Upgrades to Indonesia's business-licensing framework to make the process more efficient and user friendly

Fulfilling its commitment to simplify business licences in order to foster investment, in June 2018 the government issued Regulation No. 24 on Electronic Integrated Business Licensing Services (GR 24). GR 24 follows the 2017 Regulation No. 91 on Acceleration of Doing Business. Referred to as the online single submission (OSS) system, it introduces an ICT-based business-licensing system that integrates processes of obtaining licences from different government institutions. The OSS is essentially an upgrade of the previous licensing system as it integrates processes that occur at the regional and national levels, and streamlines the process by merging several licences into one.

Licensing & Regulation

As part of 15 economic policy packages introduced in 2014, the government aims to simplify the licensing and regulation process. The economic packages aim to improve the competitiveness of national industries, exports and investment by harmonising and streamlining regulations, simplifying bureaucracy and ensuring law enforceability. Improving business licensing for the ease of investors has always been one of the government’s priorities.

A particular breakthrough in this field was the initiation of the one-stop service centre (PTSP) concept under the Investment Coordinating Board (BKPM). The establishment of PTSP-BKPM significantly cuts red tape in obtaining business licences as it promotes coordination between ministries and government institutions to delegate relevant authorities to issue licences solely to BKPM, and assign their officials to assist in such services.

Under PTSP-BKPM, investors wishing to make arrangements for licences do not need to go to different ministries or institutions to process each licence individually. Business licences such as investment permits (which are issued by various ministries in accordance with the field of business), taxpayer identification numbers, company establishment and registration documents, expatriate employment permits and related documents, import identification numbers and Customs registration documents are some examples of licences obtainable through the PTSP-BKPM.

The principal licences required the first time an investment plan is launched have also been eliminated and replaced with an investment registration. As a result, an investment only needs to be reported to the government instead of requiring a principal licence.

Additionally, BKPM enabled certain business fields to directly obtain a licence, accelerated the licensing process from three days to one, and promoted paperless investment licences through the digitalisation of these documents.

OSS

In 2018, with the enactment of GR 24, the OSS was established as the sole facility responsible for processing and managing licences and registrations for all ministries and government institutions. As such, OSS serves as the single entity to which data and information pertaining to business licences can be submitted and synchronised, thus simplifying and streamlining the licensing process.

However, GR 24 does not completely substitute the previous laws and regulations on business licensing. There are rules set forth under existing BKPM regulations that remain applicable, such as the minimum capital investment for foreign direct investment, maximum debt-to-equity ratios. Though it is already operational, the OSS system remains subject to additional updates.

BKPM and other ministries are continuing to coordinate with the Coordinating Ministry for Economic Affairs (CMEA) to determine the extent of business licensing and facilities under the OSS system.

As of September 2018 a number of institutions – including BKPM, the Ministry of Trade, the Ministry of Finance, the Ministry of Agriculture, the Ministry of Communication and Information Technology, the Ministry of Employment, the Ministry of Environment and Forestry, and the Ministry of Public Works and Housing – have issued sectoral regulations to accommodate the OSS system.

Concept Overview

The OSS system has been developed in the spirit of deregulating and simplifying business licensing. Significant changes have been made to the previous applicable rules. The main concepts, which also differentiate the new OSS system from previous ones, are: Integrated & online: The OSS is a business licenceprocessing system that will solely issue licences for and on behalf of ministries, heads of agencies and institutions, governors, regents and mayors to investors, via an integrated electronic system.

Through the OSS system, investors no longer need to process the required licences through different ministries and institutions. The OSS is also connected with local governments throughout Indonesia; hence, licensing can be conducted anywhere, and not necessarily at the business location. Applicable for all businesses: The OSS system applies to all businesses, including those with existing licences. Pursuant to GR 24, the system is available for all investors with the following characteristics:

• Non-individual investors may take the form of a legal entity (such as a limited liability company, general enterprise, local enterprise or public service agency) or non-legal entity (such as a cooperative, limited partnership, firm or private partnership);

• A business of any size, including micro-, small, medium or large-scale enterprises;

• New or existing businesses; and

• Domestic investment or foreign direct investment. Single identity: The OSS system would enable the storage of all data related to the business licence under one sole identification, which is referred to as the business identification number (NIB). Once obtained, an NIB can be used to apply for business, commercial and operational licences under the OSS.

