INTRODUCTION

A.      Paradigm Shift in Indonesian Investment Law

Indonesian investment law is undergoing a profound transformation, transitioning from a facilitative-persuasive approach toward technocratic-coercive oversight. This transformation has reached its apex with the issuance of two strategic regulations, namely Government Regulation Number 28 of 2025 concerning the Implementation of Risk-Based Business Licensing (hereinafter referred to as “PP 28/2025”) and the Regulation of the Minister of Investment and Downstreaming/Head of the Investment Coordinating Board Number 5 of 2025 concerning Guidelines and Procedures for the Implementation of Risk-Based Business Licensing and Investment Facilities Through the Integrated Electronic Business Licensing System or Online Single Submission (hereinafter referred to as “Permeninves/BKPM 5/2025”). Both regulations integrate administrative oversight with an automated digitalization system through the Online Single Submission (OSS) platform.

The core of this oversight mechanism lies in the obligation to submit the Investment Activity Report (Laporan Kegiatan Penanaman Modal / LKPM), a periodic document that records the realization of investment, absorption of labor, and operational obstacles encountered by business actors in the field. The investment reporting obligation is not, in itself, a novel feature of the Indonesian legal order; its juridical foundation has been enshrined in Article 15 letter (c) of Law Number 25 of 2007 concerning Investment. Nevertheless, for nearly two decades, the legal enforcement of reporting obligation defaults was frequently characterized as a pro forma exercise with minimal implementational effectiveness. Entering the 2025–2026 period, such conditions have undergone substantial change in line with the enactment of PP 28/2025, which juridically revokes Government Regulation Number 5 of 2021 concerning the Implementation of Risk-Based Business Licensing (hereinafter referred to as “PP 5/2021”).

 

B.      Background to the Issuance of PP 28/2025

The issuance of PP 28/2025 on 5 June 2025 was predicated upon at least three primary considerations as set out in the recitals of that regulation, namely:

1. The need for continuous policy reform in simplifying business licensing through the implementation of Risk-Based Business Licensing (PBBR) to realize ease of starting and conducting business, and to support job creation.
2. PP 5/2021, which serves as the implementing regulation of Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation as a Law, was deemed necessary to be refined in order to provide greater legal certainty to business actors, particularly concerning business processes and service level agreements in the management of business licensing.
3. The entry into force of Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation as a Law necessitated the comprehensive replacement of PP 5/2021.

 

In substantive terms, PP 28/2025 introduces significant changes to the business licensing process, including the integration of a centralized system within the OSS System as the sole interface (front-end system) for business actors. Additional changes concern service quality guarantees in the form of legal certainty regarding the timeframe for each stage of the PBBR process, including the application of the positive fiction doctrine in certain provisions. PP 28/2025 also accommodates new sectors within the PBBR framework, among others the creative economy, geospatial information, labor, cooperatives, investment, the administration of electronic systems and transactions, and the environment.

 

C.      Background to the Issuance of Permeninves/BKPM 5/2025

Minister of Investment and Downstreaming/Head of the BKPM Regulation Number 5 of 2025 was established as a technical implementing regulation of PP 28/2025, specifically to implement the provisions of Article 219 Paragraph (5), Article 256 Paragraph (8), Article 257 Paragraph (3), Article 262, Article 342, and Article 528 of PP 28/2025. Permeninves/BKPM 5/2025 was issued to provide legal certainty in the technical and operational implementation of risk-based business licensing through the OSS system. Permeninves/BKPM 5/2025 comprehensively regulates the guidelines and procedures covering registration of the Business Identification Number (NIB), fulfillment of basic requirements, PBBR oversight mechanisms, complete LKPM provisions, business actor compliance profiles, and the mechanism for imposing progressive administrative sanctions. The increasingly stringent enforcement dynamic is further driven by the national ambition of achieving an investment realization target of IDR 2,041.3 trillion by 2026. The Government no longer merely pursues commitment figures on paper but demands substantiation through valid realization data within the OSS system. In this context, the LKPM has transformed into a legal instrument that can determine the survival or dissolution of a business entity through an algorithmic compliance profile assessment mechanism.

