“Bu Lita, our company owner currently has 5 companies. He now plans to restructure his business so there will be a holding company as the parent of these 5 companies. If we do a restructuring like this, what should we watch out for, Bu?”

Many business owners operating multiple legal entities eventually consider restructuring their business groups under a holding company. This strategic move can offer a range of benefits from centralized governance and improved tax planning to stronger asset protection and a streamlined platform for future growth or investment.

However, the establishment of a holding company is not a mere administrative formality. It involves complex legal, financial, and regulatory considerations that must be carefully assessed and executed in accordance with Indonesian laws and best corporate practices.

Outlined below are six critical factors to consider before forming a holding company:

1. Clearly Define the Restructuring Objectives
Before initiating any corporate restructuring, the most fundamental step is to clearly articulate the objectives behind forming a holding company. Common goals include:

• Centralizing control and decision-making
• Facilitating tax optimization and fiscal efficiency
• Enabling future capital raising or investment
• Safeguarding key assets from operational risks
• Structuring the business for succession or long-term ownership

These strategic aims will directly influence how the structure is designed, what type of legal entities are used, and what documentation and approvals are required throughout the process. Without a clear set of objectives, there is a risk that the structure may be legally sound but strategically ineffective.

2.Determine the Holding Structure and Capital Requirements
The holding company structure can be formed in one of two ways:

• By designating an existing company to act as the holding entity and acquiring shares in the other group companies.
• By incorporating a new legal entity solely for the purpose of functioning as a parent company.

In either scenario, the holding company must have adequate capital to acquire ownership stakes in its subsidiaries. This capital may be injected as cash or through other legally acceptable means, subject to proper valuation and documentation.

As part of the formation or share transfer process, a notary will require proof of capital adequacy. Typically, this includes audited financial statements (neraca keuangan) or tax filings (SPT Pajak). In cases where a new company is established, the authorized capital must be in line with its business classification and purpose.

Failing to ensure capital sufficiency at this stage may result in delays in notarial approval, incomplete registration with the Ministry of Law and Human Rights, or tax issues arising from undervalued share transfers.

3. Identify the Type of Holding Company and KBLI Classification
From a regulatory standpoint, there are two common types of holding companies in Indonesia, each with different implications:

• Investment Holding Company: This model is passive in nature and holds shares in its subsidiaries without managing their day-to-day operations. It is typically registered under KBLI code 64200, which has a low-risk business profile and minimal licensing requirements. This is suitable for owners who seek structural consolidation without offering services or management oversight.
• Operating (Management) Holding Company: This model combines share ownership with active involvement in the management or provision of services—such as strategic advisory, finance, or operational oversight—to subsidiaries. If these services are rendered, the company must register for additional KBLI codes corresponding to the nature of the services, and must obtain the appropriate licenses and permits through the OSS (Online Single Submission) system.

It is important to select the correct KBLI classification from the outset, as it will determine the scope of activities allowed, the applicable licensing requirements, and future compliance obligations.

Additionally, it is crucial to assess whether the inclusion or control by the holding company may affect the licenses held by the subsidiaries, as some licenses contain ownership or management restrictions that could be impacted by the restructuring.

4. Address Taxation and Transfer Pricing Compliance
The restructuring process often involves the transfer of shares, which may trigger income tax obligations unless exempted under specific provisions of Indonesian tax law. The tax treatment will depend on the structure of the transfer, the nature of the entities involved, and the market valuation of the shares.

To mitigate risks, all share transfers must be supported by proper documentation, including sale and purchase agreements, valuation reports, and Ultimate Beneficial Owner (UBO) disclosures as required by regulation.

Additionally, intercompany transactions—such as service fees, management charges, loans, or royalty arrangements between the holding company and its subsidiaries—must comply with transfer pricing rules. These transactions must reflect an arm’s length standard and be supported by appropriate documentation, such as a transfer pricing study or master file.

Non-compliance with transfer pricing rules can lead to audits, tax reassessments, penalties, or reputational risk, particularly if cross-border entities are involved.

5. Ensure Confidentiality and Data Protection
A group structure naturally entails the sharing of sensitive business information—ranging from financial data and trade secrets to personal employee data—across various entities within the group.

To safeguard this information, holding companies must implement comprehensive internal policies and procedures, which include:

• Access controls to limit who can view or use sensitive information
• Non-disclosure clauses in employment and vendor contracts
• Secure data storage and transmission systems
• Compliance with Indonesian data protection laws, especially where personal data is involved

Data breaches or unauthorized disclosures not only damage corporate trust but may also result in administrative sanctions under applicable privacy laws.

6. Align Organizational Structure and Employment Relationships
While a holding company may exert control over strategic decision-making, each operating subsidiary remains a separate legal entity and the formal employer of its personnel. Employment contracts, payroll obligations, and social security contributions must continue to be administered at the subsidiary level.

Nonetheless, group-wide clarity in the organizational structure is important. This includes:

• Defined governance frameworks
• Clear reporting lines between holding and subsidiary entities
• Harmonized HR policies across the group

Establishing consistency in employment practices while respecting legal separateness can enhance operational efficiency and mitigate employment-related legal risks.

The formation of a holding company is a powerful tool for managing a growing business group—but it must be approached with strategic intent and legal precision. A successful restructuring requires a clear understanding of the group’s objectives, careful legal drafting, attention to tax compliance, and strong internal governance.

Engaging experienced legal and tax advisors is highly recommended to ensure that the structure is aligned with both regulatory requirements and long-term business goals. With proper planning and execution, a holding company can become a cornerstone of sustainable business growth and intergenerational continuity.