In a bold step to boost foreign direct investment (FDI) and streamline business licensing, Indonesia’s Investment Coordinating Board (Kementerian Investasi dan Hilirisasi/Badan Koordinasi Penanaman Modal or “BKPM”) issued BKPM Regulations No. 5 of 2025 on Guidelines and Procedures for the Implementation of Risk-Based Business Licensing and Investment Facilities through the Electronically Integrated Business Licensing System (Online Single Submission) (or “BKPM Reg. 5/2025”) on October 2025. This Reform significantly lowers capital entry barriers for foreign-owned companies eyeing the Indonesian market.

A.   Highlights of the New Regulatory Framework

The standout shift is the minimum paid-up capital requirement for a foreign direct investment company  (Perusahaan Penanaman Modal Asing or “PT PMA”) now lowered from IDR 10 billion (approx. USD 640,000) to IDR 2.5 billion (approx. USD 160,000).

However, the overall minimum investment value per five digit Indonesia Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or  “KBLI”) per location remains above IDR 10 billion for most sectors, meaning the total project investment requirement persists even as cash capital requirement shrink.

Another important adjustment is that the cash deposit must remain in the company’s bank account for at least 12 months (unless used for tangible assets, construction, or operational costs). Also noteworthy is the broader recognition of land and building value in specific sectors (such as property development, agriculture, aquaculture) for investment calculation.

Furthermore, the regulation consolidates previous licensing rules into a unified risk based business licensing framework via the Online Single Submission system (“OSS System”), simplifying the permit process

B.   Key Implications of the New Regulation 

The first key improvement is the reduction in upfront capital addresses a long standing barrier for mid-size and capital-light foreign investors. The prior IDR 10 billion requirement made Indonesia comparatively challenging among regional peers.

Another notable change is the recognition of tangible assets (including land/buildings) as part of the investment quota in certain sectors, the regulation allows more flexible investment models and reduces idle cash.

This reform also enhances Indonesia’s competitive positioning of Indonesia an investment destination. According to the United Nations Conference on Trade and Development (UNCTAD), the measure is a form of liberalisation that aligns with global trends.

Nevertheless, the regulation also demands greater compliance discipline stuck funds, accurate investment activity reporting (Laporan Kegiatan Penanaman Modal or “LKPM”), and licensing risk if mismanaged.

C.   Practical Tips for Investors & Businesses

     1.  Review Corporate Structures and Investment Plans

For the establishment or expansion of a PT PMA, reassess the paid up capital obligation and ensure that KBLI classifications are correctly aligned  with the intended business activities.

    2.  Ensure Compliance  With the Lock-up Rule

The deposited IDR 2.5 billion must remain in the company’s bank account for at least 12 months unless used for permitted purposes such as construction, operational expenses, or asset acquisition.

    3.  Verify Land and Building Eligibility

In sectors such as property development or agriculture, confirm whether the value of land and buildings can be included in the minimum investment calculation.

    4.  Maintain Update OSS System and Licensing Information

Under the risk based licensing system, faster decision times come with greater automation errors or incomplete data entries may lead to automatic rejection or sanctions.

    5.  Submission of periodic LKPM remains mandatory. Non-compliance can lead to  administrative supervision or other enforcement measures.

    6.  For multi-KBLI business activities, subsidiary structures, or complex asset contributions, Professional legal guidance is strongly recommended to 

ensure compliance under the new regulatory framework.

D.    Conclusion

BKPM Reg 5/2025 marks a pivotal development in Indonesia’s Investment landscape. By lowering the entry barriers, expanding the definition of capital contributions, and simplifying licensing through the OSS System, the regulation makes Indonesia a far more attractive and accessible destination for foreign investors.

However, this newfound flexibility is balanced by a stronger emphasis on accountability and compliance. BKPM Reg 5/2025 introduces a more structured and transparent compliance framework that demands careful attention, proper documentation, and continuous monitoring from investors.

In this evolving environment, companies are encouraged to reassess their investment structures, ensuring that they not only capture the opportunities presented by the new regime but also maintain robust compliance mechanisms that stand up to regulatory scrutiny. To conclude, several important points should be noted regarding the application of BKPM Reg 5/2025 as the key takeaways and practical implications for PRS clients and investors.

     (i) Foreign Investment Structure:

While the paid-up capital requirement has been lowered (a welcome development for foreign investors), the minimum total investment threshold of IDR 10 billion remains in place. Accordingly, companies must carefully plan their capital structure to ensure compliance while maintaining commercial efficiency.

    (ii) LKPM Reporting Obligations:

Businesses that were previously exempt from LKPM (Investment Activity Report) requirements should verify whether they are now included under the updated regime. Non-compliance may result in administrative sanctions, so a prompt compliance review is strongly advised.

