Avoid Costly Mistakes: 15 Misleading Terms Foreigners Misunderstand When Doing Business in Indonesia

Introduction: Language Can Cost You

Imagine this: a foreign investor lands in Bali, excited to start their dream café by the beach. They meet with a local consultant, hear terms like ijin, Notaris, and BPJS, and nod along confidently. Papers are signed. Permits seem filed. Everything feels on track—until local authorities visit the café, citing missing legal documents. The issue? A misunderstanding of what “ijin” really meant. It wasn’t just verbal approval—it was a government-issued operational license.

Welcome to the world of business in Indonesia, where language can be both a bridge and a barrier. While many terms in the legal and human resources landscape sound familiar to English speakers, they often carry distinct meanings in the Indonesian context. Misinterpreting them can lead to delayed permits, legal penalties, or even revoked business licenses.

This article offers a survival glossary for foreign investors—shedding light on the “false friends” of the Indonesian business vocabulary. Whether you're setting up a resort in Lombok or launching a tech startup in Jakarta, understanding these local terms is essential for anyone doing business in Indonesia.

Izin (Permit ≠ Permission)

Many foreign investors assume that a nod of approval from a local contact or landowner means they’re good to go. However, in the context of business in Indonesia, the word izin doesn’t mean informal “permission”—it refers to formal legal authorization issued by a government body.

For example:

• Izin Usaha: Business license issued by OSS (Online Single Submission system).
  
  
• Izin Lokasi: Location permit required before land acquisition.
  
  
• IMB (Izin Mendirikan Bangunan): Permit to construct or modify buildings (now updated to PBG—Persetujuan Bangunan Gedung).
  
  

Operating without the appropriate izin can result in hefty fines, business closure, or legal disputes. Whether you're opening a café in Bali or building a villa in Lombok, every step of your business in Indonesia must be backed by the correct izin documents. Taking shortcuts, even with local verbal consent, can risk your investment and credibility.

Understanding izin is one of the most crucial aspects of running a compliant business in Indonesia.

Notaris (Notary ≠ Legal Advisor)

In many countries, a notary public simply witnesses signatures. But in business in Indonesia, a Notaris (Notary) plays a far more critical and formal role—one that is legally binding and often required by law.

A Notaris is licensed by the Ministry of Law and Human Rights and is responsible for drafting and authenticating official documents such as:

• Deeds of company establishment
  
  
• Sale and purchase agreements for property
  
  
• Shareholder resolutions
  
  
• Power of attorney documents
  
  

For anyone running a business in Indonesia, working with a trusted Notaris is not optional. They’re essential in ensuring documents are legally valid and accepted by Indonesian authorities. Many processes—like setting up a PT PMA (foreign-owned company)—cannot proceed without a Notaris involved.

Treating them as a simple administrative step is a major mistake. To operate a legally sound business in Indonesia, your relationship with a Notaris must be clear, professional, and ongoing.

BPJS (It’s More Than Just Insurance)

BPJS is often misunderstood by foreign business owners who assume it's just another optional insurance scheme. In reality, BPJS Kesehatan (Health) and BPJS Ketenagakerjaan (Employment) are mandatory national social security programs that every employer must comply with when running a business in Indonesia.

For companies hiring Indonesian staff—even part-time or temporary—enrolling them in BPJS is a legal obligation. BPJS Kesehatan provides healthcare coverage, while BPJS Ketenagakerjaan offers employment benefits like work accident protection, pensions, and severance support.

Ignoring these obligations is not just bad practice—it can result in legal sanctions, business license issues, and reputational damage. Many new foreign investors mistakenly skip BPJS registration, thinking their private insurance coverage is enough. It’s not.

If you're serious about building a sustainable and compliant business in Indonesia, understanding and adhering to BPJS regulations is a non-negotiable step.

PT PMA (It’s Not Just an LLC)

At first glance, a PT PMA (Perseroan Terbatas Penanaman Modal Asing) might seem like Indonesia’s version of a standard LLC—but it’s much more complex. A PT PMA is a foreign-owned limited liability company that comes with distinct legal, financial, and regulatory requirements, making it fundamentally different from a typical local business structure.

If you're setting up a business in Indonesia as a foreign investor, you’ll need to follow specific rules for a PT PMA—such as a minimum investment requirement of IDR 10 billion (~USD 650,000), even if the operational capital is lower. Additionally, foreign ownership percentages are regulated by the Negative Investment List or the Priority Investment List, depending on the sector.

Unlike local companies, a PT PMA must submit quarterly and annual reports to the Indonesian Investment Coordinating Board (BKPM), maintain proper licenses (like NIB and business permits), and follow ongoing compliance protocols.

Understanding the nuances of PT PMA is critical for anyone building a long-term business in Indonesia—missteps can delay operations or even lead to permit revocations.

NPWP (Tax ID ≠ One-Time Thing)

The NPWP (Nomor Pokok Wajib Pajak) is Indonesia’s tax identification number for both individuals and businesses. It’s much more than just a one-time registration—it serves as a legal identity in all matters related to tax administration. For anyone building a business in Indonesia, obtaining an NPWP is mandatory to open corporate bank accounts, participate in government tenders, and hire employees.

