Methodological Note. This analysis is based on the draft bill on the Indonesian International Financial Center dated July 21, 2026, the version approved during the 26th Plenary Session of the House of Representatives of the Republic of Indonesia (DPR RI) in the Fifth Session of the 2025-2026 Legislative Year, consisting of 73 articles and an Explanatory Memorandum. At the time of writing, the law has not yet been assigned a number or published in the State Gazette; therefore, it is referred to as the “PFII Law.”

Abstract

The Law on the Indonesian International Financial Center, approved by the DPR on July 21, 2026, establishes something more ambitious than a fiscal incentive zone. It establishes a separate managing body, a distinct financial services supervisory authority, an arbitration body, and a specialized court with exclusive jurisdiction and final appellate authority, while exempting Indonesian civil and commercial law, along with ten other areas of national law, to the extent they are specifically regulated within the Act. This article interprets the PFII as an experiment in establishing a sui generis financial jurisdiction within the territory of the Unitary State of the Republic of Indonesia, and examines one question: can Indonesia create functional legal autonomy for a financial center without causing constitutional fragmentation and new legal uncertainty?

The author offers the following four critical observations:

1. The special status of the PFII is not an issue in and of itself; the issue lies in who has the authority to define its boundaries. Article 67(1)(b) grants additional exceptions to the PFII Council, while Article 39(2)(b) and (12) designate the PFII Court as the final interpreter of the scope of its own authority without external oversight.
2. The funding and remuneration structure of the PFII Court under Article 45 replicates an institutional model that has been declared contrary to the independence of the judiciary in Constitutional Court Decision No. 26/PUU-XXI/2023.
3. Its fiscal appeal is far less significant than it appears, as the 100% corporate income tax reduction in Article 51 is largely offset by the global minimum tax regime through PMK 136/2024, as acknowledged in the Explanatory Notes to Article 51, paragraph (3).
4. The restrictions on business activities in Article 8 protect the domestic financial system while simultaneously cutting off the channels through which these incentives generate domestic benefits, unlike Singapore, which actually requires a local investment allocation.

This article concludes with seven recommendations aimed at implementing regulations, with the explicit note that two of the identified issues cannot be resolved at the level of implementing regulations and can only be corrected through constitutional review or legislative amendments.

Keywords: international financial center, lex specialis, legal fragmentation, judicial independence, family office, regulatory competition, regulatory arbitration.

Introduction

Competition among jurisdictions to attract capital has long shifted from a race to lower tax rates to a race to build institutions. Multi-generational capital owners consider whether contracts can be enforced, whether assets are protected from arbitrary seizures, whether regulatory authorities are predictable, whether dispute resolution forums are trusted by both opposing parties and financing banks, and whether a mature ecosystem of advisors is available.

Indonesia has entered this competition with swift action. Article 248A of Law No. 4 of 2026 on Amendments to Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (“P2SK Law”), which was promulgated on June 17, 2026, mandates that the operation of the PFII be regulated by a law to be enacted no later than three months after promulgation. The government pursued a path outside the National Legislation Program; first-reading deliberations began on July 2, 2026, and second-reading approval was granted on July 21, 2026.

This speed shifted nearly the entire burden of rulemaking to the next stage. Article 72 of the PFII Law states:

“Implementing regulations for this Act must be enacted no later than 6 (six) months from the date this Act is promulgated.”

This article is written to address the critically important six-month window, a period during which fundamental legal questions regarding the legitimacy of the PFII have not yet been fully resolved at the statutory level. This study centers on the central question: how can functional legal autonomy be established for a financial center without compromising the constitutional order and legal certainty?

Through a normative legal approach, this article tests the thesis that the PFII is a sui generis financial jurisdiction experiment. Its success hinges on the ability to harmonize legal autonomy with institutional accountability and regulatory coherence, rather than merely fiscal competitiveness. This examination is conducted through a textual analysis of the PFII Law, a review of the harmonization of related regulations, and a targeted comparison with global jurisdictions such as Singapore, Hong Kong, the DIFC, and Switzerland to identify the institutional variables that the market trusts.

1. Global Financial Centers and the Evolution of the Family Office Ecosystem

International financial centers are best understood as legal and financial services ecosystems designed to ensure that cross-border transactions proceed efficiently and with trust. Their appeal rests on the quality of the banking sector, the availability of competent arbitration forums and commercial courts, the depth of investment fund markets, and legal recognition of structures such as trusts, foundations, and special purpose vehicles. Tax incentives are merely one factor among many, and not the most decisive one for long-term capital. Family offices occupy a specific position within that ecosystem. They are professional units that manage the wealth interests of one or several families, with functions including investment, tax planning, succession planning, risk management, family governance, philanthropy, and beneficial ownership documentation. Their relationship with financial centers is complementary: financial centers provide the legal infrastructure, and family offices are among its users. The most common policy mistake is to reverse this relationship, that is, treating the presence of family offices as an end in itself rather than as an indicator that the surrounding infrastructure is functioning effectively.

A jurisdiction’s success in this segment depends not only on its ability to attract investors, but also on the strength of the private legal ecosystem built around it. For example, the Dubai International Financial Centre (DIFC) addresses the need for asset structuring instruments by enacting the DIFC Foundations Law No. 3 of 2018, establishing a distinct trust framework, and facilitating will registration through DIFC Wills. This legal foundation was further strengthened by the enactment of the Family Arrangements Regulations 2023 in late January 2023 and the launch of the Family Wealth Center one month later. On the other hand, Singapore has taken a different approach by relying on the Variable Capital Company (VCC) instrument and its well-established trust tradition. Despite the differences in these instruments, there is one fundamental commonality: the establishment of substantive law always precedes the provision of financial incentives.

Based on this conclusion, the legal framework in the PFII Law warrants critical scrutiny. Although Article 5(1)(a)(16) has classified family wealth management institutions as part of financial sector business activities, and Article 7 provides room for the establishment of business vehicles:

“In carrying out the business activities referred to in Article 5, Business Entities may establish:

1. a business entity;
2. a business entity with legal personality;
3. special purpose vehicles and/or trusts; and/or
4. other legal entities as regulated in the PFII Board Regulations.”

This provision permits the formation of trusts but does not establish laws governing trusts. Indonesian civil law does not recognize the separation of legal ownership and beneficial ownership as property rights, and Indonesia is not a party to the 1985 Hague Convention on the Law Applicable to Trusts and Their Recognition. Meanwhile, Article 67(1)(a) specifically excludes Indonesian civil and business law from application within the PFII. Consequently, the PFII finds itself in an unusual position: national civil law is excluded, while its replacement does not yet exist and depends entirely on PFII Regulations that have not yet been drafted.

The same issue arises regarding succession. Article 61 of the PFII Law states:

“Inheritance tax does not apply in the PFII, provided that: a. the inherited assets are registered with a family office in the PFII; and b. the decedent is a foreign national registered with a family office in the PFII.”

The wording of subparagraph b limits the benefits of this provision to foreign nationals. Consequently, the succession framework offered by the PFII does not extend to Indonesian business families, even though Article 4(f) identifies the enhancement of Indonesian human resource capacity and the equal distribution of economic opportunities as one of the objectives of establishing the PFII. The domestic wealth management ecosystem (which should be one of the most tangible outcomes of this policy) is, in fact, outside the scope of these provisions.

2. PFII as a Sui Generis Financial Jurisdiction

2.1 Five Distinctive Characteristics

The term “sui generis” is not a label imposed from the outside. The law uses it itself: Article 13(1) states that “The PFII Council is a body granted special (sui generis) authority as stipulated in this Law.” When read in conjunction with other provisions, the distinctiveness of the PFII is formed by five mutually reinforcing characteristics, which can be outlined as follows:

1. delegation of regulatory authority. Article 16, paragraph (2), subparagraph b grants the PFII Council the authority to issue PFII Council Regulations, and Article 31, paragraph (2), subparagraph a grants the PFII LPJK the authority to issue regulations in the financial sector and its supporting sectors.
2. specialized supervision of financial services through the PFII LPJK pursuant to Article 29 and Article 31(1).
3. Specialized dispute resolution through the PFII Arbitration Institution under Chapter V and the PFII Court with exclusive jurisdiction under Chapter VI.
4. Adoption of international commercial principles. Article 40 states that “In examining and adjudicating cases, judges at the PFII Court shall adopt, incorporate, apply, and/or adapt to international principles and/or standards, including those used in other international financial centers.” The Explanatory Notes to Article 67(3) clarify that the term “principles of law” includes, among others, principles of common law.
5. partial legal autonomy derived from Article 67 and Article 71, which are discussed separately in Section 3.

