Indonesia: Strategic destination for Korean investment

As South Korean companies continue to expand their global footprint, Indonesia stands out as a compelling investment destination. With its vast market potential, strategic location in Southeast Asia, and ongoing regulatory reforms, Indonesia offers a dynamic landscape for Korean investors seeking long-term growth and diversification. This article explores the key themes shaping Korea-to-Indonesia outbound investment, providing insights into opportunities, legal frameworks and strategic considerations.

Economic outlook, investment climate

Indonesia, Southeast Asia’s largest economy, is projected to maintain robust growth from 2025 to 2026, driven by domestic consumption, infrastructure development and digital transformation. The government’s commitment to improving the investment climate is evident through major reforms such as the Omnibus Law on Job Creation, which streamlines licensing, simplifies labour regulations, and enhances legal certainty for foreign investors.

President Prabowo Subianto, who took office in October 2024, has set an ambitious target of 8% annual economic growth during his first term. He has expressed strong optimism about reaching, or even exceeding, this goal, citing Indonesia’s economic fundamentals and the potential of efficient governance. The target is part of a broader strategy to lift Indonesia out of the middle-income trap and propel it towards high-income status by 2045.

To support this trajectory, the government has adopted a cautious but adaptive fiscal stance, including the cancellation of a planned VAT hike, the rollout of stimulus packages totalling more than USD3.8 billion, and the establishment of Danantara, a sovereign wealth fund to drive strategic investment. Despite this, Indonesia’s GDP growth in the first quarter of 2025 stood at 4.7%, indicating that while progress is underway, significant structural reforms and sustained private sector engagement will be essential to meet the 8% target.

The country’s strategic location within Asean and its participation in agreements such as the Regional Comprehensive Economic Partnership (RCEP) further bolster its attractiveness. For Korean investors, Indonesia offers access not only to its population of more than 270 million, but also to a broader regional market.

Top investment sectors

Renewable energy and green transition. Indonesia’s ambitious energy transition goals – targeting 23% renewable energy by 2025, and net-zero emissions by 2060 – create significant opportunities for Korean firms with expertise in solar, wind and battery technologies. Korean companies such as LG Energy Solution and Hyundai are already investing in electric vehicle (EV) battery ecosystems, aligning with Indonesia’s push for sustainable mobility.

Digital economy. Indonesia’s digital economy is projected to reach USD130 billion by 2025, fuelled by e-commerce, fintech and digital services. Korean tech firms can tap into this growth by investing in platforms, data centres and cybersecurity. The government’s support for digital infrastructure and talent development further enhances the sector’s potential.

Manufacturing and industrial parks. Indonesia remains a manufacturing hub for automotive, electronics and textiles. Korean investors benefit from incentives in special economic zones (SEZs) and industrial estates, which offer tax holidays, customs exemptions, and fast permitting. The shift of supply chains away from China also positions Indonesia as a strategic alternative.

Infrastructure and smart cities. Indonesia is investing heavily in smart infrastructure, transport and urban development. Korean engineering and construction firms can play a pivotal role in shaping these projects through strategic collaborations.

Healthcare and pharmaceuticals. The pandemic has accelerated reforms in Indonesia’s healthcare sector, opening doors for foreign investment in hospitals, telemedicine and pharmaceutical manufacturing. Korean firms with advanced medical technologies and R&D capabilities are well-positioned to contribute.

Legal and regulatory landscape

Indonesia has made significant strides in enhancing its legal and regulatory environment for foreign investment, particularly under the implementation of the Omnibus Law on Job Creation and the risk-based approach (RBA) business licensing system. These reforms aim to simplify procedures, increase transparency and attract high-quality foreign direct investment.

