Doing Business In Comparative Guide

1 Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Indonesia follows a civil law system in which statutory regulations serve as the primary source of law. Although judges may take prior court decisions into account when delivering rulings, such precedents are not legally binding as in common law jurisdictions.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment and operation of a limited liability company, known as a 'perseroan terbatas' (PT), are principally governed by the Law on Limited Liability Companies (40/2007), as amended. This law serves as the principal regulation for the incorporation, organisational structure and governance of PTs.

With respect to operational matters, particularly those concerning investment, the relevant provisions are governed under the Investment Law (25/2007), as amended. The Investment Law outlines key principles for conducting investment activities and investor protections.

Furthermore, business licensing in Indonesia is governed by Government Regulation (GR) 28/2025 on the Implementation of Risk-Based Licensing.

Also relevant are sectoral and technical regulations issued by the relevant ministries and regulatory agencies, such as:

• the Ministry of Trade;
• the Ministry of Industry;
• the Ministry of Energy and Mineral Resources; and
• the Financial Services Authority.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

The drafting and enforcement of the above regulations involve multiple authorities.

Regulations at the statutory (law) level (eg, the Law on Limited Liability Companies and the Investment Law) are enacted jointly by the legislative body – that is:

• the House of Representatives; and
• the president.

The implementation of the Law on Limited Liability Companies falls primarily under the authority of the Ministry of Law; whereas the implementation of the Investment Law is overseen by the Ministry of Investment/Indonesian Investment Coordinating Board.

Government regulations serve as implementing regulations for statutory laws. These are:

• enacted by the president; and
• typically implemented and enforced by the respective ministries and regulatory agencies based on their respective areas of jurisdiction through the issuance of ministerial or government agency regulations.

2 Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

The main business structure used in Indonesia for profit-oriented ventures is a perseroan terbatas (PT). The Investment Law explicitly requires that foreign direct investment be conducted through a PT. This Q&A thus focuses on PTs.

Pursuant to the Law on Limited Liability Companies, a 'PT' is defined as a legal entity in the form of a capital partnership, established through an agreement and operating with authorised capital entirely divided into shares. This definition also encompasses individual legal entities that qualify as micro and small enterprises under applicable regulations.

As a legal entity, a PT is recognised by law as a legal subject separate from its shareholders and corporate organs. Accordingly, it may carry out legal actions in its own name and bears responsibility for those actions independently. In this regard, a PT offers limited liability protection to its shareholders. Shareholders are not personally liable for the company's legal actions or financial losses beyond the value of their shares.

2.2 What capital requirements apply to these different types of business structures?

A PT's capital structure comprises three components:

• authorised capital;
• issued capital; and
• paid-up capital.

Authorised capital represents the total amount of capital of a company. Pursuant to the Law on Limited Liability Companies, at least 25% of the authorised capital must be issued and fully paid up at the time of establishment. Accordingly, the authorised capital may be up to four times greater than the issued capital. Specifically for PMA companies, the minimum threshold for both issued and paid-up capital is IDR 10 billion, in line with prevailing foreign investment requirements.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

As a general principle, under the Law on Limited Liability Companies, a PT must be established by a minimum of two shareholders, which may be:

• individuals;
• legal entities; or
• a combination of both.

Key steps in establishing a PT in Indonesia include the following:

• Execution of the deed of establishment (DOE): The founders or their authorised proxies must execute a DOE before an Indonesian notary. The DOE contains the company's articles of association.
• Execution of supporting documents: The founders, directors and commissioners must also execute various supporting documents, including statements regarding:
• • capital payment;
  • company domicile;
  • tax registration; and
  • beneficial ownership disclosure.
• Submission to the Ministry of Law: Once the DOE and supporting documents have been signed, the notary must submit them to the Ministry of Law via its online system. Upon submission of all required documentation, approval may be granted on the same day. Once approved, the company:
• • is recognised as a legal entity; and
  • may undertake legal actions in its own name.

Although the formal incorporation procedure is relatively straightforward and can typically be completed within a few days, investors should also account for the time needed to prepare and execute the articles of association and supporting documents.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

Foreign investors must comply with applicable restrictions on foreign ownership when making direct investments in Indonesia. While most business sectors are open to foreign investment, some are either explicitly closed or reserved exclusively for the central government – typically those involving:

• public services;
• defence; or
• other strategic interests deemed unsuitable for private or foreign involvement.

The foreign ownership limitations are regulated under the Investment List established by Presidential Regulation 10/2021 on Investment and Business Lines, as amended by Presidential Regulation 49/2021.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

For market entry involving goods, business undertakings in Indonesia commonly engage third parties – such as agents or distributors – which are not affiliated with the principal entity. These arrangements allow foreign businesses to access the Indonesian market without establishing a local entity, which is particularly useful in early-stage expansion.

An agency relationship typically involves a local party acting on behalf of the foreign principal to promote, sell or conclude contracts for goods, without acquiring title to the goods. A distribution arrangement generally entails the local distributor:

• purchasing goods from the foreign principal; and
• reselling them within Indonesia.

Both agents and distributors must comply with the requirements set out under the prevailing laws and regulations to legally conduct their business activities in Indonesia, including but not limited to obtaining the applicable business licences.

