The Premise: Legal structuring in Indonesia is not administrative; it is strategic. A wrong move at incorporation—using a Nominee, incorrect KBLI codes, or mismanaging capital realization—renders a startup "uninvestable" by institutional VCs. This dossier outlines the standard "Iron Dome" structure required for venture backing.
*Note: Regulations change frequently. This guide reflects rules as of late 2025, including BKPM Regulation 5/2025 (capital requirements) and the Indonesia-Singapore DTA (effective 1 January 2022). Always verify current requirements with licensed Indonesian and Singapore counsel before acting.
Executive Summary: The "Standard" Stack
- /// Top Co: Singapore Private Limited (The "HoldCo"). Holds IP, takes investment, issues ESOP. Governed by English Common Law.
- /// Op Co: PT PMA (Perseroan Terbatas Penanaman Modal Asing). 100% owned by HoldCo. Holds licenses, hires local staff, generates IDR revenue.
- /// Capital Req: Paid-up minimum IDR 2.5B (~$160k) per company, 12-month transfer restriction. Investment Plan > IDR 10B (~$650k, excl. land/buildings) per KBLI/location.
- /// Timeline: SG HoldCo: 1-2 weeks. PT PMA: 4-8 weeks (longer if sector licenses required).
01. The "Singapore Sandwich"
Founders often ask: "Why do I need a Singapore entity if my customers are in Jakarta?"
You are not incorporating in Singapore for your customers. You are doing it for your Investors, your ESOP, and your Exit.
Regional VCs (Sequoia, Lightspeed, East Ventures, AC Ventures) operate under English Common Law frameworks. They trust Singapore courts and SIAC (Singapore International Arbitration Centre) to enforce Shareholders' Agreements. They do not trust the unpredictable timeline and outcomes of Indonesian district courts (Pengadilan Negeri).
Singapore has 0% Capital Gains Tax. Under the Indonesia-Singapore DTA (effective 1 January 2022), capital gains from selling unlisted shares in non-land-rich Indonesian private companies by Singapore residents are generally taxable only in Singapore—meaning effectively 0% tax on exit for qualifying transactions. Without this structure, direct sale of Indonesian PT shares would face Indonesia's domestic 5% WHT on gross proceeds (for non-residents) or higher rates for Indonesian tax residents. Note: Listed shares and land-rich companies have different rules.
Issuing Employee Stock Options in a Singapore entity is straightforward—standard vesting schedules, cliff periods, and exercise mechanics. Indonesian PT shares are harder to issue, transfer, and have complex tax implications for employees. VCs expect the ESOP pool to sit at the HoldCo level.
If you later expand to Vietnam, Philippines, or Thailand, you simply add another subsidiary under the SG HoldCo. Clean cap table, single SHA, one set of investor rights across all markets. The SG entity becomes your regional platform.
The Structure Diagram
(Ordinary Shares)
(Preferred Shares)
(Reserved 10-15%)
(Holds IP + Treasury + SHA)
(100% Sub • Ops + Licenses + Staff)
Singapore Incorporation Basics
- Entity Type: Private Limited Company (Pte. Ltd.)
- Minimum Requirements: 1 shareholder, 1 local director (can be nominee director initially), 1 local resident secretary, registered office address
- Share Capital: Minimum S$1 (typically S$10,000-100,000 for VC-backed startups)
- Timeline: 1-3 business days for incorporation, ~2 weeks for bank account
- Ongoing: Annual filing (ACRA), financial statements, corporate secretary services
- Cost Estimate: S$2,000-5,000 for incorporation + S$1,500-3,000/year for corporate secretary and registered address
02. The Capital Hurdle (2.5B vs 10B)
Since the Omnibus Law (2020) and subsequent implementing regulations, the barrier to entry for foreign investors involves two distinct numbers. Do not confuse them.
Founders often think they need $650k cash in the bank on Day 1. This is incorrect. You need the Investment Plan commitment, not the immediate cash. The system is designed to be achievable for startups.
The Two Tiers
-
1. Paid-Up Capital (Minimum IDR 2.5 Billion / ~$160k)
This is the actual equity injection required to establish the company deed (Akta Pendirian). This amount must be physically transferred to the company's Indonesian bank account.
Note: Some sectors (e.g., fintech, banking) have higher minimums. Construction requires IDR 2.5B per grade. Always check sector-specific rules.
-
2. Total Investment Plan (> IDR 10 Billion / ~$650k per KBLI)
This is your commitment to the government to invest over time. It includes your Paid-Up Capital plus projected Opex (salaries, rent, marketing) and Capex (equipment, servers, buildout). It is declared in the OSS (Online Single Submission) system. Land and buildings are excluded from this threshold.
