Indonesia has quietly become one of the most active merger and acquisition markets in Southeast Asia. With a GDP exceeding USD 1 trillion in 2024 and a population of over 280 million people, the country offers a scale of opportunity that few markets in the region can match. The merger of XL Axiata and Smartfren Telecom, which became effective in April 2025 at an enterprise value of IDR 104 trillion, is just one signal of how large and sophisticated deals have become. Add to this the launch of Danantara, Indonesia’s sovereign wealth fund established under Law Number 1 of 2025, which is expected to accelerate consolidation among state-owned enterprises and attract new foreign capital, and it becomes clear why interest in Indonesian M&A continues to grow.
For foreign investors, however, Indonesia presents a regulatory environment that differs significantly from other markets. The transaction process involves multiple layers of approval, sector-specific restrictions, competition filings, and data protection obligations that must be managed simultaneously. Understanding these requirements before entering a deal is not optional. It is the foundation of a successful transaction.
This guide explains how M&A works in Indonesia, which regulations apply, what the process looks like from start to finish, and where foreign investors most commonly encounter problems.
The Legal Framework Governing M&A in Indonesia
M&A transactions in Indonesia are governed by a layered set of laws and regulations. Knowing which ones apply to a specific transaction is the starting point for any deal.
The primary legislation is Law Number 40 of 2007 on Limited Liability Companies (Perseroan Terbatas or PT), as amended by Law Number 6 of 2023 through the Job Creation Law. This law defines the three forms of corporate combination recognized under Indonesian law: merger (penggabungan), consolidation (peleburan), and acquisition (pengambilalihan). Its implementing regulation, Government Regulation No. 27 of 1998 on Merger, Consolidation, and Acquisition of Limited Liability Companies, remains applicable and sets out the procedural requirements, documentation, and timelines for completing these transactions.
For publicly listed companies, additional requirements apply under Law Number 8 of 1995 on Capital Markets, as amended by Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector. OJK Regulation Number 9 of 2018 on the Takeover of Public Companies and OJK Regulation Number 74 of 2016 on Mergers or Consolidations of Public Companies further govern how transactions involving listed entities must be structured and disclosed.
Investment activities, including foreign participation in M&A, are regulated under Law Number 25 of 2007 on Investment and Presidential Regulation Number 10 of 2021 on the Investment Business Fields, commonly known as the Positive Investment List, as amended by Presidential Regulation Number 49 of 2021.
Competition law obligations arise under Law Number 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition, as amended by Law Number 6 of 2023, and Government Regulation Number 57 of 2010, as further implemented by KPPU (Komisi Pengawas Persaingan Usaha) Regulation Number 3 of 2023.
Finally, Law Number 27 of 2022 on Personal Data Protection, which became fully effective in October 2024, introduces notification obligations that directly affect any M&A transaction involving the transfer of personal data from one controller to another.
Two additional regulations issued in 2025 are relevant for transactions involving foreign investors: Government Regulation Number 28 of 2025 on Risk-Based Business Licensing and BKPM Regulation Number 5 of 2025, which revised minimum capital requirements and updated the investment licensing framework under the OSS RBA system.
Three Core Concepts: Merger, Consolidation, and Acquisition
Indonesian law draws precise distinctions between the three forms of M&A, and these distinctions affect how a transaction is structured, what approvals are required, and how long the process takes.
- A merger occurs when one or more companies absorb into an existing company. The absorbed companies cease to exist, and the surviving company continues to operate and assumes all assets and liabilities of the dissolved entities.
- A consolidation occurs when two or more companies combine to form an entirely new legal entity. All of the consolidating companies dissolve, and the new entity is established through a notarial deed approved by the Ministry of Law.
- An acquisition occurs when a legal entity or individual acquires shares in a company, whether existing shares or newly issued ones, in a manner that results in a transfer of control. Unlike merger or consolidation, the target company continues to exist as a separate legal entity after the transaction.
Each structure has different implications for licensing continuity, tax treatment, and regulatory approval timelines. Choosing the right structure early in the process can significantly reduce the risk of delays later.