3 Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

The Law on Limited Liability Companies adopts a two-tier management structure for a perseroan terbatas (PT), comprising:

• a board of directors; and
• a board of commissioners.

The board of directors is responsible for managing the company's operations, while the board of commissioners serves a supervisory and advisory role.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

In addition to the board of commissioners, the Law on Limited Liability Companies requires a PT that conducts its business based on Sharia principles to establish a Sharia supervisory board, consisting of one or more Sharia experts appointed by the general meeting of shareholders upon the recommendation of the Indonesian Ulema Council. The Sharia supervisory board is responsible for:

• advising and providing recommendations to the board of directors; and
• supervising the company's activities to ensure compliance with Sharia principles.

3.3 Is the appointment of corporate directors permitted in your jurisdiction?

Yes, the Law on Limited Liability Companies requires a PT to have at least:

• one director; and
• one commissioner.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

The number of directors in a PT is determined by the articles of association, with a minimum requirement of one director. Any individual appointed as a director:

• must be legally capable of performing legal acts; and
• within the five months preceding their appointment, must not have:
• • been declared bankrupt;
  • served as a member of the board of directors or board of commissioners found liable for a company's bankruptcy; or
  • been convicted of a criminal offence resulting in financial loss to the state and/or the financial sector.

Additional requirements may apply depending on the relevant technical agency under prevailing laws and regulations.

Regarding independence, the Law on Limited Liability Companies stipulates that a director is not authorised to represent the company in circumstances where they have a conflict of interest with the company. In such cases, representation must be carried out by another director who is not affected by the conflict.

As for residency and diversity, the Law on Limited Liability Companies does not explicitly regulate these aspects. However, it is advisable for at least one member of the board of directors to reside in Indonesia to ensure:

• effective oversight of daily operations; and
• timely responsiveness to the company's operational needs.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

The selection of directors must adhere to the relevant provisions set out in the company's articles of association, where applicable.

Under the Law on Limited Liability Companies, the appointment and dismissal of members of the board of directors must be approved by the general meeting of shareholders. This approval must be:

• formalised in a notarial deed; and
• subsequently filed with the Ministry of Law to obtain a receipt of notification.

Failure to submit this notification may result in the Ministry of Law rejecting any future filings or applications made by the newly appointed directors who have not yet been registered.

There are no statutory limitations on the term of office for members of the board of directors. The Law on Limited Liability Companies allows the articles of association to determine the duration of a director's term, which typically ranges from three to five years. Directors may be reappointed in accordance with the procedures outlined in the articles of association.

3.6 What are the directors' primary roles and responsibilities, and how are these exercised?

The board of directors holds full responsibility for the management of the company according to the company's objectives and purposes. It is authorised to:

• represent the company both in and outside of court;
• formulate policies; and
• oversee daily operations.

The Law on Limited Liability Companies adopts a collegial representation model, meaning that each director may represent the company unless the articles of association stipulate otherwise. Typically, the articles of association stipulates specific directors who are authorised to represent the company.

Where the board of directors comprises two or more members, the allocation of management responsibilities and authority among them must be determined by a resolution of the general meeting of shareholders. In the absence of such a resolution, the division will be established through a resolution of the board of directors.

3.7 Are the roles of individual directors restricted? Is this common in practice?

The Law on Limited Liability Companies does not impose specific limitations on the role or authority of individual directors. Where the board of directors is comprised of multiple members, each director is generally empowered to represent the company, unless otherwise stipulated in the articles of association.

In principle, the board of directors' authority to act on behalf of the company is broad and unrestricted, subject only to limitations imposed by:

• the Law on Limited Liability Companies;
• the articles of association; or
• resolutions of the general meeting of shareholders, provided that they do not conflict with:
• • prevailing laws; or
  • the articles of association.

In practice, it is common for the articles of association to outline certain reserved matters that require prior approval from either the board of commissioners or the general meeting of shareholders. Additionally, many articles of association specify that only designated directors may represent the company, such as requiring joint representation by two directors.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

Each director is obliged to manage the company in good faith and with full responsibility. This fiduciary duty is primarily owed to the company as a legal entity, rather than to the shareholders. Directors must act in the best interests of the company as a whole, which may include consideration of the interests of:

• shareholders;
• employees;
• creditors; and
• other relevant stakeholders.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

Directors of a company are generally not personally liable to third parties for corporate actions undertaken within the scope of their authority, as defined by:

• the articles of association;
• resolutions of the general meeting of shareholders; and
• applicable laws and regulations.

However, directors may be held jointly and severally liable to third parties if they are found to be at fault or negligent in the performance of their duties. Such liability may be waived if the director can demonstrate the following:

• The losses did not result from their fault or negligence;
• They performed their duties:
• • in good faith;
  • with due care; and
  • in alignment with the company's objectives;
• They had no direct or indirect conflict of interest in the management actions that caused the losses; and
• They took reasonable steps to prevent or mitigate the losses, including actively seeking information on the relevant managerial actions – such as through participation in board of directors' meetings.

4 Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

There are no specific requirements or restrictions under the Law on Limited Liability Companies to become a shareholder in a perseroan terbatas (PT). However, a shareholder must possess legal capacity to act on their own behalf in accordance with the Civil Code. This means that:

• an individual shareholder must be of legal age and not subject to guardianship; and
• a corporate shareholder must have obtained the relevant corporate approvals to become a shareholder (as applicable).

