Key Takeaways and Implications of New BKPM Regulation for Indonesia’s Risk-Based Business Licensing Framework and Investment

Key Takeaways and Implications

Below are some of the notable updates and implications of BKPM Regulation 5/2025 on the risk-based business licensing framework and foreign investment in Indonesia:

Minimum Paid-Up Capital Requirements and Mandatory Retention Period

The IDR 2.5 billion paid-up capital requirement for a foreign direct investment company (“PMA Company”) was first introduced under a 2013 BKPM regulation and has since been reiterated several times. This rule was later changed by BKPM Regulation No. 4 of 2021 which required foreign investors to inject at least IDR 10 billion in paid-up capital before incorporation of a PMA Company.

Committing the full amount of IDR 10 billion could have possibly discouraged many businesses and service-sector entrants, thereby reducing Indonesia’s competitiveness in foreign investment amongst ASEAN countries. In light of this, after more than a decade, Indonesia has finally lowered the minimum paid-up capital requirement back to IDR 2.5 billion through BKPM Regulation 5/2025, allowing the PMA Company to commit funds progressively through project realization rather than a single upfront injection. In other words, only IDR 2.5 billion in cash needs to be deposited into the company’s bank account. The remaining IDR 7.5 billion may consist of assets and expenditure such as machinery, equipment, vehicles, and other expenses.

The reduced minimum paid-up capital, however, does not apply to highly regulated industries, such as companies in the financial sectors that are under the supervision of Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK). Existing PMA Companies that previously injected IDR 10 billion remain fully compliant, as BKPM Regulation 5/2025 does not apply retroactively.

In order to reinforce capital commitment, the minimum issued and paid-up capital must remain in the company’s bank account for at least 12 months from the date of placement unless it is used for legitimate activities related to asset purchases, building construction, or business operations. This restriction must be declared through a self-declaration (commitment statement) by the business actor when applying for a business license through the OSS system.

Changes to Minimum Investment Threshold in Certain Sectors

PMA Company is classified as a large-scale enterprise under Indonesia’s investment rules. Accordingly, BKPM Regulation 5/2025 continues to retain the general requirement of a minimum total investment value of more than IDR 10 billion (excluding land and building) per 5-digit of Indonesian Standard Industrial Classification (“KBLI”) per project location for PMA Company, except for the following sectors where the investment threshold applies differently:

In addition, those engaged in property, accommodation, agriculture, plantation, livestock, and aquaculture may include land and buildings to fulfil the minimum foreign investment value requirement.

Timeline for the Commencement of Commercial and/or Operational Activities

BKPM Regulation 5/2025 now provides for the estimation of commencement of operations and/or commercial activities for various business activities. The estimated timeline is stipulated under Annex II of BKPM Regulation 5/2025.

Article 38(1) of BKPM Regulation 5/2025 defines the estimated period for the commencement of operational and/or commercial activities as the time required by the business actor to carry out preparations, construction/development, up to operations and/or commercialization. It will be used by the OSS body and other authorized institutions in Indonesia to monitor the investment realization. This would mean that PMA Company is expected to realize the investment value prior to the commencement of operation and/or commercial activities.

For instance, food and beverage service shall commence its operational and/or commercial activities after one year if infrastructure development is not needed, and a maximum of three years if infrastructure development is needed. Even though the estimated timeline in this instance states after one year, the commencement of operational and/or commercial activities can begin earlier. However, we need to wait and see how this provision will be implemented.

Strengthened Investment Supervision Measures

In terms of Investment Activity Report (Laporan Kegiatan Penanaman Modal or “LKPM”) obligations, business actors are required to submit reports on the realization of their investment and fulfillment of investment obligations for each business activity and location, which now includes both primary business and supporting business activities. Under BKPM Regulation 5/2025, BKPM strengthens its investment supervision measures by conducting business actor profiling through LKPM. Business actors will have a profile consisting of data sourced from LKPM that is verified and evaluated against specific compliance parameters. It allows BKPM to monitor business operations, identify potential non-compliance, and categorize business actors according to their compliance behavior.

LKPM is processed and evaluated automatically through the OSS system, based on which each business actor is assigned to a compliance score and category (i.e., either very good (81-100), good (60-80), fair (40-59), or poor (0-39)). It becomes a basis for determining the compliance profile of the business actors and follow-up actions, which may include:

1. Coaching/mentoring that is carried out to improve the quality of compliance with the applicable requirements and business licensing;
2. Imposition of administrative sanctions which shall be imposed for business actors with a compliance level of “fair” or “poor”; and/or
3. Field inspections that are conducted through regular and incidental supervision.