Deal Structures Available to Foreign Investors
Beyond the legal classification, foreign investors also have practical choices in how they structure an M&A transaction. Each approach involves different trade-offs.
Share Purchase
A share purchase is the most common structure in Indonesian M&A. The investor acquires existing shares from the current shareholders, and the target company continues to operate under its existing licenses and contracts.
This approach preserves business continuity and avoids the need to reapply for permits, but it also means the buyer assumes all existing liabilities of the target, including those that may not be immediately visible during due diligence.
Asset Purchase
An asset purchase allows the investor to acquire specific assets of the target company while leaving behind unwanted liabilities. This structure is attractive when the target carries significant legal, tax, or labor risks. The practical limitation is that most permits, licenses, and contracts are tied to the legal entity rather than the assets, so the buyer typically needs to apply for new licenses after closing, which adds time and cost to the transaction.
Joint Venture through PT PMA
For sectors where full foreign ownership is restricted, establishing a joint venture through a Foreign Investment Company (Perseroan Terbatas Penanaman Modal Asing or PT PMA) is often the most viable path. The foreign investor and a local partner co-own the entity, with ownership percentages governed by the Positive Investment List and agreed governance terms set out in a shareholder agreement. The quality of the shareholder agreement is critical: poorly drafted agreements are a leading cause of governance disputes in Indonesian joint ventures.
Spin-off and Carve-out
In some cases, sellers will spin off a specific business division into a new entity, which the investor then acquires. This structure is useful when only part of a business is attractive. The limitation is that the new entity must obtain its own licenses and permits, which extends the timeline.
Foreign Investment Restrictions: The Positive Investment List
Any M&A transaction involving a foreign buyer must begin with a review of the Positive Investment List. This regulation, established under Presidential Regulation Number 10 of 2021 as amended by Presidential Regulation Number 49 of 2021, classifies business sectors into four categories.
Priority sectors are fully open to foreign investment and eligible for fiscal incentives including tax holidays and customs incentives. Business fields with specific requirements are open to foreign investment but subject to conditions such as minimum investment value, geographic restrictions, or partnership requirements. Business fields requiring partnership with cooperatives or MSMEs are open to large enterprises including foreign investors but must include a local MSME component.
Sectors that are fully closed to foreign investment include, among others, the cultivation of controlled substances, certain fishing activities, and specific industries protected under Indonesian law.
An Indonesian company with even a single foreign shareholder is legally classified as a PT PMA and becomes subject to all foreign investment regulations, regardless of the percentage of foreign ownership. This means that an acquisition of a minority stake can still trigger a full regulatory reclassification of the target.
Under BKPM Regulation Number 5 of 2025, the minimum paid-up capital for a PT PMA was reduced from IDR 10 billion to IDR 2.5 billion per company. However, the total investment value per five-digit KBLI code must still exceed IDR 10 billion per project location, excluding land and buildings. This distinction between paid-up capital and total investment value is a frequent source of misunderstanding in structuring foreign acquisitions.
The M&A Process: From Preparation to Closing
A well-structured M&A transaction in Indonesia typically follows a sequence of defined stages. The actual timeline varies significantly depending on the sector, deal complexity, and regulatory approvals required, but most transactions take between three and twelve months from initial agreement to closing.
Preliminary Assessment and Deal Structuring
Before any formal steps are taken, the investor must determine whether the target sector is open to foreign investment, what ownership percentage is permitted, and which corporate structure best fits the transaction. For foreign investors, this means reviewing the Positive Investment List, checking KBLI classifications, and assessing whether a PMDN-to-PMA conversion will be required if the target is currently domestically owned.
Non-Disclosure Agreement and Letter of Intent
Once the parties agree on the general framework of the deal, they typically sign a non-disclosure agreement and a letter of intent. The letter of intent sets out the key commercial terms, the timeline for due diligence, and whether the arrangement is exclusive. Under Indonesian law, a letter of intent is generally not legally binding on the substantive terms, but confidentiality and exclusivity provisions may be enforceable.
