Indonesia’s construction industry is currently undergoing a major transformation. Massive national infrastructure development has created broad opportunities for foreign investors, particularly through the establishment of Foreign Investment Limited Liability Companies (Perseroan Terbatas Penanaman Modal Asing or PT PMA). However, behind these opportunities lies an increasingly strict and technical regulatory framework.
For global investors, understanding how a foreign owned construction company operates under Indonesia’s latest legal regime is essential before entering the market. Since the enactment of the Job Creation Law (UU Cipta Kerja), the licensing system has shifted significantly from a permit based approach to a risk based approach. This change has not only streamlined bureaucracy but also strengthened the screening process for foreign construction businesses.
This article provides a comprehensive overview of the legal structure, capital requirements, technical certifications, and taxation aspects that must be fulfilled by PT PMA operating in Indonesia’s construction sector.
Transformation of Foreign Investment Regulations in the Construction Sector
Before 2020, foreign investment in Indonesia was restricted by the Negative Investment List (Daftar Negatif Investasi or DNI), which defined sectors that were open or closed to foreign capital. This system was later reformed through Law Number 11 of 2020 on Job Creation.
Through Presidential Regulation Number 49 of 2021, the government introduced the Investment Priority List. This approach opened nearly all business sectors to foreign investors, including construction, except for specific fields reserved for the state or micro, small, and medium enterprises (Usaha Mikro Kecil dan Menengah or UMKM).
In the context of a foreign owned construction company, these changes allow foreign ownership of up to 100 percent in most large scale construction subsectors. However, the government has balanced this openness with significantly higher technical requirements.
Rather than restricting share ownership, the government now applies regulatory filters through:
- Large business qualification requirements
- High net worth thresholds
- Professional workforce standards and quality management systems
In other words, Indonesia’s construction market remains protective, but is now based on capability and capacity.
The Role of KBLI 2025 in PT PMA Construction Activities
The Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI) serves as the foundation of the Online Single Submission Risk Based Approach (OSS RBA) system.
KBLI determines licensing requirements, business risk levels, and whether a sector is open to foreign investment.
The KBLI 2025 version introduces refinements to the previous classification. For foreign owned construction companies, selecting the appropriate KBLI code is critical.
Certain small scale specialized construction services are now reserved exclusively for UMKM. If a PT PMA selects a KBLI code that falls into this reserved category, the OSS system will automatically reject the issuance of the Business Identification Number (Nomor Induk Berusaha or NIB).
Therefore, foreign investors must conduct thorough due diligence before defining the scope of their construction activities.
Market Entry Models: PT PMA or BUJKA
Foreign investors generally have two primary options to enter Indonesia’s construction sector.
PT PMA as a Local Legal Entity
A PT PMA is an Indonesian legal entity whose shares are owned by foreign investors. Despite its foreign ownership status, it operates as an independent corporate entity under Indonesian law.
Key advantages of PT PMA include:
- Ability to participate directly in project tenders
- No mandatory joint operation requirement for every project
- Business diversification flexibility based on KBLI classifications
- Limited liability based on paid up capital
In practice, a foreign owned construction company structured as PT PMA is more suitable for long term market penetration and sustainable expansion.
BUJKA as a Representative Office
A Foreign Construction Services Representative Office (Badan Usaha Jasa Konstruksi Asing or BUJKA) is not a separate legal entity, but rather an administrative extension of a foreign parent company.
Key characteristics of BUJKA include:
- Mandatory joint operations (Kerja Sama Operasi or KSO) with local contractors
- Inability to execute projects independently
- Direct liability attached to the parent company
- Focus on large scale, high technology projects
This model is often chosen for short term or project specific engagements.
Minimum Investment Requirements for PT PMA Construction Companies
The Indonesian government imposes minimum investment thresholds to ensure investor quality.
Each PT PMA must commit to an investment value exceeding IDR 10 billion per five digit KBLI code.
Key points include:
- Excludes land and buildings
- Applies per business classification
- Monitored through the OSS system
If a company operates under two construction KBLI codes, the investment requirement is multiplied accordingly.
Additionally, while paid up capital can now start from IDR 2.5 billion, the remaining investment commitment must be realized gradually and reported through the Investment Activity Report (Laporan Kegiatan Penanaman Modal or LKPM).
