What You need to know about the Foreign Direct Investment (Penanaman Modal Asing):
Foreign Direct Investment (FDI), or Penanaman Modal Asing (“PMA”) as it is known in Indonesia, is a key component of the country’s investment framework. The concept and regulation of the PMA are governed under Law No. 25 of 2007 on Investment, as last amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation as Law (“Investment Law“), and further regulated under Government Regulation No. 28 of 2025 on Risk-Based Business Licensing Implementation (“GR 28/2025”).
Article 1 point 3 of the Investment Law defines PMA as an activity of investing capital to conduct business within the territory of the Republic of Indonesia, carried out by foreign investors, either wholly using foreign capital or in partnership with domestic investors.
Legal Entity Requirement for PMA.
One of the key of the requirements for the PMA in Indonesia is that it must be carried out through a Limited Liability Company (Perseroan Terbatas or “PT”) established under Indonesian law and domiciles in Indonesia. This is explicitly stated in Article 5 paragraph (2) of the Investment Law. A limited liability company established under the PMA framework is commonly called PT PMA.
Capital and Investment Requirements for PMA.
Foreign-owned companies (PT PMA) are subject to specific share capital and investment thresholds.
Under Article 212 of GR 28/2025 and Article 7 of Regulation of The President of The Republic of Indonesia No. 10 of 2021 (“PR 10/2021”) PT PMA is only allowed to engage in Large-Scale Business activities, with a minimum investment value exceeding IDR10 billion per 5-digit business classification (KBLI) per project location, excluding land and building value.
In addition, the minimum capital requirement for the issued and paid-up capital for a PT PMA is IDR 10 billion, according to Article 12 paragraph (7) of the Investment Coordinating Board Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing and Investment Facilities (“BKPM Regulation No. 4/2021”).
Business Sectors Available for PMA.
Under Indonesia’s investment regulatory framework, not all business sectors are fully open to foreign investors. Therefore, it is essential for the prospective foreign investors to carefully review and verify the business sector they intend to enter, including the maximum allowable percentage of foreign share ownership in that particular sector.
The rules on foreign ownership limitations and sectoral openness are outlined in Presidential Regulation No. 49 of 2021, which amends Presidential Regulation No. 10 of 2021 on Business Sectors for Investment, which is commonly called as the Negative List. This regulation forms the legal basis for the Indonesian Government, which categorizes business sectors as follows:
- Sectors that are fully open to foreign investment (up to 100%);
- Sectors that are open with certain restrictions, such as maximum foreign share ownership restrictions or location;
- Sectors that are open with mandatory partnership requirements with local micro, small, and medium enterprises (Usaha Mikro, Kecil, dan Menengah/UMKM);
- Sectors that are entirely closed to investment.
The Conclusion:
Foreign Direct Investment/ Penanaman Modal Asing (PMA), is one of the investment systems recognized in Indonesia. PMA can only be carried out through the establishment of a Limited Liability Company (Perseroan Terbatas or “PT”) that is incorporated under Indonesian law and domiciles in the territory of Indonesia.
To conduct the business operations, a PT PMA is classified as a large-scale enterprise and must meet the minimum capital and investment requirements. This includes (in general) an investment value of at least IDR 10 billion per 5-digit KBLI business classification, per project location, excluding the value of land and buildings, as well as the required minimum issued and paid-up share capital of IDR 10 billion.
In addition, not all business sectors are fully open (100%) to foreign investment. Therefore, it is crucial for the prospective foreign investors to understand the applicable regulations regarding sectors that are fully open, partially open, require mandatory partnership with local businesses, or are completely closed to foreign investment.
By thoroughly understanding the legal framework governing FDI in Indonesia, foreign investors can maximize the business opportunities in a lawful and sustainable manner.
This article provides a general overview of legal considerations related to Foreign Direct Investment (Penanaman Modal Asing/PMA) in Indonesia. It is intended for informational purposes only and does not constitute legal advice. Readers should not act or rely solely on the information provided herein without seeking appropriate legal counsel. Laws and interpretations may evolve over time, and outcomes may vary based on specific facts and circumstances. For tailored legal assistance or further clarification regarding the matters discussed in this article, our team would be pleased to assist