Indonesia Introduces a Consolidated Framework for Risk-Based Business Licensing and Investment Facilities
Key Changes under BKPM Regulation No. 5 of 2025
The Ministry of Investment and Downstream Industry, acting through the Investment Coordinating Board (BKPM), has enacted BKPM Regulation No. 5 of 2025 concerning the implementation of risk-based business licensing and investment incentives via the Online Single Submission (OSS) system.
This regulation represents a structural consolidation of Indonesia’s investment licensing regime. Several prior BKPM regulations—previously governing system integration, procedural standards, and supervisory mechanisms—have now been revoked and unified under a single regulatory instrument. The intent is to enhance regulatory clarity, reduce fragmentation, and align licensing practices more closely with the Risk-Based Approach (RBA) mandated by Indonesia’s Job Creation Law framework.
Among the most consequential changes are:
- a substantial reduction in the minimum paid-up capital for foreign investment companies (PMA),
- the introduction of a mandatory capital lock-up period,
- new rules governing supporting business classifications (KBLI), and
- revised investment reporting (LKPM) deadlines.
This article highlights the principal regulatory developments most relevant to foreign and domestic investors.
1. Revised Paid-Up Capital and Minimum Investment Thresholds for PMA Companies
Lower Paid-Up Capital Requirement
Under the new regulation, the minimum paid-up capital for a foreign-owned limited liability company (Perusahaan Penanaman Modal Asing – PMA) has been reduced from IDR 10 billion to IDR 2.5 billion, unless a higher threshold is imposed by sector-specific legislation.
This policy shift significantly lowers the initial capital barrier for foreign investors, particularly for service-based or technology-driven enterprises with lighter asset requirements.
Minimum Investment per KBLI Remains in Place
Despite the reduced paid-up capital, the minimum total investment requirement remains unchanged at IDR 10 billion per 5-digit KBLI code per business location.
A notable enhancement under BKPM Regulation 5/2025 is the expanded scope of assets that may be counted toward this investment threshold. For certain capital-intensive sectors, the value of land and buildings may now be included in the calculation.
Eligible sectors include:
- property development (construction, sale, and leasing),
- hospitality and accommodation services (short- and long-term),
- agriculture,
- plantations,
- livestock,
- aquaculture.
Previously, land and building values were recognized only for limited real estate development activities. The broader inclusion reflects a more realistic appreciation of capital structures in land-dependent industries.
2. Mandatory 12-Month Lock-Up Period for Paid-Up Capital
Although the paid-up capital requirement has been lowered, BKPM Regulation 5/2025 introduces a mandatory 12-month lock-up period.
Key points:
Paid-up capital must remain in the company’s bank account for at least 12 months from the date of placement.
Funds may only be withdrawn for legitimate business purposes, such as:
- asset acquisition,
- construction,
- operational expenditures.
Compliance is declared through a self-statement submitted via the OSS system.
Failure to observe this lock-up obligation may result in administrative sanctions, ranging from formal warnings to revocation of business licenses.
This provision aims to prevent artificial capital injections and ensure that declared investment funds are genuinely deployed in Indonesia’s real economy.
3. Supporting KBLI Must Be Reflected in Corporate Documents When Revenue-Generating
Indonesian companies may operate under multiple business classifications (KBLI), consisting of:
- a Main KBLI, and
- one or more Supporting KBLIs.
- Supporting KBLIs typically cover ancillary or internal activities that do not independently generate revenue.
Under previous practice, supporting KBLIs only needed to be registered in the OSS system and did not have to appear in the company’s Articles of Association (AoA).
New Requirement under BKPM Regulation 5/2025
- If a Supporting KBLI begins to generate income or profit, it must:
- be formally included in the company’s AoA via notarial amendment, and
- independently satisfy the minimum investment requirement of IDR 10 billion per KBLI per location.
Companies are therefore encouraged to:
- audit their registered KBLIs in the OSS system,
- assess whether any supporting activities have evolved into revenue-generating operations, and
- convene a General Meeting of Shareholders (GMS) where amendments are required.
This change strengthens alignment between corporate documentation and actual business activities.
4. Updated Deadlines for Investment Activity Reports (LKPM)
Reporting Frequency Remains Unchanged
The obligation to submit Investment Activity Reports (Laporan Kegiatan Penanaman Modal – LKPM) continues as follows:
- Small-scale businesses: twice per year (semester-based),
- Medium and large-scale businesses, including PMA companies: quarterly.
- Extended Submission Deadlines
BKPM Regulation 5/2025 provides modest deadline extensions, offering businesses greater administrative flexibility.
The LKPM obligation applies throughout all phases of business preparation and operation. However:
- Micro enterprises, and
- businesses financed by central or regional government budgets
- are exempt from LKPM reporting.
Additional Regulatory Context: OSS-RBA and Investment Governance
BKPM Regulation 5/2025 operates within Indonesia’s broader OSS Risk-Based Approach (OSS-RBA) system, introduced following the Job Creation Law (Law No. 11 of 2020, as amended).
Key objectives of OSS-RBA include:
- shifting licensing requirements from permit-heavy approvals to risk profiling,
- emphasizing post-licensing supervision rather than pre-approval barriers,
- improving Indonesia’s competitiveness as a regional investment destination.
The new regulation reinforces these goals by simplifying capital entry while strengthening compliance, transparency, and accountability mechanisms.
Frequently Asked Questions (FAQ)
1. Does the reduction in paid-up capital eliminate the IDR 10 billion investment rule?
No. The paid-up capital and minimum investment are separate requirements. While paid-up capital is reduced to IDR 2.5 billion, the total investment threshold per KBLI generally remains IDR 10 billion.
2. Can paid-up capital be used immediately after injection?
Yes, but only for legitimate business purposes such as operations, asset purchases, or construction. Arbitrary withdrawals within the first 12 months are prohibited.
3. What happens if a supporting KBLI generates revenue but is not included in the AoA?
The company may be deemed non-compliant and could face administrative sanctions. An amendment to the AoA is mandatory once the activity becomes revenue-generating.
4. Are land and building values always counted toward investment?
No. They are only eligible for inclusion in specific sectors explicitly recognized under BKPM Regulation 5/2025.
5. Is LKPM reporting required even if the company is not yet operational?
Yes. LKPM obligations apply during both the preparation and operational stages, unless the business qualifies as micro-scale or government-funded.
Conclusion
BKPM Regulation No. 5 of 2025 marks a strategic recalibration of Indonesia’s investment licensing regime. By lowering entry barriers while tightening governance and reporting standards, the regulation seeks to attract credible investors, discourage speculative structures, and promote sustainable capital deployment.
For foreign and domestic investors alike, early legal review and proactive compliance—particularly in relation to capital placement, KBLI structuring, and LKPM reporting—are essential to fully benefit from the new framework while avoiding regulatory exposure.
No comments:
Post a Comment