When considering establishing a company in Indonesia as a foreign investor, you may wonder about the regulatory framework that applies to your business. Recently, alongside the established “Negative List” concept, a new term—”Priority List”—has gained prominence in discussions about Indonesian investment.

Setting up a company in Indonesia presents significant challenges for those attempting to navigate the process independently. While complete reliance on external consultants isn’t necessary, gaining a fundamental understanding of foreign investment regulations and the Negative List can substantially streamline your project implementation.

This article provides a focused overview of these foreign investment regulations and the Negative List system.

Business Establishment Options in Indonesia

Foreign companies seeking to establish a presence in Indonesia have three principal options:

1. Representative Office
2. Local Corporation
3. Branch Office

It’s important to note that establishing a “Branch Office” in Indonesia is currently restricted to financial institutions only. As a result, most foreign companies opt for either a “Representative Office” or a “Local Corporation.” This article will therefore focus exclusively on these two more commonly available options.

Representative Office

A Representative Office (known locally as KPPA: Kantor Perwakilan Perusahaan Asing) can be established specifically for preparing corporate establishment or conducting market research. Its scope is strictly limited to market research, preparation for establishing a local corporation, and coordination between the parent company and local enterprises. It’s critical to understand that direct sales activities are prohibited under this structure—any sales promotion must be conducted through authorized local agent companies.

Representative Offices are categorized into three types:

• Foreign Company Representative Office: Primarily focused on establishing a local corporation or preparing for business development.
• Foreign Commercial Representative Office: Established for market research and related activities. This type requires employing three Indonesian nationals for every foreign employee.
• Foreign Construction Representative Office: Has broader capabilities, including participation in preliminary project reviews and bidding for both public and private projects. This type can serve as the business entity for contract execution and construction implementation.

As outlined above, Representative Offices are classified into specific categories with distinct functions. While industry-specific business and activity permits may be required, establishing a Representative Office typically involves fewer regulatory hurdles than forming a local corporation. For any foreign nationals employed within a Representative Office, proper work permits are mandatory—similar to the requirements for local corporations, which will be explained in the next section.

Local Corporation

For conducting actual business operations and generating revenue in Indonesia, establishing a local corporation is essential. These entities fall into three broad categories, all of which are classified as foreign companies under Indonesian law:

• Direct investment in an existing local company
• Joint investment with a local company (Joint Venture)
• 100% foreign-owned investment

It’s important to understand that any company receiving investment from foreign investors or companies is automatically treated as a foreign enterprise under Indonesian regulations, regardless of the investment percentage or monetary amount. These entities take the form of limited liability companies (PT: Perseroan Terbatas), which are comparable to stock corporations or private limited companies in Western jurisdictions.

These designations will appear frequently throughout various administrative procedures following establishment, so familiarizing yourself with this terminology is crucial.

When establishing a PMA (foreign-invested company), a minimum paid-in capital of 10 billion rupiah (approximately $650,000 USD) is required. This threshold was established by Regulation No. 4 of 2021 of the Indonesian Investment Coordinating Board (BKPM) issued on March 29, 2021, representing a significant increase from the previous requirement of 2.5 billion rupiah. Based on historical patterns, investors should anticipate that this minimum capital requirement may continue to increase periodically.

An additional critical consideration is that foreign corporations must prepare this minimum investment amount of 10 billion rupiah for each separate business license they require, rather than simply meeting this threshold at the company level.

Foreign Investment Regulations and the Negative List

ndonesia maintains a structured regulatory framework that restricts or prohibits foreign investment in certain economic sectors. These restrictions are comprehensively documented in the Investment Negative List (Daftar Negatif Investasi/DNI), commonly referred to simply as the “Negative List.”

For any prospective investor in Indonesia, a thorough understanding of which industries face restrictions—and the specific nature of those restrictions—is essential for successful business planning. The regulatory framework divides business sectors into two primary categories:

1. Sectors where foreign participation is entirely prohibited
2. Sectors where foreign participation is permitted but subject to specific regulations or limitations

While there are also sectors prohibited for both domestic and foreign investment for environmental, security, or social reasons, this article focuses specifically on foreign investment considerations.

Sectors Where Foreign Entry is Prohibited

Certain economic sectors in Indonesia are closed to foreign investment, primarily to protect domestic small and medium enterprises (SMEs) and cooperatives. These restrictions reflect Indonesia’s economic development priorities and commitment to supporting local business growth.

Sector	Specific Examples
Agriculture	Cultivation of rice, corn, soybeans, sweet plants such as sugar cane, tobacco, cotton, rubber, etc., livestock industry (pig farming, chicken farming and breeding), plantation crop processing
Forestry	Cinnamon and other forest plantation businesses, lumber production, rattan primary processing industries, etc.
Manufacturing	Processed food industry for grains and root vegetables, hand-drawn batik production, handicraft industries with specific cultural heritage or artistic value, household ceramics industry, motorcycle repair and maintenance services, etc.
Public Works	Construction businesses with project values up to 50 billion rupiah, consulting services up to 10 billion rupiah
Culture & Tourism	Travel agencies, tour guide services, etc.
Information & Communication Technology	Community broadcasting organizations (LPK), internet cafes, etc.

For agriculture, detailed conditions are imposed such as cultivation limited to 25 hectares or less, so it is necessary to check the Negative List if applicable. Regardless of industry, when considering actual market entry, verification of the Negative List is essential.