 

D.      Key Comparison Between PP 28/2025 and PP 5/2021

In order to appreciate the magnitude of the changes introduced by PP 28/2025, the following comparative table sets out the critical articles that have been amended and updated from PP 5/2021:

 

Aspect/Critical Article	PP 5/2021 (Previous Provision)	PP 28/2025 (New Provision)
Scope of Sectors (Article 5 of PP 5/2021)	Regulated 15 principal sectors without explicitly incorporating the creative economy, geospatial information, cooperatives, and the environment.	Seven (7) new sectors added: creative economy, geospatial information, labor, cooperatives, investment, administration of electronic systems and transactions, and the environment (Article 5 Paragraph (2)).
Service Level Certainty / SLA	No firm and measurable timeframe (SLA) for each stage of the licensing process, thereby creating legal uncertainty.	Clear and firm timeframes (SLA) for each PBBR process stage. In certain provisions, the positive fiction doctrine applies, including in the issuance of land technical considerations (General Elucidation of PP 28/2025).
Types of Administrative Sanctions (Article 355 of PP 5/2021)	Administrative sanctions limited to: written warning, temporary suspension of business activities, and revocation of license. No instrument of administrative fines or coercive police power was recognized.	Expanded to 6 types: (a) warning; (b) temporary suspension of business activities; (c) imposition of administrative fines; (d) imposition of police coercive power; (e) revocation of licenses/certifications/approvals; and (f) revocation of basic requirements, BL, and/or BL-MSME (Article 355 Paragraph (2)).
Administrative Fines (Investment Sector) Article 526	No specific administrative fine provisions for violations in the investment sector.	Explicitly provides that violations of BL in the investment sector shall be subject to administrative fines imposed by the minister/head of the body administering government affairs in the field of investment and coordination of investment (Article 526 Paragraph (1) letter d and Paragraph (2)).
Police Coercive Power (Investment Sector) Article 526	Not recognized under PP 5/2021 for the investment sector.	Expressly included as one form of administrative sanction for BL violations in the investment sector, on an equal footing with fines and revocation of licenses (Article 526 Paragraph (1) letter e).
Procedure for Imposing Sanctions (Investment Sector) Articles 526–528	Sanction provisions did not provide a clear delegation to relevant ministerial/agency regulations.	Provides clear delegation to the Minister/Head of Body administering investment affairs to regulate the detailed procedure for imposing sanctions, mechanisms, timeframes, administrative remedies, and competent officials (Article 528).
OSS System Integration (Articles 4 & 188)	OSS system operational but not yet the sole interface. Certain processes were still conducted independently in ministerial/institutional systems.	The OSS System is expressly designated as the sole interface (front-end system). All processes involving business actors are conducted through OSS; the OSS system transmits data to ministerial/institutional systems and final outputs are issued through OSS (Article 4 Paragraph (4), General Elucidation).
Transitional and Revocation Provisions Article 550	PP 5/2021 revoked previous regulations.	PP 28/2025 formally revokes and declares PP 5 of 2021 null and void (Article 550 letter b). There are transitional provisions stipulating that licensing processes currently in progress shall be completed under PP 5/2021 until the adjusted OSS System becomes operational (Article 547).

LEGAL ISSUES

Notwithstanding the objective of PP 28/2025 and Permeninves/BKPM 5/2025 to establish legal certainty, their implementation gives rise to a series of juridical and practical issues, as follows:

1. How does the disconnect between the OSS system and the dynamics of business reality affect the validity of the classification of “investment stagnation” and its legal consequences for business actors under PP 28/2025 and Permeninves/BKPM 5/2025?
2. Have the administrative sanctions in the form of fines and police coercive power, automatically applied by a digital system, satisfied the principle of due process of law in administrative law, particularly with respect to the mechanisms for objection and appeal available to business actors?
3. What are the juridical implications of KBLI code discrepancies during the transitional period through June 2026 with respect to the validity of LKPM reporting and the compliance status of business actors within the digital investment oversight system?
4. To what extent does the effectiveness of coordination between the central government and the regional One-Stop Integrated Investment and Services Offices (DPMPTSP) in LKPM oversight guarantee the fulfillment of the principle of equal treatment for all business actors, including medium-sized enterprises in regions with limited regulatory literacy?

