Insights

In a bold step to boost foreign direct investment (FDI) and streamline business licensing, Indonesia’s Investment Coordinating Board (Kementerian Investasi dan Hilirisasi/Badan Koordinasi Penanaman Modal or “BKPM”) issued BKPM Regulations No. 5 of 2025 on Guidelines and Procedures for the Implementation of Risk-Based Business Licensing and Investment Facilities through the Electronically Integrated Business Licensing System (Online Single Submission) (or “BKPM Reg. 5/2025”) on October 2025. This Reform significantly lowers capital entry barriers for foreign-owned companies eyeing the Indonesian market.

A.   Highlights of the New Regulatory Framework

The standout shift is the minimum paid-up capital requirement for a foreign direct investment company  (Perusahaan Penanaman Modal Asing or “PT PMA”) now lowered from IDR 10 billion (approx. USD 640,000) to IDR 2.5 billion (approx. USD 160,000).

However, the overall minimum investment value per five digit Indonesia Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or  “KBLI”) per location remains above IDR 10 billion for most sectors, meaning the total project investment requirement persists even as cash capital requirement shrink.

Another important adjustment is that the cash deposit must remain in the company’s bank account for at least 12 months (unless used for tangible assets, construction, or operational costs). Also noteworthy is the broader recognition of land and building value in specific sectors (such as property development, agriculture, aquaculture) for investment calculation.

Furthermore, the regulation consolidates previous licensing rules into a unified risk based business licensing framework via the Online Single Submission system (“OSS System”), simplifying the permit process

B.   Key Implications of the New Regulation 

The first key improvement is the reduction in upfront capital addresses a long standing barrier for mid-size and capital-light foreign investors. The prior IDR 10 billion requirement made Indonesia comparatively challenging among regional peers.

Another notable change is the recognition of tangible assets (including land/buildings) as part of the investment quota in certain sectors, the regulation allows more flexible investment models and reduces idle cash.

This reform also enhances Indonesia’s competitive positioning of Indonesia an investment destination. According to the United Nations Conference on Trade and Development (UNCTAD), the measure is a form of liberalisation that aligns with global trends.

Nevertheless, the regulation also demands greater compliance discipline stuck funds, accurate investment activity reporting (Laporan Kegiatan Penanaman Modal or “LKPM”), and licensing risk if mismanaged.

C.   Practical Tips for Investors & Businesses

     1.  Review Corporate Structures and Investment Plans

For the establishment or expansion of a PT PMA, reassess the paid up capital obligation and ensure that KBLI classifications are correctly aligned  with the intended business activities.

    2.  Ensure Compliance  With the Lock-up Rule

The deposited IDR 2.5 billion must remain in the company’s bank account for at least 12 months unless used for permitted purposes such as construction, operational expenses, or asset acquisition.

    3.  Verify Land and Building Eligibility

In sectors such as property development or agriculture, confirm whether the value of land and buildings can be included in the minimum investment calculation.

    4.  Maintain Update OSS System and Licensing Information

Under the risk based licensing system, faster decision times come with greater automation errors or incomplete data entries may lead to automatic rejection or sanctions.

    5.  Submission of periodic LKPM remains mandatory. Non-compliance can lead to  administrative supervision or other enforcement measures.

    6.  For multi-KBLI business activities, subsidiary structures, or complex asset contributions, Professional legal guidance is strongly recommended to 

ensure compliance under the new regulatory framework.

D.    Conclusion

BKPM Reg 5/2025 marks a pivotal development in Indonesia’s Investment landscape. By lowering the entry barriers, expanding the definition of capital contributions, and simplifying licensing through the OSS System, the regulation makes Indonesia a far more attractive and accessible destination for foreign investors.

However, this newfound flexibility is balanced by a stronger emphasis on accountability and compliance. BKPM Reg 5/2025 introduces a more structured and transparent compliance framework that demands careful attention, proper documentation, and continuous monitoring from investors.

In this evolving environment, companies are encouraged to reassess their investment structures, ensuring that they not only capture the opportunities presented by the new regime but also maintain robust compliance mechanisms that stand up to regulatory scrutiny. To conclude, several important points should be noted regarding the application of BKPM Reg 5/2025 as the key takeaways and practical implications for PRS clients and investors.

     (i) Foreign Investment Structure:

While the paid-up capital requirement has been lowered (a welcome development for foreign investors), the minimum total investment threshold of IDR 10 billion remains in place. Accordingly, companies must carefully plan their capital structure to ensure compliance while maintaining commercial efficiency.

    (ii) LKPM Reporting Obligations:

Businesses that were previously exempt from LKPM (Investment Activity Report) requirements should verify whether they are now included under the updated regime. Non-compliance may result in administrative sanctions, so a prompt compliance review is strongly advised.

