured procedural timetables with tighter controls on delays.

Additionally, BANI introduces an indicative fee calculator—giving parties a clearer picture of arbitration costs upfront.

This is a significant step forward for SMEs and large corporations alike, who can better assess dispute exposure.

5. New Provisions on Third-Party Funding

For the first time, the 2025 BANI Arbitration Rules recognize third-party funding (TPF). Funded parties must disclose such arrangements, ensuring transparency without discouraging access to justice.

This provision aligns BANI with international norms and expands access to arbitration for claimants who may lack upfront capital.

6. Small Claim Procedure for MSMEs

Micro, small, and medium enterprises (MSMEs) often shy away from arbitration due to perceived complexity and cost. The new Small Claims Procedure offers a simplified and cost-effective route for disputes under IDR 2 billion, resolved within 90 days.

This change supports Indonesia’s economic backbone—its MSMEs—and makes arbitration more inclusive.

7. Revised Appointment and Challenge of Arbitrators

The updated rules refine the arbitrator appointment process and make the challenge procedures clearer and more impartial. The rules also now prohibit dual roles or conflicts of interest that might affect neutrality.

This ensures the integrity and impartiality of proceedings, essential to trust in the process.

READ MORE:

• Indonesia’s Arbitration Reform Under Supreme Court Regulation No. 3 of 2023

Legal Implications for Foreign and Domestic Parties

Whether you’re a foreign investor or an Indonesian company, these rule changes affect how you draft contracts and prepare for potential disputes. Dispute resolution clauses must now anticipate digital procedures, emergency relief, and cost implications.

Foreign parties, in particular, may find BANI more aligned with institutions like SIAC, HKIAC, or ICC—making Indonesia more arbitration-friendly for inbound investment.

Strategic Considerations for Businesses and Investors

• Revisit your existing arbitration clauses: Do they align with the 2025 BANI Arbitration Rules?
• Evaluate cost and risk management strategies given the new TPF and emergency arbitration options.
• Consider using BANI arbitration in future deals involving Indonesian elements—it’s now more efficient and accessible than ever.

These changes are not just procedural—they’re strategic tools for dispute prevention and resolution.

Practical Commentary from Kusuma & Partners

At Kusuma & Partners Law Firm, we welcome the bold steps taken in the 2025 BANI Arbitration Rules. These reforms align with global standards, making Indonesia’s arbitration landscape more modern and investor-friendly. We’ve already assisted several clients in adapting their contract frameworks to reflect these updates, and we highly recommend a clause audit for all cross-border agreements involving Indonesian counterparties.

Our team is equipped to guide you in leveraging the new rules—whether you’re renegotiating existing contracts or preparing for arbitration.

READ MORE:

• Debt Collection in Indonesia: Legal Strategies & Best Practices

Conclusion

The 2025 BANI Arbitration Rules aren’t merely technical reforms—they represent a paradigm shift in how Indonesia approaches arbitration. By embracing technology, efficiency, and transparency, BANI has positioned itself as a world-class arbitration institution. For businesses and investors alike, the message is clear: Indonesia is open for dispute resolution that works.

How We Can Help

If you’re facing a potential dispute and/or dealing with legal disputes; reviewing contracts; or want to ensure your arbitration strategy aligns with the 2025 BANI Arbitration Rules, our experienced team at Kusuma & Partners Law Firm is here to assist.

Fill in the form below to get our expert guidance.

“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.”

Outsourcing has become a widely adopted strategy for companies seeking operational efficiency and cost reduction. In Indonesia, outsourcing arrangements are common — but often misunderstood. For foreign and domestic companies alike, outsourcing may seem like a straightforward solution, but beneath the surface lie several legal and regulatory complexities that, if not addressed properly, can expose businesses to serious compliance risks. Failure to comply with Indonesian labor and outsourcing regulations can lead to severe penalties, contract disputes, and reputational damage. Thus, understanding these “hidden traps” is crucial for any company considering or currently engaging in outsourcing activities.

Overview of Outsourcing Regulations in Indonesia

• Law No. 13 of 2003 on Manpower (as amended by the Omnibus Law No. 6 of 2023 on Job Creation and its implementing regulations).
• Government Regulation No. 35 of 2021: This implementing regulation provides more detailed provisions concerning Fixed-Term Employment Agreements (PKWT), outsourcing arrangements, working hours, rest periods, and employment termination.

Crucially, these regulations aim to provide legal certainty for all parties—employers, outsourcing providers, and outsourced workers—while promoting business flexibility.

Hidden Legal Traps of Outsourcing in Indonesia

Despite regulatory efforts, several “traps” can ensnare unsuspecting companies:

1. Misclassification of Outsourced Contract

Some companies are unable to distinguish between direct and indirect outsourced concept. Direct outsourced is a concept where the contract of the employee is under the company itself, while indirect outsourced the contract of the employee is under the outsourcing company. Direct outsourced most likely used for core position and indirect outsourced most likely used for non-core position.

It is of course the scheme, rights, and obligation between both concepts are different. Understand both concepts will make your company avoid unnecessary costs and make the environment of industrial relation fairer for both the employee and the employer.

READ MORE:

• Employment in Indonesia: Types and Regulations

2. Compliance Pitfalls and Common Disputes

Many outsourcing arrangements in Indonesia are vulnerable to disputes due to weak contractual structures or failure to adhere to employment compliance norms. Common issues include:

• Unlawful dismissal of outsourced workers without proper notice or compensation;
• Disguised employment relationships, where outsourced workers perform core business functions or are directly supervised by the client company;
• Disparity in wages and benefits, leading to claims of unfair treatment under the principle of equal pay for equal work;
• Unfavourable clauses such as vague termination of contract conditions and inadequate indemnity clauses.

Labor unions are increasingly scrutinizing outsourcing practices, especially in sectors where outsourced employees operate side-by-side with permanent employees.

3. Transfer of Undertaking Protection of Employment (TUPE)

Transfer of Undertaking Protection of Employment (TUPE) Clauses: The Job Creation Law and GR No. 35/2021 emphasize job security for outsourced workers. In cases where an outsourcing contract changes providers, the new outsourcing company must continue the existing employment agreements without interruption, often requiring TUPE clauses to protect worker continuity. Neglecting this can result in legal claims.

4. Compliance of The Outsourcing Provider

The legal onus isn’t solely on the client company. The outsourcing provider itself must be a legally established entity with the appropriate business licenses and a track record of compliance with Indonesian labor laws. Partnering with an unverified provider is a major risk.

It is also included data privacy and confidentiality while outsourcing functions involving sensitive data, companies must ensure that the outsourcing provider adheres to Indonesia’s data privacy regulations. Breaches can lead to reputational damage and legal penalties.

Practical Tips for Companies Outsourcing in Indonesia

• Clearly define outsourced activities – Ensure which position in your company that need to be outsourced.
• Review contracts thoroughly – Include clauses on labor compliance, indemnity, termination of contract, and dispute resolution.
• Conduct due diligence on Outsourcing Provider – Verify the outsourcing provider’s license and track record.
• Monitor outsourcing providers – Regularly audit payroll and benefits to prevent violation.
• Consult to Legal Experts – Seek advice from Indonesian labor law specialist before finalizing agreements.

