Foreign Investment in Indonesia: A Practical Guide to Establishing a Foreign Investment Company Made Simple

Indonesia is undergoing a major transformation in its investment landscape. Various legal reforms and licensing simplifications have opened up new opportunities for foreign investors to inject capital more easily, securely, and strategically. This article presents a practical overview of how to establish a Foreign Investment Company (PMA), based on the latest positive laws in Indonesia, summarized from an exclusive eBook prepared by the Queen Law Firm team.

A. Why Indonesia?

Indonesia is not only a large market—with over 275 million people and a rapidly growing middle class—but also a country strongly oriented toward investment growth. Since the enactment of the Job Creation Law and the launch of the OSS-RBA (Online Single Submission – Risk-Based Approach) system, the government has demonstrated a clear commitment to bureaucratic simplification and legal certainty.

The realization of foreign investment (PMA) in 2024 reached IDR 744 trillion, reflecting strong global investor confidence. Key sectors include technology manufacturing, new and renewable energy, digital logistics, and private healthcare.

B. Legal Structure Every Investor Must Understand

To establish a PMA, investors must understand the following legal framework:

Law No. 25 of 2007 on Investment, which guarantees legal certainty and asset protection for foreign investors.
The Job Creation Law and its derivatives, which streamline licensing through OSS-RBA and shift from the Negative Investment List to the Positive Investment List (DPI).
Sectoral regulations, which must still be considered for certain fields such as energy, health, education, and financial services.

Business Form Options
PMA is generally established in the form of a Limited Liability Company (PT) with foreign capital, requiring a minimum capital of IDR 10 billion and an initial paid-up capital of IDR 2.5 billion. Another option is setting up a Foreign Representative Office (KPPA), which is not permitted to engage in commercial activities but may conduct promotion, research, and supervision.

Location and KBLI Classification
Business location must align with the Spatial Detail Plan (RDTR) and have a KKPR. The business sector must match the correct KBLI (Indonesian Standard Industrial Classification) code to avoid rejection by the OSS system.

C. OSS-RBA System: Convenient but Not to Be Taken Lightly

OSS-RBA is a centralized, risk-based system. Each business sector is classified as low, medium, medium-high, or high risk—determining the type of license required.

Although OSS can be accessed directly by business actors, many foreign investors face challenges such as:

Incorrect KBLI input.
Data mismatches with the deed of establishment.
Additional permits required by sectoral ministries.

In practice, legal professional assistance ensures process accuracy and smooth compliance.

D. Don’t Miss Government Incentives and Facilities

Indonesia offers a range of fiscal and non-fiscal incentives, including:

Tax Holiday for up to 20 years.
Tax Allowance up to 30% of the investment value.
Exemption of import duties and VAT not collected.
Facilitated employment of foreign workers and expedited licensing in Special Economic Zones (KEK).

Eligibility requires alignment with national priority sectors and complete, valid documentation.

E. Legal Risks and Obligations That Must Not Be Ignored

Once established, a PMA must:

Submit Investment Activity Reports (LKPM) regularly.
Comply with foreign manpower regulations.
Fulfill environmental and zoning permits.
Adhere to tax rules and transfer pricing obligations.
Avoid nominee structures, which are prohibited.

Risks such as incorrect KBLI classification, illegal land status, or poorly drafted contracts can lead to license revocation or legal disputes.

F. 7 Key Tips for Foreign Investors

Check the DPI (Investment Priority List) and suitable KBLI code.
Choose a location compliant with RDTR and obtain KKPR.
Plan your capital and shareholding structure early.
Validate all legal documents before OSS submission.
Use a certified notary and sworn translator.
Submit LKPM reports on time and consistently.
Consult incentives early—Tax Holiday, Tax Allowance, or KEK benefits—so you don’t lose out on eligible rights.

G. When Do You Need Professional Help?

Although OSS-RBA is publicly accessible, technical complexities, sectoral variations, and the importance of legal strategy drive many foreign investors to retain a corporate law firm for full support. Proper legal assistance not only ensures compliance but accelerates business setup and strengthens investor positioning.

Queen Law Firm is your trusted legal partner for entering the Indonesian market lawfully, securely, and efficiently. With broad experience across sectors, we help simplify the complex legal process into actionable results.