   (iii) Investment Incentives and OSS System Integration:

The process for applying for investment facilities and incentives has become more formalised, including submission, verification, and approval through the OSS System. Companies should ensure that their internal workflow and documentation align with the OSS System’s Framework and service-level agreement (SLA) requirements to avoid procedural delays.

   (iv) Transition and System Alignment:

Existing licences and approvals remain valid. However, companies may need to update access rights within the OSS System and ensure consistency with the new regulatory platform. A transition audit can help identify potential gaps in system integration or reporting.

   (v)  OSS System Upgrade:

With the upgraded OSS System now in effect, businesses must ensure their data, access credentials, and reporting mechanisms are properly aligned. Proactive system compliance will help avoid disruptions in future filings and approvals.

In summary, while BKPM Reg 5/2025 brings greater flexibility and opportunities for investors, it also introduces a more structured and transparent compliance environment. Companies are encouraged to review their current investment frameworks, update their internal systems, and ensure readiness under Indonesia’s evolving regulatory regime.

Indonesia holds a vast portfolio of State Owned Assets worth around IDR 13,692 trillion (as of end 2024) including land, buildings, infrastructure, machinery, and facilities of high economic value. Many remain underutilized, representing untapped revenue and growth potential. The legal framework enables State Owned Enterprises (or Badan Usaha Milik Negara “BUMN”), Regional Government-Owned Enterprises (or Badan Usaha Milik Daerah “BUMD”), and private companies to partner with the Government to optimize these assets, boosting infrastructure, productivity, investment, and mutual economic benefits.

A.   GOVERNING LAWS 

Indonesia manages State Owned Assets under a strict legal framework to safeguard value while ensuring transparency, accountability, and compliance, based on complementary regulations including Law No. 17 of 2003 on State Finance (“Law 17/2003”), Government Regulation No. 28 of 2020 on the Management of State Owned/Regional Owned Assets (“GR 28/2015”), Presidential Regulation No. 38 of 2015 on Public-Private Partnerships in Infrastructure Provision (“PR 38/2015”), and Minister of Finance Regulation No. 115/PMK.06/2020 on the Utilization of State Owned Assets (“MoF Reg. 115/2020”). Unused assets may be commercially utilized under regulated schemes, with ownership retained by the State, while providing legal certainty for public and private partners to invest, mitigate risks, and support sustainable, mutually beneficial cooperation.

B.   PURPOSE OF THE ULTILIZATION AGREEMENT

Many State Owned Assets such as land, buildings, and infrastructure, remain underutilized despite Indonesia’s position as the largest economy in ASEAN, ranking first with a GDP of approximately USD 1.4 trillion, representing about 35% of the region’s total output, yet its GDP per capita stands at just $5,000, lower than regional peers like Malaysia or Thailand. Manufacturing currently contributes around 19% to Indonesia’s GDP, while services account for more than 43%, a structure that lags behind some regional peers where manufacturing exceeds 20-25%.  Strengthening the manufacturing sector through effective asset utilization is crucial to diversify the economy, increase value added production, enhance competitiveness, and sustain long term growth. 

C.   LEGAL FRAMEWORK AND SCHEMES FOR THE ULTILIZATION OF STATE OWNED ASSETS 

       I.   Parties Involved 

The cooperation agreement shall be entered into between the Government and the Private Partner, with the prior approval  of the Director General at the Ministry of Finance, to utilize State Owned Assets that are not currently needed by government offices in order to increase their value and generate revenue for the State without changing ownership. This process involves several parties with distinct roles and authorities under applicable laws and regulations, namely:

(i) Asset Administrator, the Minister of Finance, as Asset Administrator, holds strategic authority to set policies, approve or reject utilization requests, and oversee implementation to ensure legal compliance and optimize the economic value of State assets;

(ii) Asset User, an Asset User is a Minister or head of a government institution responsible for identifying potential assets, requesting their utilization, executing agreements within their authority, and ensuring use aligns with the agreement without disrupting public services; and

(iii) Private Partner, a Private Partner can be a State Owned, BUMN, BUMD, or private (local or foreign) company that helps fund, develop, and manage State Owned Assets. They must follow the contract, run operations properly, and obey the law. Most partners are chosen through a tender, but for key assets like airports or ports, the government can directly appoint State or BUMD or their subsidiaries.

The utilization of State Owned Assets shall be carried out by the Asset User through the identification of unused or underutilized assets, followed by submission to the Directorate General of State Assets (or “DGSA”) for approval of the utilization scheme, determined based on asset value, purpose, and investment needs. The Private Partner shall be selected through a tender process or direct appointment for certain strategic assets. Strategic assets that require a tender process include the utilization of vacant land for the development of shopping centres, hotels, and other commercial buildings, as well as the use of infrastructure assets for public services such as ports, toll roads, and airports. Best practices for such tender processes include ensuring transparency, applying clear technical and financial criteria, engaging independent oversight, conducting market sounding, and adopting a value-for-money approach that considers long term public benefits.

