A practical takeaway on foreign direct investment in Indonesia
Foreign direct investment in Indonesia reached a milestone in 2025, with the country exceeding its own national investment target – an outcome that does not happen in many markets. While not typical in many markets, Indonesia has managed to pull off the feat with total investments worth IDR 1,931.2 trillion. This is 101.3 percent of the country’s initial investment target of IDR 1,915 trillion set by the Ministry of Investment and Downstream Industry/BKPM.
With the macro environment taking center stage, it is worth reiterating a few basic facts about Indonesia. With a population of over 284 million, and an economy valued at approximately IDR 23,821.1 trillion in 2025, growing at a rate of 5.11%, this is not an emerging market still finding its footing.
Every industry, market, and potential acquisition presents its own challenges and complexities. Large markets are highly sought after by sizable investors. They can create opportunities but they also present significant regulatory hurdles. To succeed, management and the Board must understand the potential market opportunities. The general counsel must understand the legal structure. The compliance head must understand the approvals required and the sequence in which they must be obtained. We list below a series of questions to guide you through your own analysis.
1. Why is Indonesia attracting serious foreign investment right now?
A large domestic consumer base, a growing GDP, and an industrial policy that is designed to back capital formation. Government policymakers are keen to project the numbers of investments that have come to fruition, and the evidence suggests that they are doing a good job in making sure that the metrics convert.
This is also true from the structural supply chain perspective. Multinationals rethinking where they want to concentrate production in Asia find Indonesia an increasingly compelling option. This is because of the potential to serve the wider markets of Southeast Asia as well as Indonesia’s own domestic consumption story. There is also real potential for expansion of manufacturing, digital infrastructure, energy transition and downstream processing of natural resources. The opportunity is wide in terms of scope, and deep in terms of substance.
2. Which countries are leading inbound investment, and what does that tell us?
Based on data from BKPM, Singapore is leading the market with the highest investment value, followed by China. No trivial investment here. Singapore once again tops the chart as the gateway to the region for the larger listed companies. Many international groups choose to enter the Southeast Asia market via Singapore holding entities for corporate and tax planning purposes. Interestingly, China is ranked higher than usual reflecting a deeper industrial involvement across sectors such as nickel processing, manufacturing and the supply chain for electric vehicles rather than just a larger portfolio exposure.
However, high inflows of institutional capital already exist and new entry will thus benefit from established trust in the asset class. It is nonetheless important to remember that serious institutional capital exists within the market, and not all will be looking to follow a straightforward entry strategy. Variations in structuring, licensing sequencing and compliance review will therefore be a key factor in determining returns.
3. Which sectors offer the strongest FDI opportunity?
Several themes appear consistently across inbound investment activity, and it is worth naming them without overstating what sector attractiveness alone can tell you.
- Manufacturing and downstream processing remain priority sectors, directly aligned with Indonesia’s industrial downstreaming policy agenda
- Infrastructure, logistics, and digital connectivity are driven by structural demand gaps that domestic capital alone cannot fill
- Renewable energy and the broader energy transition are attracting foreign capital in response to both domestic policy incentives and global decarbonisation mandates
- Healthcare and consumer-facing services benefit from a large, urbanising population with rising disposable income.
While evaluating sector attractiveness is an important consideration for the search process, one must also remember that even sectors with high attractiveness may not prove to be as valuable for an overseas entrepreneurial venture due to barriers to foreign ownership, further approval processes required, or operational compromises which may significantly alter the nature of the business that is created. I always approach each potential opportunity through a dual screen – evaluating both the potential for market upside as well as the likelihood of the company meeting various regulatory benchmarks.
4. Can overseas investors own 100 percent of an Indonesian business?
Sometimes yes, but never as a default assumption.
Foreign ownership in Indonesia is regulated by the Positive Investment List, which classifies business activities into three categories in respect of foreign investment. Businesses classified as “fully closed” means those that are restricted to foreign ownership, those “conditionally open” allows for business with foreign ownership of up to certain percentage in conjunction with a certain level of local ownership or partnership, and those “fully open” to 100% foreign ownership.
Ownership analyses in Indonesia typically begin with the relevant KBLI (Indonesian Standard Industrial Classification) code for the relevant business activity. Many assume a generally liberal investment environment but this does not mean that 100% foreign ownership is permitted in all industries and sectors. Many deals have gone sour as a result of such miscalculations and subsequent costly restructuring.
We also need to consider ownership as a governance question: how is the structure held (who has control rights)? This in turn impacts how dividends are distributed, how different parts of the structure can be sold off, and how tax is paid. These are key questions that need answering before the potential licensing pathway is sketched out, and before some key assumptions about the business model are hardened.
5. What is the standard legal vehicle for foreign investors?
For most foreign investors, the standard vehicle for overseas investment into Indonesia is a foreign investment limited liability company or Perseroan Terbatas Penanaman Modal Asing (PT PMA). The process of formation and licensing involves the submission of applications to OSS-RBA, Indonesia’s Online Single Submission Risk-Based Approach platform.
OSS-RBA specifies not only the type of incorporation that needs to be done but also the step-by-step process of licensing that needs to be completed prior to commencement of revenue generating operations. Knowing this licensing sequence is critical to determine the feasible timeline for launch.
6. How does the Positive Investment List shape entry strategy?
The Positive Investment List plays a significant role in the analysis of foreign investment in Indonesia. The list outlines the open, restricted, and specifically treated or jointly owned businesses that fall within its scope.
