Establishing a company in Indonesia as a foreign investor is one of the most strategically significant decisions you can make in Southeast Asia’s largest economy. But before your PT PMA opens its doors, signs its first contract, or hires its first employee, there is a regulatory framework you need to understand, one that governs how your company is structured, how it gets licensed, how it manages its workforce, and how you and your foreign staff can legally live and work here.
Key regulations form the foundation of every successful company establishment in Indonesia. Here is what they are, what they require, and why each one matters to your business.
1. The Corporate Law, Law No. 40 of 2007
Every PT PMA begins here. The 2007 Indonesian Corporate Law is the foundational legislation that defines the legal structure, governance requirements, and operational rules for all limited liability companies in Indonesia, including the PT PMA (Perseroan Terbatas Penanaman Modal Asing), the primary vehicle for foreign investment and company establishment in the country.
Key provisions to understand:
- Company Formation and Operation, The law sets out the legal requirements for incorporating a limited liability company, including the minimum requirement of two shareholders, a defined capital structure, and compliant business activities before operations may commence.
- Corporate Governance, The roles and responsibilities of the Board of Directors (BOD) and Board of Commissioners (BOC) are clearly defined under this law, establishing the decision-making hierarchy of every PT PMA from the point of establishment.
- Shareholder Rights, Shareholders of a PT PMA are generally not personally liable for company losses beyond the extent of their shareholding, unless specific conditions apply, such as misuse of the company structure for personal gain in bad faith.
- Capital Structure, The law sets the minimum authorised capital for company establishment at IDR 50,000,000, with an obligation to fully pay up all subscribed capital at the time of incorporation.
- General Meeting of Shareholders (GMS), All major decisions affecting the PT PMA, including amendments to the Articles of Association or the appointment of directors, must be approved through a General Meeting of Shareholders, which holds ultimate authority over the company.
Why this matters for your PT PMA:
Corporate Law gives you the tools to protect your interests from the very beginning of the company establishment process. For example, rather than accepting the standard five-year director tenure, you can specify a one-year term in your Articles of Association for greater management flexibility. You can also define clear dissolution procedures from the outset to simplify the process if the company is later wound down. Before establishing a company in Indonesia, review your intended business activities and shareholder arrangements against this law to ensure your PT PMA is structured correctly from day one.
2. BKPM Regulation No. 5 of 2025, Risk-Based Licensing for PT PMA Companies
Once your PT PMA structure is determined, the next critical step in the company establishment process is licensing, and this regulation is the governing framework. Issued by the Ministry of Investment (BKPM) as an implementing regulation under Government Regulation No. 28 of 2025, BKPM Regulation No. 5 of 2025 consolidates and replaces the previous BKPM Regulations No. 3, 4, and 5 of 2021 into a single, more comprehensive framework. Its primary aim is to create a simpler, more integrated, and more transparent licensing process for foreign investors establishing a company in Indonesia through the Online Single Submission (OSS) system.
Key provisions for PT PMA establishment:
- Risk-Based Licensing (OSS-RBA) , The licensing requirements for your PT PMA are determined by the risk level of your business activity, as classified under Indonesia’s Business Classification Codes (KBLI). Higher-risk activities require more complex licensing procedures, while lower-risk classifications allow for a faster, lighter compliance pathway, an important consideration when planning your company establishment strategy.
- Minimum Paid-Up Capital, A PT PMA is classified as a Large Enterprise under this regulation, requiring a minimum issued and paid-up capital of at least IDR 2.5 billion at the time of establishment, unless otherwise specified by applicable law.
- Minimum Investment Requirement: For each KBLI business classification and project location, your PT PMA must commit to a minimum total investment of IDR 10 billion, excluding land and buildings. This threshold applies per business line, per location.
- Licensing and Administrative Procedures, The regulation provides a structured framework for conducting all licensing, registration, and facility applications through the OSS system, the central platform through which all PT PMA company establishment and licensing processes are managed.
- Alternative Legal Entities, For foreign businesses not yet ready for a full PT PMA establishment, a Representative Office (RO) operates outside the minimum capital and investment thresholds and is recognised as a low-risk entity under the risk-based framework.
Also read: Everything You Need to Know About BKPM Regulation for Investment Implementation in 2025 – 2026
Why this matters for your PT PMA:
Your KBLI classification determines the licensing burden your PT PMA will face throughout its operation, making it one of the most consequential decisions in the entire company establishment process. Where possible, a low-risk KBLI classification allows your PT PMA to operate with minimal compliance overhead and obtain licences faster. Thoroughly research your KBLI code before committing to a structure, and consult a professional before establishing a company in Indonesia to ensure you are classified correctly from the outset.
3. Indonesian Manpower Law, Law No. 13 of 2003
Establishing a company in Indonesia means becoming an employer in Indonesia, and the Manpower Law is the framework that governs every aspect of that relationship. It sets the minimum standards for employment contracts, working conditions, leave entitlements, termination procedures, and the employment of foreign workers within your PT PMA.
Key provisions for PT PMA employers:
- Employment Contracts, The law recognises both permanent and fixed-term employment arrangements. Probation periods are capped at a maximum of three months for permanent employees, and employment contracts must meet the minimum standards prescribed by law.