       II.   Ultilization Schemes (Minister of Finance Regulation No. 115/PMK.06/2020)

State Owned Asset utilization under MoF Reg. 115/2020 can take various forms, including:

(i)  Lease, this scheme leases unused State Owned Assets to private parties for up to 5 years, or up to 50 years for infrastructure projects;

(ii) Cooperative Utilization Agreement, this scheme allows private use of State Owned Assets for up to 30 years, or up to 50 years for infrastructure projects;

(iii)  Build Operate Transfer (BOT), this scheme lets private parties build on State land and transfer the facility to the State after operating it for up to 30 years, non-extendable;

(iv)   Build Transfer Operate (BTO), similar to BOT, this scheme transfers the asset to the State upon completion to ensure State ownership while granting the private partner agreed utilization rights;

(v)  Infrastructure Provision Cooperation, this scheme is a Public-Private Partnership where the private party finances, builds, and/or operates public infrastructure for up to 50 years (extendable) to develop and manage key facilities such as toll roads, ports, airports, and water systems; and

Limited Infrastructure Financing Cooperation, this scheme monetizes State Owned Assets by requiring the private partner to make an upfront payment for the right to manage and improve them, providing the State with immediate funds for strategic projects without waiting for new budget allocations.

D.   CRUCIAL COMMERCIAL AND LEGAL ASPECTS 

All payments from the use of State Owned Assets including rent, fixed contributions, profit sharing, or other agreed forms must be paid into the State Treasury as Non-Tax State Revenue (or Penerimaan Negara Bukan Pajak “PNBP”).  All proceeds from the utilization of State Owned Assets shall be deposited into the State General Cash Account, which is managed by the Minister of Finance in their capacity as the State General Treasurer.

Key commercial and legal aspects to consider include:

(i)  Risk Allocation

State Owned Asset Utilization Agreements must clearly allocate construction, operational, market, and regulatory risks covering issues such as delays, service disruptions, revenue fluctuations, and legal changes. These should be assigned to the parties best positioned to manage them, ensuring effective risk management and project continuity.

(ii)  Protection of Public Interest

State Owned Asset utilization must prioritize public interest, maintain service quality and continuity, comply with laws, and uphold public order, morality, and national interests to ensure economic optimization aligns with constitutional goals for public prosperity.

(iii)  The Critical Role of Legal Advisory

Given the complexity of regulations, partner selection, and contractual obligations in State Owned Asset Utilization, legal advisory is key to project success. Law firms add value by:

i.  Conducting legal due diligence on asset status, disputes, restrictions, and project feasibility;

ii.  Drafting and negotiating compliant agreements covering rights, obligations, payments, risk allocation, and dispute resolution; and

iii.  Ensuring compliance with state finance rules, managing legal risks, and protecting client interests.

Integrated legal support from planning to execution minimizes disputes, ensures legal certainty, and keeps projects on track.

E.   BENEFITS FOR PRIVATE PARTNERS 

With legal certainty and flexible schemes, partnerships in State Owned Asset utilization offer businesses strategic benefits, including:

(i)  Access to Strategic Assets, private partners can use government owned land, buildings, and infrastructure in strategic, high value locations;

(ii)  Long Term Rights with Legal Certainty, partnerships come with clear legal agreements allowing private partners to manage assets for up to 50 years, giving stability for long term planning and investment;

(iii)  Oppurtunity to Participate Major Infrastructure Projects, these partnerships give businesses the chance to help develop and manage important national infrastructure projects; and

Predictable Returns on Investment, the return on investment is structured clearly through user fees, government payments, or profit sharing making future income more predictable and reducing financial risk.

F.   DISPUTE RESOLUTION 

Given the long term nature of State Owned Asset utilization, agreements must include clear dispute resolution mechanisms starting with negotiation and, if needed, proceeding to arbitration or court with arbitration often favoured in high value projects for its speed, confidentiality, and expert adjudication, thereby ensuring legal certainty, preserving partnerships, and maintaining project continuity.

E.   CONCLUSION 

The utilization and management of State Owned Assets offer businesses a strategic opportunity to partner with the Government in high value projects that advance economic growth and infrastructure development. A strong legal framework safeguards State ownership while ensuring legal certainty and investment protection for private partners. However, private partners must exercise caution to ensure that agreements are signed by the authorized official/institution representing the state as the legal owner of the assets. If executed with an unauthorized party, such agreements may be deemed null and void by law, exposing private partners to significant legal and financial risks.  With experienced legal advisors guiding planning, due diligence, contract drafting, compliance, and dispute resolution, agreements can be structured to maximize value, protect interests, and ensure sustainability thus optimizing asset potential and contributing to Indonesia’s long term economic prosperity.

A. INTRODUCTION

Indonesia, as a country with a population of more than 250 million, intends to attract many foreign education institutions to establish higher education such as universities or its equivalent, or make cooperation with local education institutions. This comes with some purposes, some of them are to escalate national education and to attract international students to pursue education in Indonesia.

