How to Start a Business in Indonesia as a Foreigner: The Complete 2026 Legal Guide to Foreign Investment, Company Formation, and Compliance

Table of Contents

Introduction

Indonesia is one of the most attractive emerging markets in the world. With a population of over 270 million people, a rapidly growing middle class, abundant natural resources, and strong government support for foreign direct investment (FDI), Indonesia offers compelling opportunities for foreign entrepreneurs, investors, and multinational companies.

However, starting a business in Indonesia as a foreigner is not as simple as registering a company online. The Indonesian legal system imposes specific restrictions, investment requirements, licensing procedures, and immigration rules that differ significantly from those in Western jurisdictions. Failure to understand these rules can result in costly delays, regulatory penalties, or even forced business closure.

Understanding Indonesia’s Legal and Business Environment

Indonesia’s Legal System in Brief

Indonesia operates under a civil law legal system, heavily influenced by Dutch colonial law and modern national legislation. Laws are codified in statutes and government regulations rather than developed through judicial precedent.

For foreign investors, the most relevant legal frameworks include:

• Investment Law
• Company Law
• Job Creation (Omnibus) Law
• Capital Market and Tax Regulations
• Immigration and Manpower Laws

Foreign business activities are closely supervised by multiple government authorities, including the Ministry of Investment, Ministry of Law and Human Rights, Directorate General of Taxes, and Immigration Office.

Why Indonesia Actively Regulates Foreign Businesses

Indonesia welcomes foreign investment but seeks to protect national interests, local businesses, and employment. As a result:

• Certain business sectors are restricted or regulated
• Minimum capital requirements apply to foreign-owned companies
• Local licensing and reporting obligations are strictly enforced

Understanding these policy objectives is essential when planning how to start a business in Indonesia as a foreigner.

Can Foreigners Legally Start a Business in Indonesia?

General Rule

Yes, foreigners can legally start and own a business in Indonesia, but not in the same way as Indonesian citizens.
Foreigners generally cannot:

• Operate a sole proprietorship
• Own a local Indonesian limited liability company (PT Lokal)
• Instead, foreigners must establish a foreign-owned limited liability company, known as a PT PMA (Perseroan Terbatas Penanaman Modal Asing).
• Exceptions and Clarifications

While there are limited alternative structures (such as representative offices), a PT PMA is the primary legal vehicle for conducting commercial activities in Indonesia as a foreigner.

Choosing the Right Business Structure as a Foreigner

1. PT PMA (Foreign-Owned Limited Liability Company)

A PT PMA is the most common and robust structure for foreign investors. It allows:

• 100% foreign ownership (in permitted sectors)
• Revenue-generating activities
• Hiring local and foreign employees
• Sponsoring work visas

This structure is ideal for startups, trading companies, service providers, manufacturers, and technology businesses.

2. Representative Office

Representative offices are suitable for:

• Market research
• Liaison activities
• Supervision of parent company interests

They cannot generate revenue or issue invoices in Indonesia.

3. Joint Venture with Local Partners

In restricted sectors, foreigners may be required to partner with Indonesian shareholders. Joint ventures require careful legal structuring to protect foreign interests.

Understanding the Foreign Investment Restrictions (Positive Investment List)

What Is the Positive Investment List?

Indonesia regulates foreign ownership through the Positive Investment List, which categorizes business sectors into:

• Fully open to foreign investment
• Conditionally open (with ownership limits)
• Reserved for local businesses

This list is periodically updated and must be checked before company formation.

Practical Impact on Foreign Entrepreneurs

Before registering a PT PMA, you must:

• Identify your business classification (KBLI code)
• Confirm allowed foreign ownership percentage
• Adjust shareholding structure accordingly

Failure to comply can result in rejection of your business license.

Step-by-Step Guide: How to Start a Business in Indonesia as a Foreigner

Step 1: Define Your Business Activities and KBLI Codes

Every Indonesian company must specify its business activities using standardized classification codes. These codes determine:

• Foreign ownership eligibility
• Licensing requirements
• Tax treatment
• Careful selection is critical for legal compliance.

