Mirella Pandjaitan
Aug 03, 2026
The Bali Provincial Government has banned foreign direct investment (FDI) in low-risk and lower-medium-risk small and medium-sized enterprise (SME) sectors to prevent business monopolies and excessive land conversion.
The move is aimed at protecting local SMEs by restricting foreign investors from entering business segments traditionally occupied by small local enterprises.
Bali Governor Wayan Koster explained that the provincial government's licensing evaluation team found indications that foreign-owned companies had been exploiting Indonesia's risk-based Online Single Submission (OSS) licensing system to enter sectors closely associated with SMEs.
"Several foreign investors have taken advantage of low-risk Indonesian Standard Industrial Classification (KBLI) categories, which only require a Business Identification Number (NIB), as a loophole to operate businesses without making significant capital investments," said Koster.
Under the current OSS framework, businesses classified as low-risk or lower-medium-risk can obtain permits automatically without requiring additional certifications or operating licenses. Authorities stated some foreign-owned companies have used these regulatory gaps—including registering through virtual offices—to establish businesses with minimal oversight.
The provincial government believes this practice creates unfair competition and places significant pressure on local businesses, particularly SMEs that are intended to be protected under Indonesia's economic policies.
Following approval from Indonesia's Minister of Investment and Downstream Industries, who also heads the Investment Coordinating Board, Bali has blocked foreign investors from applying for new business licenses through the OSS system in a number of low-risk and lower-medium-risk sectors.
The restricted sectors include:
- Budget hotels and guesthouses
- Cafés and beverage outlets
- Car, bus, truck, and motorcycle rental businesses
- Clothing and textile retail
- Food retail and mobile agricultural food vendors
- Fitness centres
- Industrial management consulting
- Management consulting services
- Real estate leasing and property management
- Small-scale star-rated hotels (buildings under 6,000 square meters)
- Sports event promoters
- Stadium facilities
- Tailoring and made-to-order clothing services
- Traditional medicine shops
Existing foreign-owned businesses may continue operating
The OSS restrictions have been in effect across Bali since the third week of May 2026. As a result, foreign investors can no longer apply for new business licenses in the affected sectors until further policy changes are introduced.
Thus, foreign-owned businesses that secured the necessary approvals before the OSS restrictions came into effect may continue operating without disruption.
Existing companies must continue submitting their Investment Activity Reports (LKPM) until the relevant business classifications are officially removed or deactivated from the licensing system.
"We will take firm action against all forms of licensing violations," Koster added. "We remain open to quality, responsible investment that delivers tangible benefits to Bali's economy. Investments should align with Bali's development vision, respect local wisdom, and support a people-centred economy built around SMEs."
Bali continues to welcome quality investment
While the latest policy narrows foreign participation in selected business sectors, Bali continues to position itself as an attractive destination for responsible investment.
The provincial government has reaffirmed its commitment to projects that generate employment, strengthen local supply chains, uphold Balinese cultural values, and foster meaningful partnerships with Indonesian businesses and cooperatives instead of directly competing with them.
For international investors, the changes underscore the importance of understanding not only Indonesia's national investment framework, but also the regional regulations that increasingly shape how businesses operate on the island.