The establishment of an educational institution must comply with the applicable regulations on the organization and management of educational institutions. In Indonesia, in establishing a Foreign University, its stakeholders (whether individual or legal entity) must form a foundation as a legal entity to run the educational activities. Since educational activities in Indonesia shall be owned by a Foundation, thus educational institution such as a school and university must not aim to generate profits.

B. KEY POINTS ON ESTABLISHING FOREIGN UNIVERSITY

I. Governing Laws

There are considerations that need to be taken by Foreign University stakeholders when establishing a Foreign University in Indonesia. The following are some of the considerations in order to fulfill the provisions under governing laws:

Establishment of the Foreign University in Indonesia is subject to Law No. 12 of 2012 on Higher Education (“Higher Education Law”) and its implementing regulations. Still under the same law, Foreign University must be incorporated by the organizing body which must operate as a non-profit organization such as foundation[1]. Foundation in Indonesia must be operated in compliance with the Law No. 28 of 2004 on the Amendment of Law No. 16 of 2001 on Foundation (“Foundation Law”) and Government Regulation No. 63 of 2008 on Enforcement of Foundation Law (“GR 63/2008”). Therefore, this provision has to be complied by the Foreign University stakeholders in order to establish Foreign University in Indonesia.

II. Key Consideration

There are considerations that need to be taken by Foreign University stakeholders when establishing a Foreign University in Indonesia. The following are some of the considerations in order to fulfill the provisions under governing laws:

(i) the Foreign University must to be established by a foundation as a non-profit organization. In order to incorporate a foundation, in case the stakeholder is a foreign national or foreign legal entity, the foundation is required to separate its stakeholder’s personal asset to be the foundation’s asset with minimum amount of IDR 100.000.000 (one hundred million Rupiah)[1] followed by notarial deed and evidence of the foundation’s wealth;

(ii) foundation that established by foreign national or foreign legal entity shall have at least 1 (one) board member who is an Indonesian citizen either as chairman, secretary, or treasurer, and must resides in Indonesia;[2]

(iii) after the establishment of the foundation, the foundation may be the organizing body of the Foreign University by establishing branch campus of such Foreign University in Indonesia;[3]

(iv) the Foreign University has to meet the criteria, as follows:

• • Foreign University established in KEK area:[1]

i. Foreign University that is ranked among the world's best 100 (one hundred); 

ii. Foreign University that has fields of study that are ranked among the world's top 100 (one hundred); and

iii. accredited and/or recognized by the origin country;

• •  Foreign University established in non-KEK area:[2]

i. Foreign University that is ranked among the world's best 200 (two hundred); or

ii. Foreign University that has fields of study that are ranked among the world's top 200 (two hundred);

unless this is not the case, the competent minister may decide otherwise in accordance with national priorities; and

(v) the Foreign University shall apply the same curriculum and/or learning outcomes with curriculum and/or learning outcomes that the Foreign University’s origin receives or applies.[3] 

C. CONCLUSION 

The establishment of a Foreign University in Indonesia presents both opportunities and regulatory challenges. As Indonesia seeks to enhance its national education system and attract international students, foreign universities must carefully navigate the country’s legal framework. 

One of the key requirements is that a foreign university must be established through a non-profit foundation, with specific capital and governance structures in place. In addition, compliance with relevant regulations whether in KEK or non-KEK area is essential. Foreign universities must also meet global ranking criteria and adhere to their home country’s academic standards while aligning with Indonesian regulations. 

By fulfilling these requirements, foreign universities can successfully establish their presence in Indonesia, contributing to the nation's educational landscape while ensuring compliance with local laws.

Since the establishment of Foreign University in Indonesia has to be done through a non-profit foundation, PRP Law Firm has the experience that could assist the clients in guiding and structuring the best legal way for the benefit of the stakeholders on the establishment of Foreign University while contributing to the better education in Indonesia.

A. INTRODUCTION

I. Introduction of a Shareholders’ Agreement

In order to incorporating a company to be a legal entity in Indonesia, we must to abide the rules under the Law No. 40 of 2007 on Company Law (“Company Law”). According to Art. 2 of Company Law, a company must to have: (i) purpose and objectives of the company; (ii) business activities that do not conflict with the provisions of laws and regulations, public order, and/or decency. Therefore, a company must to be clear on its purpose of the establishment.

Incorporating a company in Indonesia has a minimum of the shareholders. A potential company must meet a minimum of 2 (two) shareholders along with notary deed. The shareholders have to agree on terms that ruled under the Articles of Association (“AOA”). The shareholders allowed to make a separate agreement in order to providing or securing related matters that are not included in the AOA, as long as the provision in such agreement is not less than what is stated in the Company Law. This agreement called as the Shareholders’ Agreement (“SHA”).