ANALYSIS

A.      Philosophical and Juridical Basis of the LKPM under PP 28/2025

The LKPM is not merely a vehicle for the collection of national statistical data; it is a manifestation of the social contract between the investor and the State. When the State confers the right to exploit economic resources through business licensing, the investor assumes administrative responsibility to report on how that right is exercised. PP 28/2025 reinforces this by introducing the concept of “Continuous Compliance.” Under this framework, a business license is no longer regarded as a static document obtained on a single occasion but rather as a living licence that must be continually validated through regular reporting. Juridically, the LKPM reporting obligation under Permeninves/BKPM 5/2025 is governed by Articles 284 through 291. Article 284 affirms that the progress of investment realization and the fulfillment of investment obligations shall be submitted by business actors in the LKPM through the OSS System. This obligation is differentiated by business scale pursuant to Article 286, with the following periodic schedule:

Business Scale	Reporting Frequency	Reporting Period	Deadline (Permeninves/BKPM 5/2025)
Small	Twice per year (semi-annually)	Semester I (Jan–Jun) Semester II (Jul–Dec)	No later than 15 July No later than 15 January of the following year
Medium & Large	Four times per year (quarterly)	Quarter I (Jan–Mar) Quarter II (Apr–Jun) Quarter III (Jul–Sep) Quarter IV (Oct–Dec)	No later than 15 April No later than 15 July No later than 15 October No later than 15 January of the following year
Micro	Not required	–	–

 

Note: Article 286 Paragraph (7) of Permeninves/BKPM 5/2025 provides that if the LKPM submission period coincides with a public holiday, the reporting period shall be adjusted by means of an official notification to the business actor. This provides a degree of technical flexibility that was absent from the previous regulatory framework.

 

B.       Content of LKPM Reporting: What Must Be Reported?

Pursuant to Article 285 of Permeninves/BKPM 5/2025, the LKPM on investment realization and investment obligations must contain the following data:

No.	Reporting Component	Substantive Details
1.	Investment Realization	The value of investment realized during the reporting period, covering investment from own capital as well as loans, compared against the investment plan approved in the business license.
2.	Labor Realization	The number of Indonesian workers (TKI) and foreign workers (TKA) employed, including a breakdown by gender and position for TKA.
3.	Goods and/or Services Production Realization	The volume and value of goods produced or services rendered during the reporting period, as an indicator of the company’s actual operational activity.
4.	Fulfillment of Basic Requirements, BL, and/or BL-MSME	The status of compliance with various basic licenses and business licenses constituting the obligations of the business actor in accordance with its business sector.
5.	Fulfillment of Investment Obligations and Responsibilities of the Business Actor	Includes: (a) training of TKI and/or technology transfer to accompanying Indonesian workers; (b) partnership with MSMEs; (c) environmental management; (d) implementation of good corporate governance (GCG) principles; (e) employment; (f) implementation of occupational health and safety (K3); and/or (g) corporate social responsibility (CSR). (Article 285 Paragraph (4) of Permeninves/BKPM 5/2025)
6.	Obstacles Encountered by the Business Actor	Technical, regulatory, licensing, or operational obstacles encountered during the reporting period, which may serve as the basis for guidance by the government.

 

In addition to the LKPM on investment realization, Article 284 Paragraph (5) of Permeninves/BKPM 5/2025 also regulates other types of LKPM, namely: reports by Indonesian business actors that have conducted investment activities outside Indonesian territory; activity reports of representative office business actors; activity reports of foreign legal entity business actors; and import realization reports. Accordingly, the LKPM reporting ecosystem encompasses not only domestic entities but also cross-border activities conducted by Indonesian and foreign business actors.