READ MORE:

• How to Deal with a Breach of Contract in Indonesia

Outlook: Government Reforms and Enforcement Trends

The Indonesian government continues to reform labor regulations, especially following the Constitutional Court’s review of the Omnibus Law. With increasing focus on worker protection and fair employment practices, companies should anticipate stricter enforcement on outsourcing violations.

Moreover, regulatory authorities are expected to introduce digital supervision systems and more stringent licensing reviews. Businesses that proactively adapt to these changes and maintain high compliance standards will enjoy greater legal certainty and reputational advantage in Indonesia’s competitive labor market.

Practical Commentary from Kusuma & Partners

At Kusuma & Partners, we have assisted multinational companies, local enterprises, and joint ventures in navigating Indonesia’s complex outsourcing landscape. Our team understands that outsourcing is not merely an operational decision—it is a strategic legal move that must be underpinned by a strong compliance framework and risk mitigation plan.

We recognize that many companies face uncertainty in differentiating between direct and indirect outsourcing, interpreting TUPE obligations, and drafting contracts that fully comply with Law No. 13 of 2003, the Job Creation Law, and relevant Manpower Regulations.

Our legal team offers:

• Strategic contract structuring to ensure compliance and minimize liability.
• Due diligence services for verifying outsourcing providers.
• Review and revision of employment agreements, indemnity clauses, and PKWT terms.
• Legal representation in outsourcing-related labor disputes and negotiations.
• Advisory on data protection compliance in outsourcing arrangements.
• Assistance in managing transitions between outsourcing providers with TUPE compliance.

Conclusion

Outsourcing in Indonesia offers significant cost and efficiency benefits, but non-compliance can be costly. Companies must navigate labor laws carefully, engage only licensed providers, and ensure fair treatment of outsourced workers. Companies — particularly foreign investors and multinational groups — must take a strategic, well-advised approach to outsourcing, grounded in a strong understanding of Indonesian labor law and regulatory frameworks.

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.

Fill in the form below to get our expert guidance.

“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.”

Every business in Indonesia, whether local or foreign-owned, may encounter financial turbulence. But when challenges evolve into financial distress, immediate action is not just prudent—it’s legally essential. Navigating financial distress in Indonesia requires more than accounting adjustments; it demands legal foresight, regulatory compliance, and strategic risk management.

In this article, we’ll walk you through the legal definition of financial distress in Indonesia, its causes, legal pathways, and most importantly, how businesses can protect themselves or seek recovery with legal backing.

Understanding Financial Distress Under Indonesian Law

1. Defining Financial Distress vs. Insolvency

Financial distress refers to a situation where a company struggles to meet its financial obligations—salaries, supplier payments, debt servicing—though it may not yet be insolvent. Insolvency, on the other hand, occurs when liabilities exceed assets and there is no realistic prospect of recovery.

In Indonesian law, particularly under Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (Bankruptcy Law), insolvency becomes a trigger for legal actions such as PKPU or bankruptcy.

2. Legal Triggers and Financial Indicators

Key signs of financial distress include:

• Missed loan repayments
• Overdrawn credit facilities
• Persistent operational losses
• Legal notices from creditors

The Indonesian legal system recognizes such symptoms as precursors to PKPU or bankruptcy filings, allowing legal mechanisms to be activated before total collapse.

Common Causes of Financial Distress in Indonesian Companies

1. Market Shocks and Economic Downturn

Indonesia’s economy is dynamic but vulnerable to global and domestic shocks—COVID-19, commodity price crashes, and interest rate hikes have exposed businesses across sectors to liquidity constraints.

2. Mismanagement and Poor Governance

Lack of internal controls, imprudent investments, or weak leadership can drive companies toward distress. Directors’ inaction or lack of transparency during such periods may lead to personal liability under Indonesian Company Law.

Legal Framework Governing Financial Distress in Indonesia

Indonesia’s two principal legal instruments governing financial distress are:

• Law No. 40 of 2007 on Limited Liability Companies (Company Law)
• Law No. 37 of 2004 on Bankruptcy and PKPU (Bankruptcy Law)

These laws regulate how companies must act when facing financial crises, including obligations to creditors, shareholders, and employees.

The Role of PKPU (Debt Suspension)

PKPU is a court-supervised restructuring process that gives debtors temporary legal protection (moratorium) from creditors. It aims to encourage restructuring rather than liquidation and offers breathing space for viable turnaround plans.

READ MORE:

• PKPU in Indonesia: A Legal Guide for Debtors

Legal Options for Companies Facing Financial Distress

1. Informal Workouts and Debt Restructuring

Before involving courts, companies can negotiate with creditors to restructure debt—e.g., extended repayment terms, interest reductions, or partial write-offs. These informal efforts are flexible but must be carefully documented and legally reviewed.

2. Filing for PKPU: Process and Legal Implications

To file for PKPU, a company must owe at least one debt that is:

• Due and payable
• Unpaid
• Owed to at least two creditors

Upon court approval, the debtor is protected for up to 270 days, allowing space to negotiate a Composition Plan (“Rencana Perdamaian”). If successful, the plan binds all creditors (“Homologasi”).

3. Bankruptcy as Last Resort

If PKPU fails or fraud is detected, creditors or the company may petition for bankruptcy. Bankruptcy leads to asset liquidation under court supervision. It’s a public and irreversible process, often resulting in substantial losses for stakeholders.

Stakeholders’ Rights and Obligations During Financial Crisis

1. Creditors’ Rights and Debt Recovery Mechanisms

Creditors have legal avenues such as:

• Filing PKPU or bankruptcy applications
• Securing collateral through fiduciary, mortgage, or pledge claims
• Negotiating Composition Plans

Secured creditors typically have priority in liquidation scenarios.

2. Directors’ Liability and Fiduciary Duties

Indonesian Company Law requires directors to act in good faith. If directors continue operations despite clear insolvency signs, they may face civil or even criminal liability for:

• Negligence
• Fraudulent transactions
• Preferential treatment of certain creditors

Cross-Border Financial Distress: What Foreign Investors Must Know

Foreign creditors and investors often face uncertainty during Indonesian company distress. While PKPU offers inclusion in the process, enforcing foreign arbitration awards or judgments requires separate legal proceedings—often through the Indonesian Supreme Court for exequatur recognition.

Choosing arbitration clauses, local legal counsel, and Indonesian-compatible dispute mechanisms is crucial for cross-border business deals.

Role of Legal Advisors in Preventing and Managing Distress

Experienced legal counsel can:

• Review corporate governance and risk policies
• Conduct debt audits and creditor mapping
• Advise on PKPU and restructuring strategies
• Represent clients in court filings and negotiations

Early legal engagement ensures compliance, maximizes recovery, and minimizes director liability.

READ MORE:

• Debt Collection in Indonesia: Legal Strategies & Best Practices

Practical Commentary from Kusuma & Partners Law Firm

At Kusuma & Partners Law Firm, we’ve supported numerous clients—both domestic companies and foreign investors—facing financial distress in Indonesia. Our approach combines proactive risk assessment with practical legal execution.