Normally, AOA will contain general necessary matters or details of a company. On the other hand, SHA could arrange or provide for the complexity of the shareholders’ interests. Essentially, SHA does not regulate by the Company Law as requirements to incorporating a company, however SHA can be made by following applicable regulations on the Indonesia Civil Code (“ICC”).

II. Purpose of Shareholders’ Agreement

Despite the SHA is a non-mandatory, however SHA can be a benefit-maker for the company and its shareholders. The followings are the purposes and/or reasons of the importance of SHA:

1. 1. regulate the reserved matters;
   2. regulate the shareholders’ quorum requirement in details;
   3. representative/position of Board of Commissioners (“BOC”) and Board of Directors (“BOD”);
   4. promotes governance;
   5. provides solution for deadlocks;
   6. protects confidentiality;
   7. protects minority shareholder;
   8. provides non-compete restrictions; and
   9. defines clear exit strategies.

In addition, there are more purposes and reasons to create a Shareholder Agreement to be considered.

B. INDONESIA LEGAL FRAMEWORK OVERVIEW ON SHAREHOLDERS’ AGREEMENT

I. Governing Laws 

In Indonesia, Company Law regulates rights and obligations of a company shareholders. The rights and obligations of the shareholders that set by Company Law only rule matters around General Meeting of Shareholders (“GMS”), receipt of dividends, arrangements of shares, and arrangements regarding the appointment of the BOC and BODthat outlined in the AOA.

In order to securing or providing more interests, they are free to determine the terms and conditions and/or clauses that are to be regulated in the SHA. Freedom of contract ruled in Art. 1338 ICC that might be the ground of creating a SHA has to be in line with the validity of an agreement ruled in Art 1320 ICC. 

From the existing precedent regarding the SHA, SHAs can be an alternative to regulate things that are not regulated under the AOA. Thus, shareholders in order to be more specific on their rights and obligations of the company, they are allowed to bind themselves on a SHA.

C. ESSENTIAL ELEMENTS ON SHAREHOLDERS’ AGREEMENT

I. Parties Involved

The parties involved in the SHA are all the shareholders of the company. The shareholders may be individuals or any other type of legal entity (e.g. companies). Where companies are involved as shareholders in the SHA, it may be necessary to take additional steps to ensure that the company does not circumvent certain rights contained in its own SHA.

II. Key Clauses in A Shareholders’ Agreement

(i) Capital Structure

Though the capital structure has already arranged in the AOA, SHA can be more specific on the structure of the capital that the shareholders have issued. The further arrangements of the capital can be arranged, as follows:

1. 1. 1. allocation of shares ownership;
      2. capital increase/capital reduce procedures;
      3. conditions on applying loans/capital from third parties;
      4. provisions regarding the limit of retained profits; and
      5. procedure for exiting the company and the consequences of the exit of shareholders.

These arrangements can be critical to the companies' operations. Thus, each shareholder is aware of any arrangements and/or consequences of the capital structure.

In relation to point v above, by setting out clear procedures for exit strategies in the SHA, companies can avoid complications and confusion if and when a shareholder decides to leave. This can be done by outlining the reasons for the exit, whether by sale, buyout or other methods.

(ii) Dividend Distribution Conditions

The importance of discussing dividends is to minimize future conflicts or disputes. The dividend provisions set out in the SHA can also regulate the procedure for distributing dividends, when a dividend can be paid and the payment of interim dividends before the end of the company's financial year. In addition, the shareholders may agree that the dividend may only be distributed upon the completion of several priorities (i.e., operational costs, short-term obligations, capital expenditure or investment needs of the Company, and any priority in accordance to the agreement or applicable laws).

(iii) Confidentiality

Confidentiality provisions in the SHA can be essential to protect sensitive strategic business information. This arrangement is intended to ensure that all shareholders are legally bound to protect the company's secrets, both during their involvement and even after they leave.

This type of agreement is also beneficial in gaining or maintaining the trust of potential investors and/or business partners. Therefore, with strong confidentiality, companies will maintain its credibility before the potential investors and/or business partners.

(iv) Non-compete Restrictions

This restriction can be considered an extension of the confidentiality provisions set forth in the SHA. It serves to prevent shareholders from establishing new businesses that may compete with the company, both during their tenure as shareholders and after they have exited the company. 

In addition, this restriction helps protect the company from potential conflicts of interest that may arise. The non-compete restriction also acts as a safeguard, ensuring that shareholders act fairly when conducting the company business or prioritizing their personal interests

(v) Dispute Resolution

The dispute resolution clause is a crucial provision that should be included in a SHA. This is because shareholders may, at some point, encounter conflicts or obstacles that could lead to disputes. 

Such disputes can be detrimental to the company, as they may hinder business growth and create uncertainty among shareholders regarding key issues. These issues may include business operations, profit distribution, capital contributions, or the transfer of shares to third parties. 

