In recent years, Indonesia has emerged as a prime focus for global investors, particularly from China, thanks to its robust economic growth, vast domestic market, and abundant natural resources. According to the Indonesian Investment Ministry, total domestic and foreign investment in 2023 exceeded IDR 1,400 trillion, a year-on-year increase of 17.5%. Chinese investment in Indonesia has increased nearly tenfold over a decade, reaching USD 7.43 billion in 2024, making China the country's second-largest source of foreign capital.

01 A Fertile Investment Destination: Why Choose Indonesia?

Indonesia's economic appeal stems firstly from its large population base and youthful demographic structure. As the world's fourth most populous nation, Indonesia boasts approximately 280 million people with a median age of only 30. This provides immense market consumption potential and a ample labor supply.

Of particular note is the "Capital Relocation Plan" being advanced by the Indonesian government. The capital will move from Jakarta to the new capital, Nusantara (IKN), in East Kalimantan. This monumental national project has an estimated total investment of USD 32 billion, with 80% of the funding expected to be raised through public-private partnerships and private investment.

To attract investors, the government has tailored an attractive tax incentive package for the IKN region. This creates an unprecedented window of opportunity for investors in infrastructure development, new energy, smart cities, and related fields.

02 Practical Guide: How Foreign Investors Can Set Up a Factory

The first step in establishing a factory or other entity in Indonesia is understanding the legal and administrative framework. The Indonesian Investment Ministry/Investment Coordinating Board (BKPM) is the core regulatory agency. Its operational "Online Single Submission" (OSS) system is the unified portal for foreign investors to manage all licensing and permit applications.

For entity establishment, foreign investors typically need to form a limited liability company. Requirements include a minimum of two shareholders (of any nationality), along with at least one director and one commissioner. A key financial threshold is that both the minimum paid-up capital and the minimum investment amount per business activity are IDR 10 billion (approximately USD 640,000 or RMB 4.5 million).

Indonesia employs a "Positive Investment List" model for foreign investment. The majority of sectors, such as manufacturing, services, and mining, are now 100% open to foreign capital. However, some sensitive sectors like class I narcotics and gambling are completely prohibited, while others are reserved for local cooperatives or have foreign ownership caps.

Regarding labor, foreign-invested enterprises can hire foreign employees but must adhere to a minimum local-to-foreign employee ratio of 3:1 and fulfill obligations for training local staff. Regulations clearly stipulate employment contracts, minimum wage standards, and social security contributions.

Tax incentives in the new capital, IKN, are particularly prominent. Companies relocating to or establishing in IKN before 2045 can enjoy a "10-year tax holiday plus 10-year tax allowance" corporate income tax incentive—full exemption for the first decade followed by a 50% reduction for the next decade. Furthermore, expenses for R&D, training, and more can qualify for super-deductions of up to 350% before tax.

Land policy requires special attention. Under Indonesian law, foreigners or foreign companies cannot directly own land. The three core land rights available to foreign-invested enterprises are: Right to Build (HGB, initial term up to 30+ years), Right to Use (HGU, initial term up to 30+ years), and Right to Cultivate (initial term up to 35+ years).

03 The Green Frontier: Key Points for Solar & Renewable Energy Investment

Indonesia possesses exceptional green energy potential. According to its Ministry of Energy and Mineral Resources, the total potential in hydropower, solar, geothermal, wind, and other fields reaches thousands of gigawatts. The government has also set clear targets for transitioning to renewable energy by ratifying the Paris Agreement and issuing specific presidential regulations.

Indonesia's power market is dominated by the state-owned electricity company, PLN, which holds a monopoly on national power procurement, distribution, and sales. Any independent power producer (IPP) wishing to sell electricity to the public grid must sign a long-term Power Purchase Agreement (PPA) with PLN.

For developers of solar PV and other renewable energy projects (acting as IPPs), obtaining a "Business License for Electricity Supply for Public Interest" (IUPTLU) is a prerequisite for cooperation with PLN. Furthermore, the Indonesian government provides a package of incentives to encourage renewable energy investment, including tax allowances, import duty exemptions, and land tax concessions.

Investors must also be mindful of restrictive regulations. For example, IPPs selling power to PLN typically require PLN's prior approval for changes in ownership structure before the project's Commercial Operation Date (COD). Project financing can also be complicated by factors like the World Bank's Negative Pledge clause.

In terms of business models, there are three main choices: the "Pure IPP Model" funded entirely by private capital; the "Mandatory Partnership Model" where PLN or its subsidiary holds a compulsory stake; and the "Captive Power Plant Model" designed for industrial estates. Investors should choose based on project scale, financial capability, and risk appetite.

04 Conclusion

As the global hub for nickel resources and a region rich in solar potential, modern factories are rising in Indonesian industrial parks, while vast solar power station arrays are planned next to the rainforests of East Kalimantan.

With policy green lights, a treasure trove of resources, and a vast market blue ocean now in place, the potential is evident. However, for investors entering this dynamic landscape, only by thoroughly understanding the rules of the game and meticulously mapping the journey from factory establishment to project operation can this potential be truly transformed into lasting competitiveness and returns.