   (iii) Investment Incentives and OSS System Integration:

The process for applying for investment facilities and incentives has become more formalised, including submission, verification, and approval through the OSS System. Companies should ensure that their internal workflow and documentation align with the OSS System’s Framework and service-level agreement (SLA) requirements to avoid procedural delays.

   (iv) Transition and System Alignment:

Existing licences and approvals remain valid. However, companies may need to update access rights within the OSS System and ensure consistency with the new regulatory platform. A transition audit can help identify potential gaps in system integration or reporting.

   (v)  OSS System Upgrade:

With the upgraded OSS System now in effect, businesses must ensure their data, access credentials, and reporting mechanisms are properly aligned. Proactive system compliance will help avoid disruptions in future filings and approvals.

In summary, while BKPM Reg 5/2025 brings greater flexibility and opportunities for investors, it also introduces a more structured and transparent compliance environment. Companies are encouraged to review their current investment frameworks, update their internal systems, and ensure readiness under Indonesia’s evolving regulatory regime.

Indonesia holds a vast portfolio of State Owned Assets worth around IDR 13,692 trillion (as of end 2024) including land, buildings, infrastructure, machinery, and facilities of high economic value. Many remain underutilized, representing untapped revenue and growth potential. The legal framework enables State Owned Enterprises (or Badan Usaha Milik Negara “BUMN”), Regional Government-Owned Enterprises (or Badan Usaha Milik Daerah “BUMD”), and private companies to partner with the Government to optimize these assets, boosting infrastructure, productivity, investment, and mutual economic benefits.

A.   GOVERNING LAWS 

Indonesia manages State Owned Assets under a strict legal framework to safeguard value while ensuring transparency, accountability, and compliance, based on complementary regulations including Law No. 17 of 2003 on State Finance (“Law 17/2003”), Government Regulation No. 28 of 2020 on the Management of State Owned/Regional Owned Assets (“GR 28/2015”), Presidential Regulation No. 38 of 2015 on Public-Private Partnerships in Infrastructure Provision (“PR 38/2015”), and Minister of Finance Regulation No. 115/PMK.06/2020 on the Utilization of State Owned Assets (“MoF Reg. 115/2020”). Unused assets may be commercially utilized under regulated schemes, with ownership retained by the State, while providing legal certainty for public and private partners to invest, mitigate risks, and support sustainable, mutually beneficial cooperation.

B.   PURPOSE OF THE ULTILIZATION AGREEMENT

Many State Owned Assets such as land, buildings, and infrastructure, remain underutilized despite Indonesia’s position as the largest economy in ASEAN, ranking first with a GDP of approximately USD 1.4 trillion, representing about 35% of the region’s total output, yet its GDP per capita stands at just $5,000, lower than regional peers like Malaysia or Thailand. Manufacturing currently contributes around 19% to Indonesia’s GDP, while services account for more than 43%, a structure that lags behind some regional peers where manufacturing exceeds 20-25%.  Strengthening the manufacturing sector through effective asset utilization is crucial to diversify the economy, increase value added production, enhance competitiveness, and sustain long term growth. 

C.   LEGAL FRAMEWORK AND SCHEMES FOR THE ULTILIZATION OF STATE OWNED ASSETS 

       I.   Parties Involved 

The cooperation agreement shall be entered into between the Government and the Private Partner, with the prior approval  of the Director General at the Ministry of Finance, to utilize State Owned Assets that are not currently needed by government offices in order to increase their value and generate revenue for the State without changing ownership. This process involves several parties with distinct roles and authorities under applicable laws and regulations, namely:

(i) Asset Administrator, the Minister of Finance, as Asset Administrator, holds strategic authority to set policies, approve or reject utilization requests, and oversee implementation to ensure legal compliance and optimize the economic value of State assets;

(ii) Asset User, an Asset User is a Minister or head of a government institution responsible for identifying potential assets, requesting their utilization, executing agreements within their authority, and ensuring use aligns with the agreement without disrupting public services; and

(iii) Private Partner, a Private Partner can be a State Owned, BUMN, BUMD, or private (local or foreign) company that helps fund, develop, and manage State Owned Assets. They must follow the contract, run operations properly, and obey the law. Most partners are chosen through a tender, but for key assets like airports or ports, the government can directly appoint State or BUMD or their subsidiaries.