In many cases, businesses delay too long before seeking help. By the time legal tools like PKPU are deployed, the company’s value may already be compromised. We advise companies to act early, document their efforts, and seek legal protection to gain leverage in negotiations.

Whether you’re a creditor seeking recovery or a company seeking restructuring, we offer tailored, discreet, and strategic assistance.

Conclusion

Financial distress in Indonesia can be a turning point—not the end. With the right legal strategy, companies can navigate crisis, protect assets, and recover stronger. From informal workouts to court-led restructuring, every path has legal requirements that must be respected to avoid deeper consequences.

How We Can Help

Don’t wait until it’s too late. If your business is showing signs of distress or you’re a creditor trying to safeguard your interests—get legal help now. We’re here to protect your business, your assets, and your future.

Fill in the form below to get our expert guidance.

“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 today’s hyper-connected global economy, businesses are under increasing pressure to do more with less. That’s where Business Process Outsourcing (BPO) steps in. BPO allows companies to delegate specific business functions—such as customer support, payroll, IT, or data processing—to specialized third parties. This not only reduces costs but also enhances efficiency and allows companies to focus on what truly matters: growing their core business.

But BPO isn’t just about cost-cutting anymore. It’s about strategic transformation. And increasingly, companies around the world are turning to Business Process Outsourcing in Indonesia as a smart, scalable solution.

Why Indonesia is Becoming a BPO Hub in Southeast Asia

Indonesia is no longer just a manufacturing or tourism powerhouse it’s quickly becoming a regional BPO hub. With over 270 million people, a growing middle class, and one of the youngest workforces in the region, Indonesia offers a compelling value proposition.

What makes Indonesia particularly attractive for BPO?

First, there’s the cost advantage. Operational expenses from wages to office space are significantly lower than in neighboring countries like Singapore or Malaysia. Second, there’s the human capital. Indonesia is producing more university graduates in tech, business, and communication than ever before. Third, the government’s digital transformation agenda including improvements in internet infrastructure and regulatory reforms has created an environment conducive to outsourcing.

All these factors combined mean that companies looking for a balance between affordability and quality often choose Indonesia.

Legal Framework Governing BPO in Indonesia

While Indonesia offers incredible opportunities, navigating its legal environment can be complex. That’s why having a clear understanding of the country’s regulatory landscape is not just helpful, it’s absolutely essential.

1. Key Laws and Regulations

Several key laws govern BPO activities in Indonesia:

• Law No. 13 of 2003 on Manpower (as amended by the Omnibus Law No. 6 of 2023), which regulates labor relationships and outsourcing;
• Investment Law (Law No. 25 of 2007) and BKPM Regulations, which affect foreign ownership and business setup;
• Tax Laws, such as the Income Tax Law, VAT Law, and Withholding Tax rules;
• Electronic Transactions Law (ITE Law), relevant for digital BPO services;
• Data Protection Law No. 27 of 2022, critical for customer service, HR, and IT outsourcing functions.

It’s worth noting that the Omnibus Law has brought significant changes that favor investors by simplifying licensing and improving flexibility for BPO employment structures.

2. Types of BPO Contracts Recognized Under Indonesian Law

When outsourcing services in Indonesia, contracts must be clear, compliant, and enforceable. The most common legal arrangements include:

• Service Agreements, which define scope, duration, SLAs (service level agreements), and pricing;
• Outsourcing Agreements under Articles 64–66 of the Manpower Law, particularly where labor is transferred;
• IT or Support Service Contracts with clauses on data confidentiality and intellectual property rights.

All BPO contracts should ideally include governing law, dispute resolution mechanism, and termination rights to avoid misunderstandings.

Business Structures for BPO Providers in Indonesia

Starting a BPO business in Indonesia requires selecting the right legal structure. This decision will impact your ownership rights, tax obligations, and operational flexibility.

1. Local vs Foreign-Owned Companies

Foreign investors can establish their BPO company under a PT PMA (Perseroan Terbatas Penanaman Modal Asing), or Foreign Direct Investment Company. PT PMA allows for up to 100% foreign ownership in most service sectors, including BPO.

Key considerations:

• Minimum Paid-Up Capital: IDR 10 billion (approx. USD 650,000).
• BKPM Licensing: All PT PMAs must be registered through Indonesia’s OSS (Online Single Submission) system.
• KBLI Code: You’ll need the right business classification, such as KBLI 62011 for IT services or 82911 for other administrative support.

Local entrepreneurs may choose a PT PMDN structure, which offers more flexible capital requirements but is limited to Indonesian ownership.

2. Licensing and Registration

To operate legally, all BPO providers must obtain:

• A NIB (Nomor Induk Berusaha) through OSS.
• A Sectoral Business License based on KBLI code.
• Additional licenses, such as Manpower Licensing if the service includes labor placement or recruitment.

Non-compliance may result in license suspension or sanctions, so legal clarity is critical from day one.

READ MORE:

• Business Licensing in Indonesia: What Foreign and Local Companies Must Know

Tax Implications for BPO Companies in Indonesia

Taxation is a major consideration for any business and Business Process Outsourcing in Indonesia is no exception. Whether you’re a foreign investor or local operator, staying compliant means understanding your tax obligations in detail.

Corporate Income Tax, VAT, and Withholding Tax

Here’s a quick breakdown:

• Corporate Income Tax (CIT): 22% of net profit for most companies.
• Value Added Tax (VAT): 11% applied to most BPO services unless exempt.
• Withholding Tax (WHT): Ranges from 2% to 15% for domestic and cross-border payments.

Moreover, if your BPO service involves international clients, double-check whether a Double Tax Treaty (DTT) exists between Indonesia and the client’s country. This can reduce withholding tax rates significantly.

Tax planning, transfer pricing compliance, and periodic reporting are not just formalities, they’re necessary pillars of a sustainable operation.

Employment and Labor Law Considerations in BPO

Labor-related compliance is often the biggest challenge in the Indonesian BPO sector. Missteps can be costly—not just in fines, but also reputationally.

Indonesian law generally restricts outsourcing core business functions, unless they are supportive in nature, such as cleaning, security, or administrative support. However, BPO models focused on IT, accounting, or customer support may qualify if structured properly.

In addition, BPO companies must:

• Register employees with BPJS Ketenagakerjaan and BPJS Kesehatan (social and health insurance).
• Offer minimum wage and mandatory benefits.
• Ensure employment contracts reflect Indonesian labor standards.

Outsourcing contracts must be non-discriminatory, clearly state employee rights, and where applicable allow for proper supervision and training.

Common Services Outsourced in Indonesia

Indonesia’s BPO sector covers a wide spectrum of services. Some of the most frequently outsourced include:

• Customer Service and Call Center
• Information Technology (IT) Development and Support
• Payroll and Accounting
• Data Entry and Processing
• Digital Marketing and Content Creation
• Human Resources and Recruitment Services

Thanks to an educated workforce and reliable internet connectivity, Indonesian providers are competing on both price and quality.

