Many startup founders ask a similar question:
If my business is a software house, without factories or heavy machinery, am I still required to meet the IDR 10 billion capital requirement for a foreign investment software house?
This question is reasonable. Digital business models are typically lean, spending more on engineering teams and product development rather than on land, buildings, or capital intensive assets.
However, under Indonesia’s investment regulatory framework, a foreign investment company is automatically categorized as a Large-Scale Enterprise and is therefore expected to demonstrate a significant investment commitment.
This creates a structural dilemma. The capital structure of a foreign investment software house must comply with the investment requirement above IDR 10 billion, even though its operational model is largely non-capex and technology-oriented.
This article explains how the regulation works, where flexibility may exist, and practical strategies that allow technology startups to remain compliant without being forced into unnecessary capital asset spending.
Why Is a Foreign Investment Software House Classified as a Large-Scale Enterprise?
Following the implementation of the Omnibus Law and the transition from the Negative Investment List to the Positive Investment List, Indonesia’s approach to foreign direct investment shifted from restriction to regulated market balancing.
The policy objective is to ensure that foreign investors:
- bring technology and knowledge transfer
- create employment opportunities
- and contribute meaningful economic value
For this reason, every foreign investment company is classified as a Large-Scale Enterprise, regardless of team size, early-stage operational structure, or lean startup model.
The government intends to prevent scenarios in which small-scale foreign capital competes directly with local MSMEs.
As a consequence, even a small technology team operating as a foreign investment software house remains subject to an investment commitment of > IDR 10 billion per KBLI business activity, excluding land and building components.
For many startup founders, this figure may seem excessive, particularly when the business only requires a team of engineers, cloud infrastructure, and a small office or virtual office
However, it is important to understand, the IDR 10 billion requirement is not a literal “cash-in on day one” obligation.
Understanding the Capital Structure: IDR 10 Billion vs IDR 2.5 Billion
One of the most common misunderstandings in establishing a foreign investment software house is the assumption that the entire IDR 10 billion must be deposited into the company’s bank account at the time of incorporation.
In practice, the latest regulations distinguish between:
- Investment Commitment Value
- and Paid-Up Capital
The IDR 10 billion functions as an investment commitment, realized progressively during the construction / development phase and reported through LKPM (Investment Activity Reports).
Meanwhile, the actual liquidity obligation at the beginning is, minimum paid-up capital of IDR 2.5 billion, which must be verifiable through financial records.
The investment commitment is also calculated:
- per 5-digit KBLI classification
- per project location
Meaning that if the company operates a single business line, for example, software development, the investment commitment applies to that KBLI. If additional business activities are added later, the total investment commitment may increase.
Therefore, early-stage KBLI selection becomes a strategic decision, ensuring that the capital obligation remains aligned with the company’s growth phase.
In practical terms:
- IDR 10 billion represents a progressive investment commitment reported through LKPM
- IDR 2.5 billion represents verifiable paid-up capital available at incorporation
By understanding this separation, the focus shifts from “depositing IDR 10 billion in cash” toward building a realistic investment realization plan that reflects a non-capex technology business model.
The Challenge of Non-Capex Startup Structures
Indonesia’s investment framework was historically shaped by a manufacturing-oriented mindset.
In the manufacturing sector, achieving IDR 10 billion is relatively straightforward through land acquisition, factory construction, and machinery procurement.
In contrast, a foreign investment software house typically operates with:
- minimal tangible assets
- leased or virtual office facilities
- cloud-based infrastructure
- cost centers dominated by engineering and product development salaries
Under conservative accounting treatment, these operational expenditures are booked as expenses rather than capital assets.
As a result, the recorded investment realization in BKPM reporting may appear low, despite substantial development activity being carried out.
This creates a structural mismatch between how regulations define “investment”, and how digital businesses allocate financial resources.
To bridge this gap, startups need to shift perspective from the notion that:
Investment equals physical assets and machinery
toward the understanding that:
Investment includes the development of intangible assets (software and intellectual property) that may be recognized through capitalisation.