The legal age of an individual under the Civil Code is 21 years old, unless the individual is or has been married.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

Shares in a PT confer the following rights on their holders:

• the right to attend and vote at the general meeting of shareholders;
• the right to receive dividends and any remaining assets upon liquidation; and
• the right to exercise other entitlements as provided under the Law on Limited Liability Companies.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

The exercise of these rights is generally carried out through the general meeting of shareholders. In accordance with Article 79(2) of the Law on Limited Liability Companies, unless a company's articles of association stipulate a lower threshold, one or more shareholders jointly representing at least one-tenth of the total number of shares with voting rights may request the convening of an extraordinary general meeting of shareholders to the board of directors.

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

Under the Law on Limited Liability Companies, the general meeting of shareholders has significant powers over the appointment, removal and oversight of directors. As regulated under Article 94(1) of the Law on Limited Liability Companies, members of the board of directors are appointed by the general meeting of shareholders. Furthermore, Article 102(1) of the Law on Limited Liability Companies stipulates that the board of directors requires prior approval from the general meeting of shareholders in order to transfer the company's assets or use the company's assets as security for debt, where such assets constitute more than 50% of the company's net assets in one transaction or a series of transactions, whether related or unrelated.

In addition, the articles of association may set out other actions of the board of directors that require the approval of the general meeting of shareholders.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

Each shareholder must subscribe to shares and fully pay for them.

With respect to liabilities of shareholders, in principle, shareholders' liability is limited and they will not be:

• personally liable for agreements entered into by the company in its own name; or
• responsible for the company's losses beyond the value of shares they own

However, this limited liability protection may be disregarded in certain circumstances where the corporate veil is pierced, as follows:

• The company has not yet obtained, or fails to maintain, its legal entity status;
• A shareholder, whether directly or indirectly, acts in bad faith by using the company for personal gain;
• A shareholder is involved in an unlawful act committed by the company; or
• A shareholder, either directly or indirectly, unlawfully uses the company's assets, resulting in the company's assets being insufficient to cover its liabilities.

In addition, a shareholder will be personally liable for all obligations and losses of the company if the company has only one shareholder for a period exceeding six months.

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

In circumstances where the corporate veil is pierced, shareholders may be held civilly liable by third parties on the basis of a breach of contract or tort claims. Such civil liability may include the obligation to pay:

• costs;
• damages; and
• interest.

Furthermore, if shareholders directly participate in or instruct others to commit a criminal act using the company as a vehicle, they may be subject to prosecution and potential criminal sanctions, such as imprisonment and fines, pursuant to:

• the Criminal Code; and
• other applicable laws on criminal offences.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

The Law on Limited Liability Companies provides for the pre-emptive rights of shareholders in the event of the issuance of new shares, whereby all newly issued shares must first be offered to existing shareholders in proportion to their shareholding in the same class of shares.

However, such pre-emptive rights do not apply in the case of share issuances that are:

• allocated to the company's employees;
• allocated to holders of bonds or other convertible securities that were issued with prior approval from the general meeting of shareholders; or
• conducted as part of a reorganisation and/or restructuring approved by the general meeting of shareholders.

If a shareholder does not exercise its right to purchase and fully pay for the shares within 14 days of the date of the offer, the company may offer the remaining unsubscribed shares to third parties.

Such pre-emptive rights may also be waived by the shareholders through a resolution of the general meeting of shareholders approving the new share issuance.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

Under the Law on Limited Liability Companies, information regarding the shareholders and shareholding composition, including any changes thereto, must be reported to the Ministry of Law to be recorded in the company register, which is accessible to the public.

5 Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

Typically, working capital may be obtained through:

• equity injections;
• loan financing; or
• a combination thereof.

An equity injection involves raising funds from existing or new shareholders by issuing new shares. This option is particularly useful for strengthening the company's capital structure, as it does not create debt or repayment obligations. However, a key disadvantage is ownership dilution, especially if new shareholders are brought in.

On the other hand, loan financing – such as working capital loans from banks or shareholder loans – provides quicker access to funds and allows existing ownership to remain unchanged. However, debt creates repayment obligations and may carry financial covenants or collateral requirements, particularly for bank loans.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

Under normal (non-liquidation) circumstances, shareholder returns are typically made through dividend distributions based on the company's net profits at the end of the financial year. These dividends must be declared during the annual general meeting of shareholders and can be distributed only if the company:

• maintains a positive profit balance, including covering accumulated losses from previous years; and
• fulfils the mandatory reserve fund requirement (minimum 20% of issued and paid-up capital of the company).

Final dividends provide financial certainty and are based on audited year-end profits, ensuring that distributions are made when the company is in a sound financial position. This minimises the risk of disrupting business operations or affecting creditors. However, they can only be declared after the financial year ends, meaning that shareholders must wait longer to receive returns.

As an alternative, interim dividends may be distributed before the end of the financial year, to the extent permitted by the company's articles of association. This approach offers greater flexibility and allows for earlier returns to shareholders but is subject to stricter requirements under Article 72 of the Law on Limited Liability Companies. These include ensuring that:

• the company's net assets exceed the total of its issued and paid-up capital and mandatory reserve fund;
• the distribution will not harm creditor interests or disrupt company operations; and
• the distribution is approved by the board of directors with the approval of the board of commissioners.

