BKPM Regulation No. 5 of 2025: A Practical Guide to Indonesia’s New Risk Based Business Licensing System

The issuance of BKPM Regulation No. 5 of 2025 marks a major transformation in Indonesia’s investment and business licensing framework. 

Officially introduced by the Ministry of Investment and Downstream Industry (Kementerian Investasi dan Hilirisasi) through the Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM), this regulation serves as a comprehensive guideline for implementing risk based business licensing through the Online Single Submission (OSS) system.

Rather than being a procedural update, BKPM Regulation No. 5 of 2025 reflects a structural shift in how Indonesia manages investment compliance. The government now emphasizes quality investment, long term commitment, and automated supervision instead of merely facilitating market entry.

As businesses move into 2026, understanding how this regulation affects capital requirements, reporting obligations, sector classifications, and enforcement mechanisms has become critical for both foreign and domestic investors.

Legal Framework of BKPM Regulation No. 5 of 2025

BKPM Regulation No. 5 of 2025 functions as a technical implementation rule derived from Indonesia’s Job Creation Law (Undang-Undang Cipta Kerja) and Government Regulation No. 5 of 2021 on risk based licensing.

One of its main objectives is to consolidate previously fragmented licensing rules into a single regulatory ecosystem within the updated OSS Risk Based Approach (OSS RBA) system.

This regulation also operates in parallel with new corporate administration rules issued by the Ministry of Law and Human Rights, ensuring real time synchronization between company establishment data and licensing profiles.

In practice, this means:

• Corporate data in the AHU (Administrasi Hukum Umum) system must match OSS records
• Licensing risk profiles are continuously monitored
• Compliance is evaluated through automated cross agency systems

This integration significantly reduces manual processes while increasing regulatory enforcement.

New Capital Requirements for Foreign Investment Companies under BKPM Regulation No. 5 of 2025

One of the most impactful changes introduced by BKPM Regulation No. 5 of 2025 concerns capital requirements for foreign owned companies (Penanaman Modal Asing or PMA).

Lower Paid Up Capital Threshold

Under previous regulations, PMA companies were generally expected to inject paid up capital equivalent to IDR 10 billion.

The new regulation reduces the minimum paid up capital to:

IDR 2.5 billion

This move aims to attract medium scale investors, startups, and technology driven companies that may not require large initial cash commitments.

Investment Value Obligation Remains

Despite the lower paid up capital, the total investment value requirement remains:

More than IDR 10 billion per business classification (KBLI) per location

This creates a two tier system:

• Easier market entry through lower initial capital
• Strong obligation to realize substantial investment over time

Compliance with this investment realization is monitored through periodic investment activity reports (Laporan Kegiatan Penanaman Modal or LKPM).

Introduction of the Capital Locking Period

To prevent abuse of the lower capital threshold, BKPM Regulation No. 5 of 2025 introduces a mandatory capital locking mechanism.

Paid up capital must remain within the company’s bank account for:

12 months

During this period, funds may only be used for legitimate operational purposes such as:

• Equipment purchases
• Facility development
• Employee salaries
• Office rent and utilities

Transferring funds back to shareholders is strictly prohibited and may lead to license revocation or legal consequences.

This policy ensures that investment commitments reflect real business activity rather than administrative formality.

Updated Investment Components by Sector

The regulation also clarifies which assets can be counted toward the IDR 10 billion investment requirement.

In most sectors:

• Land and buildings are excluded

However, exceptions apply for industries where property constitutes the main production asset, such as:

• Real estate development
• Hospitality and accommodation
• Agriculture and plantations
• Aquaculture

For example, restaurant businesses cannot include property purchases as investment value, while plantation companies may count land acquisition as part of their investment.

This sector specific approach improves fairness and prevents artificial inflation of investment figures.

Expansion of Business Sectors Under KBLI 2025

BKPM Regulation No. 5 of 2025 adopts the updated Indonesian Business Classification (KBLI 2025), which introduces clearer recognition of emerging industries.

