Indonesia has 17,000 islands. Only a handful are developed. The opportunity is real but the legal pathway is narrow, and the rules are strict.
From private resort development to aquaculture, renewable energy, and marine tourism, Indonesia’s small islands represent one of the last frontiers for premium investment in Southeast Asia. Foreign investors and PMA companies (Penanaman Modal Asing) are permitted to utilize small islands but only within a precisely defined legal framework that requires expert navigation.
At BLS Law, we guide foreign investors through the entire process of securing island utilization rights in Indonesia, from initial eligibility assessment to permit issuance and ongoing compliance.
What the Law Says: The Legal Framework
Indonesia’s regulatory framework for small island utilization by foreign parties is primarily governed by:
- Law No. 27 of 2007 on the Management of Coastal Areas and Small Islands (as amended by Law No. 1 of 2014)
- Government Regulation No. 62 of 2010 on Small Island Utilization
- Ministry of Marine Affairs and Fisheries (KKP) Regulations on licensing and environmental obligations
- Presidential Regulation No. 49 of 2021 on the Amended Negative Investment List (DNI) — determining which sectors are open to foreign capital
Under this framework, foreign investors (PMA) may apply for an HP-3 (Hak Pengusahaan Perairan Pesisir) the coastal waters business right or, for land-based development on small islands, a combination of Hak Pakai or Hak Guna Bangunan (HGB) over land, accompanied by the relevant island utilization permit (Izin Pemanfaatan Pulau Kecil).
The law imposes important baseline conditions on all foreign investors utilizing small islands:
- The island must not be a border island or strategically sensitive island
- Maximum utilization area: 70% of the island’s total area the remaining 30% must be maintained as conservation or green space
- A Conservation Management Plan must be prepared and approved
- Domestic processing and local workforce obligations apply in most sectors
- The local and regional government must be consulted as part of the permitting process
Sectors Open to Foreign Investment on Small Islands
BLS Law advises clients across the primary sectors where PMA is permitted on small islands:
🏝️ Tourism & Hospitality
Private resort development, eco-tourism, diving and marine recreation facilities, and integrated tourism estates. This is the most active sector for foreign investment on Indonesian small islands particularly in Eastern Indonesia, NTB (West Nusa Tenggara), Maluku, and Raja Ampat. We advise on:
- Tourism business licensing (TDUP) integrated with island permits
- Building permits (PBG) and spatial compliance on island land
- Hotel and villa operation licensing
- Heritage and marine protected area boundary compliance
🐟 Aquaculture & Marine Fisheries
Foreign PMA is permitted in certain aquaculture and marine fisheries sub-sectors. We assist with:
- Fish cultivation business license (Surat Izin Usaha Perikanan SIUP)
- Coastal water utilization rights for aquaculture zones
- Environmental impact assessment for marine operations
- Export licensing for aquaculture products
⚡ Renewable Energy
Small island settings are increasingly targeted for offshore wind, solar, and wave energy projects. We advise on:
- Business license for power generation (IUPTL)
- Spatial and maritime zone clearance
- Grid connection and offtake agreements with PLN
- Environmental permits for marine and coastal installations
🔬 Marine Research & Conservation
International research institutions and conservation organizations may establish operations on small islands under specific licensing regimes. We assist with:
- Research permit coordination with KKP and BRIN
- Non-profit and PT PMA structuring options
- Conservation area boundary and buffer zone compliance
The Permit Process: Step by Step
Securing a small island utilization permit for a PMA company involves multiple government agencies and sequential approvals. BLS Law manages this process on your behalf:
Step 1 Eligibility & Feasibility Assessment We review the target island’s legal status, spatial zoning (RZWP3K — Regional Coastal and Small Island Zoning Plan), conservation status, and any existing rights or claims. We also confirm foreign investment eligibility under the current DNI for your intended business sector.
Step 2 PT PMA Establishment or Verification Foreign investors must operate through a properly structured PT PMA. We establish or verify your corporate structure, ensure compliance with minimum capital requirements, and confirm your business classification (KBLI) is aligned with the intended island use.
Step 3 Environmental Document Preparation Depending on the scale of development, an AMDAL (full environmental impact assessment) or UKL-UPL (environmental management and monitoring plan) is required. We coordinate with licensed environmental consultants to prepare these documents and obtain approval from the relevant environmental authority.
Step 4 Island Utilization Permit Application We prepare and submit the formal Izin Pemanfaatan Pulau Kecil application to the Ministry of Marine Affairs and Fisheries (KKP) at the national level or to the provincial Maritime and Fisheries Office for islands under provincial jurisdiction. Required documents include:
- Corporate documents (deed of establishment, NIB, tax registration)
- Spatial compatibility letter (Kesesuaian Kegiatan Pemanfaatan Ruang Laut KKPRL)
- Environmental approval
- Conservation Management Plan
- Investment plan and development timeline
Step 5 Spatial Conformity Certificate (KKPRL) This is a critical and often overlooked requirement. The KKPRL (Marine Space Utilization Activity Suitability) confirms that your intended activities conform to the national and regional maritime spatial plan. Without it, no island utilization permit can be issued. We manage the application, coordinate with the Directorate General of Marine Spatial Management, and ensure full spatial compliance.
Step 6 Land Rights & Building Permits Once the island permit is secured, land rights for construction activities must be separately established typically HGB for buildings and commercial structures. We handle the full land rights application and building permit (PBG) process.
Step 7 Ongoing Compliance Island utilization permits are subject to periodic review and renewal. We assist with:
- Annual compliance reporting to KKP
- Conservation zone monitoring obligations
- Permit renewal applications
- Response to inspections and regulatory inquiries
Key Restrictions Foreign Investors Must Know
Indonesia’s small island framework imposes restrictions that are strictly enforced. Violations can result in permit revocation, forced removal of structures, and significant penalties.
| Restriction | Detail |
|---|---|
| Maximum utilization area | 70% of island total area |
| Conservation obligation | 30% minimum preserved as green/conservation zone |
| Border & strategic islands | Prohibited for foreign PMA utilization |
| Domestic workforce | Priority hiring obligation for local communities |
| Divestment | PMA must divest equity over time per investment law |
| Environmental violations | Grounds for immediate permit suspension or revocation |
| Subletting | Subleasing island rights to third parties is restricted |
Why This Requires Specialist Legal Counsel
Small island utilization for PMA sits at the intersection of marine law, spatial planning law, environmental law, foreign investment law, and land law five distinct regulatory frameworks that must all be satisfied simultaneously.
Most general corporate law firms are not equipped to navigate all five. BLS Law is.
We have direct experience coordinating multi-agency permit processes involving KKP, KLHK, ATR/BPN, BKPM/BKIAD, and regional governments the full spectrum of authorities involved in island development approvals.
We move your project forward. We protect your rights. And we keep you on the right side of Indonesian law.
Ready to Develop on Indonesia’s Islands?
Whether you are evaluating a specific island, structuring a resort development, or need to resolve compliance issues with an existing operation, BLS Law is ready to assist.
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BLS Law provides legal services across Indonesia with expertise in marine & coastal law, foreign investment, environmental law, land & agrarian law, and corporate law.