ESG in Action: Indonesia’s OSS System transitions company licensing requirements from Business-based to Risk-based
On November 2020, the Job Creation Law No. 11 of 2020 (“Job Creation Law”) came into effect in Indonesia.
Aimed at attracting more investors into Indonesia by simplifying investment regulations, requirements, and procedures, to date, the Job Creation Law have resulted in the issuance of 49 implementing regulations, chief amongst which are:
- the Government Regulation No. 5 of 2021 on Organisation of Risk-Based Business Licensing (“Regulation 5/2021”); and
- the Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (“BKPM Reg 4/2021”).
What does Regulation 5/2021 and BKPM Reg 4/2021 mean for businesses?
Apart from having to comply with the Investment Law No. 25 of 2007, businesses in Indonesia planning to carry out business activities must fulfil the requirements of Norms, Standard, Procedure and Criteria (“NSPC”) set out by the Government and implemented through the OSS System.
This means, businesses are now also assessed on risk elements such as:
- the business’s danger to health, safety environment and/or utilisation and management of resources by considering the types, criteria and location of the business, scarcity of the resources (including human resources) and/or volatility risk;
- which potential risk level is divided into four levels, namely almost impossible, unlikely, likely and almost certain.
Conducted electronically via the OSS System, once businesses have determined their business risk analysis, they are required to obtain the following documents:
|Risk Level||Business Licensing Documents||Requirements and Process|
|Low risk||Business Registration Numbers (Nomor Induk Berusaha – “NIB”), which will also serve as Indonesian National Standards (Standar Nasional Indonesia/SNI) and/or halal guarantee statements on business activities with low level of risk carried out by micro- and small-scale businesses.||The OSS system will automatically issue an NIB once the required data have been submitted, for commencement of business.|
|Medium-low risk||After submitting data and information to obtain an NIB, both the NIB and standard certificates can be obtained by:|
|Medium-high risk||After submitting data and information to obtain an NIB, business actors must:|
|High risk|| After obtaining an NIB, business actors must:|
In addition to the above, the implementation of business activities consists of the following stages:
|Operational and/or commercial stage|
The implementation of the risk-based business licensing scheme is expected to drive micro-, small-, medium- and large- scale investments within Indonesia. For businesses affirming that their businesses are of small- and micro- scale types and are characterised with low levels of risk will be able to enjoy the simplicity of issuance of their business licenses without having to meet any complicated requirements.
Regulation 5/2021 and BKPM Reg 4/2021 are expected to provide clarity in terms of the management and organisation of risk-based business licensing. Despite the new version of the OSS system that accommodates the risk-based business licensing scheme launched on 12 August 2021, there are still some technical issues that are being worked out. Be that as it may, BKPM recently announced that the improvements are expected in the new system to ensure that risk-based business licensing services will be able to run optimally and efficiently in the shortest possible time. Ultimately, this change enhances Indonesian’s commitment to sustainability business and a push for better environment, social and governance accountability.
This alert is for general information only and is not a substitute for legal advice.