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W&P Newsletter – Business Licensing Process and Requirements: The Promised Breakthroughs?

Government Regulation No. 5 of 2021[1] (“GR 5/2021”) is a product with which the government tries to deliver its promises on business licensing reform in order to create a friendly and conducive environment for businesses.

In this newsletter we discuss two key highlights of GR 5/2021, being business licenses and minimum investment amount.

Business Licensing Process and Documents

Unlike the previous regime which generally required companies to obtain multiple licenses, the Omnibus Law and GR 5/2021, as its implementing regulation, simplifies business licenses process and documents by changing the paradigm of the procedures where a business license will simply depend on the risk assessment of the business activities in question.

The risk assessment is divided into 4 levels, Low, Medium Low, Medium High and High, each with its own characteristic as summarized in the table below and is assessed by looking into a number of aspects, including, safety, health, environment, resource utilization and management.

If a business is considered low risk, it is not required to obtain a business license and simply needs to register itself to obtain a business registration number (Nomor Induk BerusahaNIB). On the other hand, if a business is considered high risk, it must obtain a business license and if relevant, other documents, such as, a certification letter.

To help business actors understand the risk assessment criteria, GR 5/2021 provides a list of business activities and their risk assessment categorization.

As an illustration, we set out below some activities and their risk assessment categories.

Risk Business Activities Required Approvals
Low Businesses such as:

  • wholesale trading (except for wholesale trading of certain products such as alcohol beverages and drugs);
  • real estate development (KBLI 68110); and
  • e-commerce (KBLIs 47911-47919).
Only NIB.

The NIB also serves as Import Registration Number (Angka Pengenal Importir), Custom Access, Social Security Registration, Mandatory Manpower Report (for the 1st period) as well as Environmental Management and Monitoring Undertaking Letter (SPPL).

Medium Low Businesses such as:

  • retail trading of processed meat and processed fish (KBLI 47245); and
  • reparation of vehicles (KBLIs 45201 and 45407).
  1. NIB; and
  2. A letter of undertaking to meet the required standards.
Medium High Businesses such as:

  • management consultation (KBLI  70209);
  • freight forwarding (KBLI 52281), marketplace (KBLI 63122, except if conducted by SMEs); and
  • construction (KBLIs 41011 – 41020, 42101 – 42104, etc.).
  1. NIB; and
  2. Certification (by the central government, or, as the case may be, the regional government)
High Businesses such as:

  • electric power producer (KBLI 35111);
  • coal mining (KBLI 05100); and
  • industrial estate (KBLI 68130).
  1. NIB;
  2. Business License; and
  3. Certification (as relevant).

The approach is envisaged to help reduce administrative burden and speed up the business registration (or, as the case may be, the issuance of business licenses), and ultimately help the businesses to commence their operation in timely manner. Assuming the government can successfully implement this, it would be one of the positive developments that investors have been waiting for.

Minimum Investment Amount Requirement

GR 5/2021 reaffirms the concept of ‘one investment[2] for one business’ and also reaffirms that in this context the term ‘business’ refers to a specific 5-digit KBLI code as stated in the company’s business registration/ business licence which is approved for specified project location(s). This means that even if the investor has already obtained an approval to undertake certain business activities it must still make additional investment (funds) when it conducts the same business activities at different locations. This is because the business activities that are performed in new location(s) are treated as if new business.

Notwithstanding the requirement for additional investments, certain businesses, such as wholesale trading, F&B, construction and manufacturing businesses, can be permitted to keep their initial investment amount even if there is an expansion to the types of business activity, a diversification of products or an additional project location – provided that they are able to meet the required conditions as set out in GR 5/2021 (for example, the diversified products and the (existing) approved products are within the same production line).

The exemptions from the minimum investment requirement may not be entirely new policies but the inclusion of these exemptions in a higher regulation, such as a government regulation, can help demonstrate the commitment of the Indonesian government to improve the investment climate for investors.

Transitional Provisions

Pursuant to GR 5/2021:

  • existing licenses remain valid;
  • any licenses that have been issued but are not yet effective (i.e. pending fulfillment of commitments) must be processed in accordance with the provisions of GR 5/2021.

At the implementation level:

  • within the coming months the government plans to issue further regulations (such as, ministerial regulations) to enable effective implementation of GR 5/2021;
  • the OSS system is in the process of being upgraded and expected to be able to fully and effectively implement the risk-based business licensing procedures in accordance with GR 5/2021 in around June or July 2021. In the meantime applicants would likely experience some trials and errors when using the OSS system – therefore, during this time applicants may want to closely monitor their application documents (including keeping records on various information and documents that are uploaded on to the online system) so that to minimize potential complication with the issuance of their licenses.

For further information on the above, please contact W&P: info@wplaws.com.

[1] Government Regulation on the Implementation of Risk-Based Licensing.

[2] In the context of foreign direct investments in Indonesia, this refers to ‘more than 10 billion Rupiah’ as the minimum required investment amount.