How BKPM Regulation No. 5 of 2025 Reshaped Indonesia’s Investment Landscape

 In July 2025, Indonesia’s Investment Coordinating Board (BKPM) enacted Regulation No. 5 of 2025, aiming to modernize investment procedures—particularly those relating to Foreign Direct Investment (FDI) companies, known locally as PMA (Penanaman Modal Asing). This regulation is part of a sweeping legal reform of the country’s investment framework, influencing key areas such as minimum capital requirements, licensing procedures, and investor activity monitoring. It also aligns with provisions in Government Regulation No. 28/2025 (GR 28/2025), which systematizes business activity classifications and risk levels. In this article, we explore the changes brought by the regulation and what both new and existing investors should expect. --- 

Lowering Minimum Capital Requirements for Foreign Companies

 One of the most impactful changes introduced by Regulation No. 5 is the reduced entry threshold for new PMA companies. Previously, the standard minimum capital requirement stood at IDR 10 billion (approx. USD 630,000). It has now been lowered to IDR 2.5 billion (around USD 160,000), subject to certain conditions. 

What Changed?

• Before: Establishing a PMA company required a minimum capital investment of IDR 10 billion, regardless of industry.
• Now: Companies in specific sectors—particularly innovative and low-risk industries—may launch with a capital of just IDR 2.5 billion.

Who Benefits:

• Small and medium-sized enterprises previously excluded by high capital barriers.
• Tech startups offering online services, EdTech, SaaS, and similar innovations.
• Digital entrepreneurs and so-called digital nomads looking to legitimize their operations.

However, note: Indonesian authorities will closely scrutinize whether the business meets the eligibility criteria and contributes tangible value to the economy. This intends to prevent fictitious registrations under the guise of legitimate operations. --- 

Capital Freezing for Inactive Companies: A New Control Mechanism

 Regulation No. 5 introduces a vital rule to deter speculative or paper-based investments. It targets unused, paid-in capital and is particularly relevant for high-risk sectors such as real estate, finance, and asset management. 

The Restriction Explained:

• If a company fails to commence operations within 12 months of registration, the paid-in capital must remain in the company’s corporate bank account and cannot be withdrawn or redistributed.
• Companies must submit proof of funds and initiate operations within the designated timeframe.

Critical for:

• Property developers establishing PMA companies for future projects with delayed build-out timelines.
• Investment holding firms “parking” capital without plans for immediate rollout.

Expected Outcomes:

• Reduction in “paper” entities set up purely for residency or foreign currency conversion purposes.
• Enhanced business accountability and greater responsibility among foreign founders.

This provision sets high planning standards: companies must have a first-year capital utilization roadmap or be prepared to place funds under bank reservation. --- 

Simplified Licensing Procedures and Risk-Based Classification

 Regulation No. 5 works in synergy with Government Regulation No. 28 of 2025 (GR 28/2025), which formally introduces a risk-based classification for business sectors. This enables investors to clearly identify required licenses and procedures at each stage of development. 

Key Changes:

• Risk level classification: Business sectors are now categorized as low, medium, or high risk, determining the complexity of administrative processes.
• Unified licensing system: The new integrated business license, NIB (Nomor Induk Berusaha), now includes Izin Usaha—the commercial activity permit.
• Online submission: All licensing processes are digitized via the OSS (Online Single Submission) platform.

Advantages for Investors:

• Process transparency, with clarity on sector-specific requirements from the outset.
• Faster turnaround times and reduced documentation errors.
• Legal confidence and a streamlined approach to business compliance.

Nonetheless, implementation challenges may arise—especially in regions with lower digital infrastructure. Investors are advised to consult local legal experts and verify sector risk status via the OSS platform or GR 28/2025. --- 

Support for Existing PMAs: Expansion Conditions

 Existing foreign companies registered as PMAs are also addressed in the updated regulation, particularly regarding business expansion plans. 

Key Provisions of Regulation No. 5:

• When expanding within the same business field and under existing licenses, companies are not subject to increased capital requirements.
• The company will remain within the same NIB and Izin Usaha framework as initially registered.

Business Benefits:

• Encouragement to scale without incurring additional licensing or capital reassessment costs.
• Ease of market, regional, or vertical expansion within the existing corporate structure.

However, a fundamental change in business direction or major expansion may trigger a risk review or necessitate a new license. This should be considered carefully when submitting an expansion notice. --- 

Assessing Regulation No. 5’s Impact: Pros and Pitfalls

 Regulation No. 5 of 2025 is an ambitious attempt to balance liberalization with robust oversight. Its impact on the investment climate can be broken down into key areas: 

Positive Developments:

• Lowered entry barriers through relaxed capital requirements and simplified licensing.
• Procedural standardization—with GR 28/2025 and the OSS platform reducing administrative friction.
• Transparent capital utilization rules reducing abuse and reinforcing accountability.

Potential Challenges:

• Administrative delays at local BKPM offices.
• Difficulty adapting to new frameworks without local consultants.
• Ongoing pressure to demonstrate operational activity, especially in capital-heavy industries.

While Regulation No. 5 does encourage investment, it also necessitates a strategically sound and legally compliant approach. --- 

What Investors Should Know: A Practical Guide

 If you’re planning to establish a business in Indonesia or expand an existing venture, consider the following steps: 

1. Check your sector under GR 28/2025: determine your industry’s risk level and required licenses.
2. Evaluate your capital: are you eligible for the lowered threshold? Note, this doesn’t apply to all sectors.
3. Prepare expenditure justification: to avoid capital freezing, detail how and when funds will be used in year one.
4. Register via the OSS platform: to obtain your NIB and Izin Usaha.
5. Build on current licenses when expanding: avoiding new capital requirements where possible.

Consulting certified legal advisors or licensed PMA registration agents is recommended—especially in complex or innovative cases. --- 

Indonesia Strengthens Its Position as a Transparent Investment Jurisdiction

 With the enactment of Regulation No. 5, Indonesia is signaling readiness for economic transformation. Lower barriers to entry, digitalized platforms, and anti-abuse controls point to a maturing investment climate. This is particularly relevant in the context of regional competition among Southeast Asian nations for foreign capital. Indonesia is positioning itself as a stable launchpad for both multinationals and emerging entrepreneurs. That said, the regulation’s success will depend heavily on its on-the-ground implementation and the agility of public administration. --- 

Frequently Asked Questions

When did Regulation No. 5 of 2025 come into force?

 It became effective on July 1, 2025, and applies to all new PMA registrations from that date. 

What is GR 28/2025?

 A government regulation that classifies business activities by risk level and required licenses. It serves as the operational basis for applying Regulation No. 5. 

Can I set up a company with less than IDR 2.5 billion in capital?

 Yes, but only if the company has exclusively local founders (PMDN). For PMA companies, the IDR 2.5 billion minimum is a mandatory threshold under Regulation No. 5. 

How do I prove capital is being used?

 You’ll need to submit a business plan, bank statements, contracts, purchase receipts, and other documentation proving active operations during year one. --- 

Conclusion

 Regulation No. 5 of 2025 marks a redefinition of the role of foreign capital in Indonesia’s economy. It both opens the door to smaller investors and enforces stricter compliance over how capital is deployed. Indonesia is asserting itself as an ecosystem of stability, digitization, and transparency. But to take advantage of its potential, foreign investors must stay attuned to legal nuances, real-time regulatory shifts, and local interpretations.