By incorporating a dispute resolution clause, shareholders have a predetermined mechanism to refer to in the event of a dispute. Typically, dispute resolution begins with deliberation and mutual agreement, where shareholders first attempt to reach a compromise. If no resolution is reached, the clause may designate a competent institution to adjudicate the dispute.

D. CONCLUSION

SHA serves as a vital instrument in regulating the rights and obligations of shareholders beyond the provisions of the (AOA). While not a mandatory requirement under Company Law, an SHA provides numerous advantages, including safeguarding shareholder interests, mitigating disputes, and ensuring corporate governance.

The legal foundation for an SHA in Indonesia is derived from the principle of freedom of contract under the ICC, allowing shareholders to define specific terms tailored to their business needs. This agreement can encompass critical elements such as capital structure, dividend policies, confidentiality, non-compete restrictions, and dispute resolution mechanisms. By incorporating these provisions, shareholders can establish a structured framework that promotes stability, transparency, and long-term business sustainability.

Ultimately, a well-drafted SHA enhances legal certainty and minimizes risks by preventing conflicts and ensuring that shareholders operate within clearly defined boundaries. Therefore, companies seeking to strengthen their internal governance and protect their commercial interests should consider implementing a comprehensive SHA as part of their corporate strategy.

A. INTRODUCTION

One of the most common paths to building wealth in Indonesia is through entrepreneurship. Whether undertaken by individuals or groups, running a business requires legal certainty. This legal foundation is most commonly achieved by establishing a Limited Liability Company known in Indonesia as Perseroan Terbatas (“PT”).

A PT is recognized as a legal entity with its own rights and obligations, distinct from its founders or managers. Under Indonesian law, a PT must be established by at least 2 (two) individuals through a notarial deed, with each founder required to subscribe to shares in the company. These founders, by holding shares, become shareholders of the PT.

As a legal subject, a PT stands independently and has the authority to act on its own behalf. This includes the ability to enter into legally binding agreements, such as incurring debt or establishing contractual obligations with third parties.

As shareholders, they are granted specific legal rights under Indonesian corporate law. However, these rights are also accompanied by responsibilities and limitations that every shareholder must understand and respect.

In this article, we highlight the key rights, obligations, and regulatory frameworks that govern shareholders in Indonesia essential knowledge for anyone involved in business ownership or corporate structuring in the country.

B. GOVERNING LAWS

In Indonesia, share ownership is governed by various prevailing laws and regulations. The following are some of the key legal instruments that regulate share ownership:

1. Law No. 40 of 2007 on Company Law (“Company Law”);
2. Law No. 25 of 2007 on Investment (“Investment Law”);
3. Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation as Law;
4. President Regulation No. 49 of 2021 on Investment Business Fields (“PR 49/2021”); and
5. Investment Coordinating Board Regulation No. 4 of 2021 on Guidelines And Procedures For Risk-Based Business Licensing Services And Investment Facilities (“ICB Reg. 4/2021”).

C. SHARE OWNERSHIP RIGHTS AND OBLIGATIONS

I. Share Ownership Rights

Shareholders, as partial owners of the company, are entitled to various rights, including:

(i) right to attend and vote at General Meetings of Shareholders (“GMS”), shareholders have the right to participate in the decision-making process, including approving annual reports, dividend distribution, and major corporate actions;

(ii) right to receive dividends and distribution of remaining assets, when the company declares profits, shareholders are entitled to a portion of the dividends in accordance with the number and class of shares they hold;

(iii) shareholder shall have the right to file a suit against the Company to the District Court if they suffer losses due the action of the Company which is considered to be unfair and unreasonable as a result of a resolution of the GMS, the Board of Directors, and/or the Board of Commissioners;

(iv) In case of new share issuance, existing shareholders generally have the right of first refusal to maintain their ownership percentage.

II. Share Ownership Obligations

In addition to rights, shareholders also have legal obligations, such as:

(i) shareholders must pay the nominal value of their subscribed shares. Failure to fulfil this obligation may result in the loss of rights associated with the unpaid shares;

(ii) compliance with the Article of Association (“AoA”), shareholders are bound by the company’s internal governance rules and resolutions adopted during GMS; and

(iii) although the liability of shareholders is generally limited to the value of their shares, they may be held personally liable if: (i) the requirements for the Company as a legal entity has not been or are not fulfilled; (ii) the relevant shareholders, either directly or indirectly, with bad faith, exploits the company for their personal interest; (iii) the relevant shareholders are involved in illegal actions committed by the company; or (iv) the relevant Shareholders, either directly or indirectly, illegally utilizes the assets of the company, which result in the Company’s assets become insufficient to settle the Company’s debt.

D. TYPE OF SHARES

In Indonesia, Company Law allows companies to issue various classes of shares with different rights. Classes of shares mentioned, can be regulated with the provisions such as:

(i) shares with voting rights or without voting rights;

(ii) shares with special rights to nominated the Board of Directors and/or the Board of Commissioners;

1. Art. 75 – 84 Company Law.
2. Art. 71 Company Law.
3. Art. 61 Company Law.
4. Art. 43 Company Law.
5. Art. 33 Company Law.
6. Art. 3 Company Law.
7. Art. 53 Company Law.

