Due Diligence Checklist for Investing in Indonesia Companies

A number of investors who entered Indonesia over the past three years have encountered the same situation: a transaction appears clean at closing, yet months later operations come to a halt because the corporate administration system is locked, business licenses prove ineffective, or legacy tax obligations surface without warning. The problem is rarely the absence of due diligence. More often, it is that the process stopped at document verification without ever testing the underlying regulatory systems that actually govern the business.

In Indonesia, investment risk does not end at the notary’s table. Business licensing, ownership data, tax obligations, and land status are now interconnected within a single digital compliance ecosystem that is actively monitored by the relevant authorities. A misalignment at any one point can trigger sanctions, system blockages, or operational shutdowns long after capital has been deployed.

This article presents a checklist of six critical areas that must be examined before an investment decision is locked in.

Why Indonesia Demands a Different Approach to Due Diligence

The most significant regulatory shift occurred in 2025 with the enactment of Government Regulation Number 28 of 2025 on Risk-Based Business Licensing, which replaced Government Regulation Number 5 of 2021. 

This regulation introduced the Automatic Approval Mechanism (Fiktif Positif), under which a license application is deemed automatically approved if the relevant authority fails to respond within the prescribed service level timeframe.

At the same time, post-licensing supervision has become considerably more rigorous. The Online Single Submission (OSS), the General Legal Administration System (Administrasi Hukum Umum or AHU), tax databases, and spatial planning platforms now exchange data in real time. In this environment, a due diligence framework designed for other markets is simply insufficient to protect an investment in Indonesia.

To illustrate, consider two scenarios that occur with regularity. In the first, a foreign company acquires a local entity with a valid Business Identification Number (Nomor Induk Berusaha or NIB), and audited financial statements. Six months after closing, the OSS authority conducts a post-audit and finds that the registered business classification code does not cover a significant portion of the company’s actual operations. The production facility is sealed pending license rectification, a process that takes several months to resolve.

In the second scenario, an investor proceeding with a capital injection into an existing company discovers that the Beneficial Owner data recorded in the AHU system has not been updated since a prior change of ownership. The capital injection is frozen because the system is locked, while agreements with local business partners are already in motion and operational deadlines continue to move.

Neither situation is an exception. In Indonesia’s regulatory ecosystem, which now operates as an integrated digital infrastructure, even a minor gap between what appears on paper and what is recorded in government systems can become a costly operational obstacle. This is what distinguishes due diligence in Indonesia from other markets: it is not simply a matter of reviewing documents, but of verifying that every system governing the target company is functioning exactly as it should be.

Due Diligence Checklist: 6 Critical Areas

Corporate Structure and Ownership Transparency

Verifying the ownership structure goes beyond confirming shareholder names. Since the enactment of Minister of Law and Human Rights Regulation Number 49 of 2025, every corporation is required to identify and report its Beneficial Owner, defined as the individual who ultimately controls or benefits from the company.

Failure to update this data results in a blockage of the AHU system. Once the system is locked, share transfers, changes to the board of directors, and capital injections all become legally impossible. The checklist for this area includes:

• Verification of shareholder data through the AHU Online portal
• Confirmation of Beneficial Owner (BO) compliance under the latest regulatory framework
• Detection of nominee structures, which are explicitly void under the Investment Law
• Consistency between physical corporate documents and data recorded digitally in government systems

Business Licensing and OSS Compliance

Possession of a valid NIB does not guarantee operational security. Under the risk-based OSS framework, the effectiveness of a license depends on the accuracy of the business classification code, the verification status of the Standard Certificate, and the fulfillment of technical commitments to the relevant ministries.

Many companies appear compliant within the OSS system while remaining exposed to post-audit enforcement if there is a misalignment between the registered license and actual field operations. Key points to examine include:

• Validation of the NIB and the business risk classification (Low, Medium, High)
• Alignment of the Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI), with actual business activities
• Verification status of the Standard Certificate with the relevant technical ministry
• Consistency of Investment Activity Report (Laporan Kegiatan Penanaman Modal or LKPM), submissions on a periodic basis
• Identification of licenses that have been issued but remain inactive or whose commitments have not yet been fulfilled

Financial and Tax Compliance

A review of audited financial statements covering the past three to five years is necessary to identify hidden liabilities. The mandatory audit threshold in Indonesia is relatively low, meaning most foreign-owned companies (Perusahaan Terbatas Penanaman Modal Asing or PT PMA), fall within the category of entities required to engage a registered public accountant.

