Legal Update: Indonesian Capital Investment Law

Capital Investment Business Fields under Presidential Regulation Number 10 Year 2021 regarding Capital Investment Business Fields (“PR 10/2021”)

On 2 November 2020, Indonesian People Representative approved and enacted Law Number 11 Year 2020 regarding Job Creation (“Omnibus Law”) with the intent of boosting the Indonesian economy through, among others, increasing the ease of doing business.

The Indonesian government subsequently issued PR 10/2021, which significantly liberalizes many business fields that were previously reserved to Indonesian business and/or subject to certain conditions and foreign investment limitations.

For instance, Wholesale Business in the form of distribution (instead of export/import) is subject to 67% foreign investment limitation as stipulated under Presidential Regulation Number 44 Year 2016 regarding List of Business Fields which are Closed and Business Fields which are Open with Conditions in the Field of Capital Investment (“Investment List 2016”). That said, PR 10/2021 no longer includes Wholesale Business, which means that such line of business is 100% open to foreign investment.

Risk-Based Business Licensing under Government Regulation Number 5 Year 2021 regarding Implementation of Risk-Based Business Licensing (“GR 5/2021”)

As part of the implementation of the Omnibus Law in the business licensing field, the Indonesian government has issued GR 5/2021 with a new concept of risk-based business licensing, which replaces Government Regulation Number 24 Year 2018 regarding Electronically Integrated Business Licensing Services (“GR 24/2018”) with the commitment-based business licensing. GR 5/2021 comes into force on 2 February 2021 and will be implemented through the OSS’ online system 4 months after its enactment (i.e. 2 June 2021).

Although the OSS has announced it its website that its online system has incorporated the new provisions in the Investment List mentioned above and GR 5/2021 as of 4 March 2021, we note, based on our observation during recent license application process, that OSS’ online system still refers to the licensing mechanism under GR 24/2018 with the commitment-based business licensing. Once OSS’s online system incorporates the commitment-based business licensing mechanism, business actors are required to update its data in the system.

In light of the above, we have set out the licenses under GR 24/2018 with the commitment-based business licensing in the presentation material and will set out below the licenses under GR 5/2021 with the risk-based business licensing.

Under GR 5/2021, business actors are required to fulfil:

Basic requirements of business licensing:
a. conformity with spatial layout;
b. conformity with environmental approval;
c. conformity with building approval; and
d. conformity with building worthiness certificate.

2. Risk-Based Business Licensing: businesses are differentiated by the risks that its activities may cause to health, safety, environment, utilization and management of resources and require different licenses depending on its risk level (see attached table). In addition, business actors are required to comply with the requirements and/or obligations under GR 5/2021 which are prescribed for its business activities.

For instance, under GR 5/2021, a company that engages in the business of Wholesale of Apparel is considered to be Low Risk and only need NIB for its business license. In addition, such line of business is required to comply with the following requirements and/or obligations on commencement of its business activities:

  1. implement health, safety, security and environmental standards;
  2. submit business activity report to the Central Government – once a year, at the latest 15 January of each year;
  3. own or control business place with correct, permanent, and clear address;
  4. own or control registered warehouse with correct, permanent, and clear address; and
  5. has agreement with producer or supplier or importer that can be proven by contract, appointment, and/or proof of transaction in writing regarding goods to be distributed.

Please note that it is not uncommon for new procedures to take more time to be implemented in practice. There may also be variance in the implementation depending on the central and regional government’s readiness.

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