Key: This threshold applies per 5-digit KBLI code per project location. Certain sectors allow consolidation of multiple KBLIs under a single threshold.
12-Month Restriction (BKPM Reg 5/2025): The IDR 2.5B paid-up capital must not be transferred out of the company for at least 12 months from deposit. The regulation provides exceptions for specific business uses (asset purchases, construction, operational costs). Failure to comply may result in administrative sanctions up to license revocation. Confirm allowable uses with counsel.
BKPM Reg 5/2025 Note: The IDR 2.5B minimum paid-up capital applies per company. The >IDR 10B investment plan threshold is assessed per 5-digit KBLI per project location, and excludes land and buildings. Certain sectors (wholesale trade, F&B, construction, and manufacturing with single production lines) may consolidate multiple KBLIs under one investment threshold. Confirm specific requirements with counsel.
The "Realization" Hack
Startups don't need $650k in the bank. Here's how it actually works:
- Step 1: Incorporate with minimum Paid-Up Capital (IDR 2.5B / ~$160k).
- Step 2: Declare >IDR 10B Investment Plan in OSS. This is a projection, not a deposit.
- Step 3: Over the realization period (typically 1-3 years, varies by BKPM interpretation), deploy capital through normal operations.
- Step 4: Submit LKPM (Investment Activity Report) quarterly/annually showing realized investment.
What Counts Toward "Realized Investment"?
- Salaries and employee benefits (often the largest component for tech startups)
- Office rent and utilities
- Equipment and hardware purchases
- Software licenses and cloud infrastructure (AWS, GCP)
- Marketing and customer acquisition spend
- Professional services (legal, accounting, consulting)
- R&D expenses
Practical Reality: A tech startup burning $50-100k/month will easily "realize" IDR 10B within 12-18 months through normal operations. The requirement is designed to ensure serious investors, not to trap startups.
03. KBLI Codes: The Silent Killer
KBLI (Klasifikasi Baku Lapangan Usaha Indonesia) is Indonesia's business classification system. Every PT PMA must declare which KBLI codes it operates under. Get this wrong, and you cannot legally operate.
The Trap: Many founders pick KBLI codes that sound right but are actually restricted or closed to foreign investment. Others pick codes that are technically open but require licenses they didn't anticipate. Both scenarios delay launch by months.
KBLI Strategy Framework
The DNI (Daftar Negatif Investasi) was replaced by the "Positive Investment List" (Perpres 10/2021, updated periodically). This defines which sectors are: (a) Open 100% to foreign, (b) Open with conditions/caps, (c) Reserved for MSME/cooperatives, (d) Closed entirely.
Narrower codes often have more restrictions. "Software development" (62XXX) is generally open, but specific fintech codes (64XXX) require OJK licensing. Work with counsel to find codes that cover your activities without triggering unnecessary regulatory burden.
Adding KBLI codes later is possible but requires amendment filings and potentially new licenses. If you might expand into adjacent areas (e.g., payments, logistics, lending), consider including those codes upfront—even if dormant initially.
Common KBLI Pitfalls by Sector
| Sector | Common Mistake | Reality |
|---|---|---|
| E-commerce | Using retail trade codes (47XXX) | Retail has foreign ownership caps. Use marketplace/platform codes instead if you're an intermediary, not a direct seller. |
| Fintech (Lending) | Incorporating before OJK license | P2P lending requires OJK registration before operations. Foreign ownership capped at 85%. Plan 6-12+ months for license. |
| Fintech (Payments) | Assuming "software" covers payments | Payment processing requires Bank Indonesia (BI) license. E-money, payment gateway, switching—each has specific requirements. |
| Logistics | Freight forwarding codes | Some logistics codes have MSME reservations or local partner requirements. Tech platform codes may be cleaner. |
| EdTech | Using "education" codes | Formal education is heavily restricted. Position as "software/platform" serving education sector, not education provider. |
04. The Nominee Trap (The Suicide Pill)
To avoid capital requirements or enter restricted sectors, some founders use a Nominee Structure—borrowing the name of a local friend, driver, or lawyer to hold shares on their behalf.
FATAL ERROR
Using a Nominee Agreement is legally void under Indonesian Investment Law (UU 25/2007, Article 33). You do not own the company. The Nominee does. Indonesian courts will not enforce your "side agreement."
Why VCs Kill Nominee Deals
- Beneficial Ownership (BO) Rules: Indonesia now requires declaring the Ultimate Beneficial Owner to AHU (legal entity administration system). Lying on this form is criminal fraud.