Step 2: Determine Shareholders and Directors

A PT PMA requires:

• At least two shareholders
• At least one director
• One commissioner (optional but recommended)

Shareholders may be individuals or foreign companies.

Step 3: Meet the Minimum Capital Requirements

Foreign-owned companies are subject to significantly higher capital thresholds than local companies. The law requires:

• Minimum issued and paid-up capital aligned with large-scale business classification
• Proof of capital commitment

This requirement ensures serious investment intent.

Step 4: Reserve Company Name

Company names must:

• Be unique
• Use Latin characters
• Not conflict with public order or trademarks

Name approval is obtained electronically.

Step 5: Draft and Notarize the Deed of Establishment

The deed must be prepared by an Indonesian notary and include:

• Company objectives
• Capital structure
• Governance rules

Step 6: Obtain Legal Entity Approval

• The Ministry of Law and Human Rights issues official approval, granting legal entity status.

Step 7: Register Through the OSS System

Indonesia uses an Online Single Submission (OSS) system for business licensing. Registration generates:

• Business Identification Number (NIB)
• Business licenses
• Import/export licenses (if applicable)

Step 8: Obtain Sector-Specific Licenses

Some industries require additional permits, such as:

• Tourism licenses
• Construction permits
• Financial service approvals

Step 9: Register for Tax and Social Security

Companies must register with:

• Directorate General of Taxes
• Employee social security agencies

Step 10: Open a Corporate Bank Account

• A local bank account is required for operational transactions.

Immigration and Visa Considerations for Foreign Business Owners

Business Visa vs. Work Visa

Foreign shareholders and directors must hold appropriate visas. Common options include:

• Investor Visa
• Work Permit (KITAS)
• Business Visit Visa (limited scope)

Working without proper authorization can lead to severe penalties.

Employment and Labor Law Compliance

Hiring Local Employees

Indonesia strongly protects local labor. Employers must comply with:

• Minimum wage laws
• Employment contracts
• Termination procedures

Hiring Foreign Workers

Foreign employees require:

• Government approval
• Position justification
• Skills transfer obligations

Taxation of Foreign-Owned Companies in Indonesia

Corporate Income Tax

Foreign-owned companies are subject to corporate income tax on Indonesian-sourced income.

Withholding Taxes and VAT

Additional taxes may apply depending on transactions and services.
Proper tax planning is essential to avoid audits and penalties.

Common Legal Mistakes Foreigners Make

• Using nominee shareholders illegally
• Underestimating capital requirements
• Operating without proper licenses
• Violating visa conditions

Avoiding these mistakes protects long-term business viability.

Compliance, Reporting, and Ongoing Obligations

Once established, a PT PMA must:

• Submit periodic investment reports
• File tax returns
• Maintain corporate records

Non-compliance can lead to license revocation.

Advantages and Risks of Starting a Business in Indonesia as a Foreigner

Advantages

• Large consumer market
• Strategic ASEAN location
• Growing digital economy

Risks

• Regulatory complexity
• Bureaucratic delays
• Language and cultural barriers

Professional legal support mitigates these risks.

Conclusion

Starting a business in Indonesia as a foreigner offers exceptional opportunities, but it requires careful legal planning, regulatory compliance, and strategic execution. Understanding the PT PMA structure, foreign investment restrictions, licensing processes, immigration rules, and tax obligations is essential for long-term success.
By following a structured approach and respecting Indonesian legal requirements, foreign entrepreneurs can build profitable and sustainable businesses in one of Asia’s most dynamic economies.

Frequently Asked Questions (FAQ)

Can a foreigner own 100% of a company in Indonesia?
Yes, in sectors fully open under the Positive Investment List.

What is the minimum capital for a PT PMA?
It must meet large-scale business thresholds under Indonesian law.

Can foreigners work as directors in their own company?
Yes, with the appropriate investor or work visa.

How long does it take to set up a PT PMA?
Typically several weeks, depending on licensing complexity.

Is a local partner required?
Only in restricted business sectors.

Can a PT PMA sponsor visas?
Yes, once fully licensed and compliant.

Are nominee arrangements legal?
No, nominee shareholding structures are prohibited.

Do foreign-owned companies pay higher taxes?
No, tax rates are generally the same, but compliance is strictly monitored.