2.2 Matters Not Created by This Act

It is important to emphasize that the PFII Law does not create a separate, sovereign legal system, but rather remains absolutely subject to the legal system and territory of the Unitary State of the Republic of Indonesia, as stipulated in Article 67(1) and Article 3(2). This subordination is also maintained institutionally, as the PFII Court has the status of a specialized court under the Supreme Court (Article 38(2) and Article 1(8)), while district courts retain full jurisdiction over criminal cases there (Article 39(4)). Furthermore, Article 69(4) ensures that standards such as anti-money laundering rules, counter-terrorism financing measures, and international tax transparency remain in effect. This construction of special status, derived purely from the law, is formally fully consistent with the principle of the rule of law; consequently, the analytical question now shifts to who actually has the authority to draw the line between what is exempt and what is not.

2.3 Regulatory Competition or Regulatory Arbitration

The distinction between regulatory competition and regulatory arbitrage will determine whether the PFII becomes an asset or a burden for Indonesia, a determination that depends heavily on the design of its norms rather than merely the intent of the lawmakers. Regulatory competition occurs when a jurisdiction competes by enhancing the quality of its institutions and legal certainty, as demonstrated by Singapore, Hong Kong, and the DIFC. Conversely, regulatory arbitrage exploits legal differences to create loopholes that allow certain entities to evade the domestic oversight that should apply to them. To prevent such evasion practices, the PFII Law has established very clear anti-arbitrage provisions as set forth in Article 8(1):

“Business Entities conducting business activities as referred to in Article 5(1)(a) within a PFII are prohibited from:

1. raise funds from the public (whether in rupiah or foreign currency) originating from outside the PFII within the territory of the Unitary State of the Republic of Indonesia, in the form of deposits or other forms deemed equivalent thereto;
2. sell financial products to the public originating from outside the PFII within the territory of the Unitary State of the Republic of Indonesia without obtaining approval from the competent authority in accordance with the provisions of laws and regulations generally applicable within the territory of the Unitary State of the Republic of Indonesia;
3. opening accounts in rupiah, unless otherwise specified in PFII Board Regulations;
4. granting loans outside the PFII within the territory of the Unitary State of the Republic of Indonesia, except for loans to business entities in foreign currency that meet certain criteria and a minimum loan amount as stipulated in the PFII Board Regulations after coordinating with relevant ministries and/or agencies; and e. engaging in other activities as determined by the PFII Board.”

This draft is consistent with international practice. The issue lies in its flexibility: the prohibition in subparagraph c may be set aside by PFII Board Regulations, the exception in subparagraph d is calibrated by PFII Board Regulations, and the scope of subparagraph e is determined by the PFII Board. These limits are subsequently determined by the body responsible for the growth of the zone itself.

A comparison with the DIFC highlights this point. Federal Law No. 8 of 2004 on Financial Free Zones, enacted following the 2004 amendment to Article 121 of the Constitution of the United Arab Emirates, explicitly prohibits DIFC-licensed companies from accepting deposits from the domestic market and conducting transactions in dirhams, and limits insurance activities to reinsurance. These prohibitions are enshrined in federal law, not in the zone authority’s regulations, and therefore cannot be relaxed by the parties who benefit from them. This is not a difference in degree, but a difference in kind.

3. Lex Specialis, Legal Fragmentation, and Regulatory Certainty

3.1 Two Provisions That Determine Everything

Two provisions determine the extent to which PFIIs are separate from the national legal system. The first is Article 67, which can be summarized as follows:

“(1) PFII and all PFII activities are subject to Indonesian law, except with respect to:

1. the provisions of Indonesian civil and business law; and
2. regulations, guidelines, and certain other provisions established by the PFII Council.
   (2) The provisions referred to in paragraph (1)(b) shall be established by the PFII Council after consulting with the relevant ministries and/or agencies.

(3) The laws and regulations applicable within the PFII constitute PFII Regulations, which may adopt, incorporate, apply, or adapt legal principles, case law, international commercial law, the practices of international financial centers, and international standards, as well as principles of reasonableness and fairness.

(4) In the event that there are no PFII regulations governing a specific matter, the PFII Court may rule on the applicable law in accordance with the principles referred to in paragraph (3).”

The second is Article 71:

“Upon the effective date of this Act, provisions in laws and regulations governing the financial sector, the judiciary, arbitration, taxation, language, currency, civil law, foreign exchange transactions, the exchange rate system, and local government, as well as other related regulatory matters, shall no longer apply to the extent that they are specifically regulated in this Act.”

The Explanation to Article 71 reads: “Self-explanatory.”

3.2 Who determines that a matter has been specifically regulated

This is indirectly addressed by the law through three interrelated provisions. First, Article 67(1)(b) designates the PFII Council as the authority empowered to establish additional exceptions. The implementation of this provision is supported by Article 67(2), which only requires the PFII Council to consult with relevant ministries and agencies, without requiring their approval. Given that this consultation process does not create a right of veto, the PFII Council is normatively authorized to determine the scope of national law that does not apply within its jurisdiction.

Furthermore, Article 39(2)(b) grants the PFII Court the authority to resolve legal issues concerning the interpretation, application, scope, and impact of PFII regulations, as well as its own jurisdictional competence. This series of provisions is then concluded by Article 39(12), which explicitly precludes all options for further legal remedies for the parties following the issuance of a decision at the appellate level, as outlined below:

“No legal remedies, appeals, reviews, or other legal actions may be filed with any court, tribunal, institution, or other authority against the decisions, rulings, and orders of the PFII Court at the appellate level.”

The combination of these three elements creates a closed system. The area’s governing body determines part of the scope of the exception; the area court interprets that scope as well as the limits of its own authority; and no institution outside these internal bodies can correct it. The only exception is Article 39(3), which allows for a cassation appeal against a decision that refuses to recognize an international arbitration award concerning national interests. This exception is narrow and resembles the pattern set forth in Article 68(2) of Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution, and thus does not function as a general corrective mechanism.

One remaining avenue warrants mention as it has not been widely discussed. Article 24A(1) of the 1945 Constitution states:

“The Supreme Court has the authority to hear cases at the cassation level, to review regulations below the level of law against the law, and to exercise other powers granted by law.”

PFII Council Regulations, PFII LP Regulations, and PFII LPJK Regulations are enacted by institutions established by law; thus, in principle, they constitute regulations subordinate to laws that may be subject to substantive review by the Supreme Court. The problem is that Article 39(2)(b) grants the PFII Court the authority to interpret these regulations, while Article 39(12) stipulates that its decisions are final with respect to any authority. The existence of these two provisions creates a potential conflict of authority between the Supreme Court and the PFII Court that was not anticipated by the law, and for which there is no concrete resolution mechanism.

3.3 Risk of Legal Fragmentation

The root of the problem actually lies not in the existence of special rules, but in the lack of clarity regarding the boundaries between special law and general law, which has the potential to trigger legal inconsistencies or overlaps. In terms of timing, the uncertainty of regulations during the initial formation phase poses a significant risk to investors due to the conflict between the PFII Court’s authority to determine the law prior to the existence of standard regulations (Article 67(4)), the time limit for drafting implementing regulations (Article 72), and the superseding of national civil law (Article 67(1)(a)). From a territorial scope perspective, Article 3(2) and Article 3(6) create loopholes for the establishment of multiple PFII zones with institutions operating independently of one another without a clear coordination system; moreover, the Supreme Court’s role in maintaining the uniformity of legal rulings is also curtailed by Article 39(12). In addition, technical issues were also found in the wording of Article 71, which should strictly adhere to the drafting standards set forth in Annex II, item 145, of Law No. 12 of 2011 on the Formation of Legislation, with the following formulation:

“For the sake of legal certainty, the repeal of a legal regulation shall not be formulated in general terms but shall explicitly specify which legal regulation is being repealed.”