The Positive Investment List together with the KBLI classification list are not documents that you read once and file away. They are live documents that you reference regularly, including in board papers. What seems straight forward at first glance can have a completely different investment model when you look at the KBLI classification with an ownership cap and operating conditions.
Entry strategy and regulatory analysis should be conducted concurrently from the outset. Mistakes are made by investing significant time and resources in evaluating viability while operating under a model that is not compliant with the actual rules that will govern the investment. It is far better to evaluate the investment under the correct set of rules from the beginning.
7. What approvals and licences are required before operations begin?
The precise answer depends on the sector, the risk profile of the activity, and the business structure. In general terms, investors need to plan across four layers.
- Entity formation and NIB (Business Identification Number) registration through OSS-RBA
- Core business licences linked to the specific KBLI classification
- Sector-specific approvals from the relevant technical ministry
- Operational permits tied to the physical or digital footprint of the business
Sequencing matters as much as completeness. Some licences cannot be applied for until a preceding approval is in place. Some sector-specific permits carry processing timelines that should anchor the broader launch schedule, not sit at the end of it as an afterthought. The practical question for senior management is simple: at what point can the business legally begin generating revenue?
8. What compliance issues should investors map before entry?
The compliance review begins with sector eligibility and ownership structure. Then it expands.
Licensing obligations, reporting requirements, governance arrangements, employment law compliance, tax positioning, and any operational restrictions tied to the business model must be mapped before entry. Compliance risk in Indonesia tends to accumulate quietly. It rarely sits in one obvious rule. It emerges from the interaction between company law, sector regulation, licensing conditions, and operational reality.
The questions that matter are practical ones. Can the entity legally perform the intended activity? Can it hire, invoice, and contract in the way the business model assumes? Will it remain compliant after launch not just on the date the incorporation certificate is issued? Those questions turn compliance from a procedural exercise into an operational discipline.
Investors should also note that Indonesia’s debt restructuring framework, including PKPU proceedings under Law No. 37 of 2004, carries compliance and governance implications for foreign-held entities. For a detailed analysis, see our guide to PKPU and debt restructuring in Indonesia
9. Are tax and non-tax incentives available?
Yes, and they can be material. Indonesia offers structured incentives where investment aligns with national priorities, strategic industries, or designated development zones.
The two principal instruments are the tax holiday, which provides a corporate income tax exemption of between five and twenty years depending on sector and investment value, and the tax allowance which provides a 30 percent investment deduction over six years alongside accelerated depreciation and reduced dividend withholding. A super-deduction of up to 200 percent is also available for qualifying research and development expenditure and vocational training.
For a CFO evaluating project economics, these instruments can shift return profiles meaningfully, particularly in capital-intensive sectors. The qualification is that incentives do not fix structural problems. Validate feasibility first. Layer incentives onto a sound structure second.
10. What are the most common execution risks, and how are they managed?
The risks that generate the most friction in Indonesian inbound investment are not exotic. They are familiar problems that arise when process moves faster than analysis.
- Structures that do not match the intended business activity
- Mistaken rules on ownership applied under the wrong KBLI code
- Incomplete OSS-RBA sequencing leading to unlicensed operations
- The assumption that incorporation equals operational readiness
Transactions that encounter serious difficulty are rarely undone by regulatory complexity alone. They are undone by plans that moved too quickly past the structuring and compliance stage. A few careful weeks at the outset confirming KBLI classification, validating sector access, sequencing approvals, and aligning governance with ownership reality can prevent months of disruption after capital is deployed.
There is also a human dimension worth naming. Commercial teams move fast once momentum builds, and that urgency is legitimate and appropriate. Indonesia rewards patience at the entry point. The investors that achieve the strongest outcomes here tend to be those that treated diligence and compliance mapping as part of commercial strategy, not as a parallel process to be managed separately.
A practical takeaway
Indonesia offers scale, sustained policy support, and a track record of inbound investment at meaningful levels. The macro data supports the size of the opportunity. The IMF’s 2025 growth outlook supports its resilience. BKPM’s realization figures confirm that institutional capital continues to flow.
Good markets still require careful execution. The strongest outcomes in Indonesia go to investors that ask the right questions early, structure the investment to match the regulatory reality, and treat compliance as a commercial discipline, not an afterthought.
Partner Commentary
“Indonesia remains one of the most compelling—yet legally complex—FDI destinations in Asia. The fundamentals are strong: a large domestic market, control over strategic natural resources, improving infrastructure, and a government that is structurally committed to attracting foreign capital. However, successful investment in Indonesia is less about macros and more about execution, regulatory navigation, and risk management.
Indonesia rewards long-term, well-advised investors; it penalizes transactional or lightly diligenced ones.”
Working with Nusantara DFDL Partnership
Nusantara DFDL Partnership advises overseas investors across the full range of foreign investment matters in Indonesia from initial sector feasibility and ownership structuring through PT PMA formation, OSS-RBA licensing, and ongoing post-establishment compliance.
Our FDI & Corporate Commercial practice brings particular depth in structuring inbound investment, and the intersection of corporate law and regulatory compliance that determines whether an investment launches cleanly or encounters avoidable friction.
As a collaborating member of the DFDL network operating across Bangladesh, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, we also advise clients on managing investment positions across multiple Southeast Asian jurisdictions.
If you are evaluating a foreign direct investment in Indonesia, we welcome the conversation.
Disclaimer:
This article is for general informational purposes and does not constitute legal advice. Readers should seek specific legal counsel before making investment decisions.
