Indonesia passes law to establish international financial centre

Indonesia has taken a major step towards positioning itself as a regional financial hub after the House of Representatives approved legislation establishing the Indonesian International Financial Centre (PFII), a move designed to attract long-term foreign investment, deepen domestic capital markets and strengthen the country's competitiveness against established centres such as Singapore, Hong Kong and Dubai.

The PFII Law, unanimously passed during a parliamentary plenary session on 21 July, creates the legal framework for a dedicated international financial centre, covering its institutional structure, permitted business activities, governance, dispute resolution mechanisms and investment incentives.

The legislation signals Indonesia's ambition to become a more internationally integrated financial ecosystem by aligning elements of its regulatory framework with global business practices. Among its notable provisions are the use of English for business activities within the centre, foreign currency transactions, international commercial law principles, and fiscal and non-fiscal incentives aimed at attracting overseas investors and financial institutions.

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The law also establishes specialised arbitration and court mechanisms for disputes arising within the centre, while offering tax incentives covering income tax, value-added tax, luxury goods sales tax and customs duties, alongside streamlined immigration, licensing and residency facilities.

Finance minister Purbaya Yudhi Sadewa said the initiative forms part of Indonesia's broader strategy to strengthen both its financial sector and the wider economy. He added that the centre is also expected to support financing for strategic infrastructure, green projects, climate initiatives and other productive sectors.

Beyond capital inflows, the government also expects the centre to accelerate technology transfer, create high-skilled jobs and support the growth of Islamic finance, fintech, digital finance, the green economy and the blue economy.

The legislation comes as President Prabowo Subianto pursues an ambitious target of achieving 8% economic growth by 2029. Indonesia's economy expanded 5.6% year-on-year during the first quarter of 2026.

The government has yet to announce the location of the new international financial centre, although Bali has previously been identified as a potential candidate.

The minister confirmed that domestic companies and state-owned enterprises would be allowed to establish entities within the centre, provided they meet the government's eligibility requirements.

According to Commission XI deputy chair Mohamad Hekal, the legislation is intended to create more than a designated financial district, instead laying the foundations for a globally competitive financial services ecosystem.

The government said the centre is expected to encourage foreign companies to establish long-term operations in Indonesia rather than relying on more volatile capital market investments, reducing the risk of sudden capital outflows while expanding financing for businesses and national development projects.

As implementation begins, the government is preparing supporting regulations covering governance, taxation, anti-money laundering standards, international tax information exchange and broader compliance measures, with the aim of making the PFII operational under internationally recognised financial standards.

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