Under the NIB concept, any change in business identity would automatically change all existing licences, so that there would be no need to do them one by one, as was the case with the previous system. Self-assessment principle: Under the OSS, investors are expected to conduct self-assessments and ensure the compliance and fulfilment of all licensing requirements, instead of government-monitored compliance. The required licence will not be issued or suspended until the applicant fulfils or complies with the specific obligation in question.

The intent is that when obligations are fulfilled, it will be recorded in the OSS system so that relevant government agencies are aware of compliance. The OSS system will not issue an additional document to confirm the effectiveness of any licence. Simplified licences: Integrating licence-issuing processes that were previously implemented by ministries, institutions and local government, GR 24 introduces three types of licences, which replace and consolidate older licences. These are:

• NIB;

• Business licences; and

• Commercial or operational licences.

Exceptions

GR 24 lists the licences that are to be processed through the OSS system. However, there are licences that are still under the authority of BKPM and thus will be processed through PTSPBKPM. BKPM Regulation No. 6 of 2018 concerning the Guidelines and Procedure for Capital Investment Licensing and Facilities states that the following sectors are under the PTSP-BKPM licensing process: Electricity:

• Geothermal licence; and

• Geothermal support business approval. Oil and gas:

• Licence for utilisation of oil and gas data;

• Licence to survey;

• Oil and gas storage business licence;

• Oil and gas processing business licence;

• Oil and gas transportation business licence;

• Oil and gas general trade business licence; and

• Foreign representative office licence. Minerals and coal:

• Mining business licence for exploration;

• Termination of mining business licence due to return;

• Mining business licence for special production operation for transport and sales, as well as its renewal;

• Mining business licence for production operation and its renewal;

• Mining business licence for special production operation for processing and refining, and its renewal;

• Temporary licence to transport and sell;

• Mining business licence for production operation for sale; and

• Mining service business licence and its renewal. Public works and public housing:

• Property development and exploitation business licence; and

• Housing business licence. Custom and taxation:

• Granting of import facility for machinery, capital goods and materials for capital investment in industrial and service industrial sectors;

• Granting of import facility for machinery and capital goods in electricity sector;

• Granting of import facility for machinery and capital goods for contract of work and coal mining concession;

• Proposal for exemption or reduction of corporate income tax facility (tax holiday); and

• Proposal for tax facility for capital investment in certain business and locations (tax allowance). Capital investment:

• Foreign representative office licence;

• Licence for establishment of branch offices on sectors with licences issued trough PTSP-BKPM;

• Recommendation for granting a limited-stay visa as shareholders;

• Recommendation for change of status from visitor permit to limited-stay permit; and

• Recommendation for change of status from limited- to permanent-stay permit.

Commitment System

When applying for a business or commercial or operational licence, the investor shall provide a commitment or statement that it will fulfil all necessary requirements to obtain the licence. Under GR 24, business licences and operational or commercial licences will be issued in reverse, which means that the OSS system will issue a temporary licence upon filing of the application, but it will only become effective once the commitments are fulfilled. Non-fulfilment of commitments will cause cancellation of the licence application.

OSS Agency

The OSS system will be run by the OSS Agency, which is currently not yet instituted. Pending the institution and readiness of the agency to carry out the licensing process, the CMEA will temporarily run the OSS system. Since 2 January 2019, the authority to run the OSS system has been handed over from CMEA to BKPM.

In any event, GR 24 sets out the following authorities of the OSS Agency:

• Issuing business-related licences through the OSS;

• Stipulating policies of implementing businesslicensing processes through the OSS system;

• Establishing guidelines for the issuance of licences under the OSS system;

• Managing and developing OSS systems; and

• Cooperating with other parties in the implementation, management and development of OSS. Exercise of this authority shall be carried out in coordination with ministers and heads of agencies, and officials from institutional and local government, under the CMEA.

