This is the second part of our analytical review of the Omnibus Law, and this time we are focusing on (a) simplification of business licensing requirements; (b) relaxation of Limited Liability Company (PT) requirements; (c) amendments to the Antitrust Law; and (d) liberalization and simplification of regulatory authorities in certain business sectors.
For the first part of the analytical review, please refer to https://www.wplaws.com/news/wp-newsletter-omnibus-law-wp-analysis-series-part-1-analytical-review-changes-general-investment-manpower-land-building-regulations.
1. Simplification of Business Licensing Requirements
Through the Omnibus Law, the Indonesian Government aims to simplify the licensing procedures and cut the bureaucratic red tape by introducing the following new procedures, the implementation of which will be further regulated in the implementing Government Regulations:
(i) Omission of Multiple Operational Permit Requirements
The Omnibus Law puts in place a significant reform in the business licensing procedures by introducing a shift in paradigm from the conventional license-based approach, in which businesses were required to obtain multiple permits, to a risk-based approach, in which businesses only need to obtain the ‘Business Authorization’ (Perizinan Berusaha) according to the risk assessment levels as shown below, thus causing the entire process to become less time-consuming and more cost efficient. However, details of the risk assessment mechanism will be regulated in the implementing Government Regulation.
|Risk Assessment Level||Requirements|
|a) Small Risk||
|b) Medium Risk||Medium-Small Risk||
|c) High Risk||
(ii) OSS-System Integrated and Publicly Accessible Spatial Plans
As part of the implementation of the simplified licensing procedures, all regional governments are now required to provide standardized data of detailed spatial plans in order to be integrated into the OSS system. This will help businesses to easily check whether their plan fits the target project location based on the particular region’s Spatial Plan (Rencana Detail Tata Ruang, or RDTR). If it does, the OSS system will issue a ‘Conformity Confirmation’ and subsequently the relevant Business Authorizations discussed in (i) (as relevant and applicable)).
(iii) Omission of Environmental License (Izin Lingkungan)
The Omnibus Law also simplifies the multilayer requirements for environmental permits by removing the requirement to obtain the Environmental License (Izin Lingkungan), and consequently the Government’s approval for AMDAL or UKL-UPL is now sufficient. In addition, like the existing AMDAL process, which is within the sole domain of the Central Government, the Omnibus Law also grants centralised authority to the Central Government to determine which businesses and/or activities would require the UKL-UPL. This is expected to speed up the process for the approval of UKL-UPL.
(iv) Omission of Nuisance Permit
The Omnibus Law removes the requirement to obtain the ‘Nuisance Permit’ (Izin Gangguan), which was previously applicable to companies that engage in the construction of buildings for manufacturing chemicals or operating steam or gas equipment and electric motor facilities.
(v) Omission of Company Registration Requirement
To simplify the overlapping registration requirements, the Omnibus Law removes the requirement for companies to register their corporate data with the Ministry of Trade, and therefore company registration must now be done only with the Ministry of Law and Human Rights and through the OSS system.
(vi) Greater Ease of Hiring Expatriates
To improve Indonesia’s ‘ease of doing business’ level, the Omnibus Law cuts various administrative requirements for hiring expatriates, thus making it easier for foreigners to come to Indonesia to work and carry on business, including by:
(a) removing the requirement to have an immigration sponsor (penjamin) for a foreigner (i) who is a shareholder of a foreign investment (PMA) company (although he/she is still required to deposit an immigration bond (jaminan keimigrasian)), (ii) who comes from a country with an existing reciprocal agreement with Indonesia, and (iii) who marries an Indonesian citizen.
(b) expanding the scope of permitted activities under the Visit Visa, now to include the “Pre-Investment” purpose. Previously, a Visit Visa can only be used for limited business/commercial purposes, such as emergency work, business meetings, meetings with a subsidiary or a representative office. For other business/commercial purposes, foreigners were previously required to obtain a Limited Stay Visa (Visa Tinggal Terbatas). Further clarification of the above may be provided in the implementing Government Regulation, yet we believe that the Omnibus Law should generally provide greater ease to potential foreign investors to visit Indonesia
(c) allowing foreigners to obtain the Limited Stay Permit (Izin Tinggal Terbatas, or “ITAS”) at Immigration Checkpoints (for example at airports) without having to apply for the ITAS separately at the immigration office. This should be more cost efficient and less time-consuming compared to the previous regime, which required foreigners to apply for ITAS at the immigration office immediately after obtaining the Entry Stamp upon entering Indonesia.
2. Relaxation of Limited Liability Company (PT) Requirements
- The Omnibus Law introduces certain conveniences to micro and small enterprises (Usaha Mikro dan Kecil or “UMK”) by exempting them from the requirement to have at least 2 shareholders as laid down by Law No. 40 of 2007 (“Company Law”) and explicitly allowing them to have a single founder/shareholder. The same exemption applies to regional government owned enterprises (Badan Usaha Milik Daerah) and village-owned enterprises (Badan Usaha Milik Desa).
- In addition, the Omnibus law also omits the minimum capital requirement of IDR 50 million (approximately USD 4,000) for the establishment of a PT, so the founders of a PT are free to decide on the amount of the company’s capital; However, please note that such relaxation does not apply to foreign investment companies, which must still comply with the minimum capital required by BKPM at IDR 2.5 billion (approximately USD 180,000) and the minimum investment of IDR10 billion (approximately USD 800,000) excluding land and building.
3. Amendments to Antitrust Law
The Omnibus Law introduces new changes to the procedures of legal remedies as well as the administrative sanctions under the Indonesian Antitrust Law (“IAL”) by way of:
- shifting the jurisdiction to examine an objection to the decision of the Business Competition Supervisory Commission (“KPPU”) from the district court to the commercial court. There is speculation that the commercial court is expected to have a better understanding on commercial cases. Note, however, that this also entails certain logistic challenges due to the limited number of commercial courts in Indonesia (there are only 5 commercial courts in Indonesia) compared to district courts. For example, if the domicile of the business entity is in Palembang (South Sumatera), following the enactment of the Omnibus Law, such business entity can no longer file an objection to the Palembang District Court, but it must file it to the Jakarta Commercial Court instead.
- imposing a stricter administrative sanction by removing the maximum fine of IDR 25 billion as set out in Article 47 (2) g of the IAL, leading to an interpretation that KPPU may impose heavier fines (exceeding the previous maximum limit of IDR 25 billion) for the violation of the IAL. However, at the same time, the Omnibus Law abolishes all criminal sanctions, save for non-compliance with the obligation to provide information and evidence during investigation as set out in Article 41 of the IAL.
4. Liberalization and Simplification of Certain Business Sectors
The Omnibus Law liberates and simplifies certain inter-sectoral and inter-level regulatory authorities, as summarized below:
Compared to the previous regulation which restricted the authority to explore and exploit nuclear mining material only to a government institution, the Omnibus Law allows such activities to be conducted directly by a state-owned enterprise, including a permission to enter into a cooperation with private sectors.
The Omnibus Law simplifies the licensing procedures in the film industry by granting centralized authority to the Central Government by placing it in the regime of Business Authorization (Perizinan Berusaha) to avoid multi-layer licensing procedures or registrations. The Business Authorization is subject to the risk-based categorization as described in Section 1 above.
The Omnibus Law omits the requirement to obtain a recommendation from the competent authority as a prerequisite for obtaining a hospital business license. This will certainly cut the red tape of the hospital licensing procedures.
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