Indonesia’s Omnibus Law and its impacts on foreign investors.

Indonesia enacted the Omnibus Law on Job Creation on 2 November 2020 to stimulate economic growth and attract foreign investment. The legislation sought to simplify business processes, reduce regulatory barriers and create employment opportunities across multiple sectors.

The law underwent significant revision following a 2021 Constitutional Court ruling that declared it conditionally unconstitutional. The government reissued the law in late 2022 as an emergency government regulation, which commenced on 31 March 2023 as Law No. 6 of 2023 on Job Creation.

This guide examines the law’s provisions affecting foreign investors and which aspects remain in effect following recent judicial developments.

What is the current legal framework for business and investment in Indonesia?

Law No. 6 of 2023 on Job Creation currently governs business and investment regulations in Indonesia. The law comprises multiple clusters addressing different aspects of business operations, including investment, licensing, labour, taxation and environmental regulations.

In October and November 2024, the Constitutional Court issued landmark rulings that partially invalidated labour provisions within the law. The court declared these provisions conditionally unconstitutional and mandated the government to draft a separate Employment Law within two years. These rulings specifically addressed labour-related issues including foreign worker employment, fixed-term contracts, outsourcing, leave entitlements, wages, layoffs and severance pay.

What remains in effect

The investment framework, business licensing procedures, capital requirements, tax provisions and sector access regulations continue to operate as established under the Omnibus Law. During the corrective period, the Job Creation Law remains valid and does not impact investment regulation in Indonesia.

What faces change

Labour and employment provisions will undergo revision as the government drafts new labour legislation to address the Constitutional Court’s concerns about worker protections. Companies with Indonesian operations should monitor developments in labour law revisions.

What are the effects on foreign investment?

Indonesia’s Omnibus Law has expanded where foreign investors can participate, clarified capital thresholds and made licensing more predictable through a single online process.

Foreign direct investment opportunities

Indonesia’s positive investment list represents one of the key regulatory changes introduced by the Omnibus Law and remains operational for foreign investors. This framework opened opportunities for foreign investment in sectors that were previously closed or restricted to foreign ownership.

Business sectors that gained increased foreign investment access include construction services, distribution, energy, telecommunications and transportation. The positive investment list categorises business fields open to foreign investment into four distinct groups:

• Priority business fields encompass 245 business sectors deemed capital intensive, export-oriented, labour intensive, focused on research and development, pioneering in nature, aligned with strategic national programmes or utilising high technology. These sectors receive preferential treatment to encourage foreign participation.
• Partnership requirement fields cover 89 business sectors where foreign investors partner with cooperatives or small and medium-sized enterprises. These sectors typically involve businesses that do not use high technology, carry special cultural heritage significance, were traditionally occupied by cooperatives or SMEs or have opportunities to enter large-scale supply chains.
• Conditional access fields include 46 business sectors open to investors who meet specific requirements. These conditions may involve investment thresholds for domestic investors, foreign ownership limitations or special licences and approvals from relevant authorities.
• Unrestricted fields remain open to all investors, including foreign and local participants, without limitations. Examples include cable and satellite telecommunication activities, crude palm oil, general distributorship activities, internet service provider services, online retail operations, palm plantations and wholesale trade of laboratory, pharmacy and medical equipment.

The law maintains restrictions on certain sectors closed to both foreign and domestic investment. Prohibited activities include:

• Class one drugs and drug cultivation
• All gambling and casino operations
• Fishing endangered species
• Collecting corals from nature for jewellery or building materials
• Industrial chemical weapon production
• Industrial ozone-depleting substances

Minimum capital requirements

Under the current regulatory framework (Omnibus Law and BKPM Regulation No. 5/2025), it is crucial to distinguish between Investment Value and Paid-Up Capital:

1. Minimum investment value: Foreign-owned companies (PMA) are required to have a total investment value of more than IDR 10 billion (excluding land and buildings) per business line (KBLI). This threshold remains in effect to ensure foreign investors contribute significantly to the economy.
2. Minimum paid-up capital: While the total investment plan must exceed IDR 10 billion, the minimum issued and paid-up capital (equity) required to establish the company is set at IDR 2.5 billion. Capital Retention Policy Pursuant to BKPM Regulation No. 5/2025, the paid-up capital must be deposited into the company’s bank account and cannot be transferred out for a minimum period of 12 months from the date of deposit. However, an exception applies if the funds are used for the purchase of assets, construction of buildings, or the company’s operational activities. Shareholders must submit a self-declaration in the OSS system committing to this requirement.

Sector-specific provisions for certain business sectors that previously had higher capital barriers (e.g., e-commerce which historically required IDR 100 billion for 100% foreign ownership) can now operate as 100% foreign-owned entities by meeting the standard minimum investment value of IDR 10 billion, subject to the Positive Investment List.

