Why Bilingual Contracts Matter for Cross-Border Business in Indonesia

Indonesian law requires that agreements involving an Indonesian party be executed in the Indonesian language, under Law No. 24 of 2009 concerning the National Flag, Language, Emblem, and Anthem. Where a foreign party is also involved, the agreement may additionally be prepared in the foreign party's language, or in English, alongside the Indonesian text. This requirement applies broadly to commercial agreements, and its practical implications are often underestimated by parties structuring cross-border transactions.

Why this matters beyond formality

Contracts prepared solely in a foreign language, without an accompanying Indonesian version, have in some instances faced challenges to their enforceability before Indonesian courts. While the legal and regulatory landscape around this requirement has continued to develop, the underlying principle remains consistent: an agreement intended to be enforceable in Indonesia is generally on firmer ground when it exists in a properly prepared bilingual form from the outset, rather than relying on translation only if a dispute arises later.

Common issues in bilingual drafting

• Inconsistent terminology — legal and commercial terms that do not translate precisely between languages can create ambiguity if not carefully reconciled
• Missing prevailing language clauses — agreements should specify which language version governs in the event of a discrepancy between the two texts
• Late or informal translation — translating an agreement only after signing, or using an uncertified translation, can undermine the intended protection of having a bilingual document
• Definitions drafted in only one language — key defined terms should be aligned across both versions to avoid diverging interpretations

Practical approach

For cross-border transactions, the more reliable approach is to draft the Indonesian and foreign-language versions in parallel from the beginning, with legal counsel reviewing both texts for consistency, rather than treating one version as a translation of the other prepared after the fact. A clearly drafted prevailing language clause, along with careful alignment of key terms and definitions, helps reduce the risk of disputes over interpretation later.

This is particularly relevant for investment agreements, joint venture arrangements, loan agreements, and commercial contracts where an Indonesian entity is a contracting party — situations where both compliance with the language requirement and genuine clarity of terms for all parties are equally important.