(iii) shares with after certain period of time will be withdrawn or exchanged with other classifications of shares;

(iv) shares which provide rights to its owner to receive dividends firstly over the other shareholders from different shares classification for the distribution of dividend cumulatively or non-cumulatively; and

(v) shares which provide rights to its owner to receive allocation of the remainder of the Company’s assets in liquidation firstly over the other shareholders with different shares classification.

These type of shares with specific rights and obligations attached to each class must be detailed in the AoA and approved by the shareholders. In addition, type of shares also must be stated in a shareholders’ agreement and/or joint venture agreement.

Regardless of the type of shares issued by a company, the right to receive dividends is fundamental and cannot be denied or changed by either the shareholder or the company, provided the company declares profits and the dividend distribution is approved.

Despite the various types of shares that may be held by shareholders or issued by a company, Indonesia recognizes a special type of share owned by the state known as Saham Merah Putih or Saham Dwiwarna.

The primary purpose of the state holding Saham Merah Putih or Saham Dwiwarna is to retain full control over key corporate decisions and ensure that the company operates in alignment with national policies and strategic interests.

E. SHARE OWNERSHIP LIMITS

Under the Company Law, as amended, there are generally no explicit maximum limits imposed on share ownership for domestic investors in a PT. The shareholders, whether its individuals or legal entities, are free to own shares in any proportion, subject to the provisions of the company’s AoA, Shareholder’s Agreement, or applicable sectoral regulations.

Other than that, for a foreign share ownership that ruled under the Investment Law and its implementing regulation such as PR 49/2021 and ICB Reg. 4/2021. Under these regulations, foreign investors may generally own up to 100% (one hundred percent) of shares in most business sectors, unless otherwise restricted by the PR 49/2021.

PR 49/2021 regulates the investment business fields commonly known as Positive Investment List. The list outlines specific sectors that are: (i) closed to investment or entirely prohibited; or (ii) open with conditions. Open with conditions mentioned above means several business lines are open with some conditions, such as:

(i) maximum foreign ownership limits;

(ii) requirement for partnership with local micro, small, or medium enterprises (“MSMEs”);

(iii) licensing restrictions; or

(iv)  location-based limitations.

F. DIVIDEND DISTRIBUTION

Under the Company Law, dividends may only be distributed if the company records a positive net profit after fulfilling its legal reserve obligations. One of the obligations must be abide by a company is that a company must allocate at least 20% (twenty percent) of its net profit as a statutory reserve until that reserve reaches the required threshold, unless otherwise regulated by the AoA. After meeting this reserve requirement, the remaining profits may be distributed as dividends, subject to the approval of the GMS.

Dividends must be distributed proportionally to the number and class of shares held by each shareholder, unless otherwise stipulated in the company’s AoA. In the case of interim dividends, distribution is allowed if the AoA permit it and provided that the company’s net assets are sufficient.

Failure to follow these procedures, such as distributing dividends when the company is not in profit, may lead to personal liability for the Board of Directors.

Taxation on dividend distribution must be borne by all shareholders, as regulated under Law No. 7 of 2021 on Harmonization of Tax Regulations (“Tax Law”) and its implementing regulations. The Tax Law governs the taxation of dividends distributed to both domestic and foreign shareholders.

For domestic shareholders, dividends received are subject to final income tax at a rate of 10% (ten percent), unless certain reinvestment criteria are met. However, under the Tax Law, dividends received by individual and corporate domestic taxpayers are exempt from income tax if: (i) the dividends are distributed by Indonesian companies; and (ii) the dividends are reinvested in Indonesia within a specified time frame.

For foreign shareholders, dividends paid to them are subject to withholding tax at a rate of 20% (twenty percent) based on Article 26 Income Tax Law, unless the rate is reduced under a double taxation avoidance agreement between Indonesia and the shareholder’s country of residence.

G. CONCLUSION

Understanding the legal framework of share ownership in Indonesia is essential for anyone involved in building or managing a company. The Company Law, Investment Law, and their implementing regulations collectively establish the rights, obligations, and limitations that shareholders must observe, whether domestic or foreign. From determining the type and structure of shares to navigating ownership limits and dividend entitlements, including applicable tax obligations, shareholders must be well-informed to ensure compliance and protect their interests. By adhering to these legal provisions, companies and investors alike can foster a more secure, transparent, and accountable corporate environment aligned with Indonesia’s business and regulatory landscape.

The President of the Republic of Indonesia, Prabowo Subianto, has officially inaugurated the new sovereign wealth fund, Danantara. The inauguration held on February 24, 2025 at the Jakarta Presidential Palace.