Are There Exceptions Below IDR 10 Billion?
In general, Indonesia’s investment regulation applies a single capital threshold for all foreign investment companies. There is no clause stating that digital startups may operate with an investment value below IDR 10 billion.
Existing exceptions are primarily sector-specific, such as:
- construction activities per project
- food & beverage operations per outlet
- property development per building
Software houses are not included in these automatic exemption categories.
However, certain strategic alternatives may exist, including operation within Special Economic Zones (Kawasan Ekonomi Khusus / SEZ) such as Nongsa Digital Park in Batam, which may offer structural investment flexibility, fiscal incentives, and infrastructure-driven value justification.
Even so, these arrangements remain case-by-case and do not eliminate the fundamental classification of PT PMA as a Large-Scale Enterprise.
Therefore, SEZ structures should be seen as optimization mechanisms, not a shortcut to bypass capital thresholds.
Core Strategy: Capitalising Development Costs as Investment
The most relevant and compliant approach for a foreign investment software house does not lie in negotiating regulatory reduction, but rather in applying appropriate accounting treatment.
This is achieved through Intangible Asset Capitalisation under PSAK 19 (Intangible Assets), aligned with IAS 38 at the international level.
This standard allows companies to:
- capitalise software development expenditure
- recognize it as a corporate intangible asset
- and report it as investment realization in LKPM
Practical Application
Digital product development generally consists of two phases.
The Research Phase involves concept validation, exploration, and market testing. Expenditures in this phase are generally treated as expenses.
The Development Phase involves structured engineering, feature development, and system architecture. Certain expenditures in this phase may be capitalised when specific criteria are met.
Capitalisation is allowed when:
- there is a clear intention to complete and use or commercialize the software
- sufficient technical and financial resources are available
- expenditures can be measured reliably
- and the software is expected to generate future economic benefits
Costs commonly eligible for capitalisation include:
- salaries of engineers assigned to core product development
- development environment server costs
- enterprise-grade licensed tools and frameworks
- system architecture and technical design activities
For example, if a company allocates IDR 500 million per month for development activities and capitalises these costs, then within 20 months the accumulated asset value may reach IDR 10 billion, which can be reported as investment realization.
This allows compliance to be achieved without unnecessary asset purchases, while still reflecting genuine technology development value.
Intellectual Property (IP) Ownership in Group Structures
Many foreign investment software house entities operate as part of a regional or global corporate group.
In such structures, an additional question arises:
- Who holds the economic ownership of the Intellectual Property (IP)?
- Is the Indonesian entity positioned only as a cost center?
If the IP is fully owned by an overseas parent entity and the Indonesian PT PMA functions purely as a coding or delivery unit, capitalisation of development costs in Indonesia may not be permitted.
In that case, the Indonesian entity may only recognize service-based revenue with a transfer-pricing margin.
To ensure that capitalisation remains valid and defensible, the Indonesian PT PMA should hold economic rights or exclusive exploitation rights within a defined market scope, and intercompany agreements must be structured carefully to support that position.
Without appropriate legal and economic alignment, capitalisation strategies risk challenge during BKPM verification or tax review.
XPND Support for Capital Planning & Investment Structuring for Foreign Investment Software House
XPND supports digital businesses and software house entities in designing capital structures, aligning investment commitments, and managing development-cost capitalisation so that they remain compliant with PT PMA regulatory expectations while preserving operational continuity in technology-driven environments.
Through a structured and regulation-aligned approach, we help companies to:
- ensure that paid-up capital and financial flows are clearly recorded and verifiable
- translate software development expenditure into properly documented investment assets
- maintain consistency across financial statements, OSS records, and LKPM reporting during evaluation and monitoring
If your organization is preparing an investment commitment strategy for a foreign investment software house or requires guidance in investment realization reporting for a non-capex business model, the XPND team can assist in reviewing your current position and formulating an implementation approach that aligns with your operational structure and stage of business growth.
