Holding Company Structure in Indonesia: Legal and Financial Insights for Foreign Direct Investment

For foreign investors navigating the Indonesian market, structuring your operations via a Holding Company (PMA) is not merely an administrative choice; it is a critical strategic move. This structure allows for streamlined corporate governance, efficient capital management, and localized risk diversification across various business units. Indonesia's dynamic regulatory environment, marked by recent reforms, makes this structure increasingly relevant for sophisticated foreign direct investment (FDI).

The latest data from the Investment Coordinating Board (BKPM) indicates that FDI realization continues to be a pillar of economic growth, with investment totaling approximately IDR 245.80 Trillion in the fourth quarter of 2024. However, managing legal and financial risks across a sprawling corporate group remains a primary challenge, especially regarding the financial transparency and operational liability of subsidiaries.

Addressing Complexity with Legal Clarity

Establishing a holding structure—where a parent company controls subsidiaries through stock ownership—demands rigorous compliance with local corporate law. Without proper legal and financial alignment, the supposed advantages of centralized control can quickly turn into consolidated liability and exposure to unnecessary tax and regulatory risks.

Gaivo.co.id, as Indonesia’s leading foreign investment advisory firm, specializes in providing the necessary legal clarity. We guide international investors through every step, from selecting the correct KBLI (Standard Classification of Indonesian Business Fields) to ensuring compliance with the latest BKPM regulations.

A Case Study in Financial Scrutiny: Telkomsel and GOTO

The public investment made by Telkomsel (a subsidiary of the state-owned enterprise Telkom) in PT GoTo Gojek Tokopedia Tbk (GOTO) provides a real-world lesson in investment valuation and accounting transparency. The subsequent sharp decline in GOTO’s share price forced Telkom and Telkomsel to record substantial impairment losses, generating intense scrutiny. This case underscores the crucial necessity for holding companies to adhere strictly to global accounting standards and accurately assess investment risk, a core concern for any major FDI in Indonesia.

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Defining the Holding Company and Subsidiary Relationship

A Holding Company, often referred to as a Parent Company, is primarily structured to hold controlling shares in other companies (Subsidiaries). Its focus is usually on strategic management, finance, and oversight, rather than direct operational activities, offering significant advantages for large-scale PMA.

The Purpose of a Pure Holding Company (KBLI 70100)

In Indonesia, a pure holding company typically uses KBLI 70100 (Activities of Head Offices) or a similar classification dedicated to managerial and financial oversight. Its revenues mainly stem from dividends, interest, and capital gains from its subsidiaries, serving as the financial and strategic nexus of the entire corporate group.

This structure allows the holding company to centralize critical functions like treasury, strategic planning, and legal compliance, ensuring the subsidiaries operate in alignment with the broader group's objectives. A well-established holding structure is highly attractive for foreign investors aiming for sectoral diversification and efficiency.

Control Mechanisms via Share Ownership

Control is primarily established through majority share ownership, typically exceeding 51%, granting the holding company dominant voting rights in the subsidiary's General Meeting of Shareholders (GMS). This mechanism enables the holding company to appoint the subsidiary’s directors and commissioners and dictate fundamental strategic decisions, as mandated by Law No. 40 of 2007 on Limited Liability Companies (UUPT).

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Establishing a Holding Company PMA in Indonesia: Regulatory Steps

The process of establishing a Foreign Investment Holding Company (PMA) in Indonesia is governed by the risk-based Online Single Submission (OSS-RBA) system, under the supervision of the BKPM.

Key Regulatory Changes for PMA Setup (2024–2025)

Recent changes, particularly outlined in BKPM Regulation No. 5 of 2025 (and its preceding regulations), have significantly lowered the financial barriers for PMA. Previously, a minimum investment of IDR 10 billion per KBLI was common; however, the government has moved towards a more flexible regime to attract mid-scale investment.

The core requirement for PMA remains a total investment value exceeding IDR 10 billion (excluding land and buildings), with a minimum paid-up capital requirement of IDR 2.5 billion per KBLI for the holding company itself. Furthermore, BKPM Reg. 5/2025 now requires supporting KBLIs that generate revenue to be explicitly included in the Articles of Association and registered in the OSS-RBA, demanding meticulous preparation from foreign investors.

