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.
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:
Based on the aforementioned risk analysis, the businesses activities undertaken by the applicant company are classified into one of the following risk-level types:
There are sixteen sectors in which the GR 5/2021 covers licensing:
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.
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 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.
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.
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 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.
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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.