 

C.      Compliance Profile Assessment Mechanism

One of the most significant innovations under Permeninves/BKPM 5/2025 is the compliance profile assessment system, which is fully integrated with LKPM data. Pursuant to Article 290, the OSS System processes compliance assessment data of business actors based on the results of LKPM verification to determine the business actor’s profile across four categories:

Profile Category	Score Range	Operational Impact on the Company
Excellent	81 – 100	Prioritized in subsequent licensing processes; potentially entitled to awards from the Ministry/Body, DPMPTSP, or relevant agencies (Article 292 of Permeninves/BKPM 5/2025); minimal frequency of field inspections; easier access to investment facilities and incentives.
Good	60 – 80	Licensing and oversight processes proceed normally; business actors receive regular guidance/assistance to improve compliance.
Poor	40 – 59	Placed on a special monitoring list; subject to administrative sanctions pursuant to Article 291 Paragraph (3) of Permeninves/BKPM 5/2025; prioritized for routine field inspections (Article 300 Paragraph (3) letter d); more intensive guidance/assistance.
Very Poor	0 – 39	High risk of progressive administrative sanctions pursuant to Article 291 Paragraph (3) jo. Articles 373–376 of Permeninves/BKPM 5/2025; prioritized for field inspections; systemic obstacles to business expansion and license renewal; potential revocation of BL if no improvement is made.

 

Pursuant to Article 291, the follow-up measures in respect of a business actor’s profile encompass three tracks: (1) guidance/assistance for all categories; (2) imposition of specific administrative sanctions for poor and very poor categories; and (3) field inspections, both routine and incidental. This mechanism creates a dynamic feedback system in which LKPM compliance directly determines the intensity of oversight received by the business actor. The system also influences the priority scheduling of routine field inspections. Article 300 Paragraph (3) letter d of Permeninves/BKPM 5/2025 explicitly states that a business actor’s profile based on LKPM with a poor or very poor category constitutes one of the bases for the preparation of a field inspection priority list by the oversight coordinator in the fourth week of January of each year. This means that informal sanctions in the form of intensified field oversight are already operative even before formal administrative sanctions have been imposed.

 

D.      Progressive Sanction Enforcement Sequence

Pursuant to Articles 373–376 of Permeninves/BKPM 5/2025, LKPM sanctions are imposed on business actors who violate their LKPM investment realization submission obligations. The triggers for sanctions include: failure to submit the LKPM for 2 (two) consecutive periods; submission of the LKPM for the first time without any additional investment realization value for 4 (four) consecutive periods; or submission of the LKPM without any additional investment realization value for 4 (four) consecutive periods during the preparation phase of LKPM.

The sanction enforcement mechanism operates progressively as follows:

Sanction Stage	Legal Basis	Consequences and Mechanism
First Warning	Article 374 Paragraph (1)	Issued automatically by the OSS System. The business actor is required to submit the LKPM in the subsequent period. If the LKPM is submitted, the first warning sanction is declared lapsed.
Second Warning	Article 374 Paragraph (4)	Imposed if the business actor fails to submit the LKPM in the period following the first warning. The business actor is required to submit the LKPM in the subsequent period. The sanction lapses upon LKPM submission.
Third Warning	Article 374 Paragraph (7)	Imposed if the business actor continues to fail to submit the LKPM after the second warning. The business actor is required to submit the LKPM in the subsequent period. The sanction lapses upon LKPM submission.
Temporary Suspension of Business Activities	Article 374 Paragraph (10) and Article 375	Imposed if the business actor fails to submit the LKPM after the third warning. Accompanied by the imposition of an administrative fine. The business actor is required to submit the LKPM AND pay the administrative fine for the sanction to be declared lapsed.
Revocation of Business License (BL)	Article 376	Imposed if the business actor fails to submit the LKPM and fails to pay the administrative fine in the period following the temporary suspension. The OSS System transmits the BL revocation notification to the OSS Institution, ministries/agencies, Regional Governments, SEZ Administrators, Free Trade Zone and Free Port Management Bodies, and/or the Nusantara Capital Authority, as well as to the business actor concerned.