Essential Procedures for PMA Formation

1. Establishment of the PT PMA: Drafting the Articles of Association with a Public Notary, ensuring the KBLI is appropriate for a holding or management function.
2. OSS-RBA Registration: Obtaining the Business Identification Number (NIB), which automatically provides the company's registration certificate, tax ID, and import identification number (API).
3. Investment Plan Commitment: Committing to the minimum investment value threshold in the OSS system and detailing the capital structure for the holding entity.
4. Share Acquisition (Inbreng): The crucial step where the holding company acquires the majority shares in its operational subsidiaries. This can involve a capital injection or share transfer, which must be legally documented and often requires a Public Notary.

Gaivo’s legal advisory services ensure this entire process is executed seamlessly, minimizing delays and ensuring full regulatory compliance with the BKPM.

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Understanding Holding Company Liability: Piercing the Corporate Veil

A fundamental principle of Indonesian corporate law, affirmed by Article 3(1) of the UUPT, is the separation of legal liability. The holding company, as a shareholder, is generally not liable for the debts or obligations of its subsidiary beyond its invested capital.

When Does Liability Extend to the Holding Company?

The principle of limited liability, however, is not absolute. The UUPT provides for circumstances where the "Corporate Veil" can be pierced, meaning the holding company can be held responsible for the subsidiary’s actions. This occurs under Article 3(2) UUPT when:

• The shareholder (holding company) uses the company's assets illegally or for personal gain.
• The shareholder is involved in an unlawful act that causes the company's assets to become insufficient to settle its debts.
• The shareholder mixes personal assets with the company's assets, blurring the financial and administrative lines.
• The holding company acts as a guarantor (corporate guarantee) for the subsidiary’s debt, explicitly assuming the liability.

The Importance of Independent Management

To prevent the veil from being pierced, the holding company must maintain a clear distinction in governance and operations. This includes avoiding excessive intervention in the day-to-day management of the subsidiary, maintaining separate accounting records, and ensuring the subsidiary has sufficient capital for its operations. This requires meticulous legal and financial governance, which our corporate legal services are designed to ensure.

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Accounting for Investment Loss: The Telkomsel-GOTO Precedent

The investment by Telkomsel into GOTO serves as a potent reminder for holding companies about the strict requirements of financial reporting in Indonesia, which largely follows the International Financial Reporting Standards (IFRS) via PSAK (Pernyataan Standar Akuntansi Keuangan).

Investment Valuation and Impairment Rules

Telkomsel’s investment in GOTO, made before the IPO, was initially valued based on the contractual terms, often involving convertible notes or equity instruments. When GOTO listed and its share price plummeted by over 80% from its initial public offering (IPO) price, the investment’s fair value significantly decreased.

According to PSAK 71 (Financial Instruments), which aligns with IFRS 9, financial assets, particularly those classified as fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVOCI), must be revalued periodically. A significant, prolonged decline in market price below the cost often triggers an impairment test.

When Is the Investment Loss Recorded?

The unrealized loss from Telkomsel’s investment in GOTO was primarily recorded when the market value of the GOTO shares, which Telkomsel held, dropped significantly below its acquisition cost. This revaluation loss is reflected in Telkomsel’s financial statements, and consequently, in the consolidated financial statements of its parent, Telkom.

• Initial Recording: The investment is recorded at fair value on the acquisition date.
• Subsequent Measurement: For publicly traded shares, the investment is periodically marked-to-market (fair value).
• Loss Recognition: The unrealized loss is recorded in the income statement (or Other Comprehensive Income, depending on the classification) when the fair value of the shares (based on the public trading price) is substantially lower than the previous carrying amount or cost, as seen in Telkomsel’s Q3 2025 financial reports.

The Telkomsel-GOTO scenario emphasizes the need for robust internal controls and independent financial legal due diligence before making high-risk investments, especially for state-linked entities.

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Current FDI Climate and Investment Outlook in Indonesia

Indonesia remains a premier destination for FDI, driven by its large consumer market, wealth of natural resources, and proactive government reforms. The investment realization data reflects a resilient climate despite global economic headwinds.