Due Diligence
Due diligence in Indonesia requires a more thorough and locally-informed approach than in many other markets. The areas most critical to review are discussed in the next section.
Transaction Document Negotiation
The main transaction documents in an Indonesian M&A deal include the Share Purchase Agreement or Asset Purchase Agreement and, where applicable, a Shareholder Agreement governing post-closing governance. Indonesian law does not prescribe specific provisions for these agreements in the case of private companies, so the parties have considerable flexibility to negotiate commercial terms, representations and warranties, conditions precedent, and indemnity arrangements.
For public companies, the transaction documents and related disclosures must comply with OJK requirements, including mandatory tender offer obligations if the acquisition results in a change of control.
Corporate Approvals
The target company must obtain approval from its General Meeting of Shareholders (GMS), following prior approval of the Board of Commissioners. The GMS approval must be preceded by notification to the target’s employees and creditors, published in at least one newspaper no less than 30 days before the GMS is convened. Creditors have 14 days from the announcement to submit objections.
Regulatory Approvals
Depending on the sector, the transaction may require prior approval from the OJK (for financial services companies), the Ministry of Energy and Mineral Resources (for mining and energy), the Ministry of Communication and Digital Affairs (for telecommunications), or other sectoral authorities. These approvals can add several months to the timeline and require detailed documentation of the acquirer’s qualifications, financial condition, and business plans.
For transactions involving a change of control in a bank or insurance company, a fit and proper test conducted by the OJK is mandatory for prospective controlling shareholders.
Closing and Post-Closing Obligations
For share acquisitions in a private company, the transaction becomes legally effective on the date the notification is received by the Ministry of Law. For mergers and consolidations, effectiveness is tied to the Ministry of Law’s approval of the deed amendment or deed of establishment of the new entity.
After closing, the acquiring entity must update its records in the OSS RBA system, file the updated shareholder structure with the Ministry of Law, and notify the KPPU if the transaction meets the competition law thresholds described below.
Due Diligence: What to Examine Before Signing
Due diligence in Indonesia requires careful attention to areas that are often overlooked in standard international templates. The following deserve particular focus.
Corporate Documents and Licensing
Buyers should verify that all licenses held by the target are current, properly issued, and will survive a change of control. Many licenses in Indonesia contain change-of-control provisions that require prior notification or approval from the issuing authority. Failure to identify these provisions before signing can result in license suspension after closing.
Land rights require special attention. Most Indonesian companies hold land under Hak Guna Bangunan (HGB), a right to build rather than freehold ownership. This type of land right has a fixed term, is subject to periodic renewal, and carries restrictions on use by foreign-owned entities that must be assessed before the acquisition.
Financial Records
Financial statement quality in the Indonesian mid-market varies considerably. Buyers should confirm whether the target’s financials comply with Indonesian Generally Accepted Accounting Principles (Pernyataan Standar Akutansi Keuangan or PSAK) or IFRS, and assess the independence and reputation of the auditor. Revenue recognition policies, particularly for project-based or long-term contract businesses, should be examined carefully. Cash flow management practices in Indonesian family-owned businesses sometimes involve parallel cash systems that are not fully reflected in the official accounts.
Related-Party Transactions
Indonesian family businesses frequently have undisclosed related-party transactions, intercompany loans, and informal profit-sharing arrangements. These arrangements can create hidden liabilities or inflate reported profitability. A thorough review of related-party disclosures in the financial statements and comparison with underlying contracts is essential.
Labor and Employment
Under Law Number 13 of 2003 on Labor as amended by the Job Creation Law, employees have statutory rights during M&A transactions. Severance obligations can be substantial, particularly for companies with long-tenured workforces. Buyers must assess the cost of any workforce restructuring that will follow closing and ensure that employment terms are properly disclosed in the representations and warranties.
Intellectual Property
Trademarks, patents, and other intellectual property in Indonesian companies are frequently registered in the name of the founders or directors rather than the corporate entity. Buyers must verify that all key IP is properly owned and registered in the name of the target, and that any transfers required to clean up ownership are completed before or concurrent with closing.