 

It is important to note that the OSS System transmits first, second, and third warning notifications to the OSS Institution, ministries/agencies, provincial DPMPTSP, district/city DPMPTSP, Special Economic Zone (SEZ) Administrators, Free Trade Zone and Free Port Management Bodies (BP KPBPB), and/or the Nusantara Capital Authority (OIKN), as well as to the business actor concerned (Article 374 Paragraph (11) of Permeninves/BKPM 5/2025). This transparency in notification simultaneously provides protection for the business actor whilst reinforcing the accountability of the oversight mechanism.

 

E.       Administrative Fines and Police Coercive Power

1.         Administrative Fines as Non-Tax State Revenue (PNBP)

The addition of fine sanctions constitutes a measure intended to create a deterrent effect without the necessity of entirely terminating business activities. Pursuant to Article 526 Paragraph (1) letter d and Paragraph (2) of PP 28/2025, the imposition of administrative fines in the investment sector is conferred upon the minister/head of the body administering government affairs in the field of investment and governmental duties in the field of investment coordination. The integration of such fines as Non-Tax State Revenue (Penerimaan Negara Bukan Pajak/PNBP) has prompted debate concerning the potential shift in the purpose of sanctions from guidance to the pursuit of fiscal targets.

 

2.         Police Coercive Power

Police coercive power represents the most controversial mechanism under PP 28/2025. Pursuant to Article 355 Paragraph (2) letter d jo. Article 526 Paragraph (1) letter e of PP 28/2025, this authority confers upon administrative officials, acting in coordination with law enforcement officers, the right to take direct physical action to terminate violations. In the context of business licensing, such actions may include:

1. Termination of access to the company’s electronic system.
2. Blocking of electronic media used in business activities.
3. Seizure of production equipment or assets related to licensing violations.

From the standpoint of administrative law theory, police coercive power (bestuursdwang) is an extraordinary authority that ought to serve as a measure of last resort (ultimum remedium). The application of this sanction to violations that are essentially administrative-reporting in nature has been viewed by some legal scholars as a disproportionate measure, particularly where it is not preceded by adequate due process.

 

F.       KBLI 2025 Disruption and Compliance Risk

The implementation of the 2025 Indonesian Standard Business Classification (KBLI 2025), which commenced in March 2026, presents a distinct challenge for LKPM data synchronization. KBLI 2025 accommodates new economic sectors such as the digital economy (podcasting, streaming) and the green economy, which were not previously classified with specificity. A juridical problem arises when a single former KBLI code is “split” into several new codes. Business actors are required to complete the adjustment in the OSS system within 6 months (until 18 June 2026). If such adjustment is delayed, the system will treat the former business license as invalid, meaning that quarterly LKPM reports utilizing the former code are at risk of being automatically rejected by the system. This creates a risk of “unintentional non-compliance” that may lower a company’s compliance profile score and even trigger sanction escalation, notwithstanding the fact that the business actor had no bad faith whatsoever.

 

G.      Balancing Legal Certainty Against Administrative Justice

The new regulations governing the LKPM may be viewed as a double-edged sword. On the one hand, this firmness is necessary to cleanse the national investment database of “dormant” companies that merely hold licenses without any actual capital realization. Given the investment target of IDR 2,041.3 trillion, the Government can no longer tolerate fictitious data. However, from the perspective of investor legal protection, sharp critical observations must be made. The OSS system’s automated decision-making risks violating the General Principles of Good Governance (Asas Umum Pemerintahan yang Baik / AAUPB), in particular the principles of due diligence and transparency. When a sanction is automatically imposed by the system due to a technical delay or input error, the business actor’s right to be heard (audi et alteram partem) is frequently disregarded.