Badan Pengelola Investasi Daya Anagata Nusantara (“DANANTARA”) is the term that used for the new sovereign wealth fund. The truly definition of Danantara is quite exquisite, since the term is purposed as reflection of Indonesia’s economic future. Daya means strength, Anagata means future, and Nusantara means Indonesian homeland.

DANANTARA OVERVIEW

Danantara was intended to be an institution that will manage assets with an initial fund of USD 20 billion. And it aims to manage assets totaling over USD 900 billion. Danantara will carries out some functions similar to several sovereign wealth fund that owned by other countries, such as China Investment Corporation of China and Temasek Holdings of Singapore.

Danantara was created under the newly amended Law No. 19 of 2003 on State-Owned Enterprises (“SOE”) (referred to as the “SOE Law”), which was amended for the third time, along with the enactment of Government Regulation No. 10 of 2025 on the Investment Management Agency of Daya Anagata Nusantara (“GR No.10/2025”). In accordance to  Article 3G paragraph (3) SOE Law, Danantara will have a minimum initial capital of IDR 1,000 trillion. For the initial stage as a super-holding, Danantara will manage 7 (seven) SOEs:

1. PT Bank Mandiri (Persero) Tbk, state bank with the value of approximately IDR 2,174 trillion (2023);

2. PT Bank Rakyat Indonesia (Persero) Tbk, state bank with the value of approximately IDR 1,865 trillion (2023);

3. PT Perusahaan Listrik Negara (Persero), state electricity company with the value of approximately IDR 1,670 trillion (2023);

4. PT Pertamina (Persero), state oil-gas company with the value of approximately IDR 1,404 trillion (2023);

5. PT Bank Negara Indonesia (Persero) Tbk, state bank with the value of approximately IDR 1,029 trillion (2023);

6. PT Telkom Indonesia (Persero) Tbk, state telecommunications company with the value of approximately IDR 287 trillion (2023); and 

7. PT Mineral Industri Indonesia (MIND ID), state mining industry with the value of approximately IDR 259 trillion (2023).

As mentioned in the SOE Law, Danantara will take roles in optimizing SOE’s assets and investing in various sectors in order to give sustainable impacts. Danantara also appointed members for the governing bodies that have been enacted since the issued of Presidential Decree No. 30 of 2025 on the Appointment of Danantara’s Supervisory Board and Managing Board, as follows:

1. Advisory Board, will serves by Indonesia’s former presidents, Susilo Bambang Yudhoyono and Joko Widodo that will provide inputs and advices to the Danantara.

2. Supervisory Board, will leads by Erick Thohir (current Minister of SOEs), alongside Sri Mulyani Indrawati (current Minister of Finance) as the member, that will in charge of supervising the implementation of the Danantara carried out by the Executive Board.; and

3. Executive Board, will leads by Rosan Perkasa Roeslani (current Minister of Investment and Downstream Industry) as CEO, Doni Oskaria as COO, and Pandu Patria Sjahrir as CIO that will in charge of operational management of the Danantara;

the board will report directly to the President of the Republic of Indonesia, Prabowo Subianto, to ensure checks and balances, also Danantara can only dissolved by law.

As a sovereign wealth fund, Danantara will act as the SOEs' Executor. Therefore, according to Article 3F SOE Law jo, Article 4 GR No. 10/2025, Danantara will have the authority to:

1. manage SOEs;

2. organize dividends from investment and operational holding;

3. approve or deny state capital participation to SOEs;

4. together with Minister of SOE establishes the Investments Holding and Operational holding;

5. together with the Minister of SOE approve the proposal for write-off of SOE assets proposed by the Investment Holding or Operational Holding;

6. provide loans, receive loans, and pledge assets with the approval of the President; and

7. ratify and consult to the organs of the House of Representatives in charge of SOE on the Work Plan and Budget of the Investment Holding Company and Operational Holding.

With the establishment of Danantara, the existing sovereign wealth fund, Indonesia Investment Authority (“INA”) will expect to be consolidated into Danantara. With the consolidation aims to attract more of foreign direct investment to Indonesia.

CONCLUSION

In conclusion, Danantara is expected to make an impact on the Indonesian economic landscape and investment ecosystem. Its ability to manage state assets, attract foreign investments, and stimulate economic growth is significant. However, the success of the sovereign wealth fund hinges on its governance, transparency, and the effective management of risks such as corruption and political interference. By ensuring rigorous checks and balances, enforcing strong anti-corruption measures, and adhering to the legal framework set out by the SOE Law, GR No. 10/2025, and Presidential Decree No. 30, Danantara has the potential to be a powerful engine for long-term national development. It will be interesting to see whether Danantara can strive to increase investment returns or whether it is merely a grand ambition of the new government.

PRP Law Firm offers range of services for the investment companies seeking to have opportunities with Danantara, in order to ensure proper and secure documentation.

Regards,

PRP Law Firm.