Risks and Challenges of BPO in Indonesia

Like any business strategy, outsourcing carries risks. For Indonesia-based BPO, common challenges include:

• Regulatory Uncertainty, especially when laws are updated;
• Labor Disputes, often caused by unclear worker classification;
• Data Breach Risks, particularly for digital services;
• Language and Cultural Barriers, which may affect service quality;
• Currency Fluctuations, which can impact cross-border payments.

Acknowledging these risks allows companies to address them head-on with the right systems, advisors, and contracts.

READ MORE:

• Corporate Restructuring in Indonesia: Strategies and Legal Considerations

Strategies to Minimize Legal and Operational Risks

Mitigating risk requires a mix of legal precision and strategic foresight. Here’s what we recommend:

• Perform Due Diligence on all vendors and partners.
• Use locally enforceable contracts with arbitration clauses.
• Ensure IP ownership and confidentiality are clearly defined.
• Maintain strong compliance systems for tax and labor.
• Engage with legal counsel throughout the process not just at setup.

Proactivity is cheaper than remediation.

How to Choose the Right BPO Partner in Indonesia

Not all BPO firms are created equal. Selecting the right partner requires more than a budget comparison.

Ask yourself:

• Do they have a track record in your industry?
• Are they legally compliant and properly licensed?
• How do they handle data security and privacy?
• Can they scale as your business grows?
• What happens if a dispute arises?

Choose a partner who not only understands your business but also understands Indonesia’s legal and operational nuances.

Practical Commentary from Kusuma & Partners

At Kusuma & Partners, we regularly advise both multinational corporations and Indonesian SMEs on structuring, negotiating, and scaling their BPO operations. Our clients appreciate our blend of legal depth and commercial awareness.

Whether it’s helping you establish a PT PMA, reviewing your BPO contracts, or providing ongoing legal & tax compliance support, we make sure your outsourcing venture is legally safe, tax-efficient, and future-proof.

Our advice? Don’t go it alone. The right legal support can save you from costly mistakes and set you up for long-term success in Business Process Outsourcing in Indonesia.

Conclusion

In conclusion, Indonesia offers a dynamic environment for BPO ventures—if approached with clarity, care, and compliance. From favorable labor costs to a booming digital economy, the potential is immense. However, success in this space demands strategic planning, legal precision, and ongoing risk management.

Whether you’re outsourcing your operations or building your own BPO company in Indonesia, the legal framework can be complex, but not insurmountable.

How We Can Help

Looking to start or optimize your BPO operations in Indonesia? Our legal team is ready to guide you.

Fill in the form below to get our expert guidance.

“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.”

Changing a director in an Indonesian company is not merely an internal matter — it is a formal legal process that can affect your company’s operations, licenses, and even its ability to enter into valid agreements. Whether it’s due to resignation, removal, or a strategic shift, following the correct legal steps ensures business continuity and regulatory compliance.

So, how do you ensure a smooth and legally sound transition? Let’s dive into the legal process for director change in Indonesian companies.

Understanding Director Roles Under Indonesian Company Law

Under Law No. 40 of 2007 on Limited Liability Companies (“Company Law”), directors play a vital role in managing the company. They represent the company in all legal matters, including signing contracts, managing assets, and fulfilling tax obligations.

Any change in directorship directly affects the company’s legal capacity, especially if that change is not properly documented and reported.

Reasons for Director Change in Indonesia

Director changes may happen for many reasons. The most common include:

1. Voluntary Resignation

A director may submit a written resignation to the Board of Commissioners or directly to the General Meeting of Shareholders (GMS), depending on the Articles of Association.

2. Dismissal by the Shareholders

Shareholders have the power to dismiss a director through a resolution in the GMS. This is often due to performance issues, breach of fiduciary duty, or a shift in corporate direction.

3. End of Term or Death

Directors are typically appointed for a term (e.g., 3–5 years). Upon term expiration or unforeseen events like death, the company must appoint a replacement to preserve legal authority.

READ MORE:

• Conducting General Meeting of Shareholders (GMS) in Indonesia: Legal Procedures and Shareholder Rights

Legal Requirements for Director Replacement

1. Compliance with Company’s Articles of Association (AOA)

The AOA outlines the specific procedures for appointment and dismissal. Deviating from this can nullify the appointment and result in non-recognition by the Ministry of Law and Human Rights (MOLHR).

2. Shareholders’ Resolution (GMS)

The GMS is the ultimate authority. The company must convene the meeting according to procedure, with proper quorum and notification, to legally approve any director changes.

Legal Process for Director Change in Indonesian Companies

1. Convening the GMS

The board or shareholders (holding at least 10% of voting rights) may call a GMS. You must send proper notice to all shareholders within the required timeframe (generally 14 days prior).

2. Drafting and Signing the Resolution

The GMS must adopt a resolution to remove and/or appoint a new director. This resolution should clearly state the identity of the outgoing and incoming directors and the effective date.

3. Notary Legalization

A Notary must draw up the GMS minutes and resolution in a notarial deed in Bahasa Indonesia. This is a mandatory requirement under Indonesian law.

4. Notification to the Ministry of Law and Human Rights (MOLHR)

The notary will submit the notification electronically via the AHU Online system. The MOLHR will issue an updated Ministerial Decree acknowledging the director change.

Timeframe and Document Requirements

• Total Duration: 7–14 working days (depending on notary and MOLHR response time).
• Required Documents:
  • Old and new director’s ID/passport
  • GMS invitation and attendance list
  • Notarial deed of GMS resolution
  • Articles of Association
  • Proof of MOLHR approval

Impact on Company’s Legal Standing

Failure to register the change may:

• Void the authority of the new director to sign on behalf of the company;
• Compromise bank transactions or licensing processes;
• Lead to potential tax and corporate governance penalties.

That’s why compliance is non-negotiable.

READ MORE:

• Corporate Tax Responsibilities in Indonesia: Legal Insight for Businesses

Common Pitfalls and How to Avoid Them

• Holding an invalid GMS due to lack of quorum
• Delayed MOLHR notification
• Appointing foreign directors without considering KITAS and BPJS obligations
• Failing to update licensing or OSS data

Avoid these with meticulous planning and professional legal support.

Legal Considerations for Foreign Directors

If your new director is a foreigner:

• They must obtain a KITAS (Limited Stay Permit) before being legally recognized as a director.
• The company must contribute to DPKK (Foreign Worker Compensation Fund).
• All employment contracts must be in accordance with Manpower Law.

Simply put, foreign directorships come with additional red tape that needs experienced navigation.

Practical Commentary from Kusuma & Partners

At Kusuma & Partners Law Firm, we frequently assist both local and foreign clients in executing director changes swiftly and in full legal compliance. Here’s our advice:

• Start early, considering that internal consensus and GMS scheduling take time.
• Involve a legal expert from the beginning to streamline the deed process.
• For foreign directors, process KITAS and reporting simultaneously to save time.
• Always update NIB, licensing, and tax databases post-change.

We understand that leadership transitions are sensitive moments in any company’s lifecycle. That’s why our team handles every step with care, confidentiality, and compliance.

