Establishing a Company in Indonesia: What Foreign Investors Should Know

Foreign investors looking to do business in Indonesia typically establish what is known as a PT PMA (Perseroan Terbatas Penanaman Modal Asing) — a limited liability company with foreign capital participation. Unlike a representative office, a PT PMA can generate revenue, sign contracts, hire local employees, and hold operational licenses in its own name, which makes it the standard vehicle for most foreign-owned businesses operating in the country.

Sector classification

Not every business sector is open to full foreign ownership. Indonesia maintains a positive investment list that specifies which sectors are open, partially open with foreign ownership caps, or reserved for domestic investors. Identifying the correct classification for a proposed business activity is usually the first step, since it determines the maximum permissible foreign shareholding and whether any additional approvals are required before incorporation can proceed.

Capital requirements

A PT PMA is generally required to meet minimum investment and paid-up capital thresholds, which can vary depending on the business sector and the specific location of operations. These figures are set by regulation and are periodically updated, so they are best confirmed against current rules at the time of incorporation rather than assumed from prior experience.

Licensing through the OSS system

Business licensing in Indonesia is largely processed through the Online Single Submission (OSS) system, a centralized digital platform that issues the business identification number and sector-specific permits required to operate legally. Depending on the risk classification of the intended activity, additional technical permits, environmental approvals, or sector-specific licenses from relevant ministries may also apply.

Where legal counsel typically assists

• Confirming sector classification and permissible foreign ownership percentage
• Structuring the shareholding and drafting the deed of establishment and articles of association
• Coordinating registration through OSS and any required sector-specific licenses
• Advising on corporate governance requirements, including directors, commissioners, and reporting obligations
• Structuring shareholder agreements, joint venture arrangements, or subsequent corporate actions such as capital increases

The process is generally procedural once the structure and sector classification are settled, but errors at the classification or capital-structuring stage can be costly to unwind later. Investors are generally well served by confirming the current regulatory requirements before proceeding, rather than relying on outdated figures or general assumptions.