- Working Hours, Standard working hours are defined as 40 hours per week, structured as either seven hours per day over six working days or eight hours per day over five working days. Overtime provisions and corresponding pay rates are also defined under this law.
- Leave Entitlements: Employees are entitled to a minimum of 12 working days of annual leave. Maternity leave of three months total, split equally before and after childbirth, is mandated, alongside paid sick leave provisions requiring medical certification.
- Termination and Severance, The law outlines specific grounds for termination and stipulates detailed calculations for severance pay, long-service pay, and compensation for outstanding entitlements. These calculations are generally considered employer-weighted and must be fully accounted for in your PT PMA’s operational planning.
- Foreign Workers, Employers establishing a company in Indonesia, and intending to hire foreign nationals must obtain a Work Permit (IMTA) for each foreign employee. The law also mandates skills transfer programmes and the appointment of Indonesian counterpart workers alongside foreign hires.
Why this matters for your PT PMA:
Non-compliance with Indonesia’s Manpower Law carries significant financial and legal consequences. Understanding your obligations as an employer before establishing a company in Indonesia ensures your PT PMA’s hiring practices, employment contracts, and HR policies are aligned with local standards from the very start, protecting both your business and your workforce.
4. Immigration Law, Law No. 6 of 2011
For any foreign investor establishing a company in Indonesia, immigration compliance is not a secondary consideration; it is a core operational requirement. Immigration Law No. 6 of 2011 governs the entry, residency, and permitted activities of all foreign nationals in Indonesia, and directly affects your right and the right of your foreign staff to live and work legally within the country.
Key provisions for PT PMA directors and foreign employees:
- Stay Permits for Foreign Nationals. Foreign nationals intending to reside in Indonesia on a long-term basis must obtain the appropriate stay permit, sponsored by their employing or investing company. The primary permit types relevant to PT PMA establishment are the Limited Stay Permit (ITAS/KITAS), typically valid for one to two years and renewable, and the Permanent Stay Permit (ITAP/KITAP), available to long-term residents meeting specific eligibility criteria. Stay permits must be used strictly in accordance with their designated purposes.
- Penalties for Non-Compliance: The consequences of immigration violations for PT PMA directors and employees are significant. Administrative penalties include fines of IDR 1,000,000 per day for overstaying. More serious violations can result in deportation, blacklisting from re-entry for up to ten years or permanently, or an exit ban preventing departure from Indonesia during active legal proceedings.
- Criminal Provisions: The misuse of stay permit documents and other immigration violations carries criminal penalties, including imprisonment and substantial fines under this law.
Also read: Essential Guide to Investor Visa ITAS
Why this matters for your PT PMA:
Working on a business visit visa while running a PT PMA is one of the most common and most serious immigration violations committed by foreign investors establishing a company in Indonesia. It can result in immediate deportation and a permanent entry ban, disrupting your entire business operation. Ensuring every director, shareholder, and employee of your PT PMA holds the correct visa and stay permit for their activities is not optional; it is a non-negotiable component of compliant company establishment in Indonesia.
Establishing a Company in Indonesia: Start With the Right Guidance
These four laws do not operate in isolation. For a foreign investor establishing a company in Indonesia, they work together as an interconnected compliance framework; corporate structure, licensing, employment, and immigration must all be aligned from the moment your PT PMA is incorporated.
Getting this right from the outset protects your investment, accelerates your market entry, and ensures your PT PMA operates on a fully compliant foundation from day one. Professional guidance through each stage of the company establishment process is not simply advisable; for most foreign investors, it is essential.
Frequently Asked Questions About Establishing a Company in Indonesia as a Foreign Investor
Can I own a property by being an investor in Indonesia?
Foreign investors cannot directly own freehold land (Hak Milik) in Indonesia. However, through a PT PMA, investors can acquire property under Hak Guna Bangunan (HGB) or Hak Pakai (Right to Use) titles, which allow long-term use and commercial operation of property. These rights are legally recognised and can typically be extended. Property ownership must be aligned with the company’s business activities and comply with zoning and licensing regulations.
Can foreign investors hold 100% ownership in a PT PMA?
Yes, foreign investors can hold up to 100% ownership in a PT PMA, depending on the business sector. Indonesia’s Positive Investment List determines which sectors are fully open, restricted, or require local partnership. It is essential to review the relevant KBLI classification before incorporation to ensure the desired ownership structure is permitted.
What is the risk-based approach to licensing for PT PMA companies?
Indonesia applies a risk-based licensing system (OSS-RBA), where the level of licensing requirements depends on the risk classification of the business activity—low, medium, or high. Low-risk businesses may only require a Business Identification Number (NIB), while higher-risk activities require additional permits, certifications, and inspections. This system aims to simplify processes for low-risk sectors while ensuring stricter oversight for businesses with greater potential impact.
What obligations do foreign investors have when hiring local and foreign employees in Indonesia?
Foreign investors must comply with Indonesian manpower regulations. When hiring local employees, companies must adhere to employment contracts, minimum wage standards, social security (BPJS), and labour laws. For foreign employees, companies must obtain the appropriate work permits and stay permits, justify the position through a manpower plan (RPTKA), and ensure knowledge transfer to local staff. Compliance with both labour and immigration requirements is essential to avoid penalties and ensure smooth operations.
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