Conclusion

The legal process for director change in Indonesian companies is clear, but not always simple. From internal approvals to government reporting, each step matters — and skipping one can risk the entire process.

For business continuity, legal compliance, and reputation management, it’s crucial to handle directorship changes professionally and thoroughly.

How We Can Help

Need help navigating director change in your company? We arehere to assist. Our experienced corporate law team ensures every legal requirement is met.

Fill in the form below to get our expert guidance.

“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 Indonesia’s corporate landscape, the General Meeting of Shareholders (GMS) is far more than a routine gathering—it’s a platform where the future of a company is shaped. It’s where shareholders speak, vote, and ensure that the company’s leadership remains accountable. Whether you’re a local entrepreneur, foreign investor, or company executive, understanding how to properly conduct a GMS in Indonesia is a legal necessity and a strategic advantage.

Understanding the General Meeting of Shareholders (GMS)

1. Definition and Importance

A GMS is the supreme organ within a company under Indonesian law. It enables shareholders to exercise their highest rights—such as appointing or dismissing directors, approving financial statements, or deciding major transactions. Essentially, the GMS serves as a democratic check within corporate governance, giving power back to the owners of the company: the shareholders. Without it, companies risk decisions being made without oversight, potentially leading to internal conflict or even legal disputes.

2. Types of GMS: Annual vs Extraordinary

There are two main types of GMS:

• Annual GMS (RUPS Tahunan) is mandatory and must be held no later than six months after the end of the fiscal year. It typically addresses routine matters like approving financials, director accountability, and dividend declarations.
• Extraordinary GMS (RUPS Luar Biasa) is held as needed, especially for critical matters such as mergers, acquisitions, changes to the Articles of Association, or urgent shareholder resolutions.

Understanding the distinction is vital, as each has different procedural rules and legal consequences.

Legal Basis and Regulatory Framework

1. Indonesian Company Law (UU PT)

The primary legal foundation is Law No. 40 of 2007 on Limited Liability Companies (UU PT). This law meticulously sets out how a GMS must be organized, who can convene it, what constitutes quorum, and how decisions are validly made. Notably, if any GMS is held without meeting the criteria under this law, its decisions can be nullified—a risk no business should take lightly.

2. Role of Articles of Association (AoA)

The Articles of Association (Anggaran Dasar) complement the UU PT by tailoring procedures to each company’s context. They may outline specifics like the method of summoning shareholders or voting mechanisms. However, they must not conflict with the UU PT. Hence, legal review of your AoA before holding a GMS is highly recommended.

Preparatory Steps Before Holding a GMS

1. Eligibility and Quorum

Only shareholders listed in the official shareholder registry have the right to attend a GMS. The law sets different quorum thresholds:

• For ordinary decisions: a minimum presence of more than 50% of shareholders.
• For critical resolutions (like amending the AoA): at least two-thirds (2/3) of shareholders must be present or represented.

If the quorum isn’t met, the company must postpone the meeting and reconvene it with adjusted quorum rules, which prolongs the decision-making process—something they can avoid through early planning.

2. Summoning and Notification

At least 14 days before the GMS (excluding the invitation and meeting date), the Board must send a formal invitation to all eligible shareholders. This notice must include:

• The date and time
• The location
• The full agenda
• Instructions for proxy voting (if applicable)

For public companies, additional requirements from OJK Regulation No. 15/POJK.04/2020 apply, such as announcements via IDX and national newspapers.

READ MORE:

• Protecting Minority Shareholder Rights Under Indonesian Company Law

Procedures for Conducting a GMS

1. Venue, Language, and Accessibility

By default, companies must hold the GMS within Indonesia. They generally conduct it in Bahasa Indonesia, but in practice, they increasingly use bilingual proceedings and documents (Indonesian-English), especially when foreign investors are involved. It’s also important that the meeting is accessible—whether physically or via virtual platforms.

2. Voting Mechanism and Decision Making

Voting can be done in several ways—by hand-raising, ballots, or electronically. The method should align with the AoA. Each shareholder’s vote is proportional to their shareholding. The company must clearly document the result of each vote and sign it in the minutes, which a Notary must then legalize if the meeting involves significant decisions.

Rights and Obligations of Shareholders in GMS

1. Right to Attend, Speak, and Vote

Indonesian law ensures that all shareholders, regardless of the number of shares they hold, have the right to:

• Attend and be represented
• Speak and raise objections or suggestions
• Vote on key decisions

This fosters transparency and inclusion, essential values in today’s corporate governance.

2. Minority Shareholder Protections

Even minority shareholders holding at least 10% of shares have the power to request an Extraordinary GMS. They also have the right to contest decisions through the courts if they believe those decisions harm their interests. These protections are essential in preventing domination by majority shareholders and in building investor trust.

Role of the Board of Directors and Commissioners

1. Who May Convene a GMS?

Typically, the Board of Directors takes the initiative to convene a GMS. However, in certain situations, the Board of Commissioners or shareholders holding at least 10% of voting shares may also request a GMS—especially when they consider the directors inactive or unresponsive.

2. Board Accountability in GMS

Shareholders hold the directors and commissioners accountable during the GMS. During the Annual GMS, the board must present the financial statements, disclose major activities, and seek shareholder approval (known as “acquit et de charge”) for their actions in the previous year.

READ MORE:

• Director’s Liability Under Indonesian Law: Civil and Criminal Consequences

Common Legal Pitfalls and How to Avoid Them

1. Invalid GMS and Legal Consequences

One of the most common mistakes companies make is failing to meet the legal requirements—be it an incorrect quorum, vague invitations, or rushed decision-making. This can lead to the GMS being legally invalid, which not only wastes time and resources but could also expose the company to litigation.

2. Shareholder Disputes

Improperly handled GMS often spark corporate conflicts—especially when shareholders feel sidelined or when decisions are rushed without consultation. To prevent this, legal counsel must review all materials, and a neutral Notary must facilitate the meeting.

Digital and Hybrid GMS: Trends and Compliance

The COVID-19 pandemic brought new norms. The Ministry of Law and Human Rights has legally permitted digital or hybrid GMS in Indonesia through Regulation No. 21 of 2021. However, compliance with cybersecurity, confidentiality, and electronic voting requirements is crucial. Companies must use secure platforms that support digital attendance, real-time voting, and proper recording.

Practical Commentary from Kusuma & Partners Law Firm

At Kusuma & Partners Law Firm, we have represented both private and public companies in ensuring the success of their General Meeting of Shareholders (GMS) in Indonesia. From drafting bilingual invitations to supervising online voting platforms, we emphasize meticulous compliance and shareholder transparency. Our team also handles shareholder disputes, hybrid GMS implementation, and legal audits of corporate resolutions to prevent future complications.

We believe a well-executed GMS not only builds shareholder confidence but also safeguards long-term business continuity.

Conclusion

Conducting a General Meeting of Shareholders (GMS) in Indonesia is not just a legal formality—it’s a cornerstone of good governance, transparency, and investor trust. Whether it’s routine corporate housekeeping or critical strategic decision-making, the GMS must be managed with care, structure, and legal precision. For companies looking to grow, attract investors, and ensure accountability, mastering the GMS process is indispensable.

