Investment climate and trade policy updates in Indonesia

​Indonesia is one of Southeast Asia’s most promising markets, supported by a population of more than 284 million people, making it the world’s fourth most populous country and offering a vast domestic consumer base. Abundant natural resources and a strategic location along some of the busiest global trade routes have helped the country to steadily build its economic profile. In 2024, Indonesia’s nominal GDP reached around $1.40tn, placing it 16th globally, just behind Spain and South Korea, and ahead of Turkey.

    

While these fundamentals remain strong, layers of regulation, sector-specific restrictions, and procedural complexity have at times limited the full potential for foreign investment. In recent years, the government has undertaken a series of reforms to open more sectors, streamline licensing processes, and align domestic standards with international norms. These measures have been complemented by active trade diplomacy, resulting in agreements that expand market access and establish clearer investment rules.

    

The Omnibus Law on Job Creation has been a key element of this reform agenda. Since its implementation in 2021, it has replaced the restrictive Negative Investment List with a more open Positive Investment List, expanded foreign ownership in priority sectors, and introduced the Online Single Submission (OSS) system, a fully digital, risk-based licensing platform designed to reduce administrative steps and improve transparency. Foreign direct investment rose by 44 percent in 2022 to $45.6bn, with a notable share directed towards downstream base-metals industries. 

     

On another front, the Nusantara Capital City Authority, established under the State Capital Act in 2022, is authorized to issue investment permits and to manage spatial planning and land affairs in the new capital area. Under a 2024 presidential regulation, investors may obtain long-term land-use rights in Nusantara through two consecutive terms, up to 190 years for cultivation and up to 160 years for building, with formal land titles issued by the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency upon the Nusantara Capital City Authority’s request, supporting long-term investment in infrastructure, housing, and essential services.

     

Beyond broad liberalization, sector-specific measures have reinforced reform momentum. In early 2025, revisions to the mineral and coal mining law introduced priority for companies that commit to domestic processing, encouraging downstream industrial development. Further changes followed in mid-2025, the Ministry of Trade issued a regulation that removed import licensing for plastic raw materials and simplified requirements for certain chemicals to a surveyor report, easing input constraints for manufacturers. Completing this set of measures, the Indonesian government held a public consultation in July 2025 on a draft regulation to reduce the minimum capital requirement for foreign-owned limited liability companies from IDR 10bn (approx. EUR 526,000) to IDR 2.5bn (approx. EUR 131,500). While no new regulations have been issued as of August 2025, the proposal would help investors align capital and financing structures with regulatory requirements even if the overall minimum investment requirement remains at or above IDR 10bn. 

      

Alongside these domestic reforms, Indonesia’s trade diplomacy has produced notable steps. In July 2025, Indonesia and the United States announced a trade framework that will reduce the US tariff rate on many Indonesian-origin goods to 19 percent, and eliminate tariffs on more than 99 percent of US goods entering Indonesia. The framework also addresses long-standing non-tariff barriers by relaxing local-content requirements, ending pre-shipment inspections, and phasing out restrictive im​port licensing for certain goods. It provides for mutual recognition of standards in designated sectors, enabling US-built vehicles that meet US safety and automotive standards to be imported into Indonesia and granting expedited access for US-approved pharmaceuticals, subject to implementing regulations. Provisions on critical minerals, including nickel and copper, are intended to facilitate exports important to US electric vehicle and renewable energy supply chains. It is not entirely clear whether the Indonesian Authorities will apply such relief from restrictions to trade exclusively to companies domiciled in the US. According to sources from the Indonesian Government, this is currently subject to internal discussions.  

    

Looking to Europe, the EU is Indonesia’s fifth-largest trading partner, with goods trade totaling €27.3bn in 2024. In July 2025, Indonesia and the EU reached a political agreement on the Comprehensive Economic Partnership Agreement (CEPA), concluding negotiations launched in 2016. The negotiating teams of Indonesia and the EU are instructed to finalize the remaining blanks in the draft agreement over the summer. Execution of CEPA is scheduled for late September 2025. Providing that the ratification process by both sides will run smoothly, businesses should enjoy the benefits of CEPA as of early 2027. CEPA will remove duties on about 80 percent of Indonesia’s exports to the EU, covering agricultural goods, seafood, industrial inputs, and manufactured products. The EU will also reduce or eliminate duties on a range of European exports to Indonesia, including machinery, automotive components, chemicals, and processed foods. In addition to tariff reductions, CEPA includes provisions on services and investment, technical barriers to trade, intellectual property, digital trade and cross-border data flows, dispute settlement, customs cooperation, good regulatory practices, and sustainable development commitments relating to labor and the environment.

     

Foreign investors have long viewed Indonesia as a complex market, as reflected in the OECD’s 2024 Services Trade Restrictiveness Index and the World Bank’s 2023 Logistics Performance Index. In this context, the policy framework is now clearer in several areas. The positive investment list has been in force since 2021, and risk-based online licensing has operated since August 2021, standardizing which sectors are open and how permits are issued. 2025 marks a significant year as the Indonesian government is further streamlining its foreign direct investment rules. 

     

Taken together, these measures should offer foreign investors a more predictable basis for pricing, capital-expenditure planning, and supply-chain design for their investments and business operations in Indonesia, the biggest economy in Southeast Asia.