In the construction sector, this initial capital requirement often becomes less relevant due to the significantly higher technical certification requirements.
Business Entity Certification as an Operational Requirement
Without a Business Entity Certificate (Sertifikat Badan Usaha or SBU), a foreign owned construction company cannot legally execute construction projects.
Regulations require PT PMA to fall under the Large Qualification category.
This results in:
- Eligibility only for high value projects
- Prohibition from operating in UMKM segments
- Focus on infrastructure, high rise buildings, and industrial facilities
Financial Requirements for Large Qualification SBU
To obtain an SBU, a company must demonstrate a minimum net worth of IDR 50 billion.
This figure must be supported by audited financial statements issued by a registered Public Accounting Firm.
This requirement often becomes a major challenge for new investors, as it far exceeds the minimum investment threshold set by investment authorities.
Construction Professional Workforce Qualifications
Beyond capital, PT PMA must employ certified professionals.
Minimum workforce structure includes:
- Technical Responsible Person with Level 9 Competency Certificate (Sertifikat Kompetensi Kerja or SKK)
- Subclassification Responsible Person with Level 8 SKK
These high level professionals are relatively scarce in Indonesia, often creating bottlenecks in the certification process.
Each certified expert may only be registered under one company.
Quality Management and Anti Bribery Standards
As part of large qualification compliance, PT PMA construction companies must implement:
- ISO 9001 for quality management systems
- ISO 37001 for anti bribery management systems
These requirements aim to improve transparency within a sector historically prone to corruption risks.
Construction Service Taxation Scheme
Indonesia applies a final tax system for construction services.
For PT PMA with large qualification status, the standard tax rate for construction execution services is 2.65 percent of the gross contract value.
If the company does not maintain an active SBU, the rate increases to 4 percent.
This makes administrative compliance essential for maintaining profit margins.
Unlike BUJKA entities subject to Branch Profit Tax, PT PMA only pays dividend tax when profits are distributed, offering greater cash flow flexibility.
Post Establishment Obligations: LKPM and Operational Compliance
After obtaining licenses, PT PMA must regularly report:
- Investment realization
- Operational activities
- Workforce data
through the Investment Activity Report (LKPM).
Failure to comply may result in:
- Written warnings
- Facility suspension
- Revocation of NIB
The OSS system now monitors compliance automatically.
Foreign Workforce Management
Foreign employees are permitted under specific conditions:
- Mandatory local understudies for knowledge transfer
- Certain positions restricted for foreign workers
- Required transfer of expertise to Indonesian staff
Violations may lead to deportation and administrative penalties.
Estimated Timeline for Establishing a PT PMA Construction Company
Generally, the establishment process includes:
- Initial phase (2 to 3 weeks): Preparation of incorporation deed, legal approval, and corporate tax registration.
- OSS registration phase (1 to 2 days): Issuance of risk based NIB.
- Technical certification phase (1 to 3 months): Association membership, SBU application, financial verification, workforce certification, and ISO compliance.
Once the SBU is issued, the company is fully eligible to participate in project tenders.
The Strategic Role of XPND in Establishing and Managing PT PMA Construction Companies
Navigating Indonesia’s complex construction regulations requires more than formal company incorporation. Processes involving risk based OSS licensing, proper KBLI selection, investment commitments, SBU certification, taxation compliance, and LKPM reporting demand structured and professional guidance.
This is where XPND acts as a strategic partner for establishing a foreign owned construction company in Indonesia.
XPND provides comprehensive support across every stage, including:
- Structuring investment and shareholding arrangements in full legal compliance
- Selecting appropriate construction KBLI classifications aligned with foreign investment policies
- Managing risk based OSS registration and NIB issuance
- Assisting with large qualification SBU requirements
- Coordinating professional workforce certification
- Implementing mandatory ISO standards
- Ensuring tax compliance and LKPM reporting
Through an end to end approach, XPND helps investors avoid administrative pitfalls that often delay operations, while accelerating readiness for project tenders.
For foreign construction firms seeking sustainable entry into Indonesia’s infrastructure market, XPND ensures that PT PMA entities are not only legally established, but also operationally competitive with strong compliance foundations.