Key newly emphasized sectors include:

Green Economy and Carbon Trading

The regulation formally integrates:

• Carbon trading activities
• Renewable energy projects

This provides legal certainty for investors participating in environmental markets and sustainability initiatives.

Digital Economy and Data Infrastructure

Sectors such as:

• Fintech services
• Data centers
• Cloud computing infrastructure

are now explicitly classified, with corresponding licensing risk levels and compliance standards.

This reflects Indonesia’s growing focus on digital sovereignty and technology driven investment.

Mandatory Supporting Business Classifications

A major administrative change under BKPM Regulation No. 5 of 2025 is the requirement to declare supporting business activities (Supporting KBLI).

Previously, companies often registered only their primary revenue generating activity.

Now, businesses must also declare:

• Internal logistics operations
• Distribution activities
• After sales services
• Training units

Failure to list these supporting activities may trigger compliance issues during audits, tax reviews, or customs inspections.

This enhances transparency across supply chains and operational structures.

Automated Compliance Monitoring and Sanctions under BKPM Regulation No. 5 of 2025

Perhaps the most transformative aspect of BKPM Regulation No. 5 of 2025 is the introduction of fully automated compliance monitoring.

The OSS system now integrates data from:

• Tax authority (Direktorat Jenderal Pajak)
• Environmental compliance platforms
• Spatial planning databases
• Customs and import systems

Graduated Sanctions Mechanism

Violations are processed digitally through:

• Electronic warnings
• Temporary suspension of Business Identification Number (NIB)
• Permanent license revocation

This system removes discretionary enforcement and significantly increases compliance pressure. Even tax reporting inconsistencies can directly impact business licensing status.

New LKPM Reporting Timeline

Investment activity reports (LKPM) now have a revised submission deadline:

15th of the following month

Although slightly extended, verification standards are stricter due to cross system data matching.

Businesses must ensure:

• Financial data aligns with tax filings
• Import figures match customs declarations
• Investment realization reflects actual capital usage

LKPM is no longer a formality but a central compliance instrument.

Transitional Compliance Deadlines

Existing businesses must complete regulatory migration by specific deadlines:

• November 2025: Regulation becomes effective
• April 2026: OSS profile synchronization deadline
• May 31, 2026: Full migration to OSS RBA 1.2 and KBLI 2025

Failure to update business data may result in automatic license cancellation.

This transition period effectively serves as a mandatory compliance audit window.

Strategic Implications for Investors

BKPM Regulation No. 5 of 2025 sends a clear message: Market entry is easier, but compliance expectations are significantly higher.

Key recommendations for businesses include:

• Conduct immediate legal compliance reviews
• Align KBLI classifications with actual operations
• Prepare structured capital utilization plans
• Establish disciplined LKPM reporting processes
• Assign dedicated OSS compliance officers

For new PMA entities, financial planning should anticipate both the capital lock requirement and long term investment realization obligations.

Navigating BKPM Regulation No. 5 of 2025 with XPND as Your Strategic Partner

The implementation of BKPM Regulation No. 5 of 2025 introduces a more structured, data driven, and tightly supervised investment environment in Indonesia. While the regulation opens wider access for foreign investors through lower initial capital requirements, it also demands a higher level of regulatory discipline, accurate reporting, and continuous compliance across multiple government systems.

For foreign companies planning to enter the Indonesian market, navigating this new licensing framework can be complex. From structuring paid up capital correctly, aligning business classifications under KBLI 2025, managing capital locking obligations, to ensuring consistent LKPM reporting, every step now directly impacts licensing validity and operational continuity.

XPND supports foreign investors throughout this entire process by providing strategic guidance, regulatory structuring, and ongoing compliance management under BKPM Regulation No. 5 of 2025. With deep expertise in Indonesia’s investment framework and OSS based licensing system, XPND helps businesses establish their PT PMA efficiently while minimizing regulatory risks.

By partnering with XPND, foreign companies gain a reliable local advisor to navigate licensing requirements, optimize investment structures, and maintain long term compliance in Indonesia’s evolving regulatory landscape.