Challenges When Starting a Business in Indonesia for Foreigners and How to Overcome Them

Starting a business in Indonesia involves navigating complex, multi-step bureaucracy, strict foreign ownership limitations, and intense, localized competition.

Key challenges include obtaining necessary business licences and permits (BKPM), complying with intricate, frequently updated tax regulations, and securing appropriate visas (KITAS).

Other significant hurdles include language barriers, infrastructure gaps, and the necessity to adapt to unique local cultural practices.

Complex Regulatory & Licensing Requirements

One of the biggest hurdles is navigating Indonesia’s business licensing framework, which involves multiple steps and authorities.

Foreigners must typically obtain:

• A Deed of Establishment (via a notary)
• A Tax Identification Number (NPWP)
• A Business Identification Number (NIB) through the OSS system
• Industry-specific operational or commercial licenses

Although licensing is coordinated through BKPM (Indonesia Investment Coordinating Board), approval timelines can vary widely depending on business activity, location, and document accuracy.

Even small mistakes in documentation can lead to repeated revisions and delays.

Foreign Ownership & Investment Restrictions

Indonesia enforces foreign ownership limitations through its investment regulations and the Positive Investment List.

Key challenges include:

• Certain sectors are fully closed or partially restricted to foreign ownership
• Some industries require local shareholders or special approvals
• Business activities must match approved KBLI codes exactly

For many foreigners, structuring a PT PMA (foreign-owned company) correctly from the start is critical to avoid future legal issues.

Tax Compliance & Ongoing Reporting Obligations

Indonesia’s tax system is detailed and strictly enforced, especially for foreign-owned companies.

Foreign businesses must comply with:

• Corporate income tax
• Monthly and annual tax reporting
• Employee withholding tax
• Value Added Tax (VAT), if applicable

Tax regulations are frequently updated, and penalties for late or incorrect filings can be significant.

Many foreign founders struggle because tax compliance is ongoing, not a one-time setup.

Visa & Work Permit (KITAS) Challenges

Foreigners cannot legally operate or manage a business in Indonesia without the correct visa.

Common challenges include:

• Determining whether you need an Investor KITAS or Work KITAS
• Lengthy processing times
• Strict documentation requirements
• Restrictions on job titles and activities

Operating a business before securing the correct KITAS can lead to fines, deportation, or blacklisting, making immigration compliance a critical step, not an afterthought.

Bureaucracy & Administrative Inefficiency

Despite digitalisation through OSS and other platforms, bureaucracy remains a reality.

Foreigners often face:

• Inconsistent interpretations of rules
• Slow response times from authorities
• Repeated document revisions
• Lack of clear written guidance

While corruption has decreased significantly, administrative delays and inefficiencies still add cost and uncertainty to the setup process.

Language & Cultural Barriers

Indonesia’s business environment is highly relationship-driven.

Challenges include:

• Official documents and government portals in Bahasa Indonesia
• Over 700 local languages and dialects
• Indirect communication styles
• Heavy emphasis on trust and personal relationships

Foreigners who rely only on written contracts, without understanding local business culture, often struggle to build sustainable operations.

Infrastructure Gaps Outside Major Cities

While Jakarta, Bali, and Surabaya are well developed, infrastructure varies widely across the country.

Potential issues include:

• Limited logistics and transport access
• Unreliable electricity in some regions
• Inconsistent internet quality
• Higher operational costs outside urban hubs

This makes location selection a critical strategic decision for foreign founders.

High Capital Requirements for PT PMA

Establishing a foreign-owned company (PT PMA) requires a substantial investment commitment.

In practice, many sectors require:

• High minimum capital declarations
• Long-term financial planning
• Proof of investment realisation

For startups and small foreign businesses, these capital requirements can be a major barrier to entry. Before establishing a PT PMA, learn Challenges of Establishing a PT PMA for Foreigners in Indonesia and Classification of Companies Based on Capital in Indonesia.

Labor & Employment Regulations

Indonesia has strong labor protection laws, which can surprise foreign employers.

Key challenges include:

Mandatory employment benefits

• Strict termination procedures
• Preference for hiring local employees
• Expat hiring restrictions and ratios

Understanding labor law early helps avoid disputes and compliance issues later.

Market Complexity & Local Competition

Indonesia is not a single, uniform market.

Foreign businesses must navigate:

• Major income gaps between regions
• Highly price-sensitive consumers
• Strong local competitors
• Different consumer behaviors across islands

A strategy that works in Jakarta may fail in Bali or Surabaya without local adaptation.

Why Indonesia Is Challenging for Foreign Business Owners

While Indonesia has made progress through digital systems and regulatory reforms, the reality on the ground is still bureaucratic, multi-layered, and highly localised.

Foreigners must comply not only with national regulations, but also with sector-specific rules, regional interpretations, and immigration requirements.

Without proper planning and local expertise, these challenges can delay operations, increase costs, or even prevent a business from operating legally.

How Foreigners Can Overcome These Challenges

Success in Indonesia depends on preparation, compliance, and local expertise. Foreign investors should:

• Conduct detailed market and regulatory research
• Structure the company correctly from day one
• Secure the proper KITAS before operating
• Work with trusted local partners
• Ensure ongoing tax and license compliance

Learn more: Getting a Business License and Permit in Indonesia

How BaliEasy Supports Foreign Business Owners

Visa BaliEasy helps foreign founders navigate Indonesia’s business landscape with clarity and confidence. We assist with:

• PT PMA and company establishment
• Business licensing and permits
• Investor KITAS and work KITAS
• Regulatory and compliance guidance
• Clear timelines and transparent pricing
• 24/7 human customer support

Whether you’re launching a startup, opening a branch, or investing long-term in Indonesia, BaliEasy ensures your business is set up legally, efficiently, and correctly from the start.