The utilization of State Owned Assets shall be carried out by the Asset User through the identification of unused or underutilized assets, followed by submission to the Directorate General of State Assets (or “DGSA”) for approval of the utilization scheme, determined based on asset value, purpose, and investment needs. The Private Partner shall be selected through a tender process or direct appointment for certain strategic assets. Strategic assets that require a tender process include the utilization of vacant land for the development of shopping centres, hotels, and other commercial buildings, as well as the use of infrastructure assets for public services such as ports, toll roads, and airports. Best practices for such tender processes include ensuring transparency, applying clear technical and financial criteria, engaging independent oversight, conducting market sounding, and adopting a value-for-money approach that considers long term public benefits.

       II.   Ultilization Schemes (Minister of Finance Regulation No. 115/PMK.06/2020)

State Owned Asset utilization under MoF Reg. 115/2020 can take various forms, including:

(i)  Lease, this scheme leases unused State Owned Assets to private parties for up to 5 years, or up to 50 years for infrastructure projects;

(ii) Cooperative Utilization Agreement, this scheme allows private use of State Owned Assets for up to 30 years, or up to 50 years for infrastructure projects;

(iii)  Build Operate Transfer (BOT), this scheme lets private parties build on State land and transfer the facility to the State after operating it for up to 30 years, non-extendable;

(iv)   Build Transfer Operate (BTO), similar to BOT, this scheme transfers the asset to the State upon completion to ensure State ownership while granting the private partner agreed utilization rights;

(v)  Infrastructure Provision Cooperation, this scheme is a Public-Private Partnership where the private party finances, builds, and/or operates public infrastructure for up to 50 years (extendable) to develop and manage key facilities such as toll roads, ports, airports, and water systems; and

Limited Infrastructure Financing Cooperation, this scheme monetizes State Owned Assets by requiring the private partner to make an upfront payment for the right to manage and improve them, providing the State with immediate funds for strategic projects without waiting for new budget allocations.

D.   CRUCIAL COMMERCIAL AND LEGAL ASPECTS 

All payments from the use of State Owned Assets including rent, fixed contributions, profit sharing, or other agreed forms must be paid into the State Treasury as Non-Tax State Revenue (or Penerimaan Negara Bukan Pajak “PNBP”).  All proceeds from the utilization of State Owned Assets shall be deposited into the State General Cash Account, which is managed by the Minister of Finance in their capacity as the State General Treasurer.

Key commercial and legal aspects to consider include:

(i)  Risk Allocation

State Owned Asset Utilization Agreements must clearly allocate construction, operational, market, and regulatory risks covering issues such as delays, service disruptions, revenue fluctuations, and legal changes. These should be assigned to the parties best positioned to manage them, ensuring effective risk management and project continuity.

(ii)  Protection of Public Interest

State Owned Asset utilization must prioritize public interest, maintain service quality and continuity, comply with laws, and uphold public order, morality, and national interests to ensure economic optimization aligns with constitutional goals for public prosperity.

(iii)  The Critical Role of Legal Advisory

Given the complexity of regulations, partner selection, and contractual obligations in State Owned Asset Utilization, legal advisory is key to project success. Law firms add value by:

i.  Conducting legal due diligence on asset status, disputes, restrictions, and project feasibility;

ii.  Drafting and negotiating compliant agreements covering rights, obligations, payments, risk allocation, and dispute resolution; and

iii.  Ensuring compliance with state finance rules, managing legal risks, and protecting client interests.

Integrated legal support from planning to execution minimizes disputes, ensures legal certainty, and keeps projects on track.

E.   BENEFITS FOR PRIVATE PARTNERS 

With legal certainty and flexible schemes, partnerships in State Owned Asset utilization offer businesses strategic benefits, including:

(i)  Access to Strategic Assets, private partners can use government owned land, buildings, and infrastructure in strategic, high value locations;

(ii)  Long Term Rights with Legal Certainty, partnerships come with clear legal agreements allowing private partners to manage assets for up to 50 years, giving stability for long term planning and investment;

(iii)  Oppurtunity to Participate Major Infrastructure Projects, these partnerships give businesses the chance to help develop and manage important national infrastructure projects; and

Predictable Returns on Investment, the return on investment is structured clearly through user fees, government payments, or profit sharing making future income more predictable and reducing financial risk.

F.   DISPUTE RESOLUTION 

Given the long term nature of State Owned Asset utilization, agreements must include clear dispute resolution mechanisms starting with negotiation and, if needed, proceeding to arbitration or court with arbitration often favoured in high value projects for its speed, confidentiality, and expert adjudication, thereby ensuring legal certainty, preserving partnerships, and maintaining project continuity.

