Acquiring a company in Indonesia can be a rewarding move, whether you’re a foreign investor looking to enter one of Southeast Asia’s largest markets or a domestic player aiming to consolidate. But between the opportunity and the outcome lies a range of legal risks that, if overlooked, can turn a promising deal into a costly setback. A thorough company due diligence process is what stands between a well-informed acquisition and a transaction filled with hidden surprises.
This article walks through the most significant legal risks involved in buying a company in Indonesia, and what you should look out for before any agreement is signed.
Why Company Due Diligence Is the Foundation of Every Safe Acquisition
Before committing capital, every buyer needs a clear picture of what they are actually purchasing. In Indonesia, this goes beyond reviewing financial statements. Legal due diligence involves a detailed examination of the target company’s corporate standing, licenses, liabilities, employment matters, and regulatory compliance.
Indonesian M&A activity in the nine months ending September 2025 totalled USD 3.5 billion, down significantly from the prior year, a reflection of both regional caution and the practical complexities of doing business here. For those still moving forward with transactions, rigorous due diligence is not a formality. It is the primary tool for understanding what risks you are inheriting.
As one risk intelligence firm noted, even modest deals in Indonesia can carry disproportionate risks, from legal disputes to regulatory violations and fraudulent practices. Misreading local information, because of technical terminology, implicit meanings, or cultural nuances, can obscure serious problems that no amount of post-deal remediation can easily fix.
Related Article: Legal Due Diligence in Indonesia: A Guide for Foreign Investors
1. Corporate Structure and Ownership Irregularities
One of the first areas examined in any company due diligence exercise is the corporate structure of the target. This means reviewing the Deed of Establishment, Articles of Association, and all amendments thereto, as well as the full history of share ownership and management composition.
Indonesia has seen cases where nominee arrangements are used to obscure the true beneficial ownership of a company, particularly in sectors where foreign ownership is restricted. If you acquire shares in a company that turns out to have illegal ownership structures, you may inherit both regulatory violations and the consequences that come with them.
Regulatory non-compliance is very common in Indonesia, and many Indonesian companies do not maintain adequate records from a legal perspective or from a financial accounting perspective. This makes verifying corporate documentation a critical starting point, not an optional step.
2. Foreign Ownership Restrictions and the Positive Investment List
If you are a foreign investor, one of the most consequential legal risks is unknowingly acquiring a stake in a business sector that restricts or prohibits foreign participation.
Indonesia replaced its former Negative Investment List (Daftar Negatif Investasi) with a Positive Investment List under Presidential Regulation No. 10 of 2021, as amended by Presidential Regulation No. 49 of 2021. Under this framework, business sectors fall into three broad categories: fully open to foreign investment, conditionally open (with requirements such as local partnership, minimum investment thresholds, or special permits), and closed to foreign investors entirely.
Sectors that remain sensitive to foreign ownership include certain areas of financial services, media, telecommunications, transportation, and natural resources. Acquiring a company in a restricted sector without proper structuring could result in your investment being invalidated, subject to forced divestiture, or exposed to administrative sanctions.
The Ministry of Investment/BKPM now conducts post-closing monitoring of foreign investment companies, meaning non-compliance discovered after the deal closes can still trigger regulatory action. A well-conducted company due diligence process must include a clear assessment of whether the transaction structure is compatible with applicable foreign ownership rules.
3. Licenses and Permits: The Risk of Invalid or Missing Approvals
Indonesian companies often require multiple layers of licensing, primary business licenses, sector-specific permits, and environmental approvals. Before completing any acquisition, the investor should ensure that the target company’s licenses have been obtained and remain valid, covering all relevant primary and secondary business activities.
This includes checking compliance with reporting obligations tied to those licenses. Required reports include the Investment Activity Report (LKPM), Mandatory Company Manpower Report (WLKP), and Annual Income Tax Returns. Companies in regulated sectors—banking, insurance, mining, construction, and financial services—face additional sector-specific obligations.
Failure to identify expired, missing, or non-compliant licenses before closing a deal means you could be purchasing a business that cannot legally continue operating. In practice, getting licenses reissued or rectified post-acquisition can be a lengthy and costly process, and in some cases, it simply may not be possible.
4. Hidden Liabilities: Debts, Litigation, and Undisclosed Obligations
A target company may look clean on paper but carry significant undisclosed liabilities. Company due diligence should identify all active loans and securities against assets, unresolved tax obligations, transfer pricing arrangements, and ongoing or threatened litigation.