If the company later incurs losses:

• shareholders may be required to return the dividends; and
• the board of directors and board of commissioners may be held jointly liable if recovery fails.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

Pursuant to Presidential Regulation 10/2021 on Investment and Business Lines, as amended by Presidential Regulation 49/2021 ('Investment List'), all business sectors are generally open to foreign investment, except for those that are:

• expressly closed to investment; or
• reserved exclusively for the central government – namely:
• • activities of a service-oriented nature; or
  • those related to defence and security that are considered strategic and cannot be conducted in cooperation with other parties.

Although the majority of business sectors permit up to 100% foreign ownership, certain sectors remain subject to foreign ownership restrictions or limitations as set out under the Investment List.

Further, pursuant to Ministry of Investment/Indonesian Investment Coordinating Board Regulation 4/2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities, foreign investment companies are subject to:

• a minimum investment requirement; and
• a minimum issued and paid-up capital of at least IDR 10 billion.

5.4 What exchange control requirements apply in your jurisdiction?

Indonesian laws and regulations – specifically Law 7/2011 on Currency, as amended, and Bank Indonesia Regulation 17/3/PBI/2015 on the Obligation to Use Rupiah within the Territory of the Republic of Indonesia – require the use of rupiah for both cash and non-cash transactions conducted within Indonesian territory. This obligation applies to:

• payment transactions;
• the settlement of other obligations that must be fulfilled with money; and/or
• other financial transactions.

Exceptions to this requirement are provided for under the applicable laws and include, among others:

• certain transactions in the implementation of the state budget;
• the receipt or award of grants to or from overseas;
• international trade transactions;
• deposits in banks in foreign currency;
• international financing transactions; and
• transactions conducted in foreign currency as permitted by law, including:
• • foreign currency business activities conducted by banks under banking laws;
  • issuance and trading of government securities in foreign currency as governed by relevant laws; and
  • other foreign currency transactions conducted pursuant to statutory provisions.

In addition, under Bank Indonesia Regulation 21/2/PBI/2019 on Reporting of Foreign Exchange Activities, residents – which include persons, corporate bodies and other bodies that are domiciled or plan to be domiciled in Indonesia, including Indonesian diplomatic staff abroad – must report their foreign exchange transactions to Bank Indonesia.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Strictly from a legal perspective, under the Law on Limited Liability Companies, the law affords specific rights and protections to stakeholders beyond shareholders, including employees and creditors. Notably:

• any interested party may petition for the dissolution of a company if it has been operating with a sole shareholder for more than six months;
• in undertaking certain corporate actions, the company must consider:
• • the interests of its employees, creditors and other business partners;
  • the public interest; and
  • fair business competition; and
• creditors are entitled to raise objections to the company in relation to proposed corporate actions. If a settlement with the creditors has not been reached, the company is not permitted to proceed with the corporate action.

These provisions underscore a fundamental principle under the Law on Limited Liability Companies that corporate conduct must balance shareholder interests with the rights of other stakeholders that are directly or indirectly affected by the company's activities.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

One of the key concerns in operating a business in Indonesia is compliance with the regulations, particularly licensing requirements. Businesses must be properly licensed through the Online Single Submission system, which implements a risk-based approach to licensing. Under this system, business activities are classified according to their risk level – low, medium-low, medium-high or high – which determines the type and complexity of licences required. Activities classified as higher risk are subject to more stringent licensing obligations, including the need for additional approvals or technical verifications from relevant authorities. Failure to comply with these licensing requirements may result in:

• administrative sanctions;
• suspension of business activities; or
• other legal consequences.

Therefore, businesses must:

• carefully assess their intended activities; and
• ensure that all necessary permits and approvals are secured before commencing operations.

6 Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

The primary accounting reporting obligation under the Law on Limited Liability Companies is the obligation of the board of directors to submit the company's financial statements to the general meeting of shareholders for approval upon the conclusion of each financial year.

The financial statements must at least consist of:

• the balance sheet at the end of the most recent financial year compared to the previous financial year;
• the income statement for the relevant year;
• the cash-flow statement;
• the statement of changes in equity; and
• the notes to the financial statements.

Further, specifically for companies that are subject to mandatory audit under the prevailing laws and regulations, their financial statements must also be submitted to the relevant authorities – namely:

• the Ministry of Law; and
• the Ministry of Trade.

6.2 What role do the directors play in this regard?

The obligation to submit the financial statements is the responsibility of the board of directors under the Law on Limited Liability Companies. The Law on Limited Liability Companies requires the board of directors to submit an annual report, which includes the financial statements, to the general meeting of shareholders after it has been reviewed by the board of commissioners, within no later than six months of the end of the company's financial year. All members of the board of directors must sign the annual report.

If any member of the board of directors fails to sign the annual report, such member must provide written reasons for not doing so, either directly or through a separate letter from the board of directors attached to the annual report.

If a member of the board of directors fails to sign the annual report and does not provide written reasons, such member will be deemed to have approved the contents of the annual report.