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Company Formation in Indonesia

Sectors Where Foreign Entry is Regulated and Types of Restrictions

Beyond outright prohibitions, Indonesia maintains a more extensive framework of regulated sectors where 100% foreign ownership is not permitted, but partial foreign investment is allowed subject to specific conditions. These regulations generally fall into three categories:

1. Sectors requiring mandatory partnerships with Indonesian small and medium enterprises (SMEs) or cooperatives
2. Sectors with statutory caps on foreign ownership percentages
3. Sectors subject to specific operational or licensing conditions

Sectors Requiring Partnership with SMEs or Cooperatives

These are sectors that require partnership with local SMEs (Small and Medium Enterprises) or cooperatives. Not all industries in these sectors are restricted; below are specific examples of restricted businesses.

Sector	Specific Examples
Marine & Fishery	Fish cultivation and farming, salt production and extraction, seafood processing, sales of marine products
Industry	Fish canning, pickled vegetables and fruits, soy sauce/tempeh and other soybean-based food products, rattan processing, resin production, essential oil production, parts and accessories for vehicles with 4 or more wheels, repair of telecommunication and household electronic devices
Commerce	Leasing of agricultural machinery or office equipment
Energy & Mineral Resources	Consulting in the power generation sector
Information & Communication	International courier service agency business
Public Works & Housing	Building construction, bridge and overpass construction

外資比率が制限される分野

Many sectors in Indonesia permit foreign investment but impose maximum ownership percentages to ensure some level of domestic participation. These ownership caps vary widely by industry, reflecting each sector’s strategic importance to the national economy.

While certain sectors may have more favorable terms for investors from ASEAN member countries under regional trade agreements, this article focuses on the general limitations applicable to most foreign investors.

Sectors Permitting 80-95% Foreign Ownership

• Insurance sector: non-life insurance, life insurance, reinsurance, insurance agencies (80%)
• Healthcare sector: specialized health services, patent drug manufacturing (85%)
• Financial services: venture capital firms (85%)
• Energy sector: geothermal facility operation and maintenance services (90%)
• Energy infrastructure: geothermal drilling, power transmission and distribution networks (95%)
• Public infrastructure: drinking water services, highway operations (95%)

Sectors Permitting Up to 67% Foreign Ownership

• Commerce: wholesale distribution not connected to manufacturing, warehousing operations
• Tourism and hospitality: economy and budget hotels (0-2 star classification)
• Logistics: air transport support services
• Telecommunications: fixed communication network operations, internet service providers
• Healthcare: hospital management and operations

Sectors Permitting Up to 51% Foreign Ownership

• Tourism and wellness: spa establishments and services

Sectors Permitting Up to 49% Foreign Ownership

• Agriculture: cultivation of strategic food crops (rice, corn, soybeans) on land exceeding 25 hectares
• Forestry: commercial hunting operations in designated hunting areas, wild plant cultivation
• Domestic transportation: maritime services for tourism, passenger transport, and cargo; inter-provincial transport services; river and lake transport for tourism and passengers
• Employment services: domestic worker placement agencies, temporary staffing and worker dispatch businesses
• Automotive sector: vehicle maintenance and repair services
• Financial services: consumer finance and non-leasing finance businesses

Sectors with Special Staged Investment Provisions:

Some sectors require 100% domestic ownership for initial establishment but allow foreign investment for business expansion:

• Media: press organizations (newspapers, magazines) – up to 40% foreign investment permitted for expansion
• Broadcasting: private broadcasting institutions – up to 20% foreign investment permitted for expansion
• Subscription media: subscription-based broadcasting services – up to 20% foreign investment permitted for expansion

Sectors Subject to Special Regulatory Conditions

For these sectors, permits must be obtained from relevant government agencies such as the Ministry of Agriculture for farming or the Ministry of Forestry for forestry businesses, which we will omit in this discussion. The maximum foreign ownership percentage varies by sector and business content, so checking the Negative List remains essential.

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Evolution from Negative List to Priority List

While we’ve emphasized the importance of checking the Negative List when establishing a local company, a new Investment Priority List (Daftar prioritas investasi) was announced in 2021 (Presidential Decree No. 10 of 2021 regarding Investment Business Fields).

Unlike the previous Negative List, this Priority List identifies priority industries for investment. Investing in these target sectors offers advantages such as tax incentives, allowances, import duty exemptions, and easier business permit acquisition, making it more conducive to do business in Indonesia.

Both the Negative List and Priority List define priority business sectors and conditional business sectors, but they have changed as follows:

• Priority Business Sectors List: None specified → 245 business sectors
• Business Sectors Requiring Partnership: 145 business sectors → 89 business sectors
• Conditional Business Sectors List: 350 business sectors → 46 business sectors

Priority Business Fields: Benefits and Qualification Criteria

Businesses operating in designated priority sectors can access a comprehensive package of advantages designed to stimulate investment, including:

• Part of a national strategic program
• Capital and labor intensive
• Utilization of advanced technology
• Classification as an advanced industry
• Export-oriented
• Targeting research, development, and other innovative activities

The business sectors requiring partnership and conditional business sectors are those mentioned in the previous chapter. While the Priority List has defined priority business sectors and relaxed regulations in some areas, the fundamental concept remains unchanged from the previous Negative List – specific sectors will still be subject to regulations.

Establishing a Company in Indonesia

As we’ve seen, establishing a foreign company in Indonesia involves very complex conditions, as you now understand. Accurately interpreting these complicated foreign investment regulations and Negative List requirements to proceed with company establishment is extremely challenging.

Our company employs numerous Indonesian staff with extensive experience in company establishment, so you can entrust this process to us with confidence. Even if you’d just like to learn more about the Indonesian business environment, it would be our pleasure to assist you. Please feel free to contact us.