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Aiming Indonesia would improve to become 40th place in the World Bank’s Ease of Doing Business Index Ranking (“EODB”) for 2021, the Indonesian Government introduces new risk-based licensing approach where the low-risk business shall obtain its license easier than the high-risk business. This risk-based approach business licensing is principally changing the previous licensing concept from ‘fulfilling the requirements firstly’ to become ‘supervision after doing businesses.
For many years in Indonesia, investors are required to obtain various types of permits and/or licenses before they were allowed to start doing business in Indonesia. To obtain those permits and/or licenses, investors also need to fulfil many requirements before the Indonesian Government (whether local government or central government) issues permits and/or licenses. This approach has made Indonesia notorious for its time-consuming and complex licensing system. These conditions have also reflected in its EODB whereas Indonesia sits at 73rd ranking below Thailand, India, and Vietnam. Through this new licensing approach, the government expects that there will be increases in foreign and domestic direct investments in Indonesia.
What changes in the License and/or Permit Granting in Indonesia?
Under the new licensing regime, licenses and/or permits shall be issued by the government based on:
(a) the initial business risk level – the potential damage/hazards that the business will create to health, safety, environment and/or natural resources utilization and management; and
(b) the business activity scale whether micro, small, middle, or large business.
Based on the initial business risk level and the business activity scale stated above, business activity shall be classified into these following 4 (four) categories:
1. Low-Risk Business Activities
The low-risk business activities are only required to obtain business registration number ("NIB"). This NIB shall serve as the company identification registration, importer identification certificate, custom access rights, manpower and health social security membership registration, and manpower mandatory report. NIB is a must have registration for all companies.
2. Medium Low-Risk Business Activities
As for a business with a medium low risk classification, the company must obtain NIB and Standard Certificate. The Standard Certificate shall be obtained by submitting a statement letter explaining that the company shall comply with certain business standards in doing its business in Indonesia. NIB and Standard Certificate shall be used as a basis for the company to carry out preparation and commercial phase activities.
Please note that the preparation stage shall consist of:
- land acqusition;
- building construction;
- equipment and facilities procurement;
- human resources procurement;
- business standard fulfillment; and/or
- other activities prior to carrying out operational and/or commercial, including: pre-feasibility study or feasibility study, and operational funding during the construction phase.
Meanwhile, the commercial stage shall consist of the followings:
- goods/services production;
- goods/services logistics and distribution;
- goods/services marketing; and/or
- other activity in the framework of operational and/or commercial.
3. Medium High-Risk Business Activities
As for a business with a medium high-risk classification, the company is required to obtain NIB and Standard Certificate issued by the government.
At first, the government shall issue an unverified Standard Certificate. This unverified Standard Certificate can be used by the Company to carry out preparation stage activities. Then, once the Standard Certificate is verified, the Company may carry out the commercial stage activities.
If the company (a) does not obtain a Standard Certificate within certain period of time in accordance with the regulations, or (b) based on supervision, does not carry out preparation stage within 1 (one) year since the issuance of NIB, the unverified Standard Certificate shall be cancelled.
4. High-Risk Business Activities
As for businesses with a high-risk classification, the company shall be required to obtain NIB, license and Standard Certificate (if required). Once the company obtains NIB, the company may carry out the preparation stage activities. The Company can only carry out the commercial stage activities once it obtains the license.
Further, a company with medium low-risk classification, medium high-risk classification, and high-risk classification may be required to obtain business or product standard certificate.
What business sectors are impacted?
The Risk-Based Business Licensing shall affect the following business sectors:
(a) maritime affairs and fisheries;
(b) agriculture;
(c) environment and forestry;
(d) energy and mineral resources;
(e) nuclear energy;
(f) industry;
(g) trading;
(h) public works and people housing;
(i) transportation;
(j) health, medicine, and food;
(k) education and culture;
(l) tourism;
(m) religious affairs;
(n) post, telecommunications, broadcasting, and electronic system and transactions;
(o) security and defense; and
(p) manpower.
This is a tremendous change in Indonesia licensing regime because previously all businesses shall obtain various licenses in addition to NIB. Indonesian Government expects that this licensing approach will make doing business in Indonesia easier and faster that shall result in increase of volume in foreign and domestic direct investments in Indonesia.
An illustration of the new licensing regime can be seen below:
Business Line | business scale | risk level | required license and/or registration |
freight forwarding | large | middle-high | standard certificate and nib |
warehousing | large | low | nib |
e-commerce retail | large | low | nib |