 

 

RECOMMENDATIONS

With the promulgation of PP 28/2025 and Permeninves/BKPM 5/2025, the following recommendations are addressed to the principal stakeholders:

A.      Recommendations for Business Actors (Corporations)

1. Develop a technology-based LKPM compliance system. Utilize software integrated with OSS and designate a dedicated person in charge for LKPM reporting.
2. Conduct regular reconciliation of realization data. Verify investment, labor, and production data on a monthly basis — do not wait until the reporting period.
3. Promptly migrate to KBLI 2025. Complete the KBLI code adjustment before 18 June 2026, particularly for companies with multiple lines of business.
4. Understand all components of LKPM reporting. Reporting encompasses CSR, MSME partnerships, employment, the environment, and GCG — not merely investment figures.
5. Prepare standard operating procedures (SOPs) for handling sanctions. Establish internal procedures for responding to OSS notifications and channels for consultation with the DPMPTSP as necessary.

 

 

B.       Recommendations for the Government

1. Update the OSS system to accommodate qualitative explanations. Business actors must be able to include a narrative behind stagnant realization figures in order to prevent the misclassification of violations.
2. Formulate transparent SOPs for police coercive power. Establish proportionality criteria, the right to objection, and a recovery mechanism before this instrument is applied.
3. Strengthen the capacity of regional DPMPTSP. Conduct equitable technical guidance to ensure consistent law enforcement across all regions.
4. Provide an effective administrative objection mechanism. The bezwaar and appeal channels must be accessible, expeditious, and affordable for business actors.
5. Impose a grace period for the KBLI 2025 transition. Apply a sanction moratorium for a minimum of 90 days following the deadline of 18 June 2026.

 

C.       Recommendations for Legal Practitioners and Consultants

1. Conduct a thorough study of PP 28/2025 and Permeninves/BKPM 5/2025. An inadequate understanding of the new sanction mechanisms potentially leads to erroneous legal advice.
2. Develop LKPM Compliance Audit services. This opportunity is particularly relevant for foreign investment (PMA) clients who are less familiar with local administrative obligations.
3. Advocate constructively for regulatory improvement. Provide feedback to policymakers on the weaknesses of automated decision-making from the perspectives of the AAUPB and due process of law.
4. Actively educate SME clients. Small business actors are most vulnerable to LKPM sanctions due to limited resources, legal practitioners bear a social responsibility to reach this segment.

 

CONCLUSION

The tightening of sanction enforcement by BKPM against LKPM reporting defaults in 2026 reflects a change in the direction of Indonesia’s investment policy toward governance that is more orderly, measurable, and grounded in real data. Through PP 28/2025 and Permeninves/BKPM 5/2025, the Government has constructed an integrated oversight ecosystem in which administrative compliance is no longer a mere supplementary obligation but the principal determinant of a company’s continued operation. A comparison between PP 28/2025 and PP 5/2021 reveals a substantial expansion of the scope of sanctions, with the addition of administrative fines and police coercive power as enforcement mechanisms that were previously unknown in the earlier regulatory framework. The innovation of the algorithmic compliance profile pursuant to Article 290 of Permeninves/BKPM 5/2025 renders LKPM data the true benchmark for the continuity of business licensing, not merely an administrative formality.

 

Nevertheless, in order to prevent these regulations from rebounding to the detriment of the investment climate and thereby driving away quality investors, the Government must urgently address technical deficiencies in the OSS system, strengthen guidance capacity at the regional level, and provide a transparent and equitable administrative dispute resolution mechanism. For business actors, the strategy for mitigating legal risk in 2026 must encompass more disciplined and systematic internal administration. Amidst the magnitude of the national economic growth targets, compliance with LKPM regulations is the smallest administrative step that can afford the greatest protection for business continuity in Indonesia.

 

This concludes the discussion of the present article. Should there be any matters requiring further discussion regarding PP 28/2025 in relation to PP 5/2021, please do not hesitate to contact us at TRNP Law Firm for more current and relevant information.