How We Can Help

Need help organizing your GMS or navigating shareholder rights and corporate compliance in Indonesia? Reach out to Kusuma & Partners Law Firm. Let’s make your next GMS legally secure and strategically impactful.

Fill in the form below to get our expert guidance.

“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 today’s fast-evolving business environment, understanding corporate tax responsibilities in Indonesia is not just about ticking boxes or filing reports—it’s about safeguarding your business, gaining investor trust, and planning for long-term growth. Whether you’re running a local PT, a foreign-owned company, or considering investing in the Indonesian market, the country’s tax system can seem daunting at first. But with the right insights and professional guidance, you can turn these complexities into opportunities.

Understanding the Tax Landscape in Indonesia

To begin with, Indonesia operates under a self-assessment tax system, meaning companies are responsible for correctly calculating, reporting, and paying their own taxes. This framework is governed by Law No. 7 of 2021. While the system offers autonomy, it also places a heavy burden on businesses to stay informed and compliant. Any misstep—whether intentional or accidental—can lead to penalties or tax audits.

Moreover, the Directorate General of Taxes (DGT) is tightening its monitoring by introducing digital systems and integrating taxpayer data more aggressively. For businesses, this means tax compliance isn’t optional—it’s a must for survival and credibility.

Who Is Subject to Corporate Tax in Indonesia?

1. Local Companies (PT)

If you own a Perseroan Terbatas (PT)—Indonesia’s standard limited liability company—you are automatically liable for corporate taxes. These taxes apply not just to income earned domestically but also to any income earned overseas. This worldwide taxation principle ensures that Indonesian-registered entities remain transparent and accountable, regardless of where their profits originate.

2. Foreign-Owned Companies (PT PMA)

Foreign investors often choose to set up a PT PMA (Foreign Investment Company). While the opportunities are vast, PT PMA is under closer scrutiny, especially when it comes to profit repatriation, transfer pricing, and ensuring that cross-border transactions reflect fair market value. It’s important to understand that being foreign-owned doesn’t exempt a business from Indonesia’s tax obligations—it may, in fact, increase them.

3. Permanent Establishments (BUT)

Even if you don’t have a company established in Indonesia, you may still be liable for taxes if you operate through a Permanent Establishment (Bentuk Usaha Tetap or BUT). This could be a representative office, construction project, or even a branch that operates for more than 183 days in a 12-month period. If your business activities fall into this category, Indonesian tax authorities will consider you a local taxpayer for corporate tax purposes.

READ MORE:

• Tax Dispute Resolution in Indonesia: Mechanisms, Legal Process, and Practical Insights

Types of Corporate Taxes in Indonesia

1. Corporate Income Tax (PPh Badan)

This is the core of corporate tax responsibility. As of 2025, the general corporate income tax rate is 22%. However, the government provides a reduced rate of 50% on taxable income up to IDR 4.8 billion for small enterprises with revenue not exceeding IDR 50 billion. This progressive system is designed to support micro, small, and medium enterprises (MSMEs), but only those who are diligent in their compliance can benefit from the reduction.

2. Value Added Tax (VAT/PPN)

Another essential tax obligation is VAT (locally known as Pajak Pertambahan Nilai or PPN). Businesses with revenue over IDR 4.8 billion must register as PKP (Pengusaha Kena Pajak) and charge 11% VAT on taxable goods and services. Not charging VAT when you’re required to do so can lead to hefty fines—and worse, damage your credibility with partners and clients.

3. Withholding Tax (PPh 21, 23, 26)

If your business pays salaries, service fees, rent, interest, or royalties, you are required to withhold tax and remit it to the DGT on behalf of the payee. For example:

• PPh 21 for employee salaries
• PPh 23 for domestic services and dividends
• PPh 26 for payments to foreign parties

Many companies fail to plan for withholding tax and face unnecessary liabilities. But when done properly, WHT demonstrates your business’s reliability and transparency.

4. Land and Building Tax (PBB)

If your company owns land or buildings, you are subject to Pajak Bumi dan Bangunan (PBB). This tax is assessed annually based on government-determined values and applies even if your land or buildings are not used commercially. Many business owners underestimate the significance of PBB until they’re faced with penalties for delayed payments.

Tax Obligations and Deadlines for Companies

In Indonesia, timeliness is everything when it comes to taxes. Companies must:

• Register and obtain an NPWP (Tax ID Number)
• Submit monthly tax returns, including VAT and WHT
• File an annual corporate tax return (SPT Tahunan)
• Make monthly tax payments by the 10^th or 15^th of the following month
• Keep accurate financial records for at least five years

Missing deadlines—even by a day—can result in interest penalties up to 2% per month. Moreover, non-compliance can trigger deeper investigations or audits.

READ MORE:

• New Tax Audit Procedures in Indonesia : Key Updates and Implications for Taxpayers

The Role of E-Tax Systems: e-Faktur and e-Bupot

To streamline reporting, the government has implemented digital tax platforms. For example:

• e-Faktur is mandatory for issuing VAT invoices.
• e-Bupot is required for submitting withholding tax documentation.

Although these tools may seem technical or complicated at first, they actually make compliance faster and reduce the chance of clerical errors—if used correctly. It’s a shift that every modern business must embrace.

Penalties for Non-Compliance

Let’s be honest—nobody wants to deal with tax penalties. Yet many companies still take risks by filing late, underreporting income, or ignoring WHT obligations. The consequences can be severe:

• Fines up to 100% of unpaid taxes
• Administrative interest charges
• Blacklisting by the DGT
• Potential criminal charges in extreme cases

It’s not just about money. These penalties can harm your brand and scare off investors or partners. That’s why corporate tax responsibilities in Indonesia should always be taken seriously.

Tax Incentives for Eligible Businesses

Now for the good news. The Indonesian government offers a wide array of incentives to stimulate economic growth:

• Tax holidays for pioneer industries
• Super tax deductions for training and R&D
• Investment allowances for certain sectors

However, these incentives come with strict eligibility criteria and documentation requirements. Getting them wrong can lead to audits. Therefore, businesses should seek professional legal and tax advice to maximize benefits without compromising compliance.

Legal Obligations for Transfer Pricing and Tax Audits

If your company engages in related-party transactions, the Indonesian tax authority expects you to prepare and maintain Transfer Pricing Documentation (TP Doc). This includes:

• A Master File
• A Local File
• A Country-by-Country Report (CbCR) if applicable

These documents are vital during audits. Incomplete or missing documentation can lead to unfavorable tax adjustments. This is where having an experienced tax lawyer truly makes a difference.

Recent Updates in Indonesian Corporate Tax Regulation

Indonesia’s tax regulations evolve constantly. In recent years, we’ve seen:

• Introduction of the Core Tax Administration System (CTAS)
• New rules on digital economy taxation
• Strengthening of OECD-compliant tax cooperation

If you’re not actively monitoring these developments, you risk falling out of compliance without even realizing it.

