For Chief Financial Officers (CFOs), foreign investors, and legal officers evaluating Southeast Asia, Indonesia offers an irresistible combination of immense domestic market size and a government committed to radical regulatory reform. The recent, high-profile case of LG’s Jumbo Investment in Indonesia is more than just a corporate expansion; it is a powerful litmus test for the country’s updated Foreign Direct Investment (FDI) framework.
In late 2025, South Korean electronics giant LG Electronics officially inaugurated its new, partner-operated Air Conditioner (AC) factory in Bekasi, West Java. This state-of-the-art 32,000 square meter facility, initially backed by an investment of approximately US$22 million (Rp374 billion), is positioned to produce 700,000 units annually, with plans for rapid capacity doubling. This strategic move highlights Indonesia's emergence as a crucial manufacturing hub in the Global South.
LG's decision was heavily influenced by Indonesia’s aggressive drive toward "Downstreaming" and localization, specifically targeting a Domestic Component Level (TKDN) of over 40% for its products. This alignment with national policy signals a mature, mutually beneficial relationship between a global investor and the government. It demonstrates that large-scale, high-technology Investasi Jumbo LG di Indonesia is viable and strongly supported, provided it contributes to the local supply chain and economy.
In 2024, Indonesia demonstrated remarkable resilience, recording a total investment realization of IDR 1,261.43 trillion through September, marking a nearly 20% increase year-on-year. FDI accounted for over 53% of this total, solidifying the country’s appeal. This growth is underpinned by sweeping regulatory changes that make market entry faster and more transparent. Navigating this dynamic environment requires specialist knowledge. Explore LG’s Jumbo Investment in Indonesia with Gaivo’s experts to translate global policy confidence into localized operational success.
Related Article:
Decoding the Regulatory Landscape: Pillars of Modern FDI
Indonesia’s current FDI framework is built upon two foundational legal instruments designed to cut bureaucratic red tape and improve the investment climate. These are essential knowledge for any legal officer or CFO planning an Indonesian entry.
The Omnibus Law and the Positive List
The cornerstone of modern Indonesian investment law is Law No. 11 of 2020 on Job Creation (UU Cipta Kerja), known as the Omnibus Law. This landmark legislation consolidated or amended over 70 laws, streamlining processes for business licensing, labor, and environmental compliance. A key feature of the Omnibus Law is the shift from a restrictive "Negative Investment List" to the highly permissive Government Regulation No. 5 of 2021 (The Positive Investment List), which lists business sectors that are either fully open, subject to specific conditions (like partnership with SMEs), or closed (now only a handful of sectors).
The Mandate for Local Content (TKDN)
For manufacturing projects, especially those benefiting from government incentives or procurement, adherence to the Domestic Component Level (TKDN) is critical. As seen in the Investasi Jumbo LG di Indonesia, the company is committing to a TKDN of over 40%. This policy, mandated by various Ministerial Regulations, ensures that FDI contributes to the development of the national industrial base, particularly in strategic sectors like electronics, and is integral to Indonesia’s Downstreaming Policy, which contributed 21.2% of total Q3 2024 investment.
Investment Security and Guarantees
The original principles of FDI protection are still anchored in Law No. 25 of 2007 on Investment, which guarantees foreign investors the same legal certainty as domestic entities, including rights to asset transfer and repatriation of capital and profits.
Related Article: Indonesia's Investment Surge: BKPM Records IDR 1,434 Trillion in January-September 2025
The New Gateway for PMA: OSS-RBA and Risk Categorization
The process of establishing a Foreign-Owned Company (PT PMA) is now fundamentally digitized through the Risk-Based Online Single Submission (OSS-RBA) system. This system, implemented under Government Regulation No. 28 of 2025, links the necessary licensing to the risk level of the business activity (KBLI).
How OSS-RBA Streamlines Licensing
The OSS-RBA classifies business activities into four risk categories (Low, Medium-Low, Medium-High, and High). For Low-Risk activities, a Business Identification Number (NIB) serves as the full license, dramatically reducing time-to-market. For higher-risk activities, such as manufacturing (like the LG factory in Bekasi), the NIB is followed by required Standard Certificates or Licenses that must be fulfilled after establishment.
The Role of the Ministry of Investment/BKPM
The Ministry of Investment/Investment Coordinating Board (BKPM) acts as the central facilitator, overseeing the OSS-RBA system and granting investment facilities. Their centralized authority simplifies coordination, making the investment process clearer than ever before.
Related Article: Indonesia's Investment Horizon 2025: A Strategic Guide for Foreign Direct Investment (PMA)
A Game-Changing Financial Reform: Lowered Paid-Up Capital
One of the most significant recent regulatory updates addresses the financial barrier to entry, a major point of discussion for CFOs. The Indonesian government, through the issuance of BKPM Regulation No. 5 of 2025 (effective October 2025), has made a critical amendment to the capital requirements for PT PMAs.
