Indonesia Omnibus Law – Simplification of Business Licensing and Investment Requirements

Indonesia's closely watched omnibus jobs creation bill recently became law. The stated aim of Law No. 11 Year 2020 on Jobs Creation (the "Omnibus Law") is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia.

The Omnibus Law, among other things, introduces new risk-based business licensing and simplifies the licensing process and investment requirements for numerous business sectors by amending and revoking provisions in various regulations. It also seeks to empower and protect micro, small and medium enterprises ("MSMEs") and forms a sovereign wealth fund with the function to invest and manage Government funds and assets.

Below are noteworthy changes under the Omnibus Law.

Risk-Based Business Licensing

The Omnibus Law introduces risk-based business licensing, with the licensing requirements increasing along with the level of risk and business activity, as follows:

1. Low-Risk Business Activity: Only required to obtain a business identification number (nomor induk berusaha or "NIB").
2. Intermediate-Risk Business Activity: Divided into (i) lower intermediate risk and (ii) upper intermediate risk. In addition to an NIB, companies that fall in the lower intermediate risk category will  be required to provide a statement letter of fulfillment of business standards, while upper intermediate risk companies will have to obtain a business standards certificate from the central or regional Government. Businesses in these two categories may also need to obtain a product standards certificate issued by the central Government before commercializing their products.
3. High-Risk Business Activity: Required to obtain an NIB and license in the form of an approval issued by the central or regional Government for the business actors to perform their business activities. Companies involved in certain business activities will also be required to obtain a business standards certificate and product standards certificate issued by either the central or regional Government.

A Government Regulation will be issued to regulate the implementation of business licensing for each risk level and the supervision of business activities.

Simplification of Business Licensing Requirements

The Omnibus Law simplifies business licensing by eliminating the need for business actors to obtain a location permit. Instead of obtaining a location permit, business actors will only have to ensure that their business location conforms to the relevant Detailed Spatial Plan (Rencana Detail Tata Ruang or "RDTR"). If the location conforms to the RDTR, the business actor will only be required to input the business location coordinates to the Online Single Submission (OSS) system. The Omnibus Law also amends the procedures for environmental approvals, building construction approvals and function feasibility certificate (sertifikat laik fungsi).

Business Sectors Open to Investment 

In line with the Government's plan to transform the current Negative Investment List of business fields that are closed, wholly or partially, to investment into a Positive Investment List, the Omnibus Law amends the business sectors open to investment under Law No. 25 of 2007 regarding Capital Investment (the "Investment Law").

Previously, the catch-all exception to business lines open for investment under the Investment Law was "business lines that are stipulated to be closed to or conditionally open for investment." Now the Omnibus Law stipulates that all business lines are open for investment except for those that are stipulated otherwise or "activities that are reserved only for the Central Government."

The elucidation of the Omnibus Law provides that "activities that are reserved only for the Central Government" are service-like activities or activities related to security and defense, including government museums, flight navigation administration and telecommunication / navigation tools for shipping and vessels. While the language in the elucidation suggests that the list of activities reserved for the central Government included there is not exhaustive, there is no further information on the limits of this category.

The Omnibus Law also includes a new list of business activities that are closed for investment, which are (i) cultivation and manufacturing of category 1 narcotics (i.e., raw opium, coca leaves and plants, cocaine, heroin, methamphetamine and marijuana), (ii) gambling, (iii) fishing for endangered species, (iv) utilization or collection of coral, (v) manufacturing of chemical weapons, and (vi) manufacturing of ozone-depleting materials.

Empowerment and Protection of MSMEs

The Omnibus Law revises an article of the Investment Law on MSMEs and cooperatives. Where the Investment Law mandated the Government to reserve certain business lines for MSMEs and cooperatives, the Omnibus Law stipulates that the central and regional governments, in accordance with their respective authorities, shall provide facilities for and empower and protect MSMEs. Such empowerment and protection shall now also include human resources training and access to funding.

Central Government Investment

One of the most notable new changes under the Omnibus Law is the introduction of the concept of Central Government Investment. Under the Law, the Government gives the Minister of Finance and a new body, the Investment Management Institution, which will follow the sovereign wealth fund model, the authority and responsibility to manage the Government's investments, which can be made through the placement and management of funds and assets.

The Investment Management Institution shall be in the form of an Indonesian legal entity fully owned by the Government of Indonesia and responsible to the President. In carrying out its function, the Investment Management Institution will be able to invest, directly or indirectly, cooperate with third parties, and establish special entities in the form of an Indonesian legal entity or a foreign legal entity. Government investments carried out by the Investment Management Institution may be sourced from state assets, the assets of state-owned enterprises and/or other legitimate sources.

A Government Regulation is to be issued to further regulate the governance of the Investment Management Institution. It is worth noting that the Omnibus Law explicitly provides that provisions of law that govern state financial management/state wealth/state-owned enterprises do not apply to the Investment Management Institution.

Supervision and Monitoring

The Omnibus Law outlines administrative sanctions for business licensing violations. These administrative sanctions can be in the form of (i) warnings, (ii) temporary suspension of business activity, (iii) fines, (iv) police action to cease business activities, (v) revocation of license/certification/approval, and/or (vi) revocation of business license. Further provisions on the implementation of administrative sanctions shall be elaborated in a Government Regulation that is to be issued.

Transitional Provisions

All business licenses and licenses from various sectors issued prior to the issuance of the Omnibus Law shall be valid in accordance with this Omnibus Law until their expiration. Licenses that are still in the application process must conform to the licensing procedures under the Omnibus Law. 

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK. The contents of this publication may change subject to the issuance various implementing regulations for the Omnibus Law.