READ MORE:

• Global Minimum Tax Implementation in Indonesia: What Businesses Should Know

Common Challenges and How to Overcome Them

Businesses often struggle with:

• Understanding Bahasa Indonesia tax terms
• Adjusting to frequent regulation changes
• Implementing effective internal controls

To address these challenges, it’s crucial to build a robust compliance strategy supported by tax professionals and legal counsel.

Practical Commentary from Kusuma & Partners

At Kusuma & Partners Law Firm, we’ve advised countless businesses—local and multinational—on how to efficiently manage their corporate tax responsibilities in Indonesia. We understand the unique concerns of business owners: limited time, fast-changing regulations, and the pressure of investor expectations.

Our approach is simple yet effective:

• We help you stay compliant,
• Avoid costly mistakes,
• And turn tax planning into a growth strategy.

Conclusion

Taxes aren’t the most exciting part of running a business. But ignoring them? That can cost you everything. By understanding your corporate tax responsibilities in Indonesia, using the right tools, and working with trusted legal & tax advisors, you can protect your business, maintain investor trust, and unlock new opportunities for growth.

How We Can Help

Need help making sense of your corporate taxes in Indonesia? Reach out to us today.

Fill in the form below to get our expert guidance.

“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 today’s increasingly regulated business environment, tax compliance has become a top priority for companies operating in Indonesia. However, even the most diligent taxpayers may find themselves at odds with the tax authority due to differing interpretations of tax laws or audit findings. This situation can lead to what is formally known as a tax dispute. Understanding the Tax Dispute Resolution Mechanisms in Indonesia is essential for business owners, corporate leaders, and investors who seek to mitigate legal risk, preserve reputations, and safeguard financial interests. Tax disputes are not merely bureaucratic hurdles—they can significantly impact a company’s cash flow and long-term strategy if not handled appropriately.

Common Causes of Tax Disputes

Tax disputes usually arise when there is a disagreement between the taxpayer and the Directorate General of Taxes (DGT) over the amount of tax owed. These disagreements are often triggered by tax audits, where the DGT may reassess your income, reclassify expenses, or reject your claims for VAT refunds. Other frequent causes include alleged underreporting, transfer pricing adjustments, and procedural non-compliance. For instance, multinational companies with complex intercompany transactions often face challenges related to transfer pricing documentation. Therefore, it’s important to anticipate where disputes may arise and to proactively manage tax compliance with a strategic lens.

Legal Framework Governing Tax Disputes

To resolve tax disputes fairly and systematically, Indonesia has established a legal framework that outlines the rights and obligations of both taxpayers and the tax authorities. The key regulations include Law No. No. 7 of 2021 on Harmonization of Tax Regulations, Law No. 14 of 2002 on the Tax Court, and Supreme Court Regulation No. 3 of 2018 concerning judicial review procedures. These laws define a step-by-step pathway that taxpayers must follow to resolve disputes, including objection, appeal, and judicial review. Moreover, each stage is bound by strict deadlines and procedural requirements, making it vital to understand and adhere to the proper legal process.

Administrative Resolution Stage with the Tax Office (Objection Process)

1. Filing a Tax Objection

The first formal step in the tax dispute resolution process is filing an objection with the Directorate General of Taxes. This must be done within three months from the date of the tax assessment letter (SKP) or other official notification. The objection must be submitted in writing and clearly outline the taxpayer’s reasons for disagreement. It should also include supporting documents such as financial records, legal arguments, and relevant evidence. Importantly, the full amount of the tax assessed must be paid in advance—a condition known as “pay first, argue later.” While this may seem burdensome, it underscores the importance of preparing strong documentation and seeking professional assistance early.

2. Timeline and Procedures

Once the objection is submitted, the DGT has up to 12 months to issue a decision. If no response is received within this period, the objection is automatically considered rejected. During this time, it is critical for taxpayers to maintain communication with the DGT and respond promptly to any requests for additional information. A well-prepared objection, backed by legal reasoning and solid documentation, significantly increases the chances of a favorable outcome.

Appeal Process to the Tax Court

1. Jurisdiction of the Tax Court

If the objection decision is not in the taxpayer’s favor, the next available remedy is to appeal to the Tax Court. This must be filed within three months of receiving the objection decision. The Tax Court is a specialized court with exclusive jurisdiction over tax disputes, and its judges are trained in both law and taxation. This means the proceedings are typically more technical and require a higher standard of legal and factual presentation.

2. Stages in the Tax Court Proceedings

The appeal process involves several distinct stages: registration, preliminary review, exchange of evidence, hearings, and finally, the issuance of a decision. During the hearing, both the taxpayer and the DGT are allowed to present their arguments and submit additional evidence. Unlike the objection process, the Tax Court permits the introduction of new facts and documents, offering the taxpayer another chance to strengthen their case. The court’s decision is final and legally binding, though judicial review remains available under specific circumstances.

Reconsideration to the Supreme Court (Peninjauan Kembali)

Legal Grounds for Reconsideration

Judicial review, known in Indonesia as Peninjauan Kembali, is the final legal recourse for taxpayers dissatisfied with the Tax Court’s decision. However, it can only be pursued under limited circumstances, such as the discovery of new evidence (novum), a grave error in legal interpretation, or procedural violations during the trial. The request for judicial review must be submitted within three months from the date the new evidence was found or the error was discovered. Although this stage is rarely successful, it provides an important legal safety net for cases with compelling new facts or significant procedural irregularities.

Alternative Dispute Resolution (ADR) in Tax Matters

Mediation & Negotiation under DJP or DGCE

In some instances, especially involving customs and excise, the Indonesian tax authority may offer alternative dispute resolution methods such as negotiation or mediation. These informal processes are not strictly regulated but are often encouraged by the authorities to expedite resolution and reduce litigation. While not suitable for all cases, ADR can be highly effective in situations where both parties are willing to compromise. Taxpayers should consult with their legal counsel to assess the viability of ADR, especially during or after a tax audit.

READ MORE:

• New Tax Audit Procedures in Indonesia : Key Updates and Implications for Taxpayers

Key Timelines and Legal Deadlines You Must Know

Meeting these deadlines is critical. Failure to comply will result in your case being automatically rejected, regardless of its merits. Thus, maintaining an accurate compliance calendar and seeking professional advice are non-negotiable elements of successful tax dispute management.

Strategic Considerations for Businesses and Investors

When it comes to tax disputes, a proactive approach is always better than a reactive one. Businesses should regularly assess their tax risk exposure, particularly in high-risk areas such as transfer pricing and VAT. It’s equally important to maintain meticulous documentation, including contracts, invoices, and internal memos that support your tax position. Furthermore, consider conducting internal tax audits to identify and address potential issues before the tax authorities do. From a strategic perspective, it’s often wise to engage tax professionals early in the dispute process to build a strong, well-documented case that can withstand scrutiny at every legal stage.

