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Setting up a business in Indonesia can open up real growth opportunities, but the process is not always straightforward, especially for foreign-owned companies. From legal classifications to permits and ownership rules, there are several moving parts that need to be handled correctly from the beginning.
If you are planning to establish a Foreign Investment Limited Liability Company (PMA – Penanaman Modal Asing), it is important to understand how regulations vary by industry and ownership structure. Overlooking key requirements can lead to delays, unexpected costs, or even a halt in operations.
Here are six common mistakes we see companies make, and how to avoid them.
1. Choosing the wrong Business Classification (KBLI) Code
Before registering your company, you need to precisely define the business activities to choose the Indonesian Standard Industrial Classification or KBLI code. The KBLI (Klasifikasi Baku Lapangan Usaha Indonesia) code defines scope of activities your business is legally allowed to do. If the code does not match your activities, you may face restrictions or compliance issues down the line. It is a small detail with big consequences, make sure it is accurate from the start.
2. Neglecting Post-NIB Permits and Licences
The Business Identification Number (NIB - Nomor Induk Berusaha) is an official identity for your business, showing that your company is legally registered in Indonesia. Obtaining it is a key milestone, but it's not the finish line. Many industries require additional permits before you can legally operate. For example, food in businesses need Indonesian Food and Drug Authority (BPOM – Badan Pengawas Obat dan Makanan) approval, and construction firms need a Construction Services Permit (IUJK – Ijin Usaha Jasa Konstruksi). Skipping or failing to secure these permits can result in fines or forced operational shutdowns.
3. Choosing a Non-Compliant Office Location
Some companies are tempted by low-cost office spaces, but these often fail to meet the legal requirements for a company's domicile. This can prevent you from registering your company or obtaining your Taxpayer Identification Number (NPWP - Nomor Pokok Wajib Pajak) or NIB. Always confirm that your office location meets legal requirements, is situated in a commercial zone, and has an official domicile.
4. Underestimating Minimum Capital Requirements
Foreign-owned companies, must meet minimum capital thresholds, typically starting at IDR 10 billion. However, these requirements can vary depending on the industry and business type. Underestimating this capital obligation can result in the rejection of your investment application, protracted delays in the establishment process, and considerable complications during future growth plans.
5. Overlooking Foreign Ownership Limits
Indonesia restricts foreign ownership in certain sectors. These restrictions are not just about how much you invest; they are tied to industry-specific equity rules. Diligent review of these details is essential for compliance, rapid setup, and cost control.
6. Mishandling Visa & Work Permits
When setting up an entity, many companies make mistakes with the visas and work permits for their expatriate employees. Letting foreign employees work on tourist or business visas is a common mistake, and a risky one. You will need to secure the proper stay permit (ITAS - Izin Tinggal Terbatas) and a work permit for each expatriate employee. Failing to do so can lead to deportations and steep penalties.
Setting up a business in Indonesia requires more than just paperwork, it demands a clear understanding of local regulations and a well-thought-out plan. These six mistakes are avoidable.
Our team has a proven track record assisting businesses get started in Indonesia the right way. If you are ready to move forward, we are here to guide you through every step efficiently, compliantly, and with confidence.