Technically, Article 71 is not a provision regarding repeal but rather a provision on conditional supersession. Although Annex II does not provide a standard template for such drafting techniques, the principle of legal certainty underlying point 145 should be more strongly tied to the mechanism of conditional supersession than to explicit repeal. In a repeal provision, the reader can know with certainty which legal norms are declared invalid. Conversely, under Article 71, readers are presented with ten areas of law followed by the residual clause “as well as other related regulatory matters.” The problem is that the applicability of this exception depends on testing criteria that are neither defined nor have their boundaries explained. The combination of an overly broad scope of regulation, an open-ended residual clause, and wording in the Explanatory Notes that merely states “sufficiently clear” ultimately creates an objective textual weakness. This reflects a genuine flaw in the wording, not merely an editorial issue requiring clarification.

3.4 Concrete Disparities with Existing Laws and Regulations

Given that Article 71 does not specifically mention which legal norms are superseded, potential conflicts can only be identified when this law is compared with currently applicable laws and regulations. Therefore, the following important points deserve special attention from those drafting implementing regulations.

1. Article 66 of the PFII Law states: “English is the language used at the PFII.” The explanatory notes specify the use of English, among other things, in decisions, policies, contracts, and proceedings. This provision conflicts with Article 31 of Law No. 24 of 2009 on the National Flag, Language, and Emblem, as well as the National Anthem:

“(1) The Indonesian language must be used in memoranda of understanding or agreements involving state institutions, government agencies of the Republic of Indonesia, Indonesian private institutions, or individual Indonesian citizens. (2) Memoranda of understanding or agreements as referred to in paragraph (1) that involve foreign parties shall also be written in the national language of said foreign party and/or in English.”

This provision has a track record of very strict enforcement. As a reference, through Supreme Court Decision No. 1572 K/Pdt/2015, the court rejected Nine AM Ltd.’s petition for cassation and upheld the annulment of a loan agreement drafted solely in English. The panel of judges found that the agreement violated Article 31(1) of Law No. 24 of 2009, thereby qualifying it as an agreement with a prohibited cause and declaring it null and void pursuant to Article 1335 in conjunction with Article 1337 of the Civil Code.

Based on this precedent, a crucial legal issue arises at the practical level. The question is: what is the validity status of an English-language contract entered into within the PFII zone between a PFII business entity and an Indonesian legal entity outside the PFII zone, when the dispute is adjudicated by an institution other than the PFII Court, or when the judgment must be enforced through a district court pursuant to Article 44(2)?

2. Pursuant to Article 69(1), business activities within the PFII zone are conducted using foreign currency, except for transactions supporting operational needs and day-to-day activities. Furthermore, Article 69(3) stipulates that provisions regarding foreign exchange controls, capital controls, restrictions on fund transfers, and similar restrictions under laws and regulations applicable outside the PFII zone shall not apply to activities within, from, or through the PFII zone, unless otherwise provided for in PFII Council Regulations. In practice, this set of provisions has the potential to conflict with Article 21 of Law No. 7 of 2011 on Currency, which sets forth the following restrictions:

“(1) The rupiah must be used in:

1. any transaction intended for payment;
2. the settlement of other obligations that must be fulfilled with money; and/or
3. other financial transactions conducted within the territory of the Unitary State of the Republic of Indonesia.

(2) The obligation referred to in paragraph (1) does not apply to:

1. certain transactions in connection with the implementation of the state budget;
2. the receipt or provision of grants from or to foreign countries;
3. international trade transactions;
4. bank deposits in foreign currency; or
5. international financing transactions.”

This issue becomes even more complicated because violations of Article 21(1) carry criminal consequences. Pursuant to Article 33(1) of Law No. 7 of 2011 on Currency, any person who fails to use the rupiah in transactions as referred to in Article 21(1) is subject to imprisonment for a maximum of one year and a fine of up to Rp200,000,000.00 (two hundred million rupiah). Meanwhile, Article 39(4) of the PFII Law retains the authority of district courts to adjudicate criminal cases where the locus delicti (the location of the crime) is within the PFII area. Consequently, the enforcement of criminal provisions based on the obligation to use the rupiah remains subject to the jurisdiction of district courts, which, institutionally, are in no way bound by the PFII Court’s interpretation regarding the applicability of Article 71. Therefore, the implementing regulations of this law must explicitly close this legal loophole to ensure legal certainty.

3. Financial audits. In this regard, Article 27(5) delegates the authority to audit the financial management and accountability of the PFII Institution solely to public accountants. This provision raises legal issues because Article 24(1) stipulates that the institution’s initial capital may come from the Daya Anagata Nusantara Investment Management Agency, as well as from grants in the form of state or regional government property. Furthermore, Article 26(2) also allows for operational funding sourced from the State Budget (APBN). This structure for delegating audit authority is potentially unconstitutional, given that Article 23E(1) of the 1945 Constitution of the Republic of Indonesia (UUD 1945) stipulates the following:

“To examine the management of and accountability for state finances, a State Audit Agency that is free and independent shall be established.”

A crucial aspect that must be emphasized is that audits conducted by public accountants and audits of state finances conducted by the Supreme Audit Agency (BPK) are not two mechanisms that can replace one another. Both are oversight instruments that inherently have completely different objects and institutional mandates.

Table 1. Points of normative disparity requiring transitional arrangements

Provisions of the PFII Law	Overlapping national norms	Issues Arising
Article 66 (English)	Article 31 of Law No. 24 of 2009; Supreme Court Decision No. 1572 K/Pdt/2015	Status of English-language contracts involving Indonesian parties outside the scope of the PFII and during the enforcement phase
Article 69, paragraphs (1) and (3) (foreign currency and foreign exchange)	Article 21 and Article 33(1) of Law No. 7 of 2011	Criminal currency offenses remain under the jurisdiction of district courts pursuant to Article 39, paragraph (4)
Article 39(1)(c)	Law No. 14 of 2002 on Tax Courts	Transfer of disputes regarding tax incentives from the Tax Court
Article 39(1)(e)	Law No. 37 of 2004 on Bankruptcy and PKPU	Transfer of jurisdiction over bankruptcy matters from the Commercial Court
Article 39(1)(g)	Law No. 5 of 1986 as amended by Law No. 51 of 2009; Law No. 30 of 2014	Government decisions and actions are reviewed outside the jurisdiction of the Administrative Court
Article 39, paragraph (12)	Article 24A(1) of the 1945 Constitution; Article 27 of Law No. 48 of 2009	Elimination of the right to appeal to courts subordinate to the Supreme Court
Article 43, paragraph (1)	Law No. 18 of 2003 on Attorneys	Transfer of oversight and disciplinary authority over attorneys to the chief justice
Article 45, paragraphs (1) and (5)	Constitutional Court Decision No. 26/PUU-XXI/2023	Judges’ budgets and remuneration are funded by parties who may become involved in legal proceedings
Article 27, paragraph (5)	Article 23E, paragraph (1) of the 1945 Constitution	The Relationship Between Public Accountant Audits and Government Financial Audits
Article 67, paragraph (1), subparagraph (b)	Articles 7 and 8 of Law No. 12 of 2011	Regulations issued by institutions determine the applicability of norms equivalent to laws

 

4. Institutional Design: PFII Council, PFII LP, PFII LPJK, and Safeguards Against Conflicts of Interest

4.1 Concentration of Functions in the PFII Council

Pursuant to Article 16(2), the PFII Council is entrusted with three primary functions that, in modern institutional designs, are typically strictly separated. These three functions include the establishment of norms through PFII Council Regulations, the formulation of policies through the adoption of strategic plans and special provisions, and the exercise of oversight over the PFII Executive Board and the PFII Professional Ethics Committee. When combined with the authority to approve the work plans and budgets of both institutions, as well as to receive their annual accountability and financial reports, the PFII Council effectively monopolizes the roles of rulemaker, policy implementer, and supervisor within a single body.

This concentration of authority becomes even more problematic when viewed from the perspective of the Council’s membership composition. Article 14, paragraph (3), designates the Heads of the PFII LP and the PFII LPJK as members of the PFII Council. Meanwhile, Article 16, paragraph (2), subparagraph (f), explicitly states that oversight of these two institutions falls under the authority of the PFII Council itself. Through this legal framework, a clear governance flaw arises because the leaders of the institutions that are supposed to be supervised actually sit as members of the very decision-making body that oversees them.

Provisions regarding conflicts of interest do exist, but only in one place. Article 20 of the PFII Bill explicitly states that:

“(1) The LP PFII body, in carrying out its duties, is prohibited from having a conflict of interest. (2) Any LP PFII body that violates the prohibition referred to in paragraph (1) shall be subject to administrative sanctions. (3) Provisions regarding conflicts of interest as referred to in paragraph (1) and the imposition of administrative sanctions as referred to in paragraph (2) are regulated in the PFII Council Regulations.”

