As an effort to boost investment and to improve business activities, Indonesia implements risk-based business licensing through the enactment of Law Number 11 of 2020 on Job Creation (“Job Creation Law”) on 2 November 2020. Risk-based business licensing was first introduced by the Job Creation Law and throughout the past few months, successive implementing regulations have also been enacted among others are Government Regulation Number 5 of 2021 on the Implementation of Risk-Based Business Licensing (“GR 5/2021”) which was enacted and came into force on 2 February 2021 as well as Investment Coordinating Board Regulation Number 4 of 2021 on Guidelines and Service Procedure of Risk-Based Business Licensing and Investment Facilities (“BKPMReg 4/2021”) which was enacted on 1 April 2021 and shall come into force on 2 June 2021. Despite these regulations coming into effect immediately upon its enactment, the risk-based licensing was only officially implemented on the Online Single Submission (“OSS”) System on 2 June 2021.
Key Points
Implementation of risk-based business licensing aims to improve the investment ecosystem and business activities through the implementation of effective and simplified issuance of business licensing as well as supervision over business activities in transparent, structured, and accountable manner. Risk based business licensing encompass sixteen sectors i.e., (a) marine and fishery; (b) agriculture; (c) environment and forestry; (d) energy and mineral resources; (e) nuclear; (f) industry; (g) trade; (h) public works and housing; (i) transportation; (j) health, food and drug; (k) education and culture; (l) tourism; (m) religious; (n) post, telecommunication, broadcasting, and system and electronic transaction; (o) defence and security; (p) manpower. Risk-based licensing overhauls the business licensing regime in Indonesia wherein, upon its implementation, licensing requirement to conduct businesses in Indonesia shall varies depending on the risk level and scale of such business. Licensing requirement mainly will be consisted of (i) Business Identification Number (Nomor Induk Berusaha/ ”NIB”); (ii) standard certificate i.e., statement and/or proof of fulfilment of standard of the implementation of business activity (“Standard Certificate”); and/or (iii) license.
Risk level of a business are pre-determined by the Central Government based on assessment over danger level and potential of occurrence of danger. Based on the risk level, business activities are divided into (i) Low risk business activity; (ii) Moderate risk business activity, which further classified into low-moderate risk or high-moderate risk; or (iii) High risk business activity. Attachment I of GR 5/2021 sets out the determined risk level for each business activities in accordance with its corresponding business classification number/KBLI along with the licensing requirement of such business whilst Attachment II of GR 5/2021 sets out the requirements and/or obligations for obtaining such licenses. Standard for business activity as well as products for each sector however will be regulated under separate sectoral regulations. In general, depending on the risk level, the licensing requirement will be determined as follows:
| Low Risk | Moderate Risk | High Risk | ||
| Low-Moderate Risk | High-Moderate Risk | |||
| NIB | Any person conducting business in Indonesia is required to obtain NIB. NIB serves as the identity of business practitioner as well as proof of registration of business practitioner to conduct business. NIB also serves as import identification number (Angka Pengenal Impor/API), custom and duties access rights, registration for Indonesian Social Security Program (BPJS), and mandatory manpower reporting for the first period. | |||
| Standard Certificate | – | Standard Certificate for business classified in the low-moderate-risk sub-category is issued through the OSS System in the form of statement of commitment to satisfy business standard made by the business practitioner which shall be fulfilled upon the implementation of business activity. | Standard Certificate for business classified in the high-moderate risk sub-category is classified into (i) unverified Standard Certificate; and (ii) verified Standard Certificate. | *optional depending on the types of business |
| License | – | – | – | License are approval issued by the authorized governmental body required to conduct business in Indonesia, types of which depend on the business activities. |
GR 5/2021 divides the implementation of business activities into two stages i.e., preparation stage and operational and commercial stage. Preparation stage encompass (i) land acquisition; (ii) building construction; (iii) tools or facilities procurement; (iv) recruitment of manpower; (v) fulfilment of business standard; and/or (vi) other activities including pre-feasibility studies or feasibility studies and operational financing during construction period. Operational and commercial stage encompass (i) production of goods/services; (ii) logistic and distribution of goods/services; (iii) marketing of goods/services; (iv) other operational and commercial activities.
