Thanks to a large population, competitive labor costs and the abundance of natural resources, Indonesia offers many opportunities for foreign investors. In recent years, the country has attracted and welcomed a lot of direct foreign investment. So, if you're interested in starting a business in Indonesia, this one is for you. Get comfortable, because it's a meaty subject!
Indonesia's economic and business landscape
For a bit of context, it's worth noting that Indonesia has experienced significant economic growth over the past five decades, gradually shifting from an economy based primarily on agriculture to one that's supported by industry, services, and domestic consumption. While oil once played a central role in this transformation, Indonesia today operates on a more mixed economy that combines both private enterprise with strong public-sector involvement.
One of the biggest appeals about Indonesia is that it remains one of the world's largest economies. According to data from the World Bank, its gross domestic product stood at around USD 1.4 trillion in 2024, with GDP per capita approaching USD 5,000. This scale, combined with a breathtaking population that exceeds 270 million people (contributing to a rapidly expanding middle class), makes Indonesia a really attractive market for investors.
On top of this, Indonesia has implemented reforms that look to improve the business environment, modernizing licensing procedures and simplifying investment approvals. Of course, it's sensible to be consulting qualified local advisors and engaging with official investment bodies at an early stage of your investment. This will help reduce delays and hopefully avoid costly mistakes.
Yes, there's a lot of bureaucratic complexity, but entering the Indonesian market offers access to one of the largest consumer bases in the world. For many investors, the initial administrative effort is part of the learning curve of operating in a dynamic and still relatively underpenetrated market.
Which are the most promising sectors for investors in Indonesia?
Indonesia's economy is mostly driven by services, followed by industry and agriculture. Among these, several sectors continue to attract particular attention from foreign investors, including manufacturing, tourism, the digital economy and e-commerce, as well as infrastructure-related services.
Manufacturing remains a strategic priority for the government, as they want to reduce dependence on imports and increase domestic value creation. Foreign companies willing to establish local production facilities may well benefit from Indonesia's large workforce and its proximity to regional markets.
Of course, tourism remains one of Indonesia's most important economic sectors, even after the damaging period of the COVID-19 pandemic. Bali continues to dominate international tourism, but the government has also promoted the development of other destinations across the archipelago such as Lombok and the Komodo National Park in Flores. With more than 17,000 islands, Indonesia offers long-term opportunities in hospitality and tourism services, although regulatory and land-use restrictions must be kept in mind. We could go off on a real tangent with that one…
Indonesia has also invested heavily in digital transformation. E-commerce, fintech, and digital services are seen as priority growth sectors for investment, and development continues at breakneck speed (more on that below, where we cover startups).
Lastly, infrastructure and real estate development can present opportunities for foreign investors, but these sectors remain highly regulated. Certain activities need local partners, specific permits, or compliance with sector-specific ownership and land-use rules.
Indonesia's openness to foreign investment
Historically, Indonesia adopted a cautious approach to foreign investment. For many years, this was reflected in the Negative Investment List, which heavily restricted or outright banned foreign participation in numerous economic sectors.
This framework has since been replaced by the Positive Investment List, introduced as part of broader economic reforms. Under this system, many sectors are now open to foreign investors, while others remain restricted or subject to specific conditions. Of course, a limited number of business activities remain fully prohibited, largely for reasons of public policy or environmental protection.
While the overall direction has been toward greater openness, foreign investors should be aware that access still varies significantly by sector and business classification.
Public/private investment in Indonesia
Public investment continues to play a significant role in Indonesia's economy through state-owned enterprises and government intervention in strategic sectors. The state maintains influence over prices and supply in certain essential commodities, such as energy and staple foods.
For example, back in 2022, Indonesia temporarily restricted palm oil exports in response to domestic shortages and rising prices. This episode highlighted the government's willingness to intervene in key industries when economic or social stability is at stake.
At the same time, Indonesia has taken steps to improve governance and transparency. According to Transparency International, Indonesia's corruption perception scores have fluctuated in recent years, underscoring the importance for investors to pay attention to strong compliance practices and carry out local due diligence.
Types of businesses in Indonesia
Foreign investors who want to generate income in Indonesia by selling goods or services generally do so through a Foreign Investment Limited Company, known as a PT PMA (Perseroan Terbatas Penanaman Modal Asing).
A PT PMA may be wholly or partially foreign-owned, depending on the applicable sector and business classification. Ownership limits and conditions are governed by the Positive Investment List and related regulations.
Procedures and requirements for establishing a business in Indonesia
A PT PMA requires at least two shareholders, along with a board structure that includes at least one director and one commissioner. Business registration, licensing, and tax compliance are central to the incorporation process.
Foreign investment is administered through Indonesia's investment framework, overseen by the Investment Coordinating Board (BKPM), and implemented via the Online Single Submission (OSS) system. This platform centralizes licensing and applies a risk-based approach, meaning requirements vary depending on the nature of the business.
Many investors choose to work with specialized local firms that assist with company incorporation, licensing, and regulatory compliance. When selecting an agent, it is important to ensure they are reputable, properly licensed, and up to date with current OSS and investment regulations.
Foreign investment companies are subject to minimum investment and capital requirements, which depend on the business classification and project scope. Recent regulatory changes have reduced paid-up capital thresholds in many cases, but requirements continue to vary by sector. Investors should confirm current thresholds and evidentiary requirements with qualified advisors before proceeding.
To establish a PT PMA, the process typically includes:
- A notarial deed of establishment.
- Legal entity approval through the Ministry of Law and Human Rights.
- Issuance of a Business Identification Number (NIB) via OSS.
- Tax registration (NPWP).
- Sector-specific licenses or approvals, depending on the business risk level.
Once operational, companies must comply with Indonesian tax, labor, and reporting obligations. If employing staff in Indonesia (including foreign employees) companies must also comply with mandatory social security and health insurance programs such as BPJS, where applicable.
Startup and entrepreneurship in Indonesia
Indonesia has developed a growing startup and entrepreneurship ecosystem, particularly in major urban centers such as Jakarta and Bali. The country's large domestic market, expanding middle class, and increasing digital adoption have supported the growth of startups in sectors such as e-commerce, fintech, logistics, education technology, and consumer services.
Over the past decade, Indonesia has produced several high-profile technology companies and attracted regional and international venture capital interest. This has helped strengthen the broader ecosystem, including co-working spaces, accelerators, and startup-focused service providers.
While developing rapidly, Indonesia is not a completely frictionless startup environment. Regulatory compliance, licensing, employment rules, and tax obligations can present challenges, particularly for early-stage founders unfamiliar with local requirements. Foreign entrepreneurs must also ensure their business structure and activities comply with investment and immigration regulations from the outset.
If you're prepared to invest time in understanding regulatory and operational realities, Indonesia can be a very appealing environment for startups, especially if you're focusing on the local or regional markets.
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