But it doesn’t stop at registration. Maintaining an active NPWP by filing timely tax returns and updating any business changes is essential to avoid penalties and ensure smooth operations. Ignoring this ongoing responsibility can disrupt your business compliance and damage your reputation in Indonesia’s regulatory environment.

SIUP/NIB (More Than Just a Trading License)

The SIUP (Surat Izin Usaha Perdagangan) is a traditional trading business license in Indonesia, while the NIB (Nomor Induk Berusaha) serves as a unique business identification number issued through the Online Single Submission (OSS) system. The OSS system streamlines business licensing, combining multiple permits into one process to simplify compliance.

For anyone running a business in Indonesia, securing and maintaining your SIUP or NIB is crucial. These documents legally authorize your trading activities and business operations. Failure to keep them updated or properly registered can lead to significant operational disruptions, including forced business closures or fines.

Understanding the difference between SIUP and NIB and staying compliant with Indonesia’s OSS system is essential for smooth business operations.

KITAS (Not Just a Visa)

A KITAS (Kartu Izin Tinggal Terbatas) is more than just a visa—it’s a limited stay permit essential for foreign nationals who plan to live and work in Indonesia long-term. Unlike a tourist visa, the KITAS allows foreign directors, shareholders, and employees to legally stay and conduct business activities.

There are different types of KITAS depending on the purpose—such as a work KITAS for employees and an investor KITAS for business owners and shareholders. Understanding these distinctions is vital for anyone building a brand in Indonesia, as failure to secure the correct KITAS can lead to legal penalties and disrupt your business operations.

Navigating the KITAS process with the right legal support ensures compliance and smooth long-term business presence in Indonesia.

Akta Pendirian (More Than Just Articles of Incorporation)

The Akta Pendirian is a notarized deed of establishment that serves as the official birth certificate of a company in Indonesia. Unlike simple articles of incorporation in some countries, this document is legally binding and must be filed with the Ministry of Law and Human Rights.

The Akta Pendirian outlines key company details such as shareholders, capital structure, and business objectives. It is essential for all official business transactions, opening bank accounts, and obtaining various permits. Without it, foreign investors cannot properly operate or register their business in Indonesia.

For anyone building a brand in Indonesia, understanding the critical role of the Akta Pendirian is vital to ensure compliance and avoid legal complications.

SKDP, TDP, and the “Obsolete Documents” Trap

Many outdated online sources still reference SKDP (Surat Keterangan Domisili Perusahaan) and TDP (Tanda Daftar Perusahaan) as essential business documents. However, these have been replaced by the NIB (Nomor Induk Berusaha) under Indonesia’s OSS (Online Single Submission) system.

Relying on obsolete documents like SKDP and TDP can lead to serious compliance issues, such as fines, delays, or even business suspension. Foreign investors must be cautious and ensure they follow the current legal framework to avoid unnecessary risks.

For anyone building a brand in Indonesia, staying informed with up-to-date legal advice is crucial to navigate the evolving regulatory landscape effectively.

PPh, PPN, and Local Taxes

In Indonesia, PPh refers to income tax, and PPN is the value-added tax (VAT). Both taxes apply nationally, but regional and local taxes vary significantly by regency, including Bali and Lombok. For example, certain local levies or retributions may differ in rates and enforcement between these areas.

Foreign investors must be aware that even taxes with similar names can have different implications depending on the location. Misunderstanding these differences can lead to unexpected costs or legal issues.

Hiring a qualified tax consultant is essential for anyone building a brand in Indonesia to ensure full compliance with PPh, PPN, and all relevant local taxes.

HR Terms That Confuse Expats

Many foreign investors encounter confusion with local HR terminology when building a brand in Indonesia. For instance, “PHK” (Pemutusan Hubungan Kerja) means termination of employment and is not always voluntary—understanding the legal grounds for PHK is crucial to avoid disputes.

The term “Kontrak” refers to fixed-term employment contracts, which must adhere to strict renewal limits under Indonesian labor law. Exceeding these limits could automatically convert contracts into permanent employment, affecting costs and obligations.

Issues like overtime pay, mandatory leave entitlements, and termination packages often surprise foreign business owners unfamiliar with local regulations.

To maintain compliant and smooth HR operations in business in Indonesia, it’s essential to understand this labor law glossary and work closely with local HR experts.

Final Thoughts: Don’t Assume, Always Confirm

In the world of business in Indonesia, even words that sound familiar can carry very different, sometimes complex meanings. Assuming that terms like “ijin,” “Notaris,” or “BPJS” mean the same as in your home country can lead to costly misunderstandings and legal risks.

To navigate this unique business landscape effectively, it’s essential to consult local professionals—whether legal advisors, HR specialists, or business consultants—who understand the nuances behind these terms.

Mastering this local vocabulary doesn’t just help you avoid pitfalls; it builds trust with partners, authorities, and employees. This trust is a foundation for long-term success and smooth operations.

Ultimately, clear communication and informed decisions are key to thriving while building a brand in Indonesia.