Update on Indonesia´s Licensing Framework

Consistent with the mission of improving Indonesia's framework for foreign direct investment (FDI), the Indonesian Government recently revised their business licensing framework through Government Regulation No. 28 of 2025 ("GR 28/2025"), replacing Government Regulation No. 5 of 2021. This revision reflects the government’s ongoing efforts to simplify licensing procedures, enhance transparency, and improve the investment climate.

In line with GR 28/2025, the Ministry of Investment and Downstream Industry/Investment Coordinating Board ("BKPM") - acting as the coordinator for several ministries - issued the implementing regulation for GR 28/2025, namely Head of BKPM Regulation No. 5 of 2025 ("Regulation 5") which came into effect on 2 October 2025.

This regulation consolidates previous provisions into a single framework and introduces key improvements, including streamlined licensing procedures, clear timelines for each licensing stage, stricter corporate compliance monitoring, enhanced OSS system integration with new subsystems, and fast-track licensing for designated zones and strategic projects.

One of the most notable changes is the significant reduction in mandatory paid-in capital required for establishing a foreign investment company in Indonesia (PT PMA), from IDR 10 billion to IDR 2.5 billion. In addition, to enhance certainty, the government will also gradually implement a 'Fictitious-Positive' mechanism in various sectors. Under this mechanism, an application will automatically be approved if the competent Indonesian Authority does not provide any feedback within a specified timeframe.

The relevant changes in a nutshell

Below are the key updates relevant to foreign investors looking to invest in Indonesia.

No.	Subject	Previous Regulations	Head of BKPM Regulation No. 5 of 2025
1	Minimum Paid-up and Subscribed Capital	Minimum IDR 10 billion	Reduced to IDR 2.5 billion
2	Capital Lock-in Period	Not regulated	Except for asset acquisition, building construction, and operational expenses, the paid-in capital must remain in the company’s bank account for at least 12 months after it has been deposited.
3	Source of Investment Funding	Not regulated	Companies must declare the source of investment which may comprises of capital, loans, reinvested profits, and/or share premium.
4	Supporting Business Activity	Not clearly defined - must support main activity and not generate income	Clearer definition available: The supporting business activity must have a different Business Classification Code (locally known as "KBLI") from the main business activity, and may generate income.
5	Fast-track Licensing	Not regulated	Fast-track licensing is available for companies in Special Economic Zones, Free Trade Zones, Industrial Zones, or involved in National Strategic Projects. Licenses are issued upfront, but companies must still fulfil post-licensing requirements.
6	Extension of Investment Reporting Deadline	Quarterly no later than the 10th of the following month after each quarter ends	Extended to 15th of the following month after each quarter ends

Consequences for existing PT PMAs

PT PMAs that have already obtained valid and verified business licenses may continue operating under their existing licenses without further action. However, PT PMAs that have not yet registered their licenses on the latest licensing platform are required to re-register to ensure their license information is current and compliant.

For PT PMAs whose licenses have expired or are not yet effective, new licensing applications must be submitted in accordance with the prevailing regulations.

In addition, PT PMAs that have previously fulfilled the IDR 10 billion paid-up capital requirement are strongly advised to maintain their existing capital structure and refrain from reducing it to the new minimum threshold of IDR 2.5 billion. While Regulation 5 does not explicitly prohibit such a reduction, our understanding—based on consistent feedback from BKPM during offline consultations and socialization sessions—is that such action would not be well received.

Why does this matter

The recent reduction in Indonesia’s minimum capital requirement—from IDR 10 billion to IDR 2.5 billion—removes a key barrier for foreign direct investors seeking market entry. In our conversations with potential investors, particularly from Europe, we’ve frequently heard concerns about the need to invest IDR 10 billion (approximately EUR 520,000) upfront. Many prefer a more flexible approach, gradually funding their Indonesian operations to meet the minimum investment requirement of more than IDR 10 billion (which remains unchanged and should not be confused with the minimum capital requirement).

With the new regulation in place, investors now have greater flexibility in structuring their financing. This includes the option to combine equity with (shareholder) loans, allowing for a more tailored and strategic investment approach.