BKPM also extends the LKPM submission period by five days, from the 10th to the 15th of each reporting month. Moreover, BKPM Regulation 5/2025 exempts several categories from submitting the LKPM. Previously, micro-scale enterprises, the upstream oil and gas sector, banking and non-banking financial institutions and insurance companies were not mandatorily required to submit LKPM. Now, only micro-scale enterprises and businesses whose financing is sourced from the state revenue and expenditure budget (APBN) or regional revenue and expenditure budget (APBD) are excluded from the reporting obligation.

In terms of the imposition of various administrative sanctions for violations of LKPM submission obligations, BKPM Regulation 5/2025 introduces a new criterion for business actors who specifically fail to submit the LKPM upon investment realization and related obligations. The company would be imposed with structured and tiered administrative sanctions for non-compliance with LKPM reporting requirements if it fails to submit the LKPM for the first time or during the preparation stage, without any additional value of investment realization, for four quarters in a row.

Additional Requirements for Revenue-Generating Supporting Business Activities

Under GR 28/2025, supporting business activities are permitted to generate revenue and are exempt from several administrative requirements, including minimum capital and investment value. However, BKPM Regulation 5/2025 overturns the initial provisions of GR 28/2025 as it stipulates additional requirements for revenue-generating supporting activities, whereby a PMA Company needs to include supporting business activities in its articles of association and needs to meet the minimum investment value and capital requirement if the supporting business activities are considered as a source of funding and generating profit for the company.

Ease of Business Licensing Application without Basic Requirements

GR 28/2025 requires all business actors to fulfil basic requirements (see our previous newsletter for a summary of this government regulation). BKPM Regulation 5/2025 further added the facilitation of the licensing process for businesses operating in shared commercial or service buildings. Now, it allows business actors to utilize the existing spatial and building permits (e.g., PL, PBG, SLF) held by the building owner or manager for obtaining business licenses through the OSS system. This facilitation is provided for business activities in trade or services that do not require the construction of buildings.

Business actors are only required to submit supporting documents, such as a valid lease agreement, the Business Identification Number (“NIB”) of both parties, and copies of the owner’s or manager’s licenses. If the building or complex is managed by the central or regional government, business actors may be exempted from the obligation to attach a NIB and other basic documents during the licensing process.

Accelerated Licensing of High-Risk Business Activities

Business actors engaged in high-risk business activities that are located in Special Economic Zones (KEK), Free Trade Zones (KBE), or Industrial Estates and/or are part of National Strategic Projects are entitled to accelerated business licensing. In general, business actors can obtain a permit marked as issued under the accelerated scheme, allowing them to undertake business preparation activities even if all requirements have not yet been fully met. Subject to subsequent audit or supervision by the relevant authorities, the business actor is still required to fulfill the necessary licensing requirements thereafter.

Transitional Provision

Business actors who have obtained their valid and verified business and supporting licenses prior to the enactment of BKPM Regulation 5/2025 are not required to adjust to the new licensing provisions and may continue to operate based on the provisions of their current licenses. They are exempt from compliance with the new regulation unless the BKPM Regulation 5/2025 offers more favorable conditions.

PMA companies that (i) relocate their business or renew a risk-based business license prior to 2 October 2025 and (ii) expand their business activities under the same approved business license will continue to follow and comply with the capital and minimum investment requirements outlined in the licenses that were issued, verified, and are still valid.

Furthermore, applications for basic requirements, business or supporting licenses, and/or investment facilities that are still being processed in the OSS system before the enactment of BKPM Regulation 5/2025 will continue to be processed in accordance with the previous BKPM regulations.

Conclusion

BKPM Regulation 5/2025 marks the full implementation of Indonesia’s risk-based business licensing reform. Compared to the previous BKPM regulations framework, the BKPM 5/2025 Regulation introduces several enhancements, most notably, it integrates licensing procedures and investment supervision into a single regulation, imposes stricter capital rules through capital retention requirement, introduces greater clarity of investment realization, calibrates LKPM reporting obligations according to business scale and embeds enforcement provisions directly into the licensing framework.

Business actors are advised to pay close attention to the implementation of new investment requirements and ensure compliance with active business licenses as BKPM strengthens its compliance monitoring and supervision framework.