6.3 What role do accountants and auditors play in this regard?

Accountants and auditors play an important role in conducting external audits of the company's financial statements. Under the prevailing laws and regulations, companies that meet certain criteria are subject to mandatory audit by a public accountant. For further details, please see question 12.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

The Law on Limited Liability Companies requires companies to prepare their financial statements in accordance with Indonesian Accounting Standards.

7 Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

The Law on Limited Liability Companies recognises the board of directors and board of commissioners as the 'executives' under a perseroan terbatas (PT). There are no specific regulations on executive compensation. As a result, each PT may adopt its own arrangements regarding compensation/remuneration for its board of directors and board of commissioners.

Executives in Indonesia are not classified as employees under the Labour Law (13/20030), as most recently amended by Law 6/2023 on the Stipulation of Government Regulation 2/2022 on Job Creation into Law. Instead, their status and entitlements are governed by the Law on Limited Liability Companies and its related regulations. Consequently, they are not entitled to salaries or employment-related rights and obligations. Their compensation and responsibilities are determined solely by:

• the Law on Limited Liability Companies; and
• any contractual agreements.

7.2 How is executive compensation determined? Do any disclosure requirements apply?

There are no specific regulations on how executive compensation is determined. As a result, each PT may adopt its own arrangements regarding compensation/remuneration for its board of directors and board of commissioners.

7.3 How is executive performance monitored and managed?

In principle, the board of commissioners is responsible for overseeing the day-to-day management carried out by the board of directors. This means that the board of commissioners effectively monitors the performance of the board of directors. Certain actions of the board of directors often require approval from the board of commissioners and/or the general meeting of shareholders, as specified in the company's articles of association.

7.4 What key concerns and considerations should be borne in mind with regard to executive performance and compensation in your jurisdiction?

Each PT may establish its own policies regarding the compensation or remuneration of its board of directors and board of commissioners. However, executives are not classified as employees under Indonesian law. As such, they are not subject to:

• the rights and obligations applicable to employees; or
• the requirements set out in labour legislation.

Accordingly, any compensation provided to executives should not be governed by an employment agreement. Instead, if necessary, it may be formalised through:

• a separate service agreement, although this is not legally required; or
• other arrangements deemed appropriate by the PT.

8 Employment

8.1 What is the applicable employment regime in your jurisdiction and what are its key features?

In Indonesia, the employment regime is primarily governed under the Labour Law and its implementing regulations, including Government Regulation (GR) 35/2021 on Fixed-Term Employment, Outsourcing, Working Hours and Rest Times and Employment Termination. The Labour Law:

• governs all aspects of employment, from pre-hiring procedures to employment obligations and termination; and
• defines the rights and responsibilities of both employees and employers.

Employment relationships in Indonesia are categorised into two types:

• permanent employment; and
• temporary employment.

Permanent employment is established through an indefinite-term agreement, under which employers may impose a probationary period of up to three months before confirming the employee's status. A verbal agreement may also initially be used instead of the written agreement, but it must be followed by a formal letter of appointment.

Temporary employment is governed by a definite-term agreement. This type of arrangement is permitted only for roles that are:

• temporary in nature; or
• for a specific duration, with a maximum allowable term of five years.

This temporary employment must be documented in writing to ensure legal validity and compliance.

Additionally, the Labour Law and its implementing regulations address key operational matters such as:

• wages;
• outsourcing;
• working hours and days;
• rest periods; and
• procedures for employment termination.

These provisions aim to create a balanced and transparent employment environment for all parties involved.

8.2 Are trade unions or other types of employee representation recognised in your jurisdiction?

Under the Labour Law and the Trade Union Law (21/2000), employees have the right to form and join labour unions. A labour union must consist of at least 10 members to be established. Once formed, the union must:

• register in writing with the local office of the Manpower Agency; and
• notify the employer of its registration.

The employer must acknowledge this notification. A company may host more than one labour union and membership is typically evidenced by a union-issued membership card.

Labour unions are granted specific rights and authorities to represent and protect their members. These include the ability to:

• negotiate collective labour agreements with employers;
• represent workers in industrial dispute resolution;
• participate in labour-related institutions;
• establish welfare initiatives for workers;
• establish a collective labour agreement with the employer/company; and
• engage in other lawful labour-related activities.

Additionally, labour unions may:

• organise strikes;
• manage organisational finances; and
• participate in bipartite and tripartite cooperation forums.

Union members have the right to collect and manage funds independently, including strike funds, which are governed by internal statutes established by the union itself.

The Labour Law also requires companies that employ at least 50 or more employees to establish a bipartite cooperation institution which functions as a formal channel for communication and consultation on employment-related matters within the company. It is composed of representatives from both the employer and the employees, with employee representatives selected democratically to advocate for their interest in the company.

8.3 How are dismissals, both individual and collective, governed in your jurisdiction? What is the process for effecting dismissals?

The Labour Law, GR 35/2021 and the Law on the Settlement of Industrial Relations Disputes (2/2004), as amended, govern the procedure and the grounds for the dismissal of employees in detail. These procedures apply uniformly, regardless of whether the dismissal is individual or collective.

Termination is permitted only based on specific grounds outlined in:

• the Labour Law;
• GR 35/2021;
• employee handbooks/collective labour agreements; or
• employment contracts.

