Note: As of October 2025, Regulation No. 5/2025 reduced the minimum paid-up capital for foreign companies to IDR 2.5 billion, with the IDR 10 billion investment plan requirement remaining in place.
Setting up a foreign-owned company in Indonesia involves specific regulatory requirements, particularly concerning directorship appointments. Many foreign investors assume that a local director is mandatory, but the reality is more flexible, depending on the business structure and sector.
However, failing to comply with Investment Coordinating Board (BKPM) regulations and beneficial ownership transparency rules can lead to penalties or even revocation of business licenses. This guide provides an overview of director requirements for PT PMAs (foreign-owned limited liability companies) and the risks and alternatives available to foreign investors.
Choosing the Right Business Structure in Indonesia
Foreign investors in Indonesia typically choose from the following business structures:
- PT PMA: The most common choice, allowing full or majority foreign ownership.
- Representative Office: Designed for non-commercial activities such as market research or brand representation.
- Branch Office: Available in limited sectors, such as finance and oil & gas, with strict regulatory oversight.
Each structure has distinct directorship requirements, particularly in sectors such as finance, telecommunications, and professional services, where additional approvals may be necessary.
Director Requirements for PT PMAs and Foreign Companies
Is a Local Director Mandatory for a PT PMA?
A PT PMA is not legally required to have a local director. A foreigner can be appointed as a director, provided they obtain the necessary work permits (KITAS) and business visas. However, certain industries, including banking, insurance, fintech, and consulting, impose nationality restrictions, requiring at least one Indonesian citizen in a directorship or commissioner role.
Work Permit and Residency Considerations for Foreign Directors
Foreign directors must hold a limited stay permit and meet Indonesia’s stay duration requirements. Any individual staying more than 183 days in Indonesia is considered a tax resident and is subject to global income taxation. Companies should factor in these residency rules when appointing expatriate directors, as they may lead to additional corporate tax obligations.
Industry-Specific Regulations on Directorship
The Indonesian government imposes sector-specific rules on foreign directors. Key examples include:
- Financial Services (Banking, Insurance, Fintech): Must have at least one local director, as mandated by the OJK).
- Telecommunications & IT: Certain digital and telecom businesses require a mix of local and foreign executives for licensing approvals.
- Mining & Oil and Gas: Foreign directors must comply with local content (TKDN) requirements and sector-specific regulatory approvals.
For investors entering regulated industries, it’s advisable to consult legal and compliance professionals before finalizing directorship appointments.
Exploring Alternatives to Local Director Appointments
Foreign investors looking to comply with Indonesian laws while maintaining control over their business can consider the following alternatives:
Professional Nominee Director Services: Risks and Compliance Challenges
One option is appointing a nominee director, a third-party individual acting as the company’s official director without being involved in decision-making. While this approach can simplify compliance, it carries several risks:
- Legal Scrutiny: Indonesian authorities, including BKPM and the Ministry of Law and Human Rights, are tightening beneficial ownership transparency rules, making it riskier to use nominee arrangements that conceal the true owner.
- Liability Concerns: A nominee director bears legal responsibility for corporate actions. If compliance violations occur, the nominee could be held liable, creating potential disputes between the nominee and the foreign business owner.
- Enforceability Issues: If a nominee director becomes uncooperative, removing them from company records can be complex and costly, especially if they refuse to sign resignation documents.
While these arrangements may seem like a viable workaround to restrictions, they are illegal under Indonesian law and carry significant risks.
Joint Ventures and Local Partnerships
An alternative approach is forming a joint venture with a local partner. This structure provides benefits such as:
- Easier access to industry licenses in restricted sectors.
- Enhanced local market knowledge and business networks.
- Reduced regulatory hurdles for business approvals.
However, joint ventures require well-defined shareholder agreements to protect the foreign investor’s equity and decision-making authority.
Key Considerations When Selecting a Director
When appointing a director—whether local or foreign—businesses should evaluate:
- Experience and industry knowledge to navigate sector-specific challenges.
- Legal awareness to ensure compliance with investment and labor laws.
- Compensation expectations, as director salaries vary by sector and company size.
- Decision-making authority, ensuring governance structures protect foreign ownership interests.
Legal Responsibilities and Protections for Directors
Directors in Indonesia are personally liable for corporate mismanagement, regulatory non-compliance, and tax violations. To minimize risks, businesses should consider:
- Director liability insurance, which shields directors from financial exposure in lawsuits.
- Indemnification agreements are included in company bylaws to limit legal risks.
- Corporate governance frameworks, such as independent oversight mechanisms.
Companies operating in high-risk industries should ensure that directors’ responsibilities are clearly defined to avoid unintended liabilities.
Registering a Foreign Company in Indonesia: A Step-by-Step Guide
Step 1: Define Business Activities and Ownership Structure
- Determine the business classification (KBLI code) based on Indonesian regulations.
- Identify the foreign ownership limit, if applicable, under the Positive Investment List.
- Decide on shareholding distribution and corporate structure (minimum 2 shareholders, 1 director, 1 commissioner).
Step 2: Prepare Company Documents
- Draft the Deed of Establishment (Akta Pendirian Perusahaan) in Indonesian, signed by a notary.
- Include details of company directors and commissioners, ensuring compliance with industry-specific regulations.
- Obtain a Letter of Domicile for the company’s registered address.
Step 3: Obtain a Business Identification Number (NIB) through OSS
- Register the company with the Online Single Submission (OSS) System to obtain a Business Identification Number (Nomor Induk Berusaha – NIB).
- The NIB acts as the company’s primary business license, replacing multiple permits under the Omnibus Law reforms.
Step 4: Obtain Additional Licenses and Permits
- Depending on the industry, additional sector-specific licenses may be required.
Step 5: Open a Corporate Bank Account
- Select a bank that supports foreign-owned businesses in Indonesia.
Step 6: Register for Tax Identification Number (NPWP) and Mandatory Tax Reporting
- Apply for a Corporate Taxpayer Identification Number (NPWP) from the Tax Office.
Step 7: Capital Injection and Business Operationalization
- Fulfill minimum capital requirements (varies by sector; set at IDR 2.5 billion for PT PMA).
Step 8: Compliance with Ongoing Reporting and Regulatory Obligations
- Submit quarterly investment reports (LKPM) to BKPM.
Work with Our Experts to Ensure Compliance
At MAP Resources Indonesia, we provide tailored corporate compliance solutions for foreign investors, ensuring smooth PT PMA registration and directorship structuring.
Contact us today at info@mapresourcesindonesia.com to ensure your business meets Indonesian regulatory requirements while safeguarding your ownership and operational control.
