Common Mistakes Foreign Investors Make When Setting Up a Company in Indonesia

Indonesia offers strong opportunities for foreign investors across hospitality, property development, manufacturing, technology, and professional services. However, despite the potential, many foreign investors face delays, compliance issues, or financial losses due to avoidable mistakes during company setup.

Understanding the most common PT PMA mistakes can help foreign investors make better decisions, reduce risk, and build a compliant business foundation in Indonesia. This article outlines the key pitfalls and explains how to avoid them.

1. Choosing Incorrect Company Structure

One of the most frequent mistakes foreign investors make is choosing an incorrect legal structure.

Some investors attempt to operate through a local PT instead of a PT PMA, believing it is faster or cheaper. In reality, foreign ownership in a local PT is not legally permitted.

Why This Is a Problem

• Foreign ownership is not protected by law
• Shareholding rights are unenforceable
• High risk during disputes or exit

For foreign investors, PT PMA is the only legal structure that allows direct ownership and long-term security.

2. Using Nominee Shareholders

To bypass PT PMA requirements, some investors attempt to use Indonesian nominees to hold shares on their behalf. This is one of the most dangerous mistakes in Indonesia.

Risks of Nominee Structures

• No legal ownership rights
• Shares legally belong to the nominee
• Contracts cannot override Indonesian law
• High risk of asset loss

Indonesia does not recognize nominee arrangements. If a dispute occurs, foreign investors have little to no legal protection.

3. Misunderstanding PT PMA Capital Requirements

Many foreign investors misunderstand the foreign investment capital requirements for PT PMA.

Some assume the IDR 10 billion investment threshold must be deposited fully as cash at incorporation, while others ignore the requirement altogether.

Common Capital Errors

• Declaring unrealistic investment plans
• Failing to understand paid-up capital vs investment value
• Not preparing capital realization reports

Proper capital planning contributes to a smoother approval process and regulatory clarity.

4. Selecting Incorrect KBLI Business Classification

Every PT PMA must register business activities using Indonesia’s KBLI classification system. Choosing incorrect or overly broad KBLI codes is a common error.

Possible Risks of Incorrect KBLI Selection

• Business licenses rejected
• Inability to apply for certain permits
• Compliance issues during audits

Proper KBLI selection is critical and should align with actual operations and ownership rules.

5. Ignoring the Positive Investment List

Indonesia’s Positive Investment List determines which business sectors are open, restricted, or closed to foreign investors. Some foreign investors proceed without checking ownership limitations, assuming all sectors allow 100 percent foreign ownership.

Possible Risks

• Restructuring
• Mandatory Indonesian partners
• Rejected incorporation or licenses

Understanding sector restrictions early prevents costly restructuring later.

6. Underestimating Compliance and Reporting Obligations

Foreign investors often focus on incorporation but underestimate ongoing compliance.

PT PMA companies are subject to stricter monitoring, including LKPM investment reporting.

Common Oversights

• Missing quarterly LKPM reports
• Late tax filings
• Ignoring zero-activity reporting requirements

Proper reporting helps avoid administrative issues and supports uninterrupted business operations.

7. Delaying Tax Registration and Activation

Some investors delay tax registration after incorporation, assuming no immediate obligation if the company is not operating.

Why This Is Risky

• Monthly tax filing is mandatory
• Zero reports are still required

Tax compliance begins immediately after incorporation, regardless of business activity.

8. Failing to Plan for Foreign Employment Regulations

Foreign investors often assume they can freely appoint foreign directors or managers. In Indonesia, employment of foreigners is strictly regulated.

Common Employment Mistakes

• Assigning foreigners to restricted positions
• Missing work permit approvals
• Not complying with local employment ratios

Strong manpower compliance supports operational stability and long-term business success.

9. Poor Documentation and Record-Keeping

Indonesia places strong emphasis on formal documentation. Many investors fail to maintain proper records.

Examples of Poor Documentation

• Incomplete contracts
• Missing financial records
• Inconsistent reporting data

Well-maintained documentation supports smooth audits, reduces the risk of disputes, and helps future business expansion

10. Relying on Unqualified or Incomplete Advice

Some foreign investors rely on informal advice, agents without proper expertise, or fragmented service providers.

Why This Leads to Problems

• Inconsistent legal interpretation
• Lack of long-term planning
• Errors during incorporation
• No post-incorporation support

Professional advisory ensures compliance from setup through operation.

11. Not Planning for Business Exit or Restructuring

Many investors focus on entry but ignore exit strategies.

Common Unprepared Exit Planning

• No clear share transfer mechanism
• Incomplete or no shareholder agreements in place
• Lack of valuation planning

Exit planning should be considered from the beginning to protect investment value.

12. Treating Indonesia Like Other Jurisdictions

Foreign investors often assume Indonesian regulations operate like other countries. Indonesia has its own regulatory culture and procedures.

Key Differences

• Strong emphasis on documentation
• Centralized digital systems
• Sector-based ownership controls
• Regular reporting requirements

Local expertise is essential to navigate these differences effectively.

How to Avoid These Mistakes

Foreign investors can reduce risk by:

• Choosing the correct PT PMA structure
• Understanding capital and ownership rules
• Planning compliance before incorporation
• Engaging professional advisors
• Maintaining accurate reporting and documentation

Early proper planning prevents costly corrections later.

How DKConsulting Supports Foreign Investors

DKConsulting provides comprehensive Business & Operational Advisory services, including:

• Company structure assessment
• Ownership and KBLI analysis
• PT PMA incorporation and licensing
• Capital and compliance planning
• Ongoing advisory and reporting support

We help foreign investors avoid common mistakes and build compliant, scalable businesses in Indonesia.

Setting up a company in Indonesia offers strong opportunities, but only when done correctly. Many PT PMA mistakes are preventable with proper planning and professional guidance.

By understanding these common pitfalls and working with experienced advisors, foreign investors can protect their investment, reduce compliance risk, and focus on business growth.