Principle Business License Replaced with Capital Investment Registration

The Investment Coordinating Board in Indonesia (BKPM) has just made effective of the new changes on January 2, 2018, regulated under BKPM Regulation No. 13 of 2017 (BKPM Reg. 13/2017). This new regulation concerning the Guidelines and Procedures for License and Investment Facilities, has now taken effect at the Central One Stop Services Office of BKPM only. It will soon come into full force at different regions on July 2, 2018. Therefore, existing BKPM regulations for the same subjects will then become invalid.

In this article, we will summarize some of the significant amendments on licensing and investment procedures and regulations come from BKMP Reg 13/2017.

Capital Investment Registration in Indonesia

With effective from January 2, 2018, Principle License (Izin Prinsip, or IP) will no longer be valid. Even though the change might seem mainly cosmetic – the term of Principle License as such is now replaced with Capital Investment Registration (Pendaftaran Investasi, or PI) – there are several changes that will shape your business differently.

The change in the regulation does not concern only Principle License as also Permanent Business License is replaced with  Business License (Izin Usaha, or IU).

Obtaining a Principle License – the former license, was crucial for a foreign-owned company in Indonesia. It was valid for one year during which a company was supposed to realise its investment plan of 10 billion rupiah.

In fact the Principle License served as the initial permission from BKPM to allow foreign company to invest before they could receive the Permanent Business License and truly start a business in Indonesia. However, with the new regulation, a company can directly apply for Business License.

Principle License vs. Investment Registration

The replacement of Principle License with Investment Registration is beneficial to most foreign investors. The effort by BKPM is to facilitate a more effective registration process (as compared to the previous lengthy bureaucratic process), and make investments less difficult for foreigners.  

This breakthrough mark taken by BKPM is the sequel of the implementation of Presidential Regulation No. 91/2017. The following lists the primary changes:

BEFORE – Principle License

Entrepreneurs were supposed to apply for Principle License before the legal establishment of entity in Indonesia, and signing of the Article of Association and obtaining Deed of Establishment. After obtaining Principle License, it was mandatory to realize the investment (IDR 10 billion) before running the business.

AFTER – Capital Investment Registration

Capital Investment Registration might be obtained before or after the establishment of a legal entity. It is determined by the signing of Article of Association and Issuance of Deed of Establishment.

Even though it is necessary for businesses to certain extent, if a legal entity meets the following criteria, it is obliged to apply for Capital Investment Registration before the entity establishment.

• Business activities requiring physical construction
• Business fields with the possibility to obtain Capital Investment facility according to the applicable regulations
• Business activities that will potentially cause damage or pollution to the environment
• Business activities related to natural resources, stated defense, energy and infrastructure
• Business activities subject to certain sectoral requirement in accordance to prevalent regulations

One noteworthy piece of information is that trading or management consulting businesses or their related activities do not require the capital investment registration. They can directly apply for Business License. Thus, the company is ready to commence a business.

Good News for Investors

Head of BKPM, Thomas Lembong, commented that with the new regulation came into place at the beginning of 2018, there will be target growth of 10-14% (y/y) of domestic and foreign direct investments in Indonesia in the same year—particularly for service and e-commerce sectors.

With the mechanism of registration upgraded by BKPM, the process of issuance of Capital Investment Registration will be accelerated greatly with increased efficiency. The whole process of Capital Investment Registration takes only one working day, much shorter than the time needed for the application of Principle License, which previously took three working days.

On A Final Note

There will be a series of innovations and improvements coming from BKPM—especially through digitalization—in an effort to speed up and simplify the process for investment licensing matters, in order to achieve the paperless investment licensing and support the single submission online program.

Speak to our experts at Cekindo now if you have any questions regarding the recent revision of BKPM regulations.

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