The New Rp2.5 Billion Paid-Up Capital Threshold
Under the previous regime, a PT PMA was typically required to have a minimum total investment commitment exceeding IDR 10 billion (approx. US$610,000) per business line, with a minimum paid-up capital of IDR 10 billion. The new regulation drastically reduces the minimum paid-up capital requirement from IDR 10 billion to just IDR 2.5 billion per 5-digit KBLI.
Capital Efficiency and Total Investment Value
While the minimum total investment value still generally remains over IDR 10 billion (excluding land and buildings for most sectors), the reduction in the immediate paid-up capital provides profound capital flexibility for foreign investors. Companies can now allocate a larger portion of their funds toward productive assets like machinery (as seen with the LG factory), hiring, and operational costs, rather than holding idle cash. The remaining investment value can be realized progressively.
Related Article: Indonesia's Investment Landscape: Navigating POJK 12/2025 on Investment Manager Health
Indonesia's Investment Climate: Data and Downstreaming Momentum
Indonesia is firmly cementing its position as a global manufacturing and resource processing powerhouse. The sheer volume of Investasi Jumbo LG di Indonesia mirrors the macro trends visible in BKPM’s latest data.
Robust FDI Realization (Q3 2024)
In Q3 2024, Indonesia’s total investment realization reached IDR 431.48 trillion, an impressive 15.24% growth year-on-year. FDI, or PMA, contributed IDR 232.65 trillion in this quarter alone. The largest foreign investors hailed from Singapore, Hong Kong, China, Malaysia, and the United States, demonstrating global confidence.
The Rise of Manufacturing and Hilirisasi (Downstreaming)
The government’s strategic push for "Hilirisasi" (Downstreaming) has fundamentally reshaped the FDI landscape. The Basic Metal Industry, Metal Products, Non-Machinery and Equipment sector consistently ranked as the top recipient of FDI, fueled by the push to process raw mineral resources domestically. This commitment to adding value onshore, exemplified by the LG facility's focus on AC innovation and localization, provides a clear, reliable direction for investors.
West Java: The Industrial Heartland
West Java, the home of the LG Bekasi factory, consistently ranks as a top investment destination in Indonesia. Its excellent infrastructure, proximity to Jakarta (the capital), and mature industrial estate ecosystem make it the preferred location for complex manufacturing operations and large-scale projects like the Investasi Jumbo LG di Indonesia.
Related Article: Indonesia Venture Capital: Your Gateway to Southeast Asia’s Digital Economy
The Strategic Significance of LG's Bekasi Factory (Case Study)
The establishment of the LG AC facility in Bekasi serves as a practical blueprint for foreign investors in the high-tech manufacturing sector.
Localization as a Competitive Edge
By manufacturing in Indonesia, LG gains control over its supply chain, reduces logistics costs, and, critically, optimizes its products for the local market and climate. Furthermore, achieving a high TKDN score, as LG targets with over 40% local sourcing, is key to securing potential government tenders and preferential status.
Supporting the National Industrial Ecosystem
The US$22 million Investasi Jumbo LG di Indonesia is expected to create hundreds of jobs and foster technology transfer, aligning perfectly with Indonesia's development goals. This commitment to local job creation and technology sharing is a non-negotiable expectation for large FDI projects and demonstrates the value of strong local partnerships, such as the one LG established in Bekasi.
Related Article: Foreign Investment Indonesia Stock Market: Ultimate Compliance Guide 2025
Practical Roadmap: Establishing a PT PMA (The 5 Key Steps)
Establishing a PT PMA is simpler than ever, following these general steps:
-
Business Field Consultation & KBLI Determination: Determine the relevant business activities (KBLI codes) and check the Positive Investment List (GR 5/2021) for any foreign ownership limitations or conditions.
-
Incorporation and Notarial Deed: Prepare the company deed of establishment, secure approval from the Ministry of Law and Human Rights (MOLHR), and finalize the company’s capital structure, ensuring the minimum paid-up capital of IDR 2.5 billion (BKPM Reg. 5/2025) is fulfilled.
-
Obtain Business License (NIB) via OSS-RBA: Register the company through the OSS-RBA system to obtain the Business Identification Number (NIB). This step also determines the risk level of the business.
-
Fulfill Commitments and Permits: For high-risk activities, follow up the NIB with the required operational permits, environmental permits, and location-specific licenses (such as IMB for building construction, relevant to the LG factory).
-
Operational Compliance: Maintain compliance by submitting regular Investment Activity Reports (LKPM) through the OSS system and adhering to labor laws and TKDN requirements.
The new regulatory structure provides significant advantages, but complexity still exists in securing regional permits and ensuring KBLI alignment. Navigate LG’s Jumbo Investment in Indonesia complexities with Gaivo guidance.
