1. Introduction
Indonesia is the world’s fourth most populous country with more than 280 million people, and one of Southeast Asia’s largest and most dynamic economies. As a member of G20, one of the world’s largest economies by purchasing power parity, and a full member of BRICS since January 2025, Indonesia continues to attract foreign investment across a broad range of sectors, supported by its large domestic market, growing consumer base, strategic location, significant natural resources, and ongoing reforms to simplify investment and business licensing through the risk-based Online Single Submission (“OSS”) framework.
For investors intending to establish a business in Indonesia, market opportunity should be assessed together with the regulatory requirements that apply to the entry and operational stages. In practice, starting a business in Indonesia typically involves a combination of corporate establishment, business licensing, tax registration, employment compliance, payroll administration, and social security enrolment. On the employment side, Indonesia’s manpower regime has undergone significant reforms following the issuance of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation, enacted as law by virtue of Law No. 6 of 2023 (“Job Creation Law”). These reforms affect several key aspects of employment compliance, including employment agreements, outsourcing, working time, termination procedures, and severance entitlements, making it important for investors to structure their workforce arrangements carefully from the outset.
Against this backdrop, early legal planning is essential to ensure that an Indonesian business is established and operated on a compliant, efficient, and commercially sound basis from the outset. Nusantara Legal Partnership supports clients in navigating the full spectrum of legal and regulatory considerations in entering and operating business in the Indonesian market, combining practical business understanding with strong capabilities in corporate, employment, regulatory, and compliance matters. Its assistance includes advising on corporate establishment, employment structures, mandatory employment documents and policies, employee benefits and social security, foreign worker requirements, and other key compliance steps required for newly established businesses in Indonesia.
2. Labour and Employment Law Requirements
a) Employer Policy Requirements
Under Law No. 13 of 2003 on Manpower, as amended by the Job Creation Law (“Manpower Law”), an employer of, at least, 10 employees, is required to prepare a company regulation (peraturan perusahaan or “Company Regulation”), unless the employer already has a collective labour agreement (perjanjian kerja bersama or “CLA”). A Company Regulation is a written regulation prepared by the employer that sets out the applicable working requirements and company rules. It must be prepared by taking into account the suggestions and considerations of the employees’ representatives and must be approved by the Minister of Manpower or the relevant authorised manpower office before it becomes effective.
Under Article 111 of the Manpower Law, a Company Regulation must, at least, contain:
- the rights and obligations of the employer;
- the rights and obligations of the employees;
- working requirements;
- company rules of conduct; and
- the validity period of the Company Regulation.
The contents of the Company Regulation must not conflict with applicable laws and regulations, and must not provide terms that are less favourable than the applicable statutory employment standards. A Company Regulation is valid for a maximum period of two years and must be renewed upon expiry.
If the employer already has a CLA, it is not required to prepare a Company Regulation. Unlike a Company Regulation, which is prepared by the employer, a CLA is negotiated between the employer and the registered labour union or unions representing the employees, and must be registered with the relevant manpower office. In addition to the Company Regulation or CLA, employers may also adopt supporting internal policies, such as a code of conduct, anti-harassment policy, whistleblowing policy, data protection policy, IT and communications policy, occupational health and safety policy, travel policy, or other workplace policies relevant to their operations. These policies should be aligned with the employment agreements, the Company Regulation or CLA, and the applicable statutory employment standards.
b) Employee Training Requirements
Indonesian manpower law recognises employee training as part of workforce development. Article 11 of the Manpower Law, gives employees the right to obtain, improve, and develop their work competence through vocational training. Employers also have a responsibility to support the development of employee competence through training and to provide equal opportunity for employees to attend training relevant to their field of work.