- Blackmail Risk: If your company succeeds, the Nominee can refuse to transfer shares, demanding millions in ransom. Courts will side with the Nominee because the underlying agreement is illegal and unenforceable. This happens.
- Due Diligence Failure: Any competent VC lawyer will discover the Nominee structure during DD. Deal is dead immediately. You've wasted months.
- License Revocation: If regulators discover the structure (increasingly common with BO reporting), they can revoke your business licenses entirely.
"But I Already Have a Nominee..."
If you've already incorporated with a Nominee, you have two options:
- Clean Restructure: Work with counsel to properly acquire the shares (you'll need to pay fair value and handle tax implications). Expensive and complex, but necessary before any institutional investment.
- Wind Down and Restart: In some cases, it's cleaner to dissolve the old entity and incorporate fresh with proper structure. Painful, but sometimes the only path to institutional capital.
05. OSS and the Licensing Stack
The OSS (Online Single Submission) system is Indonesia's attempt to streamline business licensing. In theory, it's a one-stop shop. In practice, it's one layer of a multi-layer cake.
The Licensing Hierarchy
Your base "Business Identification Number." Obtained through OSS after company deed is notarized. Required for everything else. This is not a license to operate—it's a registration.
For low-risk KBLI codes, OSS auto-generates a Standard Certificate based on your self-declaration. You can start operating immediately. But you commit to meeting standards (e.g., data protection, consumer protection).
Many tech business models require additional licenses from sector regulators. OSS doesn't replace these—it's just the entry point. You apply through OSS, but the sector regulator approves.
Common Sector Licenses
| Business Type | Regulator | License | Est. Timeline |
|---|---|---|---|
| P2P Lending | OJK | POJK 10/2022 Registration + License | 6-12+ months |
| E-money / E-wallet | Bank Indonesia | PBI E-money License | 12-18+ months |
| Payment Gateway | Bank Indonesia | PBI Payment System License | 6-12 months |
| Insurance (Distribution) | OJK | Digital Insurance Agent/Broker | 3-6 months |
| Crypto Exchange | Bappebti → OJK (transition) | Crypto Asset Trader License | 12-24+ months |
| Healthcare Platform | Kemenkes | PSE + Telemedicine permits | 3-6 months |
Strategic Note: If you need sector licenses, factor this into your fundraising timeline. Don't promise investors you'll "launch in 3 months" if you need a 12-month OJK process. Experienced Indonesia investors know—they'll ask about licensing status in every DD call.
06. Directors, Commissioners & KITAS
Indonesian corporate law requires a distinct governance structure. Understanding this is critical for foreign founders.
The Three Layers
Ultimate authority. For a 100% foreign-owned PT PMA, this is typically your Singapore HoldCo as sole shareholder.
Supervisory role (similar to non-exec directors). Minimum 1 required. Can be foreign. Does not need to reside in Indonesia. Often a founder or investor appointee.
Executive management. Minimum 1 Director required. This person runs day-to-day operations and signs on behalf of the company. Can be foreign, but...
The KITAS Question
If a foreign national serves as Director and is actively working in Indonesia, they need:
- RPTKA: Foreign Worker Placement Plan (company-level approval)
- IMTA/Notifikasi: Work permit for the individual
- KITAS: Limited Stay Permit (the actual visa)
Timeline: 4-8 weeks total. Cost: $1,500-3,000 including DKP-TKA fees (compulsory education fund).
Workaround: Some startups appoint a local Indonesian as Director (often a trusted early employee or professional director) while the foreign founder serves as Commissioner or operates under "consultant" arrangements. This has tradeoffs—discuss with counsel.
07. Employment Law: The Hidden Liability
Indonesian Labor Law is heavily pro-employee. Firing people is expensive and procedurally complex. Plan for this from Day 1.
PKWT vs. PKWTT
| Contract Type | Description | Termination | Risk |
|---|---|---|---|
| PKWT | Fixed-term contract. Max 5 years total (including renewals). | No severance if contract expires naturally. Compensation if terminated early. | Lower |
| PKWTT | Permanent/indefinite contract. | Full severance package required. Complex termination process. | Higher |
Startup Best Practice
- First 20-50 hires: Use PKWT where legally permitted. Provides flexibility during early scaling.
- Key executives: PKWTT with clear termination provisions. They expect job security; factor severance into comp planning.
- After 5 years: PKWT employees must convert to PKWTT or be released. Plan for this transition.
