Indonesia’s investment climate continues to evolve rapidly following the implementation of the risk-based licensing regime through the Online Single Submission (“OSS”) system. Recent regulatory updates, particularly under Minister of Investment/BKPM Regulation No. 5 of 2025 concerning Guidelines and Procedures for Implementing Risk-Based Business Licensing and Investment Facilities through an Electronically Integrated Business Licensing System (OSS), have significantly reshaped the licensing and compliance landscape for businesses operating in Indonesia.
For investors and acquirers, this development has materially changed the way legal due diligence should be conducted in M&A transactions. In practice, many target companies appear compliant on paper because they already possess a Business Identification Number (Nomor Induk Berusaha or “NIB”), while substantial compliance gaps remain unresolved beneath the surface.
Failure to identify these issues before closing may expose buyers to administrative sanctions, operational disruptions, investment restrictions, or post-closing liabilities.
Below are five critical OSS compliance issues that buyers should carefully examine before acquiring an Indonesian company.
- Validity and Scope of the NIB
Many investors mistakenly assume that the issuance of an NIB automatically means a company is fully licensed to operate. In reality, under Indonesia’s risk-based licensing regime, the NIB serves primarily as a baseline business identity and does not necessarily constitute complete operational approval.
The level of licensing required depends on the risk classification of the relevant business activity. Certain business sectors still require additional standard certificates, sectoral approvals, technical verifications, or operational licenses before commercial activities may legally commence.
During legal due diligence, buyers should verify:
- whether the target’s KBLI classifications accurately reflect its actual business activities;
- whether all required sectoral licenses have been obtained;
- whether the OSS data matches the company’s constitutional documents and operational activities; and
- whether any licenses remain in draft, unverified, or self-declared status.
In practice, discrepancies between the actual business model and the registered KBLI classification are among the most common OSS compliance findings in Indonesian M&A transactions.
- Unfulfilled Post-Licensing Commitments
Indonesia’s OSS system imposes numerous post-licensing obligations on business actors, particularly for medium-high and high-risk business activities. These obligations may include environmental approvals, building approvals, operational feasibility certificates, manpower reporting, investment realization reporting, and sector-specific technical commitments.
A company may already possess an NIB and operational license while still failing to complete mandatory post-licensing commitments.
This issue is particularly significant because Indonesian regulators increasingly integrate OSS data with supervisory and enforcement mechanisms. As a result, incomplete commitments may trigger:
- suspension of business activities;
- revocation of licenses;
- restrictions within the OSS system;
- administrative fines; or
- difficulties in future corporate actions and expansion plans.
Accordingly, buyers should assess not only whether licenses exist, but also whether all compliance commitments have been fully satisfied and properly recorded in the OSS system.
- Inconsistencies Between Corporate Records and OSS Data
Another frequent issue involves inconsistencies between OSS records and the company’s corporate documents, including:
- shareholders composition;
- directors and commissioners;
- share capital structure;
- company address;
- line of business; and
- beneficial ownership disclosures.
These inconsistencies often arise because companies fail to update their OSS profile following changes recorded before the Ministry of Law.
Such discrepancies may appear administrative in nature, but they can create material transactional risks. For example:
- difficulties in obtaining regulatory approvals;
- delays in post-closing integration;
- obstacles in banking and financing arrangements;
- invalidity concerns regarding certain licenses; and
- exposure during regulatory audits or inspections.
This issue becomes particularly important in transactions involving foreign investment companies (PMA companies), regulated sectors, and businesses operating across multiple licenses or subsidiaries.
- Foreign Investment Restrictions and Ownership Structure Risks
Indonesia maintains various foreign ownership limitations and sectoral investment restrictions under its investment regime. Although the investment framework has become more liberalized in recent years, several sectors remain partially restricted, conditionally open, or subject to partnership obligations.
Buyers should therefore examine whether:
- the target’s ownership structure complies with applicable investment restrictions;
- indirect ownership arrangements exist;
- the company operates in sectors requiring specific investment thresholds or local participation;
- mandatory partnership obligations with MSMEs have been fulfilled; and
- the company’s operational activities exceed the scope permitted under its licensing structure.
This review is particularly important for technology, infrastructure, mining, healthcare, education, logistics, and digital platform businesses, where regulatory scrutiny has become increasingly active.
Failure to identify foreign investment compliance issues may affect transaction feasibility and post-closing operational continuity.
- Regulatory Supervision and Potential Sanctions Exposure
Indonesia’s OSS framework is closely connected to a broader risk-based supervision system implemented by investment authorities and sectoral regulators.
As a result, regulatory compliance is no longer assessed solely during licensing issuance, but also through ongoing supervision mechanisms based on risk level and business activities.
Buyers should therefore assess whether the target company has:
- received warning letters or sanctions;
- failed to submit investment activity reports (LKPM);
- unresolved compliance findings;
- pending inspections or investigations; or
- environmental, labor, or sectoral non-compliance issues that may escalate after closing.
In many cases, these risks do not immediately appear from the OSS interface itself and require deeper legal and regulatory due diligence.
Why OSS Compliance Has Become a Core M&A Issue
The Indonesian government continues to strengthen the integration between licensing, investment supervision, taxation, environmental compliance, and sectoral monitoring systems. This means that compliance failures that were previously considered administrative may now directly affect operational continuity and investment value.
Consequently, OSS compliance should no longer be treated as a routine administrative checklist. It has become a core legal, operational, and valuation issue in Indonesian M&A transactions.
From a transaction perspective, OSS findings increasingly influence:
- purchase price negotiations;
- conditions precedent;
- indemnity structures;
- escrow arrangements;
- post-closing remediation obligations; and
- overall transaction viability.
Conclusion
Indonesia remains an attractive destination for investment and M&A activities. However, the evolving OSS and risk-based licensing regime has increased the importance of thorough legal due diligence and regulatory compliance review.
A company that appears operational may still have hidden licensing and compliance issues that could create significant risks after closing. Buyers should therefore carefully assess OSS compliance to minimize regulatory exposure, protect transaction value, and support smooth post-acquisition operations.
Navigating Indonesia’s OSS and investment licensing regulations can be challenging. Our team is available to provide practical guidance and tailored legal advice to help businesses and investors understand the applicable requirements and manage potential risks. Please contact us for further information or to schedule a consultation.