Business-licensing Process

The licensing procedure established under the OSS system is relatively simple. The applicant first registers with the OSS system, then this registration is processed to obtain an NIB. The licence is processed once an NIB is obtained and then the applicant receives a licence.

As a starting point, in order to access the OSS system, applicants register by submitting:

• ID number (for individual applicants);

• Number or registration number of the deed of establishment (for private enterprises); or

• Legal basis of the establishment (for public enterprises). After successfully accessing the OSS system, the applicant then registers themselves in order to obtain an identity number or an NIB. In registering, the following information shall be given: For individual applicants:

• Name and ID number;

• Address;

• Line of business;

• Location of the investment;

• Value of planned investment;

• Manpower-utilisation plan;

• Contact number of the business or activity;

• Plan for applying for fiscal, Customs or other similar facilities; and

• Taxpayer identification number. For non-individual applicants:

• Name and/or deed of establishment number or registration number;

• Type of investment;

• Line of business;

• Location of the investment;

• Value of planned investment;

• Manpower-utilisation plan;

• Contact number of the entity;

• Plan for request for fiscal, Customs or other facilities;

• Taxpayer identification number;

• ID number of business and/or person in charge; and

• For businesses involving foreign shareholders, country of origin. The “type of investment” field must also take into account any applicable provisions regarding the list of businesses that are closed to investment (the negative list), in accordance with specific requirements set out under investment policy.

For applicants that do not have a taxpayer identification number yet, the OSS system will generate one after the applicant has submitted the aforementioned information. After this, the OSS system will generate an NIB in the form of a 13-digit secure code accompanied with an electronic signature.

NIB

Investor applicants are first required to apply for an NIB prior to applying for licences through the OSS system. All businesses that process their licences through the OSS system, whether new or existing, are required to have an NIB.

An NIB will be granted to applicants who have completed the OSS registration process, and will remain valid as long as the business operates in accordance with laws and regulations. The NIB can be revoked if the business violates the terms stipulated in the NIB and/or if the NIB is declared null and void by a final and binding court decision.

The NIB also serves as a company registration certificate (TDP), as well as an importer identification number and Customs access for businesses involving export and/or import activities. The NIB as a TDP is valid as long as the NIB is valid and the company is registered with the OSS.

Applicants that have obtained an NIB are automatically registered as participants of the Indonesian Healthcare Social Security Agency and the Employment-related Social Security Agency. Along with the issuance of the NIB, the OSS will also inform the applicant of any fiscal facility available in accordance with the applicable laws and regulations.

Aside from applying for licences, an applicant may also submit a request for approval of its Foreign Workers Utilisation Plan upon obtaining an NIB. The applicant shall furnish the following information to support its approval request:

• Reasons for using foreign workers;

• Position of the workers within the company’s organisational structure;

• Period of use of foreign workers;

• Appointment of Indonesian workers as assistants of the foreign workers employed; and

• The number of foreign workers to be employed. After obtaining an NIB, investors can apply for specific licences required for their business. Under GR 24, there are two types of licensing: business licences, and commercial or operational licences.

Business Licence

A licence is required to conduct business or activities up to the point of conducting commercial or operational activities, which may include:

• Land procurement;

• Construction and operation of buildings – provided that the company has completed the environmental impact assessment (AMDAL) and/or technical building plan;

• Procurement of equipment and facilities;

• Hiring employees;

• Completion of certification or quality testing;

• Production testing (commissioning); and

• Production. GR 24 expressly provides that a business licence is mandatory for investors that have obtained the NIB. A company with an NIB may immediately apply for a business licence, thus effectively removing the requirement to undergo investment registration, as in the previous procedure.

For the purpose of issuing licences, GR 24 further categorises businesses according to the following classifications:

• Businesses that do not require any facility to commence their business activities; and

• Businesses that require certain facilities to commence their business activities, which include businesses that already own or control facilities, or businesses that do not own or control facilities yet. Under the OSS, businesses that do not require any facility and businesses that already own or control certain facilities will receive a business licence based on a commitment they must fulfil. Under this scheme, applicants applying for business licences will automatically obtain a conditional licence after stating their commitment to fulfil all of the requirements set forth by the government. Once these requirements are fulfilled, the applicant is entitled to receive a commercial or operational licence.

