A Practical Guide to Establish Business in Indonesia

It is beyond reasonable doubt that Indonesia provides a huge market for almost every industrial sector ranging from real estate to financial services. Currently, Indonesia is populated with more than 270 million citizens dominated with productive classes. In addition to that, Indonesia provides invaluable natural and mineral resources which are very important to support various manufacturing industries.

In light of such potential advantages, this article will provide some practical guidance for investors to establish their businesses in Indonesia. There will be 4 (four) points that will be addressed in this article, including: (i) Form of Business Entity, (ii) Foreign Ownership Limitations, (iii) Business Classifications, and (iv) Mandatory Business License.

Prior to the discussion, it is important to mention some of the regulations related to investment and business establishment in Indonesia, among others:

1. Law No. 25 of 2007 on Investment (“Investment Law”);
2. Law No. 40 of 2009 on Limited Liability Company (“Company Law”);
3. Government Regulation No. 28 of 2025 on The Organization of Risk Based Business Licensing (“GR 28/2025”);
4. President Regulation No. 10 of 2021 on Investment Business Fields (“PR 10/2021”); and
5. Regulation of the Statistic Central Bureau (Badan Pusat Statistik or “BPS”) Regulation No. 7 of 2025 on Standard Classification of Indonesian Business Sector (“BPS Reg. 7/2025”).

Form of Business Entity and Capital Requirements

Although not strictly defined in Indonesia’s regulatory framework, business entities shall refer to the economical unity which is utilized to gain economic benefits. Business entities are means by which businesses are managed and operated on the daily basis.

Business entities can be divided into 2 (two) classification: business entities with legal personality and business entities without legal personality. The former includes the Limited Liability Company (Perseroan Terbatas or “PT”), one of the well-known and well-structured business entity with legal personality under Indonesian regulatory framework.

In this article, we will be focused primarily on PT as it is the only form of business entity that is allowed for foreign investment as stipulated in Article 5 (2) of Investment Law. It should be noted that establishing business in the form of PT offers various benefits as well, including the benefits of limited liability (where shareholders’ liabilities are limited to the capital) and also the benefits of separate legal entity (where corporation can act and also be prosecuted by themselves without involving the shareholders).

During its establishment, it is mandatory that a PT is established by at least 2 (two) parties (person and/or legal entity) which take parts as the shareholders of the company. Such establishment also needs to be made in written in the form of a notarial deed before a public notary. Additionally, the establishment will also be registered to the Ministry of Law in order to grant the newly established company its full legal status and capacities (Article 7 (1) – (3) Company Law).

With regard to the capital requirements, it is important to distinguish between 2 (two) types of capital which consist of (i) authorized capital; and (ii) paid-up capital. Such differentiation is important to analyze the capital requirements for the establishment of PT.

Generally, as stipulated in Article 32 (2) of Company Law, the amount of authorized capital shall subject to the decision of the founders. Such provisions give flexibility to founders in deciding the amount of authorized capital determined by business’ scope, scale, and activities.

However, for foreign investment companies, Article 212 of GR 28/2025 requires additional minimum investment in the amount of IDR 10 billion per business activity per location. Such requirements must be brought in considerations while determining the amount of company’s authorized and paid-up capital as well.

Business Classifications

As we discuss the provisions on business classifications, historically, Indonesia has implemented the Risk Based Business Licenses as of 2021. Under this new licensing regime, business activities are classified based on its potential risk (Article 1 (2) of GR 28/2025).  Business activities are further classified in the following categories:

1. Low risk business activities;
2. Medium-low risk business activities;
3. Medium-high risk business activities; and
4. High risk business activities.

(Article 128 (1) – (2) GR 28/2025)

Furthermore, all applicable business activities in Indonesian jurisdiction are classified by BPS in various codes combination. Such codes are known as the Standard Classification of Indonesian Business Sector (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”).  

The KBLI codes are stipulated and introduced by BPS through BPS Reg. 7/2025. Under this regulation, there are more than 1,500 applicable KBLI Codes for various business activities. The KBLI Codes covers 22 (twenty two) business categories ranging from Agriculture, Forestry, and Fisheries to Activities of International Organizations and Other Extra-International Bodies.

Foreign Ownership Limitations

It is also noteworthy that some of business activities marked by particular KBLI Codes subject to foreign ownership limitations. In general, such limitations are stipulated in PR 10/2021. The limitations can be in the form of prohibition for foreign investment (100% domestic ownership) or prohibition for foreign investors to be majority shareholders (maximum of 49% of foreign ownership).

Some of the business activities which are subject to foreign ownership limitations as stipulated in PR 10/2021 are as follows:

Please be informed that limitations in PR 10/2021 are only regulated in general level. Some of the technical regulations issued by respective regulators in charge of supervising particular business activities also stipulate such limitations. For instance, for insurance companies, the foreign ownership is limited to maximum of 80% of the paid-up capital as stipulated in Government Regulation No. 14 of 2018 on Foreign Ownership of Insurance Companies as amended by GR No. 3 of 2020.

Therefore, it is still advised that investors that plan to invest in Indonesian market to conduct a thorough legal review over targeted business activities. This is to ensure that prospective investors gain a complete overview over the targeted business activities before finally come into decision to invest.

Mandatory Business Licenses

As mentioned above, within the Risked Based Business Licensing regime, the mandatory business licenses are stipulated based on the inherent risk of particular business activities. We have discussed that business activities are classified into 4 (four) classification categories. Such classification categories are important to determine what kind of business licenses required.

As stipulated in Article 130 – 133 of GR 28/2025, the mandatory business licenses for each classification categories are as follows:

Conclusion

Indonesia offers invaluable market and potential for investors to establish their business. All business activities are properly regulated under the prevailing laws and regulations. These regulations cover various aspects of business activities including form of business entity, capital requirement, foreign ownership limitations, and provisions regarding business licenses.

It is highly advised for investors to conduct a through legal review over applicable regulations before taking into consideration to invest in Indonesia. This to ensure that investors obtained full and proper knowledge of regulatory requirements for establishing business in Indonesia. For investors who have established their business in Indonesia, such legal review is also advised in order to maintain and fulfil business compliance to the prevailing regulations. 

Disclaimer:
Informasi dan pendapat dalam tulisan ini disajikan semata-mata untuk tujuan informasi dan edukasi publik. Dan tidak bertanggung jawab atas segala bentuk penggunaan, penafsiran, maupun keputusan yang diambil berdasarkan isi tulisan ini. Pembaca diharapkan melakukan verifikasi dan penilaian secara mandiri sesuai kebutuhan.