In this, employers must notify the employee and the labour union (if applicable), in writing at least 14 business days before the intended termination date. If the employee does not object, the employer must report the termination to the local branch of the Manpower Office. If the employee objects, they must submit a written rejection with reasons within seven business days. The dispute must then be addressed through bipartite negotiations between the employer and the employee or union. If no agreement is reached, the employer must follow the formal dispute resolution process, starting with mediation by the Manpower Office. If mediation fails, the case proceeds to:

• the Industrial Relations Court; and
• if necessary, the Supreme Court.

Terminated employees are entitled to severance or compensation depending on their employment type:

• Permanent employees receive a severance package; and
• Temporary employees are entitled to compensation and, in certain cases, indemnification – particularly if the termination occurs early or is initiated by the employee, in which case the employer may claim indemnification.

As outlined under the Labour Law and GR 35/2021, the formula and calculation of these payments vary based on factors such as:

• the reason for termination; and
• the employee's length of service,

Despite the formal procedures, employment may still be lawfully ended through mutual agreement, provided that both parties consent.

8.4 How can specialist talent be attracted from overseas where necessary?

Companies in Indonesia may recruit foreign specialists where necessary, although priority must be given to local workers. The employment of foreign workers is regulated under:

• the Labour Law;
• GR 34/2021 on the Employment of Foreign Workers; and
• Minister of Manpower Decree 8/2021.

To legally work and reside in Indonesia, foreign employees must:

• be sponsored by their employer, which is responsible for securing a valid work permit and stay permit; and
• obtain a local tax identification number.

Permissible positions for foreign workers vary by industry and are outlined in Minister of Manpower Decree 228/2019 on Certain Positions that Can be Occupied by Foreign Workers. Work permit applications will be rejected if the proposed role:

• is not listed among the approved positions; or
• falls under prohibited categories, which are those specified in Minister of Manpower Decree 349/2019 on Certain Positions Prohibited for Foreign Workers – primarily human resources roles (eg, personnel director, industrial relations manager).

While exceptions may be granted for unlisted roles at the Ministry of Manpower's discretion, companies are encouraged to select positions already included on the approved list to ensure compliance and avoid delays.

8.5 What key concerns and considerations should be borne in mind with regard to employment in your jurisdiction?

In 2023, the Constitutional Court issued Decision 168/PUU-XII/2023, which clarified several provisions of the Labour Law without introducing major changes. The decision calls for the drafting of a new Labour Law within two years. A proposed amendment to the Labour Law has been included in the 2025–2029 National Legislation Programme. However, thus far, no draft has been released and there are no official updates on its progress. Nonetheless, employers should:

• remain attentive to future developments; and
• ensure that they are compliant with all of the labour laws and regulations.

9 Tax

9.1 What is the applicable tax regime in your jurisdiction and what are its key features?

Indonesia operates under a self-assessment tax regime, where taxpayers are responsible for calculating, paying and reporting their own taxes. The system is governed by the Directorate General of Taxes under the Ministry of Finance. Key taxes include:

• income tax;
• value-added tax for the provision of goods and services; and
• withholding taxes on certain payments.

A company as a tax subject or taxpayer must:

• register for:
• • a taxpayer identification number; and
  • a taxable entrepreneur confirmation letter; and
• comply with monthly and annual reporting obligations.

Additionally, the tax system is evolving with digitalisation efforts, including e-filing and e-invoicing, aimed at improving compliance and transparency.

9.2 What taxes apply to capital inflows and outflows?

Capital inflows such as investments are generally not taxed directly upon entry, but income generated from these investments – such as dividends, interest and royalties – is generally subject to withholding tax. Additionally, Indonesia imposes a final tax on certain capital gains, such as those from the sale of shares in Indonesian companies.

9.3 What key exemptions and incentives are available to encourage enterprises to do business in your jurisdiction?

Indonesia offers a range of tax incentives to attract foreign investment and stimulate economic growth, including:

• tax holidays;
• tax allowances and investment allowances that reduce taxable income; and
• customs incentives.

These are available to certain qualifying business sectors as determined under the applicable laws and regulations.

9.4 What key concerns and considerations should be borne in mind with regard to tax in your jurisdiction?

Foreign investors should be mindful of Indonesia's complex and evolving tax landscape, including:

• frequent regulatory changes;
• strict documentation requirements; and
• tax audits.

It is crucial to:

• maintain accurate records; and
• ensure timely filings.

The tax law interpretations sometimes differ by case and could thus lead to varying tax decisions from tax offices. Therefore, it is essential to obtain support and advice from Indonesian-qualified tax consultants when doing business in Indonesia.

10 M&A

10.1 What provisions govern mergers and acquisitions in your jurisdiction and what are their key features?

Mergers and acquisitions in Indonesia are governed by the Law on Limited Liability Companies.

Under the Law on Limited Liability Companies, a 'merger' is juridical action carried out by one or more companies to merge with another, resulting in the transfer of assets and liabilities of the merging company by law to the receiving (surviving) company. Subsequently, the existence of the merging company will terminate by law, without the need for prior liquidation.