Litigation and bankruptcy searches are a standard component of due diligence, covering civil, criminal, financial, tax, and administrative court proceedings—including cases involving the company’s directors, commissioners, and shareholders individually. A target company director with an active court case may create governance complications that outlast the transaction itself.
Tax exposure is another area that deserves careful attention. Due diligence should cover past and current tax obligations, transfer pricing arrangements, unpaid liabilities, ongoing audits, and any tax incentives or penalties linked to the transaction. Indonesian tax authorities have broad powers to investigate and reassess, and tax exposure discovered post-acquisition can significantly affect deal economics.
5. Land and Property Issues
Property ownership in Indonesia is governed by a layered system of land rights, and problems in this area are among the most difficult to resolve after a deal has closed. If the target company owns or uses land, the buyer must verify the type of land certificate held, the remaining validity of the land right, and whether any encumbrances or disputes are attached to the property.
If the company has properties, it is recommended to conduct a proper review of land documentation and ownership status, including any encumbrances, by making enquiries to the relevant government agencies such as the Local Land Office (Badan Pertanahan Nasional). Land records in Indonesia are not always centralized or digitized, meaning that gaps in documentation can exist even when everything appears to be in order on the surface.
6. Employment and Labor Compliance
Indonesia has strong labor protections, and non-compliance with employment laws is one of the more commonly encountered issues in acquisitions. Due diligence in this area should include a review of existing employment agreements, severance entitlements, outsourcing arrangements, and whether the company has any ongoing labor disputes.
In a share acquisition, all employment relationships of the target company transfer automatically to the new owner. This means that any unresolved severance claims, underpaid benefits, or union agreements become your responsibility from the moment the deal closes. Understanding the full scope of the workforce obligations before signing is essential.
7. Competition Law Notifications
Larger transactions may trigger reporting requirements to Indonesia’s Business Competition Supervisory Commission (KPPU). M&A transactions that meet certain thresholds must be notified to the KPPU under Law No. 5 of 1999, as amended, and Government Regulation No. 57 of 2010. Failure to notify can expose both parties to fines and, in serious cases, to the unwinding of the transaction.
Post-deal KPPU scrutiny has become more active in recent years, particularly in industries where consolidation could affect market competition. This is an area that legal counsel should assess early in the deal process rather than at the closing stage.
8. Personal Data Protection Obligations
With the enactment of Law No. 27 of 2022 on Personal Data Protection (PDP), M&A transactions in Indonesia now carry data compliance implications. A company undergoing a merger, acquisition, or spin-off is required to notify personal data subjects about the transfer of their data. This obligation applies regardless of the size of the transaction.
For buyers acquiring companies that hold substantial consumer data, such as fintech firms, e-commerce platforms, or healthcare businesses, this introduces both compliance obligations and reputational considerations that should be factored into pre-deal assessments.
See Also: The Biggest Legal Risks Foreign Investors Face in Indonesia
How to Approach These Risks Before You Sign
The risks outlined above are manageable, but only if they are identified before, not after, the transaction closes. A structured company due diligence process carried out by experienced legal practitioners will typically cover all of the areas discussed here, producing a clear legal opinion that enables buyers to negotiate appropriate protections, adjust the purchase price, or walk away from a deal that carries too much unquantified risk.
The findings of the due diligence process can become significant negotiating points, with buyers seeking price reductions, holdback arrangements, or seller representations and warranties as protection against disclosed risks. Without a thorough due diligence review, you lose the ability to negotiate these safeguards effectively.
Working with a law firm that has deep knowledge of Indonesian corporate law, M&A regulations, and sector-specific licensing requirements is the most reliable way to navigate these complexities. The cost of proper legal due diligence is almost always a fraction of the cost of inheriting a problem that was never surfaced.
Getting the Right Legal Support Before You Commit
Every acquisition in Indonesia is different, and the legal risks you face will depend on the sector, the target company’s size, the ownership structure, and the nature of the assets involved. What remains consistent is the need for a thorough, professionally conducted company due diligence process that covers corporate compliance, licensing, liabilities, employment, land rights, tax exposure, competition law, and data protection.
At WNP Asia (Warganegara and Partners), our corporate lawyers bring extensive experience in advising on M&A transactions, foreign direct investment, and legal due diligence across industries in Indonesia. We work with both business clients and individual investors to ensure that every step of an acquisition is grounded in sound legal judgment and aligned with the applicable regulations.
If you are considering buying a company in Indonesia, we are here to help you understand what you are getting into before you get into it.