Litigation and Regulatory History
Active and historical litigation should be checked through the Supreme Court’s SIPP (Sistem Informasi Penelusuran Perkara) database. KPPU proceedings should also be reviewed, as past competition law violations can affect the assessment of future transactions involving the same entity.
Competition Law: KPPU Notification Requirements
Indonesia operates a mandatory post-closing merger control regime administered by the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or KPPU). The legal basis is Law Number 5 of 1999 as amended, Government Regulation Number 57 of 2010, and KPPU Regulation Number 3 of 2023, which updated the notification framework and became effective on 31 March 2023.
When Notification Is Required
A transaction is subject to mandatory notification to the KPPU if all of the following criteria are met:
The transaction constitutes a merger, consolidation, or acquisition of shares or assets that results in a change of control. The transaction is between non-affiliated parties. The combined value of assets in Indonesia exceeds IDR 2.5 trillion, or IDR 20 trillion for transactions in the banking sector, or the combined sales value in Indonesia exceeds IDR 5 trillion. For foreign-to-foreign transactions, both parties must have assets or generate sales in Indonesia.
These thresholds are calculated on a group-wide basis, including all entities directly or indirectly controlled by the ultimate parent of each transacting party.
Timing and Process
The notification must be submitted through the KPPU’s online portal within 30 business days from the date the transaction becomes legally effective. Voluntary pre-merger consultation with the KPPU is available and can help identify competition concerns early, but it does not eliminate the obligation to file the mandatory post-closing notification.
The KPPU conducts its review in two phases. The Preliminary Assessment Phase, in which the KPPU analyzes market concentration using the Herfindahl-Hirschman Index, takes the bulk of the 90-business-day review period. If the KPPU identifies potential competition concerns, the review proceeds to a Comprehensive Assessment Phase examining barriers to entry, efficiency, and impact on market competition.
Sanctions for Late Filing
Late notification carries a penalty of IDR 1 billion per day, up to a maximum total fine of IDR 25 billion. The KPPU has actively enforced this requirement in recent years, having imposed fines on multiple companies for late notification. The filing fee for notifiable transactions is calculated at 0.004 percent of the asset or sales value that exceeds the threshold, whichever is lower, capped at IDR 150 million.
Sector-Specific Regulatory Considerations
Several industries require additional regulatory engagement beyond the general M&A process.
Financial Services (Banking and Insurance)
Transactions involving banks, insurance companies, multifinance companies, and other financial institutions require prior approval from the OJK. Prospective controlling shareholders must pass a fit and proper test conducted by the OJK, which assesses financial soundness, legal track record, and management competency. The OJK must be engaged from the outset of the planning process, and certain transactions cannot proceed without its express approval.
The minimum equity requirements for insurance companies were significantly increased under recent OJK regulations, with conventional insurance companies now required to maintain minimum equity of IDR 1 trillion, up from IDR 150 billion. This increase is expected to drive further consolidation in the insurance sector as smaller players seek merger partners to meet the new threshold.
Mining and Energy
Mining and energy transactions are subject to oversight by the Ministry of Energy and Mineral Resources. Divestment obligations for certain mining licenses require that a specified percentage of shares be offered to Indonesian buyers at various stages of a mining project’s development. Buyers must carefully review the divestment history and remaining obligations of any mining license before acquisition.
Telecommunications
Acquisitions in the telecommunications sector require review by the Ministry of Communication and Digital Affairs. The XL Axiata and Smartfren merger received approval from this ministry in early 2025, illustrating the process for major transactions in this sector.
State-Owned Enterprises and Danantara
The establishment of Danantara under Law Number 1 of 2025 has changed the landscape for transactions involving state-owned enterprises. Danantara now holds authority to manage and optimize SOE assets and investments, with dividends from SOEs flowing to Danantara rather than directly to the state treasury. Investors interested in partnering with or acquiring stakes in SOE subsidiaries should factor this structural change into their engagement strategy.
Personal Data Protection Obligations in M&A
Since becoming fully effective in October 2024, Law Number 27 of 2022 on Personal Data Protection imposes obligations on any M&A transaction that involves the transfer of personal data from one controller to another.