Vocational training may be provided by government training institutions, private training institutions, or companies, as recognised in Article 13 (1) of the Manpower Law. For newly established businesses, this does not mean that every employer must operate a formal training institution. Rather, employers should identify the training needed for their workforce, particularly for operational readiness, technical roles, occupational safety and health, compliance, licensing, or other sector-specific requirements. If internal training is conducted on a structured basis, the programme should be supported by appropriate trainers, training materials or curriculum, facilities, and funding.
The Manpower Law also recognises apprenticeship (pemagangan) as part of the vocational training framework. If a company uses an apprenticeship arrangement, Article 22 (1) of the Manpower Law requires a written apprenticeship agreement setting out, at least, the rights and obligations of the apprentice and the employer, as well as the apprenticeship period. If there is no written agreement, the apprenticeship status is invalid and the apprentice will be deemed to be an employee of the company.
c) Employment Agreements
Indonesian manpower law recognises two main types of employment agreements, namely:
- fixed-term employment agreements (perjanjian kerja waktu tertentu or “PKWT”); and
- indefinite-term employment agreements (perjanjian kerja waktu tidak tertentu or “PKWTT”).
A PKWT is used for work that is temporary in nature, based on a specific period or the completion of the job. A PKWT based on a specific period may be entered into for up to five years, including any extension. It must be made in writing and may not contain a probationary period. If a probationary period is included, the probationary provision will be null and void, and the period will be counted as part of the employee’s period of service.
A PKWTT is used for employment of an indefinite duration. It may be made in writing or verbally. If made verbally, the employer must issue an appointment letter stating, at least, the employee’s name and address, commencement date, type of work, and wages. A PKWTT may include a probationary period, but only for a maximum of three months.
For newly established businesses, it is important to use the correct form of employment agreement. A fixed-term arrangement that does not meet the statutory requirements for a PKWT may be treated as a PKWTT, with different consequences for employment protection and termination.
3. Corporate Law Requirements
a) Compliance for Incorporation
Preparation for Incorporation
A business entity in Indonesia is commonly established in the form of a limited liability company (perseroan terbatas). If the company has any foreign shareholding, it is classified as a foreign investment company (Penanaman Modal Asing or “PMA”). If it is wholly owned by Indonesian shareholders, it is classified as a domestic investment company (Penanaman Modal Dalam Negeri or “PMDN”). In general, a limited liability company must be established by, at least, two shareholders under Law No. 40 of 2007 on Limited Liability Companies, as amended by the Job Creation Law. However, individual limited liability companies may be established only by micro and small enterprises. This form is not available for PMA companies.
Before the incorporation, investors should identify the intended business activities by reference to the Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”), and assess whether the business is open to foreign investment, subject to foreign ownership limitations, or subject to specific licensing requirements. For PMA companies, investors should also review the applicable investment and capital requirements. Under the Minister of Investment and Downstream Industries/Head of the Indonesia Investment Coordinating Board Regulation No. 5 of 2025, a PMA company is categorised as a large-scale business and is generally subject to a minimum total investment value of more than IDR10 billion, excluding land and buildings, per 5-digit KBLI business line and project location, unless otherwise provided under the applicable laws and regulations. The same regulation provides that a PMA company must have a minimum issued and paid-up capital of IDR2.5 billion per company, unless otherwise provided under the applicable laws and regulations.
The incorporation documents must then be prepared, including the proposed company name, domicile, business activities, authorised capital, issued and paid-up capital, shareholding composition, and management structure. The deed of establishment and articles of association must be executed before an Indonesian notary in Bahasa Indonesia and submitted through the relevant legal entity administration system for approval by the Minister of Law.
Incorporation Registrations
Once the deed of establishment has been executed before an Indonesian notary, the notary will submit the application for approval of the company’s legal entity status through the legal entity administration system of the Ministry of Law. The application covers the deed of establishment, articles of association, and other required corporate information.