The Severance Formula (Pesangon)
If you terminate a permanent employee (PKWTT), you typically owe a combination of:
- 1. Severance Pay (UP): 1 month salary per year of service (capped at 9 months)
- 2. Service Pay (UPMK): Additional bonus for seniority (kicks in after 3+ years)
- 3. Compensation Pay (UPH): ~15% of (UP + UPMK) for housing, medical, etc.
- Rough Total: 1.5x - 2x of base severance, depending on termination reason
*Exact multipliers vary by termination reason under PP 35/2021. "Efficiency" layoffs, misconduct, and resignation each have different formulas. Budget conservatively.
08. Banking & Treasury
Opening a bank account for a PT PMA is not trivial. This catches many founders off guard.
The Challenge
Indonesian banks require extensive documentation: deed of establishment, NIB, NPWP (tax ID), domicile letter, director ID/KITAS, company profile, projected financials. Some banks require in-person visits by directors.
2-6 weeks after all documents submitted. Longer for foreign-owned entities. Some banks are more PMA-friendly than others (BCA, Mandiri, CIMB Niaga tend to be more experienced with startups).
You'll likely need both. IDR for local operations (salaries, vendors). USD for receiving investor funds and minimizing FX conversion costs. Some banks allow multi-currency accounts.
Capital Injection Flow
When your SG HoldCo injects the IDR 2.5B paid-up capital:
- Wire from SG HoldCo bank account to PT PMA IDR account
- Bank will require supporting documents (board resolution, purpose of transfer)
- Ensure transfer is coded as "equity injection" not "loan" (this matters for tax and reporting)
- Obtain bank statement as proof of paid-up capital for notary/AHU
09. Transfer Pricing & Intercompany Arrangements
With a SG-Indo structure, you'll have intercompany transactions. Indonesian tax authorities (DJP) scrutinize these closely.
Common Intercompany Arrangements
SG HoldCo owns the IP (trademark, software). Indo PT pays royalty (typically 3-8% of revenue) for the right to use it. This is a valid profit repatriation mechanism—but rates must be "arm's length" (market rate).
SG HoldCo provides "regional management services" to Indo PT (strategy, finance oversight, etc.). Indo PT pays management fee. Again, must be arm's length and well-documented.
SG HoldCo lends money to Indo PT (in addition to or instead of equity). Interest payments flow back to SG. Subject to thin capitalization rules (debt-to-equity ratio limits) and withholding tax.
Warning: Transfer Pricing documentation is required for related-party transactions. If DJP audits and finds your royalty rates are above market, they can reassess and impose penalties. Get proper TP documentation prepared by tax advisors.
Withholding Tax on Outbound Payments (Indonesia-Singapore DTA, effective 1 January 2022)
The updated Indonesia-Singapore Double Taxation Agreement (effective July 2021) provides favorable rates for cross-border payments. Key rates:
| Payment Type | DTA Rate | Conditions |
|---|---|---|
| Dividends | 10% | If recipient owns ≥25% of paying company |
| Dividends | 15% | If recipient owns <25% of paying company |
| Interest | 10% | General rate under DTA |
| Royalties (IP/Copyright) | 10% | Literary, artistic, scientific work, patents, trademarks |
| Royalties (Equipment) | 8% | Industrial, commercial, or scientific equipment use |
| Branch Profit Tax | 10% | Reduced from 15% under old DTA |
| Management Fees | 20% | No DTA reduction—structure carefully |
Capital Gains Benefit (DTA effective 1 January 2022): Under the updated treaty, capital gains from the sale of unlisted shares in non-land-rich Indonesian private companies by Singapore residents are now taxable only in Singapore—and Singapore has 0% capital gains tax. This eliminates Indonesia's domestic 5% WHT on gross proceeds for qualifying transactions.
Key Exceptions: (1) Listed shares on the Indonesia Stock Exchange remain subject to Indonesian domestic rules (0.1% WHT). (2) Land-rich companies (deriving >50% value from Indonesian immovable property) remain taxable in Indonesia if the seller owns ≥50% of the company—unless the property is used for business operations or the sale is part of a reorganization/merger. (3) The Principal Purpose Test (PPT) applies: benefits may be denied if tax avoidance was a principal purpose of the arrangement.
10. Intellectual Property Strategy
A common mistake is registering the trademark and owning the codebase under the Indonesian PT PMA.
IP (Trademarks, Codebase, Patents) should be owned by the Singapore HoldCo.
Why This Matters
- Asset Protection: If the Indonesian operating company faces legal issues, bankruptcy, or regulatory problems, the core IP is protected in a separate jurisdiction.
- Exit Cleanliness: Acquirers buy the SG HoldCo and get all the IP cleanly. No need to separately transfer Indonesian-registered IP.
