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Indonesia formally became a member of BRICS on 6 January 2025, followed shortly by the signing of the Comprehensive Economic Partnership Agreement (CEPA) with the European Union on 13 July 2025. These landmark developments signal Indonesia’s bold stride onto the global stage. No longer content to be seen solely as a regional leader within ASEAN, Indonesia is now positioning itself as a bridge between the Global South and developed economies, aligning its regulatory, financial, and governance frameworks with international standards.

Indonesia’s rising stature is further validated by recent trade policy decisions, including the President of the United States lowering tariffs on Indonesian goods to 19%, a move that reflects increasing recognition of Indonesia’s economic potential and strategic importance in global supply chains.

This strategic transformation has not occurred in isolation. International Non-Governmental Organizations (INGOs) have played a vital role in shaping Indonesia’s developmental progress. Their work spans critical sectors such as education, healthcare, civil society, humanitarian response, and capacity building. Often, these organizations introduce globally tested programs that deliver measurable and sustainable outcomes in Indonesian communities.

The Complexity of INGO Operations in Indonesia

M. Gilang Nugroho, S.H., Managing Partner of MSS & Associates, brings over 14 years of experience in advising INGOs in Indonesia. His firm currently serves as legal counsel to 3 (three) prominent organizations, including an UK-based international NGO operating globally in more than 200 territories, an international NGO that operates based on federation of more than 70 members of countries, and a Netherlands-based global development NGO renowned for its international reach and sustainable programs in more than 25 countries.

Mrs. Tien Mulyanthi, AMd., SE., MSc., BKP., Senior Tax and Financial Compliance Advisor at Terala Consulting, contributes over 25 years of experience in managing the tax and financial operations of more than 40 NGOs and INGOs operating across Indonesia, including several major institutions based in the United States. Her advisory work spans tax structuring, withholding obligations, audit readiness, and compliance with both national tax regulations and international donor expectations. Her insights have consistently helped nonprofit entities maintain financial accountability while navigating Indonesia’s complex fiscal environment.

Together, Mr. Nugroho and Mrs. Mulyanthi emphasize that INGOs in Indonesia operate under a distinct legal framework, which is often more complex than that applied to conventional private companies. These organizations must comply with multiple layers of oversight, including:

• Licensing and operational permits,
• Memorandums of Understanding (MoUs) with relevant ministries,
• Tax registration and reporting obligations,
• Employment and labor law compliance,
• Documentation and governance of program activities,
• Adherence to Indonesian laws concerning foreign entities and funding mechanisms.

Because INGOs frequently represent the values and diplomatic interests of their home countries, any regulatory non-compliance poses not only administrative challenges but also reputational and geopolitical risks.

Today, reputational risk is notably heightened. It is increasingly common to witness high-ranking officials, including deputy ministers, record and publish online content showcasing their direct interactions with private sector entities. These actions, while often framed as transparency efforts, can provoke significant public backlash, particularly when involving sensitive regulatory enforcement. In parallel, the Indonesian National Police (POLRI) has expanded its role in regulatory enforcement, including matters traditionally handled by civil authorities. For example, POLRI now operates a public labor complaint hotline, reflecting its active involvement even in employment-related legal issues.

Even minor missteps may attract negative public or regulatory attention, potentially resulting in sanctions, temporary suspensions, or the revocation of operating permits by the supervising ministry.

Legal and Tax Due Diligence: A Strategic Necessity

To reduce these risks, MSS & Associates recommends that all INGOs conduct comprehensive legal and tax compliance due diligence on an annual basis. This is not merely a compliance checklist. It is a vital part of the organization’s risk management and governance framework.

As part of this process, INGOs are required to complete:

• Legal Questionnaire, containing over 100 targeted questions to assess regulatory compliance, internal governance, HR and contract structures, and licensing status;
• Tax Questionnaire developed jointly with Terala, MSS’s strategic partner in tax audit and compliance, which includes more than 130 questions evaluating tax filings, withholding obligations, monthly and annual reports, and potential exposure points.

This due diligence allows INGOs to detect and address compliance vulnerabilities early, ensure audit readiness, and confidently continue their operations in Indonesia.

Personal Liability and Asset Freezing Risks for INGO Leadership

In Indonesia, non-compliance is not merely an institutional risk. It carries personal consequences for senior leadership and board members.

• Personal Tax Liability

Under Articles 1 and 32 of the General Tax Provisions and Procedures Law (UU KUP), individuals such as the Country Director or Financial Controller may be designated as “tax responsible parties” for the INGO. If the organization fails to fulfill its tax obligations, these individuals may be personally liable for any outstanding amounts, penalties, or legal sanctions.

• Criminal Exposure for AML and CTF Violations

Pursuant to:
– Law No. 8/2010 on the Prevention and Eradication of Money Laundering (AML), and
– Law No. 9/2013 on the Prevention and Eradication of Terrorism Financing (CTF),

both corporate entities and individuals in control positions can be prosecuted. INGOs and their leadership may face criminal charges, asset forfeiture, and reputational damage if found complicit in or negligent toward AML/CTF regulations.

• Freezing of Personal Bank Accounts

In cases involving tax evasion or money laundering, both institutional and individual bank accounts may be frozen under Indonesian law. The Directorate General of Taxes, under Article 32A of UU KUP and Minister of Finance Regulation No. 61/PMK.03/2023, is empowered to freeze personal assets and accounts of individuals deemed liable. Similarly, PPATK (Indonesia’s Financial Intelligence Unit) may recommend account freezing for AML/CTF violations involving INGO funds.

This means that Country Directors, Board Members, or other senior staff may lose access to their personal accounts or be subject to asset seizures if they are shown to have been negligent or complicit in the organization’s non-compliance.

MSS and Terala Commitment

We recognize the legal, operational, and socio-political nuances INGOs must navigate in Indonesia. Our mission is to empower these organizations to focus on their programs while we safeguard their compliance and institutional credibility through strategic legal and tax advisory.

Legal and tax compliance due diligence is not a luxury. It is a responsibility. It protects the organization, its beneficiaries, its teams, and its long-term ability to fulfill its mission in Indonesia.

To schedule a confidential consultation or request our Legal and Tax Due Diligence toolkit, please contact MSS or Terala:

MSS & Associates – Business Law Consultants
Indonesia Stock Exchange Tower 2, 17th Floor
Jl. Jend. Sudirman Kav. 52-53, Jakarta 12170 – Indonesia
Phone: MSS +62 21 5291 7402, Terala +62 818 906 134
office@msscounsel.com
gilang@msscounsel.com | Tienmulyanthi@teralaconsulting.com
www.msscounsel.com | www.teralaconsulting.com