On the tax side, the Directorate General of Taxes (Direktorat Jenderal Pajak or DJP), holds the authority to reopen assessments for up to five years retroactively if new evidence is found. Points that must not be overlooked include:

• Corporate income tax obligations, Value Added Tax (VAT) at an effective rate of 11 percent for general goods and services and 12 percent for luxury goods and certain services since 2025, and withholding tax on transactions with third parties and affiliated entities
• Completeness of Transfer Pricing documentation for cross-border intercompany transactions
• Consistency between revenue figures in financial statements and those reported in the annual tax return
• DJP approval for companies conducting bookkeeping in a foreign currency

Land and Property Rights

Foreign investors and foreign-owned companies cannot hold land under freehold title (Hak Milik or SHM), in Indonesia. PT PMA entities typically operate under a Right to Build (Hak Guna Bangunan or HGB), which is renewable, or a Right to Cultivate (Hak Guna Usaha or HGU), for agricultural and plantation activities.

Land-related risks frequently surface late in the transaction process. This area requires the following examinations:

• Direct verification of land certificates at the relevant local office of the National Land Agency (Badan Pertanahan Nasional or BPN)
• Confirmation that no blockage, seizure order, or ownership dispute is recorded against the title
• Alignment of the intended land use with the Regional Spatial Plan (Rencana Tata Ruang Wilayah or RTRW), through the GISTARU spatial planning platform
• Validation of environmental approvals, either an Environmental Impact Assessment (Analisis Mengenai Dampak Lingkungan or AMDAL), or an Environmental Management and Monitoring Effort (Upaya Pengelolaan dan Pemantauan Lingkungan or UKL-UPL), issued by the correct authority
• Tracing of the full chain of title and assessment of potential customary land claims

Employment and Labor Liability

Indonesian labor law provides strong protections for employees, particularly in relation to termination compensation. Severance obligations that have not been provisioned in the financial statements represent one of the most consistently underestimated sources of financial risk in acquisition transactions.

Following the enactment of the Job Creation Law (Undang-Undang Cipta Kerja), severance formulas and compensation under Fixed-Term Employment Agreements (Perjanjian Kerja Waktu Tertentu or PKWT), have been revised and must be recalculated using actuarial methods. Items requiring verification include:

• Compliance status of contributions to the national health insurance program (Badan Penyelenggara Jaminan Sosial Kesehatan or BPJS Kesehatan), and the national employment insurance program (Badan Penyelenggara Jaminan Sosial Ketenagakerjaan or BPJS Ketenagakerjaan), for all employees
• Actuarial estimate of severance liabilities not reflected in the balance sheet
• Review of all individual employment agreements and any Collective Labor Agreement (Perjanjian Kerja Bersama or PKB)
• Validity of work permits and stay permits for expatriate employees, specifically the Expatriate Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or RPTKA), and the Limited Stay Permit Card (Kartu Izin Tinggal Terbatas or KITAS)
• History of industrial relations disputes that could complicate post-acquisition integration

Business Integrity and Anti-Corruption Review

Indonesia continues to face significant challenges in business transparency. Improper payments made to facilitate licensing approvals are not merely a reputational concern. They represent genuine criminal exposure under the Anti-Corruption Law (Undang-Undang Tindak Pidana Korupsi).

This area requires an active investigative approach rather than a passive document review:

• Litigation search through the Case Tracking Information System (Sistem Informasi Penelusuran Perkara or SIPP), at the relevant district courts
• Confirmation that no bankruptcy petition or court-supervised debt restructuring (Penundaan Kewajiban Pembayaran Utang or PKPU), has been filed against the company or its directors
• Reputation review of key management figures through public records and media sources
• Identification of irregular expenditure patterns that may indicate facilitation payments

Red Flags That Should Pause Any Transaction

Certain conditions identified during the due diligence process should prompt a serious pause in negotiations, and in some cases warrant reconsidering the transaction entirely before financial commitments are made.

Identifying one or more of these conditions does not necessarily mean a transaction must be terminated. Each red flag warrants thorough clarification and may require price adjustment or structural renegotiation before any legal commitment is finalized.

How XPND Protects Your Investment

The complexity of Indonesia’s regulatory environment is not simply a matter of the volume of documents that need to be reviewed. What matters more is understanding how government systems operate in an integrated manner and identifying precisely where the risk of post-closing failure is most concentrated.

XPND serves as a regulatory risk partner built specifically for Indonesia’s investment landscape. The approach goes beyond surface-level document verification to conduct cross-system examinations covering AHU ownership data, OSS licensing status, tax positions, and asset legality simultaneously.

In practice, this means ownership is verified through multiple layers down to the beneficial owner structure to prevent administrative deadlock, licensing is assessed not only through the OSS system but against actual operational reality on the ground, labor liabilities are calculated actuarially to surface obligations that do not appear on the balance sheet, historical tax exposure is stress-tested against current regulations, and assets are validated using geospatial data to ensure there are no zoning conflicts or environmental permits issued by the wrong authority.

The output is not a formal compliance report. It is a regulatory risk assessment that can be used directly to determine valuation, structure conditions precedent in a share purchase agreement, or decide whether a transaction is worth proceeding with at all.

Regulatory risk identified before closing can still be mitigated. Risk discovered after closing is almost always resolved at a considerably higher cost. Discuss your transaction exposure with XPND before legal commitments are locked in at www.xpnd.co.id.