Additionally, technology start-ups located in Special Economic Zones (SEZ/KEK) may qualify for exemptions from the minimum investment threshold, subject to the specific regulations governing business fields in investment.

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Simplified licensing process

The Omnibus Law streamlined the business licensing system, which previously involved multiple government institutions issuing different types of permits. Foreign investors can obtain business licences through the Online Single Submission system, consolidating the application process into a single platform. This licensing framework remains operational.

The legislation introduced a risk-based business concept that categorises business activities into low, medium and high-risk classifications. Business licences and permits are issued based on the assessed risk level, determined by factors including business activity type, business location, resource scarcity and volatility risk.

Low-risk businesses require only the Business Identification Number (NIB), which serves as proof of business registration and authorises business activities. Medium-risk businesses need the NIB plus a standard certification from the central or regional government. High-risk businesses need to obtain the NIB and a business licence from the central or regional government.

Corporate income tax provisions

The Tax Harmonization Law adjusted corporate income tax rates, setting the standard rate at 22% from 2022 onwards. These tax rates continue to apply under current regulations.

Public companies with at least 40% of shares traded in the stock market qualify for an additional 3% tax reduction, resulting in rates of 19% from 2022 onwards. Eligible companies have to meet specific requirements: the 40% traded shares be owned by at least 300 parties outside the issuer and controlling shareholders, individual share ownership cannot exceed 5% of total issued and fully paid shares, and these conditions be maintained for a minimum of 183 days within a one-year period.

Limited territorial basis taxation for foreigners

Foreign citizens who remain in Indonesia for more than 183 days within 12 months typically qualify as domestic taxpayers (Subjek Pajak Dalam Negeri – SPDN). The Omnibus Law introduced provisions allowing certain qualified foreign citizens to be taxed only on Indonesian-sourced income for the first four years after registering for an Indonesia tax identification number. These provisions remain in effect.

Eligibility includes foreign citizens occupying certain positions or work as foreign researchers as determined by the Minister in charge of manpower and research sectors. Alternatively, applicants should demonstrate expertise in science, technology, mathematics or engineering through certificates from authorised institutions, educational credentials or a minimum of five years’ work experience. The foreign citizen also needs to have an obligation to transfer knowledge to Indonesian counterparts.

This rule does not apply to foreigners who benefit from double taxation agreements between Indonesia and their home countries.

Labour law implications

In Case Number 168/PUU-XXI/2023, the Constitutional Court (MK) granted part of the petition for judicial review of Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation (the Job Creation Law). This MK ruling introduced significant changes to labour provisions that affect companies with Indonesian operations. Comprehending these changes is essential for businesses managing employment relationships in Indonesia.

Foreign worker employment

Indonesian law mandates that companies prioritise local workers. Foreign workers may still be employed, provided the company meets the Ministry of Manpower’s requirements, such as eligible job positions and the required foreign-to-local employee ratio. That hiring foreign worker is could be proceed but with several requirement from ministry of manpower that need to be fulfilled.

Fixed-term employment contracts

All types of fixed-term employment agreements (PKWT), including those for specific projects or tasks, are limited to a maximum duration of five years including any extensions. All such agreements are in writing and use the Indonesian language.

Wage requirements

The court reinstated sectoral minimum wages and regional wage councils to set wage standards considering cost of living and local economic conditions. Companies develop structured wage scales considering employee experience and qualifications.

Severance payments

Employee severance payment claims take precedence over all creditors in bankruptcy situations. This provision affects financial planning and restructuring scenarios for companies facing insolvency.

Outsourcing regulations

The Minister of Manpower determines which jobs can be outsourced, with specifications provided in written outsourcing agreements. Companies should review existing outsourcing arrangements to ensure compliance with evolving regulations.

The Constitutional Court has directed the government and Parliament to draft new labour legislation within two years, separating employment provisions from the Job Creation Law. Companies should monitor legislative developments and prepare to adjust employment practices as new regulations emerge.

Conclusion

The Omnibus Law on Job Creation continues to provide the regulatory framework for foreign investment in Indonesia. The investment provisions, including sector access through the positive investment list, reduced capital requirements, streamlined licensing procedures and corporate tax rates, remain in effect and operational for foreign investors.

However, labour and employment provisions face revision following Constitutional Court rulings, so businesses are to monitor ongoing legislative developments and adjust human resources strategies accordingly.

How Acclime can help guide you

Acclime provides comprehensive guidance on Indonesia’s regulatory landscape, including the current Omnibus Law provisions and evolving labour law requirements. Our team assists with investment structuring, business registration, licensing procedures and employment compliance to help foreign businesses work through Indonesia’s regulatory environment. We monitor legislative updates and court decisions to ensure clients maintain compliance with current regulations and prepare for upcoming changes.

Contact Acclime to discuss how these regulatory developments affect your Indonesian business operations.