Under the PDP Law, the personal data controller is required to notify personal data owners before the completion of a merger, acquisition, or consolidation that will result in the transfer of personal data. The previous controller and the new controller must also establish an agreement governing the rights and obligations of each party with respect to the transferred data.
While the implementing government regulation for the PDP Law was still in draft form as of early 2026, the PDP Law itself is enforceable. Buyers acquiring companies that hold significant personal data, including customer databases, employee records, or health information, must build PDP compliance review into the due diligence process and address data transfer obligations in the transaction documents.
Tax Considerations for M&A Transactions
Tax planning is a critical component of any Indonesian M&A transaction. The choice of deal structure has direct tax consequences that can significantly affect the net return on investment.
The key considerations include the tax treatment of capital gains on the sale of shares, which is subject to a final withholding tax of 0.1 percent of the gross transaction value for listed shares and 25 percent of the net gain for non-listed shares. The choice of holding company jurisdiction affects withholding tax rates on dividends, interest, and royalties under applicable tax treaties.
Indonesia adopted the Global Minimum Tax (GMT) framework through Minister of Finance Regulation No. 136 of 2024, which implements a 15 percent minimum effective tax rate for multinational enterprise groups with consolidated annual revenue exceeding EUR 750 million. Buyers in large cross-border transactions must assess whether the acquisition will result in the target becoming part of a qualifying MNE group subject to GMT compliance requirements.
Indonesian law also provides book value transfer treatment for certain internal restructurings, including mergers, spin-offs, and consolidations carried out for legitimate business purposes. Investors considering restructuring the acquired entity post-closing should assess whether the book value election is available and structurally advantageous.
Common Challenges in Indonesian M&A
Foreign investors who have completed transactions in other markets frequently encounter challenges in Indonesia that were not anticipated during planning. The following are the most common.
Regulatory approval timelines are difficult to predict. The process for obtaining OJK or sectoral approval does not follow a fixed schedule, and delays of several months are common. Buyers should build contingency time into the transaction timeline and avoid hard deadlines for closing that cannot absorb regulatory delays. Due diligence findings in Indonesian companies often reveal governance structures that are less formal than international standards.
Related-party transactions, informal arrangements, and IP registered in individual names are common findings. These issues are manageable but must be identified early to allow for meaningful negotiation.
KPPU notification is frequently overlooked by foreign investors, particularly in foreign-to-foreign transactions where the parties do not have a strong Indonesia presence. The dual nexus requirement under KPPU Regulation Number 3 of 2023 means that both parties must have assets or sales in Indonesia for the notification obligation to apply, but this should be assessed carefully for every transaction rather than assumed.
PMDN to PMA conversion requirements apply whenever a foreign investor acquires any shareholding in a domestically-owned company. Under BKPM Regulation Number 5 of 2025, the company must convert to PT PMA status and comply with all applicable foreign investment requirements. The timing and sequencing of this conversion relative to the acquisition closing requires careful planning to avoid licensing gaps.
How XPND Supports M&A Transactions in Indonesia
Navigating an M&A transaction in Indonesia requires advisors who understand both the regulatory framework and the practical realities of how approvals are obtained, how government systems are connected, and where transactions typically encounter friction.
XPND provides strategic advisory support across the M&A lifecycle for foreign investors entering Indonesia through acquisition or merger. Our support includes regulatory assessment and deal structure advice to ensure the proposed transaction is properly positioned under Indonesian investment law, Positive Investment List review, and KBLI compliance. We assist with due diligence coordination across legal, regulatory, and compliance dimensions, with particular focus on licensing continuity, OSS RBA data consistency, and post-closing obligations.
For transactions requiring company restructuring, PMDN-to-PMA conversion, or the establishment of new holding structures, XPND manages the full process from incorporation through licensing. We also support post-closing integration, including OSS RBA updates, LKPM reporting, and coordination with the Ministry of Law.
If you are evaluating an acquisition in Indonesia or have a transaction in progress and need regulatory clarity, reach out to the XPND team for a structured assessment of your deal.
