30
Mar2021

Breakthrough in the Concept of Risk-Based Business Licenses

The Indonesia Government has issued 44 implementing regulations of the Law No. 11 of 2020 concerning Job Creation (“Job Creation Law”). One of the implementation regulations is Government Regulation No. 5 of 2021 concerning Risk-Based Business Licenses (“GR 5/2021”). This regulation replaced Government Regulation No. 24 of 2018 concerning Online Single Submission Service (“GR 24/2018”).

As is well known one of the reasons for the drafting of the Job Creation Law is begause the business licensing procedure in Indonesia is considered quite complicated so that it can hinder investment. This condition makes Indonesia a less attractive country to invest in. The Job Creation Law is a reform in the regulatory structure to simplify the licensing process which in turn can attract more investment in Indonesia.

The government’s breakthroughs in business licensing as regulated in GR 5/20121 will be summarized in this article.

 

Easier Business License Procedure

Previously, the GR 24/2018 stipulated that businessmen are required to have a business license and commercial license and/or operational license before effectively conducting their business activities. In this case, the Government also did not distinguish the scale of a business activity to obtain a business license.

Unlike the previous regulation, the provision of GR 5/2021 provides easier procedure to obtain a business license based on risk analysis and determination the scale of a business (whether it is a small or a big business).

The risk analysis will be conducted by the Central Government. The implementation of risk analysis that will be conducted include:

  1. identification of business activities;
  2. hazard level assessment;
  3. assessment of potential hazards;
  4. determination of risk level and business scale; and
  5. determination of the type of Business License.

The Job Creation Law originally divided classifications of business activities into 3 (three) classification, which are business activities with low risk level, business activities with medium risk level, and business activities with a high risk level. However, GR 5/2021 re-distinguishes between medium-low risk business activities and medium-high risk business activities.

So according to GR 5/2021 there are 4 (four) level of risk business activities, namely :

  1. Low-risk business activities;
  2. Medium-low risk business activities;
  3. Medium-high risk business activities; and
  4. High-risk business activities.

The Comparison of Business Licensing Required Documents under GR 4/2018 and GR 5/2021

GR  24/2018 GR 5/2021
Required Documents Risk Level Required Documents
 

a.       Business License; and

b.      Commercial License or Operational License.

 

 

Low

 

a.       Business Registration Number (Nomor Induk Berusaha or “NIB”). The NIB, also served as the identification of the business, will also be deemed as a permit to perform the business activities.

 

For Small and Micro Business (“SMes”) with a low risk level, NIB applies as the Indonesian National Standard and/or halal guarantee statement.

Medium-low

 

a.       NIB; and

b.      Standard Certificates. Standard Certificate applies as legality to carry out business activities provided through the Online Single Submission System (“OSS System”).

 

The mentioned above becomes the basis for preparing, operational, and/or commercial business activities.

Medium-high

 

a.       NIB; and

b.      Standard Certificate. Standard Certificate is for the implementation of business activities issued by the