Indonesia’s Omnibus Law: Risk Based Business Licensing
- Indonesia’s Regulation 5 of 2021 introduces a risk-based approach to the issuance of business licenses.
- Business activities will be assessed on the scale of the hazards they can potentially create (low risk, medium-low risk, medium-high risk, and high risk).
- The risk-based business licensing procedure will impact 16 sectors, including defense, energy, and agriculture.
In our fourth article on Indonesia’s Omnibus Law, we analyze Government Regulation 5 of 2021 (GR 5/2021) concerning Risk-Based Business Licensing, which introduces new criteria on how business licenses are issued in the country.Business licenses will now be issued based on the assessment of ‘business risk level’ determined by the scale of hazards a business can potentially create.
To determine the risk level, the government will conduct a risk analysis of each application before deciding on issuing a business license. This will comprise of:
- Identifying the relevant business activity;
- Assessing the hazard level;
- Assessing the potential occurrence of hazards;
- Determining the risk level and business scale rating; and
- Determining the type of business license.
Based on the aforementioned risk analysis, the businesses activities undertaken by the applicant company will be classified into one of the following risk-level types:
- Low-risk businesses;
- Medium-low risk businesses;
- Medium-high risk businesses; and
- High-risk businesses.
Based on this risk-based approach, the lower the business risk, the simpler the business licensing requirements will be.
GR 5/2021 replaces GR 24/2018. Although GR 5/2021 has been effective since February 2021, it will only be adopted by the Online Single Submission (OSS) system by June 2021.
What sectors are impacted?
The government will undertake the risk-analysis for business activities in the following sectors:
- Maritime affairs and fisheries;
- The environment and forestry;
- Energy and mineral resources;
- Nuclear energy;
- Public works and housing;
- Health, medicine, and food;
- Education and culture;
- Religious affairs;
- Post, telecommunications, broadcasting, and electronic system, and transactions;
- Defense; and
What are the requirements to obtain a business license?
The requirements vary depending on the risk level of the business with those in the high-risk categories requiring more permits and licenses.
The first stage of the process is obtaining a business registration number (Nomor Induk Berusaha – NIB) through the OSS system. To register for an NIB, businesses will need to provide the following information:
- Taxpayer number (Nomor Pokok Wajib Pajak – NPWP);
- Business activity code according to the KBLI;
- Business profile;
- The capital structure of the business; and
- The proposed location of the business.
Furthermore, the OSS system will be linked to all relevant ministries, such as the Ministry of Finance, the Ministry of Home Affairs, and the Ministry of Law and Human Rights.
Low-risk business activities
Low-risk business activities are only required to obtain an NIB to commence their operations. In addition to serving as the formal identity of the business, the NIB also serves as a company’s import identification number, as well as the number for registering with the national social insurance program.
Medium-low risk business activities
Business activities in this category must obtain a NIB and Certificate of Standards before beginning operations. A Certificate of Standards is a statement of the fulfillment of certain business or product standards, which must be filled in through the OSS system.
Additionally, the OSS system may require applicants to complete the Environmental Management and Monitoring Efforts (UKL-UPL), or Statement of Undertaking Environment Management and Monitoring (SPPL) form.
The NIB allows the business to conduct activities from ‘preparation to the ‘commercial stage’.
The preparation stage includes:
- The procurement of tools or facilities;
- Land acquisition;
- Recruitment of manpower;
- Feasibility studies;
- Financing operations for the construction phase.
The commercial-stage includes:
- The production of goods/services;
- Distribution of goods/services;
- Marketing of goods/services; and
- Other commercial activities.
Medium-high risk business activities
For medium-high risk business activities, companies will need to obtain a NIB and Certificate of Standards. However, the certificate will need to be verified by the central or regional government.
A company with a NIB and an ‘unverified’ Certificate of Standards are only permitted to conduct activities deemed in the preparation stage of operations.
Once the central or regional government is satisfied the business has fulfilled the specific business standards, they will issue the ‘verified’ certificate and the company can begin the commercial stage of operations.
High-risk business activities
High-risk business activities will require a 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.
The NIB, however, allows the business to conduct activities in the preparation stage of operations.
Depending on the products or services being provided, businesses may have to obtain other supporting licenses to conduct commercial activities regardless of what risk level their activities are classified as.
An illustration of the licensing requirements can be seen below.
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