Business activity categorized as low-risk shall only be required to obtain NIB to undertake preparation as well as operational and commercial activities. NIB issued for low-risk business applies as Environment Monitoring and Management Commitment Letter (Surat Pernyataan Kesanggupan Pengelolaan dan Pemantauan Lingkungan Hidup/ “SPPL”). In addition, NIB issued for business activities conducted by small medium-size enterprises (“SMEs”) shall also be valid as Indonesia National Standard (Standar Nasional Indonesia/SNI) as referred to under the laws and regulations in the field of standardization and conformity assessment and/or halal guarantee statement as referred to in the relevant laws and regulations. While low-risk business was not required to obtain Standard Certificate, low-risk business activity shall comply to general standard on work health and safety, public health and environment, particulars of which are set out in Attachment III of GR 5/2021.
Business activity categorized as moderate risk will be required to obtain NIB as well as Standard Certificate. Standard Certificate is issued by OSS System based on the submission of statement of commitment to satisfy business standard by the business practitioner. Such Standard Certificate may be relied on by low-moderate risk business to conduct preparation as well as operational and commercial activities. On the other hand, Standard Certificate for high-moderate risk business is divided into 2 stages i.e., (i) unverified Standard Certificate, and (ii) verified Standard Certificate. Business practitioner of business categorized as high-moderate risk shall submit statement of commitment to satisfy business standard which also includes statement of commitment to undergo verification by government/ agency or certified expert appointed by government. Based on such submission, OSS will then issue unverified Standard Certificate to serve as the basis for business practitioner to undertake business preparation activities. Upon verification of fulfilment of standard by the authorized party, OSS will issue verified Standard Certificate which serves as the legality for the business practitioner to undertake operational and commercial activities. Failure of business practitioner to obtain verified Standard Certificate within the stipulated time period may result in the annulment of unverified Standard Certificate. Standard Certificate may also be revoked if the business practitioner does not conduct any preparation activity within 1 (one) year as of the issuance of NIB. NIB and Standard Certificate will be issued upon satisfaction of Environment Management and Monitoring Approval/ “UKL-UPL” (or SPPL if no UKL-UPL is required for such business).
Licensing requirement for high-risk business constitutes (i) NIB; and (ii) license (including Environmental Analysis/AMDAL). NIB may be relied upon by high-risk business to conduct preparation activities. While generally there is no mandatory Standard Certificate for high-risk business, certain business activities may be required to obtain business Standard Certificate as well as products Standard Certificate, which will be issued by government upon verification, in which event, the business practitioner will be required to have obtained such Standard Certificate and license before commencing the operational and commercial activities.
Other Notable Provisions
- Scale of Business and Capital Requirement
Scale of business is divided based on capitalization of such business pursuant to the following classification:
| Scale of Business | Investment Value and Capital Requirement (IDR)(not including land and building) |
| Micro-size business | ≤ 1 billion |
| Small-size business | 1 billion ≤ 5 billion |
| Medium-size business | 5 billion ≤ 10 billion |
| Large-size business and Foreign Investment Company (“PMA Company”) | > 10 billion. *Exceptions may be applicable depending on the types of business. |
It is notable that whilst the previous regulations indeed require PMA Company to have minimum investment value of 10 billion Rupiah, the minimum issued and paid-up capital remains at 2.5 billion Rupiah. However, BKPMReg 4/2021 expressively stipulates that the 10 billion Rupiah capital requirement shall be fulfilled in the form of issued and paid-up capital, unless stipulated otherwise by the prevailing regulations.
- Investment Facilities
Business practitioners in possession of NIB, Standard Certificate and license may apply for investment facilities through the OSS System encompassing the following:
- Import duty exemptions on imports;
- Tax income facilities for investment in certain business sector and/or in certain regions;
- Tariff cuts on corporate income tax;
- Tariff cuts on corporate income tax and income tax facilities for investment in certain business sector and/or in certain regions within Special Economic Zone (KEK);
- Gross income reduction for certain research and developments activities in Indonesia;
- Gross income facilities for work training, internships and/or certain competency-based training for the purpose of human resources development; and
- Net income reduction for capital participations or business expansion for certain labor-intensive business.