Looking to Acquire a Stake in a Digital Health Venture in Indonesia? Understand the Due Diligence Process

Investors looking to acquire a stake in digital health ventures must undertake a comprehensive due diligence process that covers that covers the various key matters and issues, including corporate, licensing, IP and data protection.

In terms of corporate matters, assessing the company’s corporate status and regulatory compliance is paramount. To establish a new joint venture with a foreign entity as one of the shareholders, the minimum issued and paid-up capital is 10 billion rupiah. Indonesian law further requires all business lines to be codified in a numerical system known as the Standard Business Classification (KBLI).

Specifically, a digital platform company must be registered and subsequently obtain a licence for the KBLI number for commercial web portals, which to date does not carry any foreign ownership restriction.

Scrutinizing the digital health venture’s licensing compliance involves, among other things, identifying whether it has obtained a valid electronic system provider registration certificate (ie, the certificate required if a business actor intends to operate an electronic system).

The investor should also determine whether the digital health venture has undergone or is undergoing a regulatory sandbox on digital health under the jurisdiction of the MOH, and any additional licenses required for each of the digital health venture’s business activities.

Aside from general corporate matters and licensing, it is prudent for investors to evaluate whether the company has essentially adhered to data protection and cybersecurity provisions in the prevailing laws and regulations. Aside from Indonesian data privacy laws, the Health Law and the Indonesian Code of Medical Ethics require the data of patients to be kept confidential, subject to several exemptions.

Financing and Government Support

Equity funding (either direct or indirect) is the most common financing structure used by digital health ventures in Indonesia. Generally, digital health ventures, particularly startups, receive such funding from venture capital firms and/or corporations. A foreign entity may also directly invest through capital ownership in digital health ventures in Indonesia, which then would render the venture to be the subsidiary of the foreign entity.

To date, there are no significant government financing or related initiatives by the Indonesian government to support the development of the digital health sector in particular.

One of the Ministry of Health’s initiatives to promote the development of the digital health sector is the issuance of MOH Regulation No. 21 of 2020 on the MOH Strategic Plan for 2020–2024 (as amended) (MOH Reg. 21/2020). 

Other initiatives include the development of digital technologies for the collection of patient data, the development of telemedicine services, the digitalization of medical records, and flying healthcare to rural areas.

Excerpted from Lexology Panoramic: Digital Health 2024, published by Law Business Research.

Find the Indonesia chapter of Lexology Panoramic: Digital Health 2024 here.

Further reading:

Navigating Cross-Border M&A: Insights Into Indonesia’s Legal Landscape

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