Is Indonesia Still Competitive for Startups in 2025?

Indonesia has long been positioned as Southeast Asia’s most promising startup market: a vast consumer base, rapid digital adoption, and steady government efforts to attract foreign investment. Yet as 2025 unfolds, founders and investors are reassessing that narrative. Regulatory reforms have lowered some entry barriers, but persistent administrative friction continues to test new businesses.

The more accurate question today is not whether Indonesia is competitive, but for whom. The answer increasingly depends on preparedness, compliance discipline, and an understanding of how recent reforms reshape the cost and complexity of market entry.

Despite stronger regional competition from Singapore, Vietnam, and Malaysia, Indonesia remains the largest economy and consumer market in Southeast Asia. With a population exceeding 270 million and a digital economy valued at more than USD 80 billion, Indonesia offers scale that few neighboring markets can replicate.

This demand depth continues to attract startups in fintech, logistics, agritech, and e-commerce. Even amid global funding slowdowns, Indonesia is often treated as a “must-enter” market for regional expansion strategies. What has changed is the operating environment: speed alone is no longer rewarded. Investors now scrutinize governance, licensing accuracy, and regulatory readiness before committing capital.

One of the most notable developments is BKPM Regulation No. 5 of 2025, which adjusts Indonesia’s investment framework under the OSS Risk-Based Approach system. The regulation lowers the minimum paid-up capital requirement for foreign-owned companies (PT PMA) from IDR 10 billion to IDR 2.5 billion per business classification (KBLI).

For digital and service-based startups, this is a meaningful shift. Capital-light business models are no longer forced to meet thresholds designed for traditional manufacturing or asset-heavy industries. The regulation also allows certain non-cash contributions—such as equipment or intellectual property valuations—to count toward investment requirements, offering founders greater flexibility in early stages.

At the same time, regulators have paired lower entry thresholds with tighter post-registration oversight. Paid-up capital is subject to a 12-month lock-up unless deployed toward legitimate business activities, and investment reporting obligations have become more strictly enforced.

Indonesia’s Online Single Submission (OSS) system remains the central gateway for business licensing. In principle, OSS consolidates permits, tax numbers, and registrations into a single digital process. In practice, founders often encounter transitional issues as new regulations are integrated.

Data mismatches between notarial deeds, KBLI classifications, and sector-specific requirements can delay approvals. Businesses operating across multiple activities—common among tech startups—are particularly exposed to these inconsistencies. While OSS represents a long-term improvement, its current implementation still requires careful planning and follow-up.

Despite regulatory progress, several structural challenges remain.

First, compliance intensity has increased. Quarterly LKPM (investment realization) reports are now more rigorously monitored, with administrative sanctions imposed on companies that fail to report accurately or on time.

Second, sectoral oversight remains fragmented. Certain industries—such as financial services, healthcare, or digital communications—require parallel approvals from bodies like OJK or Kominfo, even after OSS registration is completed. This undermines expectations of a fully centralized licensing system.

Third, KBLI misalignment remains a common risk. Startups frequently discover—after incorporation—that their operational model does not match their registered business classification, triggering license amendments or delays that can affect funding timelines.

On the positive side, Indonesia continues to offer tax holidays and investment allowances for priority sectors, including renewable energy, digital infrastructure, and advanced manufacturing. These incentives can significantly reduce long-term tax exposure for qualifying startups, particularly those with scalable or capital-intensive models.

Indonesia’s adoption of the Global Minimum Tax framework also brings greater transparency for multinational founders, even if it reduces opportunities for aggressive tax structuring. For many investors, regulatory clarity now outweighs short-term tax arbitrage.

Startup funding in Indonesia declined sharply in 2025, reflecting a broader global correction rather than purely local conditions. The downturn has shifted investor behavior toward risk mitigation. Clean incorporation, accurate licensing, and consistent reporting are now viewed as signals of management quality, not just legal hygiene.

Founders who treat registration and compliance as strategic assets—rather than administrative afterthoughts—are better positioned to secure capital and partnerships.

For startups considering Indonesia, competitiveness depends on execution. Accurate KBLI selection, realistic capital planning, and disciplined reporting are no longer optional. Many founders now work with local advisors early in the process to avoid costly restructuring later.

Firms such as CPT Corporate are frequently cited by founders and investors as technical references for navigating company registration in Indonesia, particularly where foreign ownership and multi-sector licensing are involved. This reflects a broader trend: success increasingly favors startups that combine market ambition with regulatory fluency.

Indonesia in 2025 remains a compelling startup destination—but not an easy one. Lower entry thresholds and digital systems have improved accessibility, yet compliance demands have intensified. The market rewards founders who prepare thoroughly, register correctly, and operate transparently.

In that sense, Indonesia is still competitive—but only for startups willing to meet it on its own terms.