- Profit Repatriation: The License Agreement (SG HoldCo licenses IP to Indo PT for royalty) is a legitimate mechanism to move profits from Indonesia to Singapore.
- Investor Expectation: VCs expect this structure. It's standard. Deviating requires explanation and may raise concerns.
Implementation Checklist
- Register trademarks in Singapore (IPOS) and Indonesia (DJKI) under SG HoldCo name
- Ensure employment contracts assign IP developed by Indo employees to the company (and upstream to HoldCo via intercompany IP assignment)
- Execute formal IP License Agreement between SG HoldCo (licensor) and Indo PT (licensee)
- Document transfer pricing rationale for royalty rate
- Consider registering key trademarks in other SEA markets preemptively
11. VC Due Diligence: What They Check
Institutional VCs will conduct legal due diligence before wiring money. Knowing what they look for helps you prepare—and avoid deal-killing surprises.
The DD Checklist
| Area | What They Check | Red Flags |
|---|---|---|
| Corporate Structure | Cap table, SHA, deed of establishment, ownership chain | Nominee arrangements, unclear ownership, missing documents |
| Licenses & Permits | NIB, sector licenses, KBLI alignment with actual business | Operating without required licenses, wrong KBLI codes |
| Capital Compliance | Paid-up capital proof, LKPM filings, investment realization | Below minimum capital, missing LKPM reports |
| Employment | Employment contracts, BPJS compliance, KITAS for foreigners | Misclassified contractors, BPJS arrears, illegal workers |
| Tax | Tax filings, VAT compliance, withholding tax, transfer pricing docs | Unfiled returns, underpaid taxes, no TP documentation |
| IP | Trademark registrations, IP ownership, employee IP assignments | IP owned by founders personally, no employee IP clauses |
| Material Contracts | Key customer/supplier contracts, exclusivity clauses, termination rights | Unfavorable terms, change-of-control triggers |
Pro Tip: Run a "self DD" before fundraising. Identify and fix issues proactively. A clean data room accelerates deals. A messy one kills them.
12. Timeline & Cost Estimates
Realistic planning requires understanding both time and money. Here's a rough breakdown for a standard tech startup setup:
Timeline (Sequential)
| Step | Duration | Notes |
|---|---|---|
| SG HoldCo Incorporation | 1-3 days | ACRA is fast. Bank account adds 1-2 weeks. |
| PT PMA Deed & Legalization | 2-3 weeks | Notary drafts deed, MENKUMHAM approval. |
| OSS Registration (NIB) | 1-2 weeks | After deed registered with AHU. |
| Bank Account (Indonesia) | 2-4 weeks | Varies by bank. Requires NIB, NPWP. |
| KITAS (if foreign director) | 4-8 weeks | Can run parallel to other steps. |
| Sector License (if needed) | 3-18+ months | Highly variable. Fintech/payments take longest. |
Total for basic setup (no sector license): 6-10 weeks from start to operational.
Cost Estimates
| Item | Estimated Range |
|---|---|
| SG Incorporation + First Year Corp Sec | S$3,000 - 6,000 |
| PT PMA Incorporation (Legal + Notary) | $3,000 - 8,000 |
| Paid-Up Capital (Required Deposit) | ~$160,000 (IDR 2.5B) — 12-month transfer restriction |
| Virtual Office / Domicile Letter | $100 - 500/month |
| KITAS + Work Permit (per person) | $1,500 - 3,000 |
| Ongoing Compliance (Annual) | $5,000 - 15,000 |
| Sector License (if applicable) | $10,000 - 50,000+ |
Final Checklist: The "Investable" Setup
- ✓ Singapore Pte. Ltd. incorporated (HoldCo)
- ✓ PT PMA incorporated, 100% owned by SG HoldCo
- ✓ Correct KBLI codes selected (verified against Positive Investment List)
- ✓ IDR 2.5B paid-up capital deposited, >10B investment plan (excl. land/buildings) declared
- ✓ NIB and required sector licenses obtained (or timeline clear)
- ✓ IP (trademark, code) owned by SG HoldCo with license to Indo PT
- ✓ Employment contracts proper (PKWT/PKWTT), BPJS compliant
- ✓ Foreign directors have valid KITAS
- ✓ Transfer Pricing documentation prepared
- ✓ LKPM reports filed, tax compliance current
- ✗ NO Nominee arrangements
Structure is not bureaucracy. Structure is strategy.
Get it right once, and every future fundraise, expansion, and exit becomes cleaner. Get it wrong, and you'll spend years (and millions) cleaning up.