Doing Business in Indonesia: Legal Challenges Every Foreign Investor Should Know (Part 2)
“Licensing remains a key part of the Legal Challenges Every Foreign Investor faces in Indonesia, where complex regulations and bureaucracy demand careful legal preparation. Success depends on expert guidance and strong local compliance.”
Licensing Maze, How Bureaucracy Can Block Your Business in Indonesia
You’ve got a great product, a reliable local partner, and funding ready to go. You even found a perfect location. But just as you’re about to launch, a government officer says: “Sorry, your license is incomplete.” Or worse “You’re missing the wrong type of license.”
Licensing is one of the most confusing and frustrating challenges for foreign investors in Indonesia. The country has made significant improvements through Online Single Submission (OSS) and the Omnibus Law, but the reality on the ground remains complex especially for newcomers unfamiliar with overlapping regulations, sector-specific rules, and bureaucratic bottlenecks.
Indonesia’s business licensing regime involves multiple layers of regulation, including the Central Government, Regional Governments, and Sectoral Ministries. Although the OSS system was introduced to centralize and streamline licensing, in practice, it’s just the beginning. Depending on your business sector, you may need to interact with multiple authorities.
Common licensing mistakes include:
- Choosing the wrong KBLI code
- Missing local approvals
- Not updating licenses with business changes
- Ignoring industry-specific licensing
A real case involved a foreign-owned food & beverage company in Jakarta that failed to secure proper permits for each branch. Local authorities shut down operations, causing major losses.
Despite reforms under the Omnibus Law and a move to risk-based licensing, implementation remains uneven. To succeed, foreign investors must:
- Hire expert lawyer in licensing
- Carefully verify KBLI codes
- Create a comprehensive licensing timeline
- Keep records and stay compliant
- Maintain relationships with local officials
Licensing in Indonesia is manageable—but only with preparation, persistence, and local knowledge.
Corporate Disputes When Founders, Shareholders & Directors Clash in Indonesia
Foreign investors often spend months doing due diligence on land, permits, and government regulations before launching in Indonesia. But one area that’s just as crucial and far more personal is internal corporate governance.
When founders, shareholders, and directors clash, the consequences can be devastating. In Indonesia, these disputes can freeze bank accounts, halt business operations, or even dissolve a company. Litigation in local courts can drag on for years, costing more than the original investment.
Common causes of disputes include:
- Decision-making authority
- Profit distribution and capital use
- Hidden alliances or conflicts of interest
- Shareholder deadlock
- Unauthorized share transfers
Key protections under Indonesian law include:
- The Company Law (Law No. 40/2007)
- Shareholders Agreements (SHA)
- Arbitration clauses in governance documents
A well-drafted SHA is your best defense. It should clearly define roles, responsibilities, voting rights, reserved matters, exit mechanisms, and dispute resolution paths.
When disputes arise, call a shareholders’ meeting, document concerns, request audits, and pursue mediation or arbitration if necessary. Corporate disputes are more than personal squabbles they can cripple operations and destroy value.
Invest in governance before problems begin. Protect your investment from the inside out.
Read more: Foreign Individuals as Directors in Indonesia: 5 Points Legal Do’s and Don’ts of 2025 (Part 1)
Investment Law Changes How Shifting Regulations Create Risk in Indonesia
Indonesia is one of the most promising investment destinations in Southeast Asia. Its large domestic market and improving infrastructure offer enormous opportunities for foreign investors. But there’s a catch: regulatory uncertainty.
Rules can change rapidly. A business that’s legal today may face new restrictions tomorrow. The Omnibus Law of 2020 aimed to simplify regulation, introducing the Positive Investment List and streamlining licensing. However, implementation has been mixed.
Common risks include:
- Contradictory national and regional laws
- Sudden regulatory shifts in sensitive sectors
- Inconsistent enforcement by local authorities
High-risk sectors include mining, tech, agriculture, and energy. A European solar company learned this the hard way when pricing rules changed mid-project, collapsing their margins.
To manage regulatory risk:
- Include change-of-law and force majeure clauses in contracts
- Use international arbitration mechanisms
- Structure investments through jurisdictions with bilateral treaties
- Monitor legal developments and engage with regulators
Indonesia offers strong returns but only for those prepared to manage legal volatility. Build flexibility into your agreements and stay legally agile to avoid being blindsided by change.
If you need any legal assistance to protect your business in Indonesia you can contact BP Lawyers at ask@bplawyers.co.id
Author: Bimo Prasetio/Genies Wisnu Pradana
This article has received approval for publication by Partner BP Lawyers Counselors at Law.