Unfortunately, there are no equivalent provisions regarding conflicts of interest for members of the PFII Council or the LPJK PFII bodies. This regulatory disparity poses a critical issue because Article 14, paragraph (3), letter c, allows for the appointment of up to four members of the PFII Council from civil society. According to the Explanatory Notes, this “representation from the general public” consists of independent and professional individuals with specialized expertise, including in the fields of civil law, business, and international finance. In practice, professionals with such profiles are likely to have a track record or direct ties to the industries they will be regulating.

In fact, PFII Council members hold very broad authority, ranging from formulating PFII Council Regulations, proposing candidates for the chair and vice-chair of the PFII Court pursuant to Article 41(2), to determining the amount of judges’ financial entitlements pursuant to Article 45(5). This series of strategic authorities is granted without any statutory limitations regarding conflicts of interest. As a form of partial mitigation, Article 16(4) does require the establishment of an audit committee, a compensation committee, and a risk management committee. However, this oversight structure will only function effectively if it is staffed by individuals who are fully independent from the bodies being supervised and are granted adequate access to information. The problem is that these two essential prerequisites have not yet been explicitly regulated in the law.

4.2 The PFII Advisory Board Lacks Enforceable Authority

Article 11(2) brings together representatives from all national financial system stability authorities and financial intelligence authorities into a single forum. This forum is led by the Minister of Finance, who serves as both chair and member, with membership comprising the Governor of Bank Indonesia, the Chair of the Board of Commissioners of the Financial Services Authority, the Chair of the Board of Commissioners of the Deposit Insurance Corporation, and the Head of the Financial Transaction Reporting and Analysis Center.

However, the formulation of the authority of this high-level council is non-imperative or non-binding. Based on Article 12, paragraph (1), the PFII Advisory Council is merely mandated to “provide policy recommendations.” Furthermore, Article 12, paragraph (2) stipulates that the PFII Council merely “considers” these recommendations. Through this legal framework, there is absolutely no obligation to act on the recommendations, no requirement to provide a written justification if recommendations are disregarded, and no mechanism for escalation to the President. Ultimately, while these national financial authorities are given the opportunity to express their views, they are not equipped with legally enforceable or binding instruments.

4.3 An Undefined Financial System Safety Net

Article 31(1)(b) mandates the LPJK PFII to “maintain and safeguard the stability of the financial system within the PFII.” Furthermore, the Explanatory Notes to this provision state that the resolution of financial institution issues must be carried out swiftly and in a localized manner. The use of the term “localized” implies that crisis management is expected to be confined to and resolved solely within that specific area. However, the legal and practical consequences of this localization have not yet been defined at all.

Institutionally, the LPJK PFII does not have a balance sheet that can be used to provide liquidity support, nor does it have the authority to issue payment instruments. Moreover, this institution must operate within a business environment that is required to be denominated in foreign currency pursuant to Article 69(1). On the other hand, this law also leaves a legal vacuum because it does not specify whether PFII financial institutions qualify as deposit insurance participants, whether Bank Indonesia has the authority to provide liquidity support facilities to PFII-licensed banks, or whether the jurisdiction of the Financial System Stability Committee (KSSK) extends to this special zone.

It must be recognized that this regulatory gap does not in any way eliminate existing systemic risks. On the contrary, it implies that new mitigation and resolution mechanisms will only be sought once a crisis actually occurs. On a practical level, formulating a legal framework amid financial stress is the worst possible timing and carries extremely high risk.

4.4 LP PFII: Asset Protection and Remaining Questions

Article 27 grants LP PFII an unusual legal status, which can be outlined as follows:

“(1) Any profits or losses incurred by LP PFII constitute the profits or losses of LP PFII.

(2) No party may seize the assets of LP PFII, except for assets that have been pledged as collateral for a loan and/or in order to fulfill LP PFII’s legally binding obligations.

(3) The management of LP PFII’s assets shall be carried out entirely by LP PFII’s governing bodies in accordance with the principles of good governance, accountability, and transparency.

(4) LP PFII may obtain loans and provide collateral to meet its operational needs.

(5) Audits of LP PFII’s financial management and accountability shall be conducted by a public accountant.

(6) LP PFII cannot be declared bankrupt, unless it can be proven to be in a state of insolvency as determined by the PFII Board.”

The provision in paragraph (6) effectively creates a closed governance structure. Pursuant to Article 16, paragraph (2), subparagraph (f), the PFII Board has the authority to supervise the LP PFII and receive its annual financial reports as stipulated in subparagraph (k), while also retaining control over determining the conditions of insolvency for the institution. Consequently, creditors seeking to assess the solvency of an LP PFII must rely on the assessment of a body that, by its very nature, has a direct institutional interest in the institution’s continued operations. This situation is further complicated by the fact that the law does not provide objective insolvency criteria or an independent legal forum to challenge such determinations.

Furthermore, Article 39(1)(e) grants the PFII Court the authority to adjudicate bankruptcy cases involving Business Entities. However, the PFII Management Body is definitively not classified as a Business Entity as defined in Article 1, item 12. Therefore, the relationship between these two provisions absolutely requires explicit clarification to avoid a jurisdictional vacuum. On the other hand, the asset protection clause stipulated in paragraph (2) can indeed be interpreted as a preventive measure to ensure the continued operation of the area. However, absolute legal protection that is not balanced by certainty of enforcement for creditors will ultimately result in a high economic cost burden. Lenders will certainly factor the risk of such collection uncertainty into the cost components or interest rates of the loan (pricing risk). This structural contradiction becomes particularly evident given that Article 27(4) explicitly grants LP PFII the authority to enter into debt agreements.

5. Judicial Independence and Dispute Resolution

5.1 Institutional Ambition

Before delving into the substance of the critique, it must be acknowledged that the PFII Court was conceptually designed with a highly comprehensive institutional vision. As the foundation of this innovation, Article 41(7) allows for the appointment of ad hoc judges who are foreign nationals. This provision is reinforced by Article 42(2), which sets forth specific qualification requirements, including expertise in international commercial law, finance, banking, capital markets, bankruptcy, taxation, technology, international civil disputes, and arbitration. Meeting these technical qualifications must also be accompanied by high moral integrity, a solid international reputation, and fluency in English.

Further discretion is granted under Article 44, which allows the PFII Court to establish its own rules of procedure. This flexibility encompasses the implementation of expedited proceedings, the establishment of binding procedural schedules, an electronic case management system, and the authority to issue interim injunctions. Furthermore, to maintain the quality standards of its decisions, Article 39(11) requires the presence of at least one Supreme Court justice in every panel of judges. Overall, this combination of regulations reflects the legislature’s accurate understanding of the standards and expectations of global market participants regarding an ideal commercial judicial system.

5.2 Budget and Remuneration

An issue arises in Article 45:

“(1) The budget of the PFII Court is sourced from the PFII Fund.

(2) The budget of the PFII Court as referred to in paragraph (1) shall be adequately allocated to enable it to carry out its judicial and administrative functions independently.

(3) The budget allocation referred to in paragraph (2) shall not affect the independence of the PFII Court in carrying out its duties under this Act.

(4) The PFII Court’s budget must be managed transparently and accountably by the PFII Court.

(5) The amount of financial entitlements and facilities for judges, as well as the unit prices related to the operations of the PFII Court, shall be stipulated by a Regulation of the PFII Council.”

The Constitutional Court has, in fact, already ruled on this type of structural conflict of interest. In Decision No. 26/PUU-XXI/2023, the Court upheld the constitutional review of Article 5(2) of Law No. 14 of 2002 on Tax Courts, which mandates the transfer of organizational, administrative, and financial oversight of the courts from the Ministry of Finance to the Supreme Court. The legal reasoning is fundamental: control over court budgetary matters by a party that routinely appears in court is deemed contrary to the principle of judicial independence.

This legal rationale should provide a far stronger basis for the formulation of Article 45 of the PFII Law. By comparison, the Ministry of Finance is an institution whose budget is strictly monitored by the House of Representatives (DPR) and the Supreme Audit Agency (BPK). In contrast, the PFII Legal Aid Board (LP PFII) is an entity whose assets are immune from seizure under Article 27(2), cannot be declared bankrupt on its own under Article 27(6), and whose finances are audited only by public accountants in accordance with Article 27(5). If even a court structure under a government ministry is deemed unconstitutional because it undermines independence, it is very difficult to justify the validity of the PFII Court’s structure, which is dependent on the LP PFII.