With regard to businesses that require but neither own nor control the required facility, the OSS will only issue a business licence based on commitment after the applicant has obtained the following licences based on commitment:

• Location or water location permit;

• Environmental permit; and

• Building establishment permit (IMB) .

In addition, GR 24 sets out situations where these licences may be granted without any commitment, or when the licences are not required at all. Investors that have already obtained a business licence but plan to carry out business expansion and/or activities in other areas are still required to obtain a location or water location permit, environmental permit and IMB in the respective area.

An environmental permit is not required if the business or activity is located in a special economic zone, industrial zone, free trade zone or free port, or if it qualifies as a micro- or small enterprise not required to own an AMDAL or environmental management and monitoring effort document. Upon securing a business licence, it will be valid throughout Indonesia. Consequently, businesses are required to update relevant information on their business development through the OSS system.

Commercial & Operational Licences

Under GR 24, certain businesses must obtain a commercial or operational licence before beginning operations. The OSS issues a commercial or operational permit based on commitment in order to fulfil:

• Standards, certificates or licences; and

• Registration of goods and services, in accordance with the types of products or services commercialised by investors through the OSS system. As a general rule, a business can only begin commercial operations once they obtain a commercial or operational licence, except for goods and services that by law do not require any further standardisation or certification. In the latter case, the business licence will also serve as a commercial or operational licence.

Where a commercial or operational licence is required, upon application, the OSS system will issue a commercial or operational licence based on the commitment which sets out various conditions that must be met by the applicants in accordance with the type of products or services commercialised, such as the Indonesian National Standard, Good Manufacturing Practice certification and import approvals. In line with the self-assessment principle, the OSS will cancel a business licence that has been issued in the event that the applicant does not satisfy the commitment for this licence, or a commercial or operational licence.

Once all commitments have been satisfied, the business licence, or commercial or operational licence, will be effective after the applicant furnishes payment of business-licensing fees in accordance with regulatory requirements.

Business Expansion

Under the OSS system, a business that increases its production capacity is not required to apply for an expansion licence as long as it is in the same line of business.

However, it will still need to update the company data in the OSS system. A company that will expand into a different line of business or in a different location will need to submit an application for a new business licence.

Transitory Provisions

GR 24 provides that any business licence that has not yet been issued, for which an application was submitted before this regulation was in place, will be processed through the OSS system.

For investors with valid existing licences that require a new licence for business expansion, the following rules apply:

• Applications for licences for business expansion must be submitted and will be issued through the OSS system upon inputting the required data, a commitment or fulfilment of commitment, pursuant to GR 24;

• An existing business licence, or commercial or operation licence, that is still valid for the business sector and the applicants’ business activities will remain valid upon being registered in the OSS system; and

• These business entities will still need to apply for an NIB. Previous laws and regulations regarding business licences will remain valid insofar as they are not in contradiction with the provisions stipulated under GR 24.

Challenges

Complicated and time-consuming licensing processes, as well as uncertainty of laws and law enforcement, have been among the main factors inhibiting investment in Indonesia for decades. As such, major reform to licensing will require a significant amount of time for the necessary harmonisation and coordinating works to be successfully implemented. Furthermore, the OSS system still has room for improvement, and a number of issues have come to light.

Even during the period prior to the system’s launch, the OSS had to face several controversies, including its delayed launch date, insufficient information and criticism that the system was being introduced without an adequate transition period. In spite of being an improvement from the previous system, the OSS faces various problems which hinder its full utilisation. The issues break down into a number of areas, specifically:

• Technical and infrastructure;

• Regulatory;

• Inter-agency coordination; and

• Support and socialisation.

Technical & Infrastructure Issues

The OSS utilises online technology in order to offer an integrated electronic licensing system which allows applicants to process their business-licensing applications from any location and at any time. It thus comes as no surprise that the most significant and common problems currently being experienced by the OSS system relate to various technical and infrastructure issues.

