Foreign investors undertaking short-term projects in Indonesia often need a fast, compliant way to operate without setting up a full-fledged company. For eligible activities, Indonesia’s OSS Risk-Based Licensing framework allows foreign entities to obtain a temporary business license tied to a specific project scope and duration.
This mechanism supports limited engagements, such as engineering, consulting, or EPC work, while keeping regulatory obligations proportionate to the project’s scale.
Legal Framework and Scope of Temporary Licensing
Indonesia’s licensing regime is governed by Government Regulation No. 5 of 2021, which introduced a risk-based approach through the OSS (Online Single Submission) system. Business activities are classified by risk level, and licensing procedures are adjusted accordingly. Within this framework, foreign entities can operate on a project basis if the work falls within regulated parameters.
This option is legally available to foreign investors delivering fixed-scope projects with a defined duration, often under a government contract, SOE mandate, or private B2B arrangement. Activities must match a valid KBLI classification and cannot involve long-term commercial operations.
A typical use case would be a German engineering consultancy contracted to supervise the construction of a wastewater treatment facility in West Java. Instead of forming a PT PMA (foreign-owned limited liability company), the firm may obtain a project-based license allowing operations limited to the scope and duration of the contract.
Eligibility And Permitted Industries
Temporary licenses are available to foreign companies executing time-limited projects without establishing a permanent presence. They are commonly used in sectors like infrastructure, oil and gas, engineering, and consulting, where engagements are technical and clearly defined.
Not all industries qualify. High-risk sectors, those involving direct-to-consumer activities, or those subject to foreign equity restrictions, typically require a PT PMA.
Application Process and Licensing Procedure
The process begins with preparing project documentation, including a signed contract, scope of work, project duration, and certified corporate documents. These are submitted through the OSS platform, where the applicant selects the KBLI code that aligns with the intended activity.
Need help navigating OSS or selecting the correct KBLI? Contact MAP Resources Indonesia to ensure your application is accurate and compliant.
If the project is classified as low or medium risk, the OSS system may automatically issue a Business Identification Number (NIB) and operational license. Higher-risk projects may require additional approvals or assessments. The license is valid only for the project’s duration and cannot be extended or repurposed for other work.
Operational Limitations and Legal Boundaries
A temporary license is project-specific and non-transferable. The foreign company can only perform the activities outlined in the license and cannot expand its operations or provide services beyond the project agreement.
The license does not allow opening permanent offices, invoicing unrelated parties, or entering new contracts in Indonesia. Hiring local workers, if necessary, must fall within the approved project scope and be reported properly.
Importation of materials or equipment also requires separate clearance.
Tax Compliance and Reporting Obligations
Companies operating under a temporary license must still meet tax obligations. If the project generates taxable income or involves VAT-liable services, registration with the tax office is required. Where staff are deployed, income tax withholding and reporting must be handled under local law.
Returning to the earlier example, if the German engineering firm supervising the wastewater project employs a local structural engineer, it must withhold the appropriate taxes and report the hire in line with Indonesian labor regulations.
Strategic Use and Transition Considerations
Temporary licensing is ideal for firms entering Indonesia for a single project or testing the market before full investment. It offers a compliant, cost-effective way to operate on a limited basis. However, companies must stay within the license’s boundaries.
If additional projects are secured or a long-term presence is planned, the company must register a permanent entity such as a PT PMA. This requires a new application, capital structuring, and OSS approval.
Align Your Short-Term Project with Compliant Licensing
At MAP Resources Indonesia, we help foreign companies assess their eligibility, obtain temporary business licenses, and stay compliant throughout project execution. Contact us today at info@mapresourcesindonesia.com to structure your short-term operations with confidence.