As an international benchmark, the legal framework of the Dubai International Financial Center (DIFC) has successfully avoided this issue. Through Dubai Law No. 12 of 2004, Dubai Law No. 16 of 2011, and DIFC Law No. 10 of 2004, the administrative management of the DIFC Courts is delegated to the Chief Justice, while funding is provided directly by the Government of Dubai, not by the DIFC Authority as the zone’s administrator. Ironically, it is precisely this clear separation between the source of funding and the authority managing the zone that was not adopted in the wording of Article 45(1).

5.3 Appointment of Judges

Article 41(2) stipulates that the Chief Justice and Deputy Chief Justice of the PFII Court are appointed by the President based on candidates nominated by the PFII Council through the Chief Justice of the Supreme Court. According to the Explanatory Notes to this provision, the Chief Justice of the Supreme Court is tasked with ensuring that the evaluation of candidates encompasses aspects of integrity, competence, experience, independence, and suitability. This legal framework effectively limits the Supreme Court’s role to that of a screener, while the exclusive right to initiate nominations rests with the PFII Council. Furthermore, this governance structure is reinforced by Article 41(9), which stipulates that ad hoc judges who are foreign nationals and specifically appointed to handle a particular case must also be registered by the PFII Council.

This institutional design stands in stark contrast to the two most relevant comparative jurisdictions. In Singapore, international judges at the Singapore International Commercial Court are appointed directly by the President pursuant to Article 95(4)(c) of the Singapore Constitution, whereas the assignment of judges to specific cases falls entirely within the authority of the Chief Justice. In both of these international judicial models, the regional governing authorities have absolutely no initiative to determine the composition of the panel of judges that may eventually adjudicate disputes over their own actions.

5.4 Finality of Decisions

Article 39(12) eliminates the mechanisms for cassation, reconsideration, and other legal remedies against appellate-level decisions of the PFII Court. This provision directly conflicts with two fundamental norms of judicial power, which can be outlined as follows:

1. Article 24A(1) of the 1945 Constitution of the Republic of Indonesia (UUD 1945), which explicitly establishes the authority to hear cases at the cassation level as a constitutional authority of the Supreme Court.
2. Article 27(1) of Law No. 48 of 2009 on Judicial Power, which stipulates that specialized courts may only be established within one of the judicial systems under the Supreme Court, with further regulations delegated to legislation pursuant to paragraph (2).

This law has, in fact, met the requirements for the establishment of such a specialized court, given that Article 38(2) places the PFII Court within the general judicial system. However, this is precisely where the legal anomaly lies: institutionally, the PFII Court falls under the Supreme Court, yet the Supreme Court has absolutely no authority to review its decisions. The presence of at least one Supreme Court justice on each panel, as stipulated in Article 39, paragraph (11), appears to be designed as a substitute for the function of cassation. In reality, however, these two functions are by no means equivalent. A Supreme Court justice serving as a member of a panel merely performs the function of adjudicating at that level; they do not carry out the Supreme Court’s institutional function as the guardian of the uniform application of the law, a role that can only be fulfilled through the authority to review and correct the decisions of lower courts.

Furthermore, the argument that the finality of a decision is necessary to ensure the speedy resolution of disputes becomes very weak when compared with comparative legal practices. As a point of reference, the Singapore International Commercial Court (SICC) functions as a division of the General Division of the High Court and is an integral part of the Supreme Court of Singapore. All appeals against its decisions are still reviewed by the Court of Appeal. Singapore has successfully accommodated the presence of international judges, the use of English, the application of global-standard procedural law, and the involvement of foreign attorneys, without severing the chain of jurisdiction with its highest court. This fact demonstrates that efficiency and speed in resolving cases should be achieved through innovations in procedural law design, not by eliminating the Supreme Court’s corrective function.

6. Family Offices, Tax Incentives, and Economic Substance

6.1 Appropriate Scope, Incomplete Classification

Conversely, there is one design choice in the PFII Law that is highly commendable. Pursuant to Article 5(1)(a)(16), family wealth management institutions (family offices) are explicitly classified as business activities in the financial sector. Consequently, such entities fall under the regulatory and supervisory scope of the LPJK PFII as stipulated in Article 31(1)(a). This policy choice is actually far stricter than Singapore’s jurisdiction, which exempts single-family offices from fund management licensing requirements, and stricter than the DIFC, which, under the Family Arrangements Regulations 2023, does not require a license from the DFSA as long as services are provided exclusively to a single family. Placing family wealth management institutions within the scope of formal oversight from the outset is a well-targeted regulatory step,

However, one aspect that has not been adequately addressed in this law is the lack of a clear classification. The regulation does not clearly distinguish between a single-family office (which exclusively manages the assets of a specific family) and a multi-family office or a commercial service provider for third parties; instead, it delegates further regulation to PFII Board Regulations pursuant to Article 5, paragraph (2). Without a clear distinction in classification, two potentially fatal risks could arise simultaneously. On the one hand, families that are merely organizing their own wealth structures will bear a disproportionate burden of compliance and licensing requirements. On the other hand, commercial service providers managing funds for multiple parties may actually receive overly lenient legal treatment by falling under the same classification umbrella.

6.2 Incentives Smaller Than They Appear

On the surface, the PFII’s tax incentives appear aggressive. Article 48(2) provides a fifty-year corporate income tax exemption for core PFII sector activities and investment activities by foreign taxpayers. Article 51(1) states:

“Income tax incentives in the form of a reduction in corporate income tax as referred to in Article 49(b) shall be granted at a rate of 100% (one hundred percent) to Business Entities conducting business activities within the PFII in:

1. the financial sector;
2. the financial sector support sector; and
3. other sectors, as referred to in Article 5(1).”

A 100 percent tax exemption may indeed seem very attractive, but its economic value is far smaller than the impression it gives, and the law itself implicitly acknowledges this. Pursuant to Article 51(3), the granting of tax incentives must still comply with relevant international conventions or agreements. Furthermore, the Explanatory Notes to this provision clarify that PFII business entities whose effective tax rate falls below 15% remain subject to a global minimum tax of up to 15% through the mechanisms of the qualified domestic minimum top-up tax, the income inclusion rule, and the undertaxed profit rule.

This acknowledgment is not merely normative rhetoric. Indonesia has adopted this international tax regime through Minister of Finance Regulation No. 136 of 2024, which was promulgated on December 31, 2024, and took effect on January 1, 2025. This regulation applies to multinational enterprise groups with a minimum consolidated gross revenue of EUR 750 million, with the income inclusion rule and domestic minimum top-up tax taking effect starting in the 2025 tax year, followed by the undertaxed profit rule in 2026. Because Indonesia implements a domestic top-up mechanism, the difference between the low effective tax rate and the 15% minimum threshold will ultimately still be recouped by the state.

The legal and economic consequences of this structure are very clear. For large multinational groups, which are, in fact, the primary target of establishing an international financial center, the incentive of a 100% corporate income tax exemption has largely been neutralized by the global minimum tax regime. Therefore, the true competitive factors that determine a region’s attractiveness are not merely tax exemptions, but rather legal certainty, the quality of regulatory enforcement, the credibility of dispute resolution institutions, and the depth of the professional ecosystem. It is this reality of international tax arithmetic that absolutely drives the orientation of PFIIs in a direction consistent with the main thesis of this article.

6.3 The Ring-Fencing Paradox

There is a structural anomaly in the legal design of PFIIs that is rarely highlighted and demands a concrete resolution at the level of implementing regulations. By way of comparison, effective January 1, 2025, Singapore has consistently required funds benefiting from the incentives under Sections 13O and 13U to allocate a portion of their portfolios to qualifying domestic investment instruments. The threshold is set at 10% of total assets under management or S$10 million. This regulation deliberately weaves a common thread between fiscal incentives and the generation of domestic benefits, ensuring that entities enjoying tax exemptions remain obligated to inject capital into the economy of the country providing the incentives.

