Business License in Indonesia risk based classification

Business License in Indonesia: Risk-Based Classification Approach

The Covid-19 pandemic has, and continues to affect the economies globally. However, the Indonesian government has taken a prudent measure by enforcing the Job Creation Law in 2020 to attract more investment as part of a national economic recovery program. 

Under this law, several business regulations, including Business Licensing were subjected to changes that could facilitate the investment climate in Indonesia. For instance, the government issued Regulation No. 5 of 2021 on Risk Based Business Licensing aiming to simplify licensing procedures according to the risk classification. The general idea being lower-risk business activities should have less regulatory requirements, allowing them to commence business operations with no delay.

This article will describe the key aspects of the new approach towards the process of obtaining a business license in Indonesia.

Risk-Based Business License in Indonesia: Understanding Key Changes

Previously, entrepreneurs were required to hold a business license, a commercial license, and/or an operational license before conducting their operations. Moreover, the government never gave adequate attention to the correlation between the scale of a company’s activity and its ability to obtain a business license.

However, that changed after the introduction of the new regulation, GR 5/2021. It has simplified the procedure to obtain a business license based on risk analysis and determination of the scale of a business (whether it is a small or a big business).

Moreover, in GR 5/2021, ex-ante licensing (satisfying all requirements in advance) is effectively replaced by ex-post licensing (the requirements are checked afterward), which will be particularly advantageous for low- and medium-risk businesses.

In order to decide on the type of business licensing, the central government undertakes the following procedure:

  1. Identifying the relevant business activity;
  2. Assessing the hazard level;
  3. Assessing the potential for the occurrence of any hazard;
  4. Determining the risk level and business scale rating; and
  5. Determining the type of business licensing.

Based on the aforementioned risk analysis, the businesses activities undertaken by the applicant company are classified into one of the following risk-level types:

  • Low-risk businesses;
  • Medium-low risk businesses;
  • Medium-high risk businesses; and
  • High-risk businesses.

There are sixteen sectors in which the GR 5/2021 covers licensing: 

  1. Marine & fisheries;
  2. Agriculture;
  3. The environment & forestry;
  4. Energy & mineral resources;
  5. Nuclear energy;
  6. Industry;
  7. Trading;
  8. Public works and housing;
  9. Transport;
  10. Health, medicine and food;
  11. Education and culture;
  12. Tourism;
  13. Religion;
  14. Post, telecommunications, broadcasting, electronic systems and transactions;
  15. Defense & safety; and
  16. Employment.

Procedure to Get Risk-based Business License in Indonesia 

Obtain Business Identification Number (Nomor Induk Berusaha, NIB)

The first stage of the Risk Based Licensing procedure is to get a Business Registration Number (Nomor Induk Berusaha – NIB) through the Online Single Submission(OSS) system. In order to secure an NIB, business operators must present these required data: their business profile, capital structure, taxpayer identification number (Nomor Pokok Wajib Pajak – NPWP), the 5-digit business activity code according to the Indonesian Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia – KBLI), and the proposed ‘location’ of the business. 

GR 5/2021 no longer requires a “Location Permit”, but replaces it with the conformity of Spatial Utilization Activities (Kesesuaian Kegiatan Pemanfaatan Ruang). It can be secured without having to file another application. 

Obtain Business License 

According to GR 5/2021, the process of obtaining a business license will henceforth be classified depending on risk. The less risky a firm is, the easier it is to comply with licencing regulations. Following are the classifications of risk:

Low Risk 

Low-risk business activities only need to get an NIB before they can start operating. In addition to functioning as a company’s formal identity, the NIB also serves as an import identification number. 

Medium-low Risk 

Before beginning operations, businesses in this category must get an NIB and a Certificate of Standards. A Certificate of Standards is a statement of the fulfillment of certain business or product standards, which must be filed for through the OSS system.

Additionally, the OSS system may require applicants to complete the Environmental Management and Monitoring Efforts (Upaya Pengelolaan Lingkungan – Upaya Pemantauan Lingkungan, UKL UPL), or the Statement of Undertaking Environment Management and Monitoring (Surat Pernyataan Kesanggupan Pengelolaan dan Pemantauan Lingkungan, SPPL) form.

Medium-high risk 

For medium-high risk business activities, companies will need to obtain an NIB and a Certificate of Standards. However, the Certificate of Standards is obligated to be verified by the central or regional government.

High Risk

High-risk business activities need to get an NIB and a license to operate. The license will be issued once the business has fulfilled certain conditions and verifications set out by the central or regional government, which may include an environmental impact analysis.

Note: The regulation, GR 5/2021 does not apply to businesses, the licenses of which have been approved and in effect prior to the effective date of the regulation.  Also, the businesses which obtained ‘Access Right’ prior to the effective date of GR 5/2021 will have to update its data for Access Right with the OSS System. 

How Can Cekindo Help 

As a one-stop solution for business ancillary services, Cekindo offers comprehensive services like company incorporation, legal services, accounting, and much more.

Prior to incorporation, Cekindo also helps foreign investors in conducting due diligence and market research activities. Our consultants assist investors in obtaining required licenses for a broad range of businesses and make sure your company duly complies with legal regulations, including the new GR 5/2021. When the business becomes operational, we can help you with conducting HR activities and various other business services. 

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