Core regulatory frameworks include:

1. 1. Online single submission (OSS) risk-based approach system. The OSS-RBA system remains the central platform for business licensing in Indonesia. It categorises business activities into low, medium and high risk, with licensing requirements tailored accordingly. This system allows foreign investors to manage licensing digitally and efficiently.
   2. Positive investment list. Indonesia has shifted from a “negative list” to a “positive list” model, opening most sectors to 100% foreign ownership, including previously restricted areas such as telecoms, plantations and transportation. A few sectors are closed or reserved for small and medium enterprises or strategic government functions.
   3. Minimum capital requirements. Foreign investors must meet minimum capital thresholds to qualify as large-scale businesses, ensuring alignment with national development goals.
   4. Sector-specific oversight. While most licensing is centralised under the OSS system, certain sectors – such as banking, mining, oil and gas, and financial services – require direct oversight and approvals from ministries or regulatory bodies such as OJK (Financial Services Authority) and Bank Indonesia.
   5. Personal Data Protection Law. Enacted in October 2024, this law mandates all businesses, including foreign entities in Indonesia, to safeguard personal data. It reflects Indonesia’s commitment to digital governance and investor accountability in the tech sector.
   6. M&A and corporate governance. Foreign investors can enter the market via share acquisitions or joint ventures. Regulatory requirements for M&A include shareholder approvals, public disclosures, and compliance with antitrust thresholds. Public companies undergoing control changes must conduct mandatory tender offers.
   7. International treaties and equal treatment. Indonesia continues to honour bilateral and multilateral investment treaties, offering equal treatment to foreign investors regardless of origin. However, preferential terms may apply to countries with special agreements.

These developments reflect Indonesia’s commitment to a transparent and investor-friendly environment, aligned with President Prabowo’s economic agenda. Foreign investors are encouraged to engage local counsel to ensure compliance with evolving regulations.

Investment vehicles and structures

Korean companies entering Indonesia typically consider the following structures:

1. 1. Joint ventures. Partnering with reputable local firms can provide market access, regulatory familiarity, and operational support.
   2. Wholly owned subsidiaries. Permitted in most sectors under the Omnibus Law, offering full control and scalability.
   3. Holding companies. Many Korean firms use Singapore as a hub for tax efficiency and legal certainty, with downstream investments into Indonesia.
   4. Representative offices. Suitable for market research and liaisons, although limited in commercial operations.

Choosing the right structure depends on risk appetite, sector and long-term strategy.

Risks and mitigation strategies

While Indonesia offers vast opportunities, investors must be mindful of certain risks:

1. 1. Regulatory uncertainty. Frequent changes in regulations require proactive legal monitoring and compliance.
   2. Political and economic risks. While Indonesia experienced recent social and economic challenges, its macroeconomic and political conditions have remained relatively stable, supported by ongoing policy efforts to maintain consistency and predictability.
   3. ESG and sustainability. Growing regulatory and stakeholder expectations require Korean investors to adopt strong ESG practices. This includes integrating GRC (governance, risk management and compliance) frameworks to ensure ethical conduct, regulatory adherence and operational resilience.
   4. Dispute resolution. Investors should include arbitration clauses and consider protections under bilateral investment treaties. As a signatory to the New York Convention, Indonesia enforces international arbitration awards, offering certainty in cross-border disputes.

Mitigation strategies include thorough due diligence, strong local partnerships, and legal safeguards in contracts.

Future outlook and opportunities

Three trends are set to shape a diversified, innovation-driven investment landscape in Indonesia:

1. 1. Strategic growth in green and digital sectors. Indonesia is poised for strong investment growth in green energy and digital, supported by incentives and a rapidly expanding digital economy.
   2. Asean integration. Indonesia’s role in Asean and participation in the RCEP strengthen regional connectivity, trade facilitation, and value chain integration, supporting its economic reform agenda.
   3. Downstreaming and infrastructure as investment catalysts. Ongoing downstreaming of natural resources and infrastructure expansion are attracting foreign investment, especially in EVs, mineral processing and logistics.

Indonesia offers a compelling proposition for Korean outbound investment, combining market scale, strategic location, and reform. As the country continues to modernise the economy and infrastructure, Korean firms have a unique opportunity to contribute and benefit from Indonesia’s growth story.

Navigating the legal and regulatory landscape with informed guidance, building local partnerships, and embracing ESG principles will be key to long-term success.

EY LAW INDONESIA
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Jakarta 12190
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www.ey.com/en_id/services/law