In contrast, the PFII Law takes the opposite approach. Under Article 8(1), the law prohibits the raising of funds from the public outside the PFII zone, restricts the marketing of financial products outside the zone, limits the opening of rupiah accounts, and restricts the extension of credit outside the zone. This provision is reinforced by Article 68(2), which stipulates that a license issued to a PFII institution does not in any way grant the right or authority to conduct business activities outside the PFII zone within the territorial boundaries of the Unitary State of the Republic of Indonesia. Such strict restrictions are certainly justified as a risk mitigation tool to protect the stability of the national financial system, and the government has openly explained this rationale. However, the legal consequences must be honestly acknowledged: this regulatory framework, intended to protect the domestic financial system, simultaneously blocks the primary transmission channel that should be distributing the spillover economic benefits to the domestic economy. Meanwhile, Article 4(d) explicitly identifies facilitating financing for the real sector and national strategic projects as the purpose of establishing the PFII, while Article 4(f) outlines the creation of jobs and the enhancement of Indonesia’s human resource capacity as subsequent objectives.

Efforts to reconcile these policy contradictions must be accurately articulated through PFII Board Regulations based on Article 8(1)(d), namely, provisions regarding the criteria and minimum thresholds for foreign currency loans to business entities outside the PFII zone. This instrument is the only legal channel explicitly provided by law for the flow of PFII capital into the national economy. Therefore, the quality of the drafting of these implementing regulations will be one of the most crucial determining factors in assessing whether the grand vision mandated by the PFII Law can truly be realized.

6.4 Tax Residency and Golden Visas

Article 53(1) grants an exemption from domestic taxpayer status to foreign nationals who are registered with a family wealth management institution within the PFII, have obtained a golden visa under the PFII program, and do not receive income from active business activities or employment either within the PFII zone or in other parts of Indonesia. According to the Explanatory Notes to Article 65(1)(e), the golden visa program is specifically designed to attract global investment and position Indonesia as a second home destination for ultra-high-net-worth individuals.

Such policies are common in international practice but are currently under intense global scrutiny and oversight. In November 2023, the Financial Action Task Force (FATF) and the Organization for Economic Co-operation and Development (OECD) published a joint report titled “Misuse of Citizenship and Residency by Investment Programs,” which was officially approved at the FATF Plenary Session held October 25–27, 2023. The report objectively acknowledges that investment-based programs can boost economic growth; however, it also identifies serious vulnerabilities to the risks of identity concealment and asset laundering, thereby recommending the implementation of enhanced due diligence, high transparency, and adequate program governance.

This global context is highly relevant to Indonesia. During that very same plenary session, Indonesia was officially admitted as the 40th full member of the FATF, following the adoption of its mutual evaluation report in February 2023. Thus, Indonesia is designing this investment-based residency scheme in its capacity as a full member of the international body that sets compliance standards for such schemes. This is not a normative obstacle, but rather a strategic framework. Consequently, the technical provisions regarding the golden visa in the PFII Board Regulation, pursuant to Article 65(2), must explicitly adopt the safeguards recommended in the FATF-OECD report, as this step will strengthen the PFII’s credibility and bargaining position vis-à-vis correspondent banks and international banking partners.

7. Comparative Lessons: Singapore, Hong Kong, DIFC, and Switzerland

The following comparison of jurisdictions is not intended to identify a single model to be replicated, given that each country has its own unique legal history, market depth, and institutional capacity. This comparison serves solely to identify the critical variables that build trust in a legal framework.

1. Singapore demonstrates that international commercial courts do not require institutional separation from the national judicial system, and shows that tax incentives can be effectively designed to generate measurable domestic benefits.
2. Hong Kong demonstrates that expanding the scope of incentives must not come at the expense of substantive standards. Its concession regime for family investment vehicles maintains thresholds for assets, the number of full-time employees, and operational expenses, while tying these to the requirement that core revenue-generating activities be conducted within the jurisdiction.
3. Dubai, or the Dubai International Financial Centre (DIFC), offers two essential lessons for Indonesia. First, its special legal status rests on a solid constitutional foundation. Through the 2004 amendment to Article 121 of the United Arab Emirates Constitution, the federation was granted explicit authority to establish free financial zones and define the scope of their exemptions from federal law, which was subsequently reaffirmed by Federal Law No. 8 of 2004. Indonesia has taken a fundamentally different path by establishing special zones through ordinary legislation without a constitutional amendment. Second, as a consequence of this legal foundation, the scope of exemptions in the DIFC is strictly defined by a higher legislative authority and cannot be unilaterally expanded by the zone’s authorities, a stark contrast to the broad flexibility provided under Article 67(1)(b).
4. Switzerland offers the most controversial yet most valuable lesson. Switzerland’s reputation is built on a foundation of legal continuity and institutional discipline spanning generations, without the need to establish special zones. However, when a crisis struck on March 19, 2023, during the takeover of Credit Suisse by UBS, the Federal Council issued emergency regulations that served as the basis for Swiss financial supervisory authorities to write off all additional capital instruments worth approximately CHF 16 billion on the same day. Although the Parliamentary Inquiry Commission concluded in its report on December 17, 2024, that the rescue measure was an emergency response, the Federal Administrative Court on October 1, 2025, overturned the order, ruling that it lacked a sufficient legal basis, and the case proceeded all the way to the Federal Supreme Court.

The substantive lesson from these events is not that Switzerland failed, but rather that legal certainty is never permanently inherent in a jurisdiction’s reputation. Legal certainty is directly tested in court, and its value depends heavily on the system’s capacity to correct the state’s actions when authorities err. Therefore, a jurisdiction that deliberately closes off avenues for correcting the actions of its own bodies, as done by Article 39(12) regarding rulings that challenge the actions of the PFII Council, the PFII LP, and the PFII LPJK under Article 39(1)(g), actually eliminates the fundamental mechanisms that allow legal certainty to be objectively tested and verified.

Table 2. Institutional Variables Across Five Jurisdictions

Variable	Singapore	Hong Kong	DIFC	Switzerland	PFII
Basis of Special Status	No special jurisdiction; SICC as a division of the High Court	No special jurisdiction	Amendment to Article 121 of the UAE Constitution and Federal Law No. 8/2004	No special jurisdiction	Ordinary law without constitutional amendments
Determiner of the scope of legal exceptions	Not applicable	Not applicable	Federal law	Not applicable	Laws and the PFII Council (Article 67, paragraph (1), subparagraph b)
Legal action against a special court	Appeal to the Court of Appeal	Ordinary court system up to the CFA	The DIFC Court of Appeal as the final instance	Ordinary court system	Final at the appellate level (Article 39, paragraph (12))
Resolution of Jurisdictional Conflicts	Not required	Not required	Decree No. 19/2016, replaced by Decree No. 29/2024	Not required	Not regulated
Source of court funding	State budget	State budget	Dubai government	State budget	LP PFII (Article 45, paragraph (1))
Substantive requirements for incentives	Managed assets, professional staff, local spending, domestic investment allocation	Net assets, full-time employees, operating expenses	Not tax incentive-based	Not tax incentive-based	Delegated to Ministerial Regulations (Article 55)
Family office treatment	SFOs are exempt from fund management licensing	Concessions based on investment vehicles	SFOs without a DFSA license	Generally exempt from licensing if intra-family	Licensed financial sector business activities (Article 5, paragraph (1), letter a, point 16)

8. Regulatory Risk: Archegos, 1MDB, and Governance Lessons

8.1 Archegos and the Economic Function-Based Perimeter

Archegos Capital Management was founded by Bill Hwang in New York in 2013 as a family office or private wealth manager. This legal status allowed Archegos to be completely exempt from the registration rules and reporting obligations that typically strictly bind investment managers in the United States. In practice, they built their entire financial transaction network using total return swap contracts with several major brokerage banks. These financial instruments allowed Archegos to profit from a stock without having to be registered as its official owner, thereby successfully avoiding the obligation to disclose its ownership to the public. As a result of this regulatory loophole, each partner bank was ultimately aware only of its own share of the transactions and remained completely unaware of the massive total risk that Archegos was actually building up secretly across various financial institutions.

