The legal basis for foreign investment in Indonesia is founded on the 1945 Constitution, Law No. 25 of 2007 on Investment, the Omnibus Law, and various implementing regulations such as the Positive Investment List. Together, these laws create a comprehensive framework that allows foreign investors to participate in Indonesia’s economy while ensuring alignment with national development priorities.
Constitutional Foundation
The starting point is Article 33 of the 1945 Constitution, which gives the state authority to manage natural resources for the benefit of the people. While foreign investment is permitted, it must contribute to economic democracy and sustainable growth.
Also read: FDI Legal Protections in Indonesia: More Than Just Incentives
Investment Law No. 25 of 2007
The Investment Law is the primary legal instrument for both domestic and foreign investors. It ensures:
- Legal certainty with clear regulatory guidelines.
- Equal treatment for local and foreign investors.
- Transparency in investment policy.
Foreign investors must establish a PT PMA (foreign-owned limited liability company), with minimum investment requirements exceeding IDR 10 billion (excluding land and buildings).
Also read: The Minimum Capital for Establishing PMA Company in Indonesia
Positive Investment List
Presidential Regulation No. 10 of 2021 introduced the Positive Investment List, replacing the older Negative List. It identifies:
- Priority sectors eligible for tax holidays and incentives.
- Restricted sectors with ownership caps.
- Open sectors that allow up to 100% foreign ownership.
Only a few activities, such as narcotics or gambling, remain completely closed.
Also read: Top Foreign Investment Sectors in Indonesia
Omnibus Law and Risk-Based Licensing
The Omnibus Law (Law No. 11 of 2020) modernized Indonesia’s business climate. It streamlined licensing with a risk-based approach under Government Regulation No. 5 of 2021, reducing bureaucracy and creating a more efficient entry process for foreign investors.
Role of BKPM
The Investment Coordinating Board (BKPM), now the Ministry of Investment, coordinates licensing, policy, and investor support. It serves as the one-stop service hub for both local and foreign investors.
International Treaties and Protection
Indonesia has signed 74 Bilateral Investment Treaties, many of which remain in force. These agreements protect against expropriation, ensure repatriation rights, and allow dispute resolution through bodies such as ICSID.
Also read: How Indonesia’s Double Tax Treaties Benefit Foreign Investors
Incentives for Foreign Investors
To attract global capital, Indonesia provides:
- Tax holidays and allowances for strategic industries.
- Land use rights for up to 95 years.
- Import duty exemptions for certain projects.
Also read: Indonesia Investment Incentives: Government Support for Foreign Businesses
How to Enter the Market
While the legal framework is comprehensive, navigating it can be challenging. Investors must comply with strict corporate structures, licensing processes, and sector-specific rules. A reliable partner simplifies the process.
That’s where InvestinAsia’s Indonesia PMA Company Registration Service becomes invaluable. We handle incorporation, licensing, and compliance, ensuring your business enters Indonesia with full legal protection and efficiency.
You can also enjoy special package prices for PT PMA and KITAS services.
Ready to start your business and investment in Indonesia? Chat with us now for FREE consultation!
FAQs
What law governs foreign investment in Indonesia?
Law No. 25 of 2007 on Investment is the main legal framework, supported by the Constitution, Omnibus Law, and implementing regulations.
Can foreign investors own 100% of a company in Indonesia?
Yes, depending on the sector. The Positive Investment List defines which industries allow full ownership. Check the details here: Can a Foreigner Own 100% of a Business in Indonesia?
What is a PT PMA?
It is a limited liability company with foreign shareholding, required for foreign investment in Indonesia.
Are there incentives for foreign investors?
Yes. Tax holidays, allowances, and import duty exemptions are available for eligible sectors.
Who oversees investment in Indonesia?
The Ministry of Investment (formerly BKPM) is the main regulatory body.