Technical difficulties within the OSS system are turning a simple task, such as accessing the system, into a more arduous process, with applicants sometimes needing to refresh and reload the website several times in order to gain access and begin the licensing process.

As of February 2019, however, it remained unclear whether this problem was being caused by heavy traffic or a lack of servers. Furthermore, even after applicants have succeeded in accessing relevant websites, a number of applicants have found that their user databases have been erased and that they have to input their data again.

The OSS system is also proving challenging for applicants who wish to revise their data online after making a mistake during the registration phase. One solution to this issue, as suggested by the OSS Agency, is to visit the OSS office and submit a request for the revision of the relevant data. The applicant must then wait for approximately three days before their application can be revised.

Technical and infrastructure issues are also creating difficulties in a number of regions in terms of implementation. For the most part, this is due to the nature of the system, which requires an internet connection in order to gain access.

As a consequence, regions with insufficient internet coverage have been unable to gain adequate access to the OSS and are thus being encouraged to access the system through their mobile devices.

Regulatory Issues

The OSS system aims to reform the process of business licensing across a total of 20 business sectors. However, not all business sectors have had technical regulations issued for them to date. As a result, applicants are still uninformed about many important details which need to be addressed in regard to applications for business licences. This includes the issue of commitment fulfilment and the payment of business licence fees – areas which are not regulated in detail under GR 24. Furthermore, the government has yet to complete work on its official Indonesian business sector classifications.

In addition, there are issues regarding possible inconsistencies between the rules set out under GR 24, and sector regulations and/or regional regulations on business licensing. GR 24 has anticipated this problem by regulating provisions that essentially instruct ministries and local governments to revoke and declare invalid all regulations governing matters relating to licensing that are in conflict with GR 24. Although this is a good start, implementation of the regulation will not be simple.

For example, a local regulation in its synchronisation effort will require revocation of previous regulations and issuance of a new local regulation to support the OSS. This new local regulation requires a political process in the Regional People’s Representative Assembly.

Coordination Issues

The OSS’ declared mission to electronically integrate all business licences across 20 business sectors means that it has to integrate 25 ministry agency systems, and 514 regional government licensing systems into its operations. This is an enormous task, and it will prove difficult to properly integrate and validate all of the data from various agencies into the new system. This, in turn, looks set to create various issues for applicants in terms of the overall business-licensing process.

One of the main problems currently being experienced is that business owners who started the processing of their applications prior to the implementation of the OSS are now required to complete the application process for business licensing again under the new system.

Furthermore, with various agencies now validating the data being held within the applicants’ database, simple differences such as discrepancies within the writing and recording systems of each agency may ultimately lead to the production of unreadable data.

Another issue concerns the difficulties involved in inter-agency coordination, which are leading some OBG would like to thank Lubis Santosa & Maramis for its contribution to THE REPORT Indonesia 2019 applicants to be issued commercial licences that they did not apply for.

Support & Socialisation Issues

Given that the OSS is a relatively new system within the Indonesian business landscape, it is understandable that confusion and uncertainties have initially been experienced in its utilisation and implementation. It is therefore crucial that the government implements a strong support system that is able to educate the public on the workings of the OSS system.

Unfortunately, the initial level of support being provided by the government was insufficient to meet public demand, as reports emerged of missing information and long queues at OSS offices. Moreover, in certain regions, the human resources responsible for dealing with the licensing process and applications have not always been fully prepared for the new system.

However, the biggest challenge is achieving harmonisation and synchronisation between the different institutions and regulations involved. Even under the previous system, issues related to coordination between ministries and regions remained unresolved before a new system was introduced, thus creating more confusion among applicants. The OSS system will most likely need to operate for some time before it is able to stabilise.

Nonetheless, the OSS is a positive move that creates the foundations of an effective and efficient business-licensing system. Therefore, it needs the support of all stakeholders to ensure the development and refinement of the system. The government also needs to extend its socialisation and coordination efforts so that any issue encountered, even if unavoidable, may be settled quickly so as not to cause investors to distrust this new system.