When the stock prices in their portfolio plummeted in March 2021, Archegos failed to meet margin call obligations. The simultaneous forced sale of assets by creditors triggered massive losses totaling more than USD 10 billion for the involved banks, with Credit Suisse suffering the largest loss of USD 5.5 billion. In the wake of this scandal, a U.S. court found Bill Hwang guilty of various financial crimes and sentenced him to 18 years in prison on 2024. Although the impact was devastating, it would be a grave mistake to immediately conclude that family offices are inherently dangerous. The Association of Fund Managers has even emphasized to the Basel Committee that this case cannot be used as a benchmark for assessing the general business risks of asset management. The reasoning is quite sound, as Archegos operated as a family office without regulatory oversight, and its collapse was solely the result of a premeditated fraud committed by its owner.

The most crucial lesson from the Archegos case is how difficult it is to distinguish between purely private wealth management, family investment vehicles, and regulated investment managers. Archegos hid behind the legal status of a family office, yet in practice it functioned exactly like an investment manager; this underscores that oversight must be based on the substance of its economic activities rather than merely its formal legal structure. In response to the crisis, the Basel Committee on Banking Supervision issued new guidelines in late 2024 that tighten due diligence, credit risk mitigation, and banking governance. The implications of this global policy must be urgently applied to the PFII framework. Although Article 5, paragraph (1), letter a, point 16 has taken the right step by including family offices in the group required to obtain a license, significant risk loopholes remain. This is because Article 70 exempts various derivative transactions, the technical regulations for which are delegated to the LPJK PFII Regulations pursuant to paragraph (7); however, these regulations do not yet comprehensively address the reporting obligations for derivative exposures or cross-border information-sharing protocols. Without such strict oversight mechanisms, the LPJK PFII risks falling into the same trap as the banks did in the Archegos case, namely, being able to see only a small fraction of the risks and failing to mitigate the overall danger.

9. Recommendations for a Credible PFII Framework

The following recommendations are formulated with the understanding that the law has been passed and that the available scope is limited to implementing regulations under Article 72. For each recommendation, the appropriate regulatory instrument is specified. Two of them are, in all honesty, beyond the scope of implementing regulations and are stated as such.

1. Establish transparent and verifiable lex specialis limitations before a transaction takes place. The Government Regulation on the establishment of PFIIs under Article 3(7) should require the preparation and publication of a public list that explicitly sets forth the provisions of national law deemed inapplicable within PFII areas under Article 71, along with the obligation to update and publish it periodically. This list must be accompanied by the presumption that national law remains fully applicable unless a specific exception is explicitly listed therein. Meanwhile, to anticipate the expansion of additional exemptions under Article 67(1)(b), a Presidential Regulation issued pursuant to Article 34 should require direct approval from the President, rather than merely a consultation mechanism as provided for in Article 67(2), because the area’s managing body must not act as the sole determiner of the scope of privileges that benefit its own interests.
2. Establishing an effective mechanism for resolving jurisdictional disputes. Dubai’s empirical experience over the past two decades has shown that the coexistence of two parallel judicial systems almost always triggers jurisdictional disputes; such disputes cannot be resolved unilaterally by either party to the dispute, and the dispute resolution mechanisms are prone to being abused as delaying tactics if not accompanied by strict screening mechanisms. Indonesia should establish a joint coordination forum between the Supreme Court and the PFII Court to determine the competent court and the judgment that must be enforced in the event of a jurisdictional conflict, with the absolute requirement that the dispute be truly substantial as a legal filter. At the operational regulatory level, an initial step can be taken through PFII Court Regulations issued with the approval of the Chief Justice of the Supreme Court pursuant to Article 44(7) and aligned with relevant Supreme Court Regulations, although a comprehensive and complete resolution still requires a legal basis at the level of a law.
3. Strengthen protections regarding the budget, remuneration, and the independence of judicial appointments. At the level of implementing regulations, the PFII Council Regulations under Article 45(5) should establish an objective, medium-term formula for the budget and remuneration of judges that cannot be unilaterally altered mid-year, so that funding policies are not easily misused as instruments of institutional pressure. Nevertheless, it must be honestly acknowledged that these administrative measures have not fully resolved the root of the problem. As long as Article 45(1) continues to place the source of funding with the PFII Legal Aid Agency and Article 45(5) delegates the determination of remuneration to the PFII Council, and both of these entities are potential defendants under Article 39(1)(g), the structural flaw, which was previously struck down by the Constitutional Court in Decision No. 26/PUU-XXI/2023, will persist. A fundamental and sustainable correction can ultimately only be achieved through a constitutional review by the Constitutional Court or through legislative revision. The same principle applies to the right to nominate candidates for the positions of chief justice and associate chief justice under Article 41(2), whose authority should be fully transferred to the Supreme Court.
4. Strengthen the prevention of conflicts of interest and the transparency of financial accountability within the LP PFII. The PFII Council’s regulations under Article 20(3) should expand the conflict-of-interest regime to cover all members of the PFII Council as well as the LPJK PFII bodies, supplemented by rules on mandatory recusal, transparent voting procedures, restrictions on access to sensitive information, disclosure obligations, and a cooling-off period for members representing civil society as referred to in Article 14, paragraph (3), letter c. The audit committee, compensation committee, and risk management committee established under Article 16, paragraph (4), should consist of a majority of members who are truly independent from the bodies they oversee. Regarding financial management, the insolvency criteria for LP PFII under Article 27(6) must be formulated objectively and be subject to judicial review, accompanied by clarity regarding the forum for resolution should the determination of such status be contested by creditors. Furthermore, it must be explicitly stated that financial audits by public accountants pursuant to Article 27(5) do not supersede the constitutional authority of the State Audit Agency to conduct state financial audits, as mandated by Article 23E( (1) of the 1945 Constitution, particularly as it pertains to the management of state assets held by the LP PFII and the allocation of funds sourced from the State Budget pursuant to Article 26(2).
5. Strengthen the scope of oversight and the safety net for financial system stability. Regulations governing the LPJK PFII under Article 31(6) should require the establishment of a memorandum of understanding for the integrated exchange of supervisory data and information with the Financial Services Authority (OJK), Bank Indonesia (BI), the Deposit Insurance Corporation (LPS), and the Financial Transaction Reports and Analysis Center (PPATK), including the implementation of consolidated supervision protocols for business groups with business entities both within and outside the PFII zone. Furthermore, the LPJK PFII Regulation, pursuant to Article 70(7), should require the reporting of aggregate derivative exposures across counterparties with specific threshold limits that trigger additional disclosure obligations, as a concrete implementation of lessons learned from the Archegos case and the 2024 supervisory guidelines from the Basel Committee. Additionally, the Presidential Regulation under Article 34 should explicitly clarify the legal status of financial institutions within the PFII regarding the deposit insurance regime, the availability of emergency liquidity support facilities, and the coordination framework between the PFII zone and the crisis prevention architecture within the national financial system stability mechanism. Negligence or the absence of clear regulations on these crucial points will undoubtedly result in the highest costs of failure precisely when the worst crises occur.
6. Specifying the economic substance, classifications of family wealth managers, and fiscal evaluations. Ministerial regulations pursuant to Article 55(1) should establish specific qualifications as referred to in Article 48(4)(b) in the form of transparent, publicly disclosed, and auditable quantitative thresholds, covering the value of assets under management, the number of professional staff, and the minimum annual local operating expenses, by adopting calibration standards from best practices in Singapore and Hong Kong. Furthermore, the PFII Board Regulation pursuant to Article 5(2) must draw a clear distinction between single-family offices and multi-family offices or commercial service providers for third parties, so that the intensity of licensing and supervision is truly proportional to the risk profile of each entity. PFII Board Regulations pursuant to Article 8(1)(d) must also be deliberately and thoughtfully designed as instruments to channel domestic benefits, given that this provision functionally links PFII capital to real-sector financing as mandated by Article 4(d). In addition, all fiscal incentives provided must be accompanied by a clawback mechanism as well as periodic cost-benefit evaluations that are publicly reported to the House of Representatives pursuant to Article 33(1)(b).
7. Strengthening the substantive legal infrastructure in the field of wealth management. Given that Article 67(1)(a) has excluded the application of national civil and business law, the PFII zone absolutely requires a substitute legal framework before it is officially marketed as an international wealth management center. PFII Council regulations that comprehensively govern trust law, foundation law, the will registry and inheritance validation system, licensing of fiduciary services, as well as contract and bankruptcy laws applicable within the zone should be issued simultaneously with the establishment of the zone, rather than issued afterward. Furthermore, the discriminatory provision in Article 61, which grants inheritance benefits exclusively to heirs with foreign citizenship, should be reviewed in the next legislative agenda, as a wealth management ecosystem closed to the participation of domestic business families will certainly fail to meet the strategic objectives outlined in Article 4(f). Finally, the wording of Article 61 regarding the imposition of inheritance tax also requires a clear official explanation to clarify the type of levy in question, given that inherited assets are already regulated under the national income tax regime; thus, this provision must not lead to a misalignment of legal expectations that conflicts with the actual legal consequences.