Key FDI Data Points (2024–2025)

• Investment Realization: BKPM data highlighted Q4 2024 FDI realization reaching IDR 245.80 Trillion, showcasing continued investor confidence.
• Sectoral Focus: Manufacturing, especially downstream industries (metal, machinery, and electronics), remains the largest recipient of foreign capital, aligned with the government's hilirization (downstreaming) policy.
• Ease of Doing Business: The continued refinement of the OSS-RBA system, simplifying the licensing process for foreign investors, positions Indonesia competitively in the ASEAN region.

However, investors must carefully navigate localized challenges, including land acquisition, regional permitting nuances, and securing skilled labor, which are often the focus of Gaivo's specialized foreign investment advisory services.

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Mitigating Risks: Best Practices for Holding Companies

Effective risk mitigation within a holding structure is paramount for long-term success and protection against consolidated group liability. A failure in one subsidiary should not bring down the entire foreign investment.

Operational and Legal Best Practices

1. Formal Corporate Guarantee Policy: Avoid providing a corporate guarantee for subsidiary debt unless absolutely necessary and ensure the guarantee is properly disclosed and priced, preventing unintentional liability extension.
2. Arm’s Length Transactions: All inter-company transactions (e.g., loans, management fees, royalty payments) between the holding company and its subsidiaries must be conducted on an arm’s length basis, ensuring fair market pricing to comply with tax regulations and avoid transfer pricing penalties.
3. Independent Documentation: Maintain separate legal and financial documentation for the holding company and each subsidiary. Board minutes, GMS resolutions, and contracts should clearly delineate the authority and responsibility of each entity.
4. Regular Legal Audit: Conduct periodic legal audit and compliance checks across all subsidiaries to detect and rectify regulatory breaches early, particularly in highly regulated sectors like mining, finance, or telecom (Law No. 11 of 2020 on Job Creation).

These practices reinforce the separate legal personality of each entity, a cornerstone of successful FDI structuring.

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Common Mistakes and Gaivo's Legal Solutions

Foreign investors frequently make structural and operational errors that expose the entire corporate group to unnecessary legal and financial risks.

Top 5 Legal and Financial Pitfalls

• Undercapitalization: Failing to adequately capitalize subsidiaries, making them prone to insolvency and increasing the risk of creditors attempting to pierce the corporate veil.
• Improper KBLI Usage: Engaging the holding company in direct operational activities (e.g., sales) instead of sticking to management/investment, which violates the licensing for a pure holding structure (KBLI 70100).
• Ignoring Local Tax Nexus: Failing to establish correct transfer pricing documentation (TP Doc) for intra-group transactions, leading to significant tax assessments and disputes with the Directorate General of Taxes.
• HR Management Overlap: Using a single employment contract or standard operating procedure (SOP) across all subsidiaries, which can inadvertently link their liabilities in the event of a labor dispute or industrial relations case.

Gaivo's corporate and commercial law experts provide tailored solutions, ensuring every aspect of the group structure, from articles of association to operational SOPs, is legally robust and compliant with the latest Indonesian regulations.

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Conclusion: The Imperative for Structured FDI

The Holding Company structure remains the most effective vehicle for large-scale Foreign Direct Investment in Indonesia, offering a framework for centralized strategy and diversified risk. Success, however, hinges entirely on strict adherence to the UUPT’s principles of liability separation and the rigorous application of IFRS/PSAK for financial transparency, as clearly demonstrated by high-profile cases like Telkomsel and GOTO.

Navigating the requirements of BKPM, the nuances of the OSS-RBA, and the ongoing challenge of maintaining the corporate veil demands expert legal and financial guidance. Proactive compliance is not an option; it is a mandate for securing your investment and maximizing returns in this vibrant economy.

Ready to establish or optimize your PMA Holding Structure for maximum protection and efficiency? Contact Gaivo for a complimentary consultation.

Compliance Note: This article provides general information and is not intended as formal legal or financial advice. Foreign investors must seek professional advice from qualified Indonesian legal advisory and tax consultants (such as Gaivo.co.id) to address their specific investment structure and compliance requirements, which are subject to change based on the latest government regulations (BKPM, Ministry of Finance, OJK).