E.   CONCLUSION 

The utilization and management of State Owned Assets offer businesses a strategic opportunity to partner with the Government in high value projects that advance economic growth and infrastructure development. A strong legal framework safeguards State ownership while ensuring legal certainty and investment protection for private partners. However, private partners must exercise caution to ensure that agreements are signed by the authorized official/institution representing the state as the legal owner of the assets. If executed with an unauthorized party, such agreements may be deemed null and void by law, exposing private partners to significant legal and financial risks.  With experienced legal advisors guiding planning, due diligence, contract drafting, compliance, and dispute resolution, agreements can be structured to maximize value, protect interests, and ensure sustainability thus optimizing asset potential and contributing to Indonesia’s long term economic prosperity.

A. INTRODUCTION

Indonesia, as a country with a population of more than 250 million, intends to attract many foreign education institutions to establish higher education such as universities or its equivalent, or make cooperation with local education institutions. This comes with some purposes, some of them are to escalate national education and to attract international students to pursue education in Indonesia.

The establishment of an educational institution must comply with the applicable regulations on the organization and management of educational institutions. In Indonesia, in establishing a Foreign University, its stakeholders (whether individual or legal entity) must form a foundation as a legal entity to run the educational activities. Since educational activities in Indonesia shall be owned by a Foundation, thus educational institution such as a school and university must not aim to generate profits.

B. KEY POINTS ON ESTABLISHING FOREIGN UNIVERSITY

I. Governing Laws

There are considerations that need to be taken by Foreign University stakeholders when establishing a Foreign University in Indonesia. The following are some of the considerations in order to fulfill the provisions under governing laws:

Establishment of the Foreign University in Indonesia is subject to Law No. 12 of 2012 on Higher Education (“Higher Education Law”) and its implementing regulations. Still under the same law, Foreign University must be incorporated by the organizing body which must operate as a non-profit organization such as foundation[1]. Foundation in Indonesia must be operated in compliance with the Law No. 28 of 2004 on the Amendment of Law No. 16 of 2001 on Foundation (“Foundation Law”) and Government Regulation No. 63 of 2008 on Enforcement of Foundation Law (“GR 63/2008”). Therefore, this provision has to be complied by the Foreign University stakeholders in order to establish Foreign University in Indonesia.

II. Key Consideration

There are considerations that need to be taken by Foreign University stakeholders when establishing a Foreign University in Indonesia. The following are some of the considerations in order to fulfill the provisions under governing laws:

(i) the Foreign University must to be established by a foundation as a non-profit organization. In order to incorporate a foundation, in case the stakeholder is a foreign national or foreign legal entity, the foundation is required to separate its stakeholder’s personal asset to be the foundation’s asset with minimum amount of IDR 100.000.000 (one hundred million Rupiah)[1] followed by notarial deed and evidence of the foundation’s wealth;

(ii) foundation that established by foreign national or foreign legal entity shall have at least 1 (one) board member who is an Indonesian citizen either as chairman, secretary, or treasurer, and must resides in Indonesia;[2]

(iii) after the establishment of the foundation, the foundation may be the organizing body of the Foreign University by establishing branch campus of such Foreign University in Indonesia;[3]

(iv) the Foreign University has to meet the criteria, as follows:

• • Foreign University established in KEK area:[1]

i. Foreign University that is ranked among the world's best 100 (one hundred); 

ii. Foreign University that has fields of study that are ranked among the world's top 100 (one hundred); and

iii. accredited and/or recognized by the origin country;

• •  Foreign University established in non-KEK area:[2]

i. Foreign University that is ranked among the world's best 200 (two hundred); or

ii. Foreign University that has fields of study that are ranked among the world's top 200 (two hundred);

unless this is not the case, the competent minister may decide otherwise in accordance with national priorities; and

(v) the Foreign University shall apply the same curriculum and/or learning outcomes with curriculum and/or learning outcomes that the Foreign University’s origin receives or applies.[3] 

C. CONCLUSION 

The establishment of a Foreign University in Indonesia presents both opportunities and regulatory challenges. As Indonesia seeks to enhance its national education system and attract international students, foreign universities must carefully navigate the country’s legal framework. 

One of the key requirements is that a foreign university must be established through a non-profit foundation, with specific capital and governance structures in place. In addition, compliance with relevant regulations whether in KEK or non-KEK area is essential. Foreign universities must also meet global ranking criteria and adhere to their home country’s academic standards while aligning with Indonesian regulations. 

By fulfilling these requirements, foreign universities can successfully establish their presence in Indonesia, contributing to the nation's educational landscape while ensuring compliance with local laws.

Since the establishment of Foreign University in Indonesia has to be done through a non-profit foundation, PRP Law Firm has the experience that could assist the clients in guiding and structuring the best legal way for the benefit of the stakeholders on the establishment of Foreign University while contributing to the better education in Indonesia.