Conclusion

Special provisions are not the issue; every international financial center is, by definition, built upon deviations from general law. The problem lies in how the PFII Law designs these deviations: the boundaries are left to the discretion of bodies that have a vested interest in their breadth, while there are disparities that conflict with existing and applicable positive law, such as the obligation to use the Indonesian language, the authority of the State Audit Agency (BPK), and the budgetary independence of the judiciary. It is not the special status itself that is problematic, but rather the absence of boundaries and the corrective mechanisms that should be in place.

The crucial factor determining the quality of a special zone is not the presence or absence of exceptions, but rather which party has the authority to adjust the boundaries of that special status and who holds the authority to correct them. Article 67(1)(b) delegates part of the determination of these boundaries to the zone’s managing body. On the other hand, Article 39(2)(b) entrusts the interpretation of these boundaries, including the limits of the court’s own authority, to the zone court. Ironically, Article 39(12) completely closes off the path for external review, while Article 45 places matters of the budget and judges’ remuneration under the control of parties who could potentially become litigants before that very court. When read collectively, these four provisions form a closed loop of power with no way out.

The reality of fiscal arithmetic further reinforces this conclusion. Given that Indonesia has officially implemented the global minimum tax regime through PMK 136/2024, and the Explanatory Notes to Article 51(3) openly acknowledge this, the 100% corporate income tax exemption incentive has, in practice, been largely neutralized for the multinational business groups that are the primary targets of the PFII. Therefore, the remaining determinant of competitiveness is not merely fiscal incentives, but rather institutional quality. Improving institutional design is not a cost burden incurred out of an abundance of caution, but rather the only absolute path toward sustainable competitiveness.

The six-month timeframe provided by Article 72 is not merely a routine administrative deadline, but rather the entire critical window remaining to determine whether the PFII will transform into a platform for healthy regulatory competition or, conversely, degenerate into a channel for regulatory arbitrage. Most substantial improvements can still be achieved through implementing regulations. However, there are two fundamental issues that lie beyond the scope of secondary regulations: the source of funding and the determination of judges’ remuneration under Article 45, as well as the elimination of legal remedies under Article 39(12), neither of which can be resolved by regulations under the law. Correcting these structural flaws absolutely requires a constitutional review by the Constitutional Court or an amendment to the law.

Openly addressing these design flaws is not a form of rejection of the state’s strategic policies. On the contrary, an international financial center can only thrive on the trust of global investors who do not personally know Indonesia and assess credibility solely based on written legal instruments. For such investors, a regulatory framework that honestly acknowledges its weaknesses and provides fair corrective mechanisms will be far more reassuring than a legal framework that merely claims to be self-sufficient through normative statements in its articles.

This article is intended solely for general informational purposes and to provide updates on legal developments; it does not constitute, is not intended to be, and should not be treated as legal advice regarding any specific case or circumstance. All analyses and conclusions contained herein represent the author’s personal views based on a textual reading of the draft legislation as of the date this article was written; they do not reflect the official position of any agency or affiliation, and cannot be relied upon as an authoritative reference in any legislative, litigation, or legal or business decision-making process; the author is not liable for any losses arising from the use of this information. Readers facing specific legal or tax situations are advised to consult with qualified legal and tax advisors.

List of Sources

1. Indonesian Laws and Regulations

• The 1945 Constitution of the Republic of Indonesia, specifically Article 23E(1), Article 24(2), and Article 24A(1).
• Law on the Indonesian International Financial Center, text dated July 21, 2026, as approved by the Plenary Session of the House of Representatives of the Republic of Indonesia, comprising 73 articles along with Explanatory Notes.
• Law No. 4 of 2026 Amending Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector, promulgated on June 17, 2026, specifically Article 248A.
• Law No. 1 of 2025 on the Third Amendment to Law No. 19 of 2003 on State-Owned Enterprises.
• Law No. 12 of 2011 on the Formulation of Legislation and its amendments, specifically Article 7, Article 8, and Annex II, item 145.
• Law No. 7 of 2011 on Currency, specifically Articles 21 and 33.
• Law No. 24 of 2009 on the National Flag, Language, and Emblem, as well as the National Anthem, specifically Article 31.
• Law No. 48 of 2009 on Judicial Power, specifically Articles 25, 27, 39, and 40.
• Law No. 30 of 2014 on Government Administration.
• Law No. 8 of 2010 on the Prevention and Eradication of Money Laundering.
• Law No. 37 of 2004 on Bankruptcy and the Suspension of Debt Payment Obligations.
• Law No. 18 of 2003 on Attorneys.
• Law No. 14 of 2002 on Tax Courts.
• Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution, specifically Articles 66 and 68.
• Law No. 5 of 1986 on Administrative Courts, as last amended by Law No. 51 of 2009.
• Regulation of the Minister of Finance No. 136 of 2024 on the Imposition of a Global Minimum Tax Based on International Agreements, promulgated on December 31, 2024, effective January 1, 2025.

1. Court decisions

• Constitutional Court Decision No. 26/PUU-XXI/2023, rendered on May 25, 2023.
• Supreme Court Decision No. 1572 K/Pdt/2015, Nine AM Ltd v. PT Bangun Karya Pratama Lestari.
• Lakhan v. Lamia [2021] DIFC CA 001, DIFC Court of Appeal.

1. Legal instruments of comparator/comparative jurisdictions

• Federal Law No. 8 of 2004 on Financial Free Zones (UAE).
• Federal Decree No. 35 of 2004 (UAE).
• Dubai Law No. 12 of 2004, as amended by Dubai Law No. 16 of 2011.
• DIFC Law No. 10 of 2004.
• Dubai Law No. 5 of 2021.
• Dubai Decree No. 19 of 2016 and Decree No. 29 of 2024 regarding the resolution of conflicts of jurisdiction.
• DIFC Family Arrangements Regulations 2023, effective January 31, 2023.
• DIFC Foundations Law No. 3 of 2018.
• Constitution of the Republic of Singapore, Article 95(4)(c).
• Income Tax Act 1947 (Singapore), Sections 13O and 13U.
• Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 (Hong Kong), effective May 19, 2023.

1. International authorities and governments

• Monetary Authority of Singapore, provisions regarding the tax incentive scheme for funds under Sections 13O and 13U of the Income Tax Act 1947, including amendments effective as of January 1, 2025.
• Inland Revenue Department of Hong Kong, Tax Concessions for Family-owned Investment Holding Vehicles. ird.gov.hk/eng/tax/bus_fihv.htm
• Supreme Court of Singapore, Singapore International Commercial Court. judiciary.gov.sg
• DIFC Courts, Legal Framework. difccourts.ae
• Dubai Financial Services Authority, Laws and Rules. dfsa.ae
• Basel Committee on Banking Supervision, Guidelines for Counterparty Credit Risk Management, BCBS d588, December 11, 2024. bis.org/bcbs/publ/d588.htm
• FATF/OECD, Misuse of Citizenship and Residency by Investment Programs, November 2023. fatf-gafi.org
• FATF, Outcomes of the FATF Plenary, October 25–27, 2023, regarding Indonesia’s full membership.
• Directorate General of Taxes, explanation of the implementation of PMK 136/2024. pajak.go.id
• Swiss Parliament, report of the Parliamentary Inquiry Commission on the emergency takeover of Credit Suisse, December 17, 2024. parlament.ch
• Swiss Federal Administrative Court, press release regarding the annulment of FINMA’s order on the cancellation of AT1 instruments, October 1, 2025. bvger.ch
• United States Department of Justice, U.S. Attorney’s Office for the Southern District of New York (SDNY), press release regarding the criminal conviction of Sung Kook (Bill) Hwang, November 20, 2024. justice.gov

1. Context of the legislative process

• Indonesian House of Representatives, press release on the enactment of the PFII Bill, July 21, 2026.
• Hukumonline, House of Representatives Approves PFII Bill as Law, July 21, 2026.
• News reports regarding the planned PFII locations in Jakarta and Bali and the drafting of implementing regulations, July-August 2026.