Indonesia has officially reduced the minimum capital requirement for Foreign Direct Investment (FDI) through the Minister of Investment and Downstreaming/Head of the Indonesia Investment Coordinating Board Regulation No. 5/2025. The policy significantly lowers the paid-up capital obligation for foreign-owned limited liability companies (PMA) and forms part of a broader reform under the risk-based business licensing system via Online Single Submission (OSS).

This regulatory change aims to increase global competitiveness, accelerate post-pandemic investment growth, support the digital economy, and expand foreign participation in priority sectors.

Legal Background and Regulatory Framework

In the third quarter of 2025, Indonesia recorded a sharp decline in Foreign Direct Investment (excluding investment in the financial and oil & gas sectors), dropping by 8.9% year-on-year (Rp212 trillion), following a 6.95% decline in the previous quarter. This represents the deepest contraction since Q1 2020, driven by rising U.S. tariffs and weak domestic demand.

To address this challenge, the government introduced Minister of Investment and Downstreaming/Head of the Indonesia Investment Coordinating Board Regulation Number 5 of 2025 on the Guidelines and Procedures for the Implementation of Risk-Based Business Licensing and Investment Facilities through the Electronic Integrated Business Licensing System (OSS) (“Permeninves/BKPM No. 5/2025”), effective 2 October 2025. This regulation streamlines risk-based business licensing through the OSS platform, reinforcing earlier provisions under Government Regulation No. 28/2025 on Risk-Based Business Licensing (“PP 28/2025”).

A key provision of Permeninves/BKPM No. 5/2025 is the reduction of the minimum capital requirement for FDI-based limited liability companies (PMA). This policy is intended to stimulate post-pandemic investment, accelerate growth in the digital economy, and enable foreign participation in smaller but high-potential business domains.

Previously, capital requirements for PMA companies were widely viewed as excessively high, creating a market entry barrier for mid-sized investors and global startups. Many foreign enterprises, despite having significant potential in modern services and digital sectors, were unable to enter the Indonesian market. High minimum capital thresholds were also perceived as reducing Indonesia’s competitiveness relative to other ASEAN jurisdictions.

Economic Rationale Behind the Policy Shift

Article 26 paragraph 1 of Permeninves/BKPM No. 5/2025 requires PMA companies to comply with minimum investment thresholds. For PMA incorporated as limited liability companies, specific minimum capital requirements apply. Article 26 paragraph 10 further stipulates that the mandated minimum paid-up capital is Rp 2,500,000,000 per company. This capital must remain in the company’s bank account for 12 months, except when used to purchase assets, construct buildings, or support operational activities.

The government lowered the capital requirement to accommodate business models that do not rely on substantial physical assets, namely acquisition of assets, construction of building, operational activities of the business entity and modern services industries such as IT, creative industries and digital platforms. This reflects recognition that today’s digital-driven business environment values expertise, technology, and innovation over physical capital. Excessively high capital requirements are no longer relevant and may even discourage foreign investors seeking to build scalable technology-based enterprises in Indonesia.

To implement investment activities, Permeninves/BKPM No. 5/2025 also requires PMA companies to submit an annual activity report, which includes:

3 cooperation contract recommendations
CV of the project manager
CVs of foreign workers
CVs of Indonesian workers assigned as companions to foreign workers
Project organizational structure
Audited financial statements of the parent construction service business entity (BUJK) and its representative office
Legalized copies of SBU and IUJK from cooperating BUJK entities
Latest project progress report signed by the project owner
Payment records to subcontractors
List of materials, distributors, equipment, and supplier distributors

Also read: New regulation for Indonesian foreign investors!

Impacts of the Minimum Capital Reduction for Foreign Companies

The reduction of capital requirements produces direct and indirect impacts on foreign companies, national economic development, and regulatory systems.

Positive Impacts

- Increased foreign investor entry, especially in emerging sectors
- Support for digital economy growth and MSME collaboration
- Job creation and technology transfer
- More competitive and inclusive business ecosystems, as relaxed capital rules not only attract investment but strengthen domestic economic resilience in a digital landscape.

Potential Negative Impacts

Despite its benefits, the policy may also create risks, including:

- Surge in inactive or nominally active companies (shell companies)
- Unfair competition affecting local MSMEs
- Potential misuse of business licenses
Regulatory and Licensing Impacts

The capital adjustment requires the government to refine OSS mechanisms, ensuring stronger risk-based verification. Capital assessment can no longer rely solely on the nominal amount stipulated in the articles of association, but must consider whether the capital correlates with the company’s actual business activities.

Licensing systems must therefore accommodate varying levels of business risk and operational needs. In addition, transparent and periodic reporting of investment realization becomes essential to ensure compliance and business continuity. This is in line with Government Regulation No. 28/2025, which mandates the integration of risk-based licensing into all business licensing processes.

The reduction of the minimum PMA capital requirement from Rp 10,000,000,000 to Rp 2,500,000,000 is in line with ongoing regulatory reform under PP 28/2025, supporting priority economic sectors and foreign investment expansion. Although the policy stimulates positive market competition and promotes digital sector growth, risks such as shell companies necessitate strong oversight, transparent reporting, and strict regulatory compliance.

Ultimately, this reform aims not only to ease market entry for foreign investors but also to strengthen Indonesia’s transformation toward a technology-driven, innovation-based, globally competitive economic structure.***

Also read: Indonesia’s Mining Regulations and Their Impact on Foreign Investors

Regulations:

Peraturan Pemerintah Nomor 28 Tahun 2025 tentang Penyelenggaraan Perizinan Berusaha Berbasis RIsiko (“PP 28/2025”)
Peraturan Menteri Investasi dan Hilirisasi/’Badan Koordinasi Penanaman Modal Nomor 5 Tahun 2025 tentang Pedoman dan Tata Cara Penyelenggaraan Perizinan Berusaha Berbasis Risiko dan Fasilitas Penanaman Modal Melalui Sistem Perizinan Berusaha Terintegrasi secara Elektronik (Online Single Submission) (“Peraturan BKPM 5/2025”).

References:

PMA Indonesia Turun Paling Tajam Lebih dari 5 Tahun. Trading Economics. (Diakses pada 14 November 2025 Pukul 10.12 WIB).
Berbisnis di RI Ribet & Mahal, Pantas Kalah dari Vietnam & Malaysia. CNBC Indonesia. (Diakses pada 14 November 2025 Pukul 10.45 WIB).
BKPM Umumkan Kabar Baik, Modal Minimal PT PMA Turun Drastis dari Rp10 Miliar ke Rp2,5 Miliar!. Kontrak Hukum. (Diakses pada 14 November 2025 Pukul 11.25 WIB).
Biaya Tinggi Menghambat Minat Investasi Asing. InvestaLearning. (Diakses pada 14 November 2025 Pukul 13.08 WIB).

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