An 'acquisition' is a legal act carried out by a legal entity or individual to acquire shares in a company that results in a transfer of control over the company. The Law on Limited Liability Companies recognises two types of acquisitions:

• acquisitions through the subscription of new shares; and
• direct acquisitions by way of purchasing shares from existing shareholders.

10.2 How are mergers and acquisitions regulated from a competition perspective in your jurisdiction?

From a competition law perspective, the concepts of mergers and acquisitions are interpreted broadly to mean:

• any type of concentration of control over undertakings that were previously independent into one undertaking or group of undertakings; or
• any change of control from one undertaking to another undertaking that results in a concentration of control or market concentration.

Mergers, consolidations and acquisitions (whether of shares or assets) are subject to post-closing notification if the following criteria are cumulatively met:

• The transaction constitutes a merger, consolidation or acquisition that results in a change of control (including a change from sole control to joint control or vice versa);
• The transaction meets the applicable jurisdictional thresholds; and
• The transaction is carried out between non-affiliated entities.

With Indonesia adopting a post-merger notification system, a transaction that meets the above criteria should be notified to the Competition Commission within 30 business days of the date on which the transaction becomes legally effective.

10.3 How are mergers and acquisitions regulated from an employment perspective in your jurisdiction?

In Indonesia, mergers and acquisitions are executive-level decisions, meaning that employees generally do not have direct authority to stop the process. However, the process can significantly affect employees, so companies must comply with procedural requirements under the Law on Limited Liability Companies. These include, most importantly, issuing a formal announcement to employees. If a labour union exists, companies must also ensure compliance with internal policies that may require prior notification to the union or employees beyond what the law mandates.

Mergers and acquisitions are recognised grounds for termination under the Labour Law and Government Regulation 35/2021. In a merger, the employer may terminate permanent employees if it chooses not to retain them. Conversely, employees may also request termination and receive severance if they do not wish to continue employment. In the case of an acquisition, the employer may terminate employees, but employees may request termination only if the acquisition results in changes to their employment terms.

The severance package entitlements:

• differ depending on whether the termination arises from a merger or an acquisition; and
• must be calculated in accordance with the applicable labour regulations.

10.4 What key concerns and considerations should be borne in mind with regard to M&A activity in your jurisdiction?

To carry out a merger or acquisition in Indonesia, the procedural requirements set out under the Law on Limited Liability Companies must be fulfilled. These include, among other things:

• mandatory public and employee announcements;
• a 30-day statutory waiting period following the announcements; and
• approval from the general meeting of shareholders.

Further, companies must also review their internal regulations to identify any additional procedural requirements related to employees in the context of mergers and acquisitions. This helps to minimise the risk of disputes, particularly where labour unions are involved. Additionally, if any employees are terminated as part of the process, companies must ensure that all entitlements are paid in full to remain compliant with applicable labour laws and regulations.

11 Financial crime

11.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction?

To combat money laundering and terrorist financing, and to prevent corporations from being used as a vehicle by perpetrators who are the beneficial owners of the proceeds of such crimes, the Indonesian government requires all corporations – including limited liability companies, foundations and cooperatives – to:

• identify their beneficial owners; and
• report them to the relevant authorities.

11.2 What key concerns and considerations should be borne in mind with regard to the prevention of financial crime in your jurisdiction?

In connection with the obligation to identify and report beneficial owners (see question 11.1), each company must assess and determine its own beneficial owners based on the criteria set out in the applicable regulations. Pursuant to Presidential Regulation 13/2018 on the Identification of Beneficial Owners of Corporations in the Context of Preventing and Eradicating Money Laundering and Terrorism Financing, the responsibility for determining the beneficial owners lies with the company itself, through a self-assessment process based on the following criteria:

• holds a shareholding of more than 25% in the company;
• enjoys more than 25% of voting rights in the company, as stated in the articles of association;
• receives benefits or profits of more than 25% of the benefits or profits achieved by the company per year;
• has the authority to appoint or discharge a member of the board of directors or board of commissioners;
• has the authority to govern and control the company without seeking approval from another party;
• receives benefits from the company; or
• is the real owner of the funds for share ownership of the company.

The prevailing laws and regulations also require any changes to the beneficial owner data to be reported to the relevant authorities.

12 Audits and auditors

12.1 When is an audit required in your jurisdiction? What exemptions from the auditing requirements apply?

Pursuant to Article 68 (1) of the Law on Limited Liability Companies and Minister of Trade Regulation 25/2020 on Annual Financial Reports of Companies, a mandatory audit requirement applies to companies that meet the following criteria:

• engages in activities involving the collection and/or management of public funds;
• issues debt acknowledgment instruments to the public;
• is a publicly listed company;
• is a state-owned enterprise;
• has assets and/or annual turnover of at least IDR billion;
• is a debtor whose annual financial reports are required by banks to be audited;
• is a foreign company that is domiciled and operates its businesses in the territory of Indonesia in accordance with laws and regulations, including through:
• • branch offices;
  • sub-branch offices;
  • subsidiaries; or
  • agents and representatives of the companies that have the authority to enter into an agreement; or
• otherwise required by prevailing laws and regulations.

Companies that do not fall within any of the above criteria are exempted from audit requirements.