READ MORE:

• Global Minimum Tax Implementation in Indonesia: What Businesses Should Know

Practical Commentary from Kusuma & Partners

At Kusuma & Partners, we understand that every tax dispute is unique and requires a tailored legal strategy. Our experience shows that early intervention, supported by a comprehensive legal and financial review, can dramatically improve the outcome of a dispute. We have assisted numerous clients—from SMEs to multinational corporations—in navigating objections, appeals, and even judicial reviews. One of the most common pitfalls we encounter is clients waiting too long before seeking legal counsel. By the time the case reaches the Tax Court, crucial documentation may already be lost or incomplete. Don’t let this happen to your business.

Conclusion

Understanding the tax dispute resolution mechanisms in Indonesia is not just a matter of legal compliance—it’s about protecting your business. With the right knowledge, preparation, and legal representation, tax disputes can be resolved efficiently and favorably. Whether you’re at the audit stage or already in court, knowing your rights and obligations under Indonesian tax law is your best defense. Take action before it becomes too late.

How We Can Help

Facing a tax audit or dispute in Indonesia? Reach out to ustoday. Our experienced tax lawyers are ready to assist you at every stage—from audit to appeal.

Fill in the form below to get our expert guidance.

“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, as Southeast Asia’s largest economy, continues to attract a wide range of investors and entrepreneurs eager to tap into its growing consumer market and strategic regional location. However, whether you’re a foreign investor or a local business owner, the journey to doing business in Indonesia starts with one crucial step: obtaining the right business licenses. This may sound like a bureaucratic chore, but in reality, it’s a legal lifeline for your operations.

Understanding the Indonesian Licensing Framework

1. Why Licensing Matters for Business Legality

First and foremost, having a valid license means your business is legally recognized by the Indonesian government. It allows you to open a bank account, pay taxes, import goods, and—most importantly—operate with confidence. Many foreign investors underestimate the impact of not securing proper licenses, which can result in project delays, financial penalties, or even complete shutdowns. Hence, licensing is not just about legal formality—it’s about legitimacy, trust, and operational sustainability.

2. Key Laws Governing Business Licensing in Indonesia

To understand licensing in Indonesia, it’s important to become familiar with several core legal instruments. The most pivotal is Law No. 6 of 2023 on Job Creation (commonly known as the Omnibus Law), which overhauled the investment climate by simplifying licensing through a risk-based approach. Supporting regulations include Government Regulation No. 28 of 2025 on Risk-Based Licensing and regulations from BKPM (Investment Coordinating Board). These rules aim to reduce red tape but still require thorough compliance and precise categorization of your business activities.

Types of Business Licenses in Indonesia

1. Business Identification Number (NIB) via OSS System

Every business operating in Indonesia must obtain a Business Identification Number (Nomor Induk Berusaha or NIB), which serves as the foundational license. Issued through the OSS (Online Single Submission) platform, the NIB consolidates multiple administrative requirements into one document—including tax registration, import licenses, and employment registration. Think of it as your business’s national ID card. It is the starting point for everything that follows.

2. Sectoral Licenses: Industrial, Trading, Construction, etc.

Depending on the nature of your business activities, additional sector-specific licenses may be required. For instance:

• A construction firm must acquire an IUJK (Izin Usaha Jasa Konstruksi);
• Manufacturers require an Industrial Business License issued by the Ministry of Industry.

Choosing the correct KBLI (Business Field Classification Code) is essential, as this determines what additional licenses your business must apply for. A single digit error here could result in rejections or delays.

3. Specific Licenses for Foreign Companies

Foreign-owned companies, referred to as PT PMA (Penanaman Modal Asing), face stricter requirements. In addition to NIB, they may need location permits, environmental approvals, or technical licenses depending on their industry. If your business falls under sectors with limited foreign ownership, further documentation and approvals will be necessary.

READ MORE:

• Indonesia’s Positive Investment List vs. Negative Investment List: A Guide for Foreign Investors

Licensing for Foreign-Owned Companies (PT PMA)

1. Foreign Investment Requirements

Foreign investors must commit to a minimum investment of IDR 10 billion (approximately USD 670,000), with at least IDR 2.5 billion allocated as paid-up capital. This requirement ensures that only serious investors enter the Indonesian market. Additionally, businesses must align with the Positive Investment List, which outlines sectors open to foreign ownership.

2. NIB and Business Domicile for PT PMA

Once the legal entity is established, obtaining an NIB is next. PT PMA must also provide a registered business address. Some KBLI codes allow for virtual offices, but others demand a physical office space, especially in industries like manufacturing or warehousing. This must be clarified early in the setup process.

Common Licensing Challenges for Businesses

1. Regulatory Ambiguity and Changing Rules

Indonesia’s regulatory landscape is evolving rapidly. While reforms like the Omnibus Law aim to simplify things, inconsistent interpretations by ministries or local governments can be frustrating. For instance, one regional office might request extra documentation not listed on the OSS, causing unexpected delays.

2. Local Government Discretion and Delays

Despite OSS’s promise of centralization, regional autonomy persists. Some local authorities may impose additional requirements or take longer to process applications, especially for environmental and location permits. These delays can impact project timelines, increase costs, and frustrate investors.

Strategic Tips for a Smooth Licensing Process

1. Legal Due Diligence and KBLI Classification

Before starting the licensing process, it’s essential to conduct legal due diligence. Identify the most accurate KBLI code that matches your business activities. If your company engages in multiple services, you may need to register under multiple KBLI codes, each with its own licensing implications.

2. Working with a Knowledgeable Legal Team

Trying to navigate the OSS platform or local licensing procedures alone can be daunting. An experienced law firm, such as ours, understands the practical intricacies—from engaging with local governments to handling submissions. We help anticipate problems before they arise and ensure that your business gets off the ground quickly and safely.

Penalties for Operating Without a Proper License

1. Administrative Sanctions

Businesses operating without a license may face warnings, suspension of activities, or even license revocation. This is particularly common when companies expand operations into new sectors but fail to update their licenses accordingly.

2. Civil and Criminal Liabilities

More seriously, unauthorized business operations can expose directors to personal liability. If unlicensed activity causes public harm or financial losses, the company and its management may face lawsuits or even criminal charges under Indonesian law.

READ MORE:

• PT PMA vs PT PMDN in Indonesia: Key Differences, Legal Framework, and Setup Guide

Practical Commentary from Kusuma & Partners

At Kusuma & Partners, we’ve represented a diverse clientele—from foreign tech startups to local manufacturers—navigating the licensing labyrinth in Indonesia. Our key insight: success in licensing doesn’t lie in speed but in precision. Errors in KBLI selection, improper documentation, or local misunderstandings are common pitfalls.

Our firm provides comprehensive assistance, from KBLI advisory to preparing bilingual legal documents and following up with OSS and local government institutions. We act not only as your legal advisors but also as your compliance partners, ensuring every step is handled professionally and strategically.

Conclusion

Licensing is not just a legal requirement—it’s a strategic pillar for doing business in Indonesia. By understanding the rules, anticipating local nuances, and working with the right partners, you not only stay compliant but also build a foundation for long-term success.

How We Can Help

If you’re planning to start or expand a business in Indonesia, don’t leave licensing to chance. Contact us today for tailored legal assistance.

Fill in the form below to get our expert guidance.

“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.”