Related Article: Indonesia FDI Strategy: Re-evaluating Reliance on Chinese Investment Amid Uncertainty
Common Pitfalls and Best Practices for Foreign Investors
While the government has lowered the financial barriers, investors must be aware of practical challenges to ensure compliance and longevity.
Pitfall 1: Underestimating Regional Permit Variance
While the OSS-RBA centralizes the NIB, many operational licenses, especially those related to spatial planning and environment, remain under the authority of provincial or regency governments. Investors often struggle with these regional differences.
Pitfall 2: Non-Compliance with Capital Requirements
Although the paid-up capital is reduced to IDR 2.5 billion, the total investment commitment (over IDR 10 billion) must still be demonstrably met within the project’s timeline. Failure to submit accurate and timely LKPM reports showing the realization of the full investment can lead to license suspension.
Best Practice 1: Local Partnership and Sourcing
Emulate the success of the Investasi Jumbo LG di Indonesia by actively seeking local partnerships and committing to a competitive TKDN. This not only fulfills government expectations but also shields the business from supply chain disruptions.
Best Practice 2: Pre-emptive Due Diligence
Conduct thorough legal and fiscal due diligence prior to establishing the PT PMA. Verify land title status and compliance with zoning regulations, especially in industrial areas like Bekasi and Cibitung.
Frequently Asked Questions (FAQs) for Prospective Investors
What is the current minimum paid-up capital for a PT PMA?
Under BKPM Regulation No. 5 of 2025, the minimum paid-up capital for a Foreign-Owned Limited Liability Company (PT PMA) has been lowered from IDR 10 billion to IDR 2.5 billion (per KBLI line), easing the financial entry barrier significantly.
What is the FDI outlook for the manufacturing sector in 2025?
The outlook is strong, driven by the government’s Downstreaming Policy. The Basic Metal Industry and Manufacturing continue to be the largest recipients of FDI, showing that Indonesia is successfully pivoting from a raw material exporter to a finished goods manufacturer, a trend reinforced by the Investasi Jumbo LG di Indonesia.
Does the LG Bekasi investment indicate a shift in FDI focus?
Yes. The LG case highlights a focus on high-technology, value-added manufacturing, and local content development, moving beyond traditional resource extraction. It demonstrates investor confidence in West Java’s industrial infrastructure.
Is 100% foreign ownership allowed in Indonesia?
Yes, under Government Regulation No. 5 of 2021 (The Positive List), the vast majority of business fields are now open for 100% foreign ownership. Only a small number of sectors remain conditionally or fully closed.
What is the LKPM and why is it important?
The LKPM (Laporan Kegiatan Penanaman Modal - Investment Activity Report) is a mandatory periodic report detailing the realization of a company's investment commitments. Submitting this accurately through the OSS is vital for license validity and compliance, particularly for large projects like Investasi Jumbo LG di Indonesia.
Conclusion: Securing Your Future in the Archipelago Economy
The successful launch of the LG Electronics AC factory in Bekasi is a compelling narrative for global investors. It is tangible proof that Indonesia’s regulatory reforms—from the Omnibus Law (UU Cipta Kerja) and the Risk-Based OSS-RBA to the groundbreaking reduction in the PT PMA's minimum paid-up capital via BKPM Regulation No. 5 of 2025—are effective, resulting in a significantly smoother and more capital-efficient entry process.
Indonesia is not just attracting investment; it is demanding strategic, high-value commitments that contribute to its Downstreaming and localization goals, as evidenced by LG’s commitment to over 40% TKDN. The Q3 2024 FDI realization data, showing robust growth and a focus on the manufacturing sector, confirms that the archipelago's economic momentum is secure and accelerating.
For CFOs and legal officers, the path to successful FDI in Indonesia is clearer than ever, but still paved with complexity in local compliance, tax planning, and the dynamic application of the OSS-RBA system. Leveraging timely, expert advice is not an option; it is a necessity for risk mitigation and maximizing incentives such as tax holidays or allowances.
Gaivo.co.id, as Indonesia’s leading foreign investment advisory firm, stands ready to transform the promise of the Indonesian market into concrete reality for your firm. We provide the localized expertise necessary to navigate sector-specific regulations, optimize capital structure under the new IDR 2.5 billion paid-up capital rule, and ensure full compliance from incorporation to operation.
The future of manufacturing and high-value investment in Southeast Asia is converging on Indonesia. Don't wait to capitalize on this opportunity. Ready to act? Contact Gaivo for a complimentary consultation on the feasibility and compliance of your next venture. Compliance Note: All regulatory information is based on current Indonesian law (2024–2025) and is subject to potential governmental amendments. Consultation with a certified legal advisor is essential prior to making investment decisions.