The company is legally established as a limited liability company once the Minister of Law issues the approval of its legal entity status. After this approval, the company may proceed with the next registration and licensing steps, including obtaining its business identification number and relevant business licences through the OSS system.
b) Post Incorporation Registrations
After the company obtains the approval of its legal entity status from the Minister of Law, it must complete the relevant post-incorporation registrations and licensing steps before commencing their business operations. The key step is obtaining a Business Identification Number (Nomor Induk Berusaha or “NIB”), through the OSS system. The OSS system is Indonesia’s electronically integrated business licensing system, and the NIB serves as the company’s business identity and gateway for obtaining the required business licences under the risk-based business licensing regime.
The company should also ensure that its tax registration is properly completed, including obtaining or confirming its Taxpayer Identification Number (Nomor Pokok Wajib Pajak). Where relevant, the company may also need to be confirmed as a Taxable Entrepreneur (Pengusaha Kena Pajak or “PKP”), by the tax authority. But PKP confirmation is not a universal requirement for all companies. It depends on the company’s business activities, value-added tax position, and applicable tax rules.
Depending on its KBLI business lines and risk classification, a company may be required to obtain standard certificates, business licences, technical approvals, operational permits, or sector-specific registrations before carrying out its business activities. In parallel, the company will usually need to open an Indonesian bank account for operational purposes and capitalisation matters. For PMA companies, post-incorporation compliance may also include investment activity reporting obligations under the applicable investment regulations.
4. Payroll and Benefits Providers
Employers in Indonesia are responsible for administering wages, payroll withholding, and statutory benefits in accordance with the applicable manpower, tax, and social security requirements. Government Regulation No. 36 of 2021 on Wages, as last amended by Government Regulation No. 49 of 2025, requires every employer to prepare a wage structure and scale by taking into account each of its employee’s rank, position, length of service, education, and competence, as well as the company’s capability and productivity.
Wages may be structured as: (i) wages without allowances; (ii) basic wages and fixed allowances; (iii) basic wages, fixed allowances, and non-fixed allowances; or (iv) basic wages and non-fixed allowances. Employers are prohibited from paying wages below the applicable minimum wage. For minimum wage compliance, wages may consist of wages without allowances, or basic wages and fixed allowances. Where wages consist of basic wages and fixed allowances, the basic wage must be, at least, 75% of the total basic wage and fixed allowances.
Indonesia does not apply a single national minimum wage. Minimum wages are generally determined at the provincial level and, where applicable, at the regency/city level or sectoral level. Employers should, therefore, check the applicable minimum wage based on the employee’s work location and, where relevant, business sector. Separate wage rules apply to micro and small enterprises.
Employers must also register eligible employees in Indonesia’s mandatory social security programmes, administered by the Social Security Agency (Badan Penyelenggara Jaminan Sosial or “BPJS”). These principally consist of BPJS Kesehatan for health security and BPJS Ketenagakerjaan for employment-related social security. BPJS Ketenagakerjaan covers occupational accident security, death security, old-age security, pension security, and job loss security. Employers are generally responsible for withholding and remitting the applicable employee income tax and social security contributions.
Payroll and benefits administration may be handled internally or through third-party payroll providers. However, appointing a payroll provider does not transfer the employer’s statutory responsibility to comply with Indonesian wage, tax withholding, BPJS registration and contribution, and employment reporting obligations. Employers should ensure that their payroll arrangements are aligned with employment agreements, company regulations or collective labour agreements, tax registration, and BPJS requirements.
5. Conclusion
For investors entering Indonesia, incorporation and licensing are only the starting point. A business that intends to operate effectively in Indonesia must also build its employment framework from the outset, including the proper form of employment agreements, Company Regulation or CLA, wage structure, payroll withholding, BPJS registration, employee benefits, and any required workforce training or internal policies. These employment requirements should be aligned with the company’s corporate structure, KBLI classification, OSS licences, tax registration, and intended operational model, as gaps in one area may create consequences in another. A well-planned establishment process allows investors to complete the formal steps for doing business in Indonesia, also creates a compliant and sustainable platform for hiring, managing, and retaining employees in the Indonesian market.