12.2 What rules relate to the appointment, tenure and removal of auditors in your jurisdiction?

There are no specific regulations governing the appointment, tenure or removal of auditors. However, auditors/public accountants:

• are subject to a professional code of conduct; and
• must remain free from any conflict of interest in providing their services.

12.3 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

The Law on Public Accountants (5/2011) is silent on any limitations with respect to the provision of non-audit services by public accountants. However, the law states that public accountants may also provide non-assurance services related to:

• accounting;
• finance; and
• management.

These may include, among other things:

• performance audits;
• internal audit services;
• tax services;
• financial statement compilation services;
• book-keeping services;
• agreed-upon procedures on financial information; and
• IT system services.

The provision of such non-assurance services is subject to the applicable professional code of ethics, which further specifies the types of non-assurance services that may be provided by public accountants.

12.4 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

The regulations do not impose a fixed monetary cap on auditor remuneration for non-audit services. Nonetheless, the payment of such remuneration remains subject to the applicable professional code of ethics.

13 Termination of activities

13.1 What are the main routes for terminating business activities in your jurisdiction? What are the advantages and disadvantages of each?

In terms of permanent termination, the company may proceed with dissolution, followed by liquidation. This process results in the complete cessation of the company's legal existence in Indonesia. One of the main advantages of this method is that, upon completion, the company is fully released from any ongoing obligations, including corporate compliance requirements such as:

• tax filings;
• licence renewals; and
• statutory reporting.

However, it can be time-consuming and complex, requiring:

• full settlement of liabilities;
• tax clearance; and
• employment termination.

Once completed, the company cannot operate again under the same legal entity and will need to be re-established if it seeks to return to business in Indonesia.

Alternatively, if the company wishes to terminate only specific business activities but retain a corporate presence, it may amend its articles of association to revise its purposes and objectives. This approach involves:

• an amendment to the articles of association; and
• where necessary, the revocation of business licences related to the discontinued activities.

The main advantage of this method is that it allows the company to:

• continue operating in other sectors;
• retain assets; and
• preserve its legal presence in Indonesia.

It is also generally quicker and less burdensome than full dissolution. However, the company remains subject to ongoing corporate compliance obligations, such as tax filings and reporting, even if its line of business and operational scope have been significantly reduced.

13.2 What key concerns and considerations should be borne in mind with regard to the termination of business activities in your jurisdiction?

The liquidation and dissolution of a company will trigger certain procedures and requirements as stipulated under the Law on Limited Liability Companies. Under the law, dissolution may be carried out only if all of the company's liabilities can be fully settled – meaning that the company's assets are sufficient to cover its obligations, including tax liabilities. If the assets are insufficient to settle the company's liabilities, the liquidator must file a bankruptcy petition in accordance with the Bankruptcy Law.

In practice, the dissolution and liquidation process can be time consuming, particularly in cases involving a tax dormancy period.

Additionally, matters on the termination of employees (eg, severance package and its payment) must be carefully addressed in the context of the company's dissolution and liquidation.

14 Trends and predictions

14.1 How would you describe the current landscape for doing business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The current business landscape in Indonesia reflects the government's ongoing commitment to improving the ease of doing business, particularly through regulatory reforms. One key recent development is the issuance of Government Regulation (GR) 28/2025, which replaces the previous Government Regulation 5/2021. GR 28/2025 revisits and updates key regulatory aspects, including those related to general business licensing and licensing required to support business operations. This new regulation introduces a more refined approach to the country's business licensing system, with the aim of enhancing clarity and efficiency in the licensing process nationwide.

To support implementation, further regulations are expected within four months of GR 28/2025's enactment. Additionally, relevant systems – including the Risk-Based Approach Online Submission System and the Indonesian National Single Window – will be updated to reflect the revised framework.

In the legislative sphere, the government has also indicated plans to revise the Competition Law as part of the 2025 National Legislation Programme. Although this new bill is expected to modernise competition rules, the exact timeline for its promulgation remains unclear.

Regarding the employment landscape, a new labour law may be introduced, albeit not in the near future. While no draft or official update has been released to date, employers should remain alert to potential changes and monitor developments to ensure continued compliance with applicable regulations.

15 Tips and traps

15.1 What are your top tips for doing business smoothly in your jurisdiction and what potential sticking points would you highlight?

To do business smoothly in Indonesia, foreign investors should pay close attention to two key aspects:

• foreign ownership limitations; and
• the licensing framework applicable to their business activities.

While most sectors are open to foreign investment, certain sectors impose ownership caps or restrictions.

Equally important is navigating Indonesia's risk-based business licensing regime, which classifies business activities according to their level of risk:

• low;
• medium-low;
• medium-high; or
• high.

This classification determines the type and extent of licences required.

Low-risk businesses generally only need a business identification number to operate. However, depending on the sector and risk level, higher-risk activities may require additional approvals, such as:

• standard certifications;
• business licences; or
• commercial/operational licences.

Early engagement with local advisers and a clear understanding of applicable limitations and requirements can help to mitigate delays and ensure regulatory compliance.

As for employment, given the significant role of employees for companies in Indonesia and the detailed regulation of employment matters, companies must ensure full compliance with the Labour Law and all related regulations before commencing operations. This:

• applies to both local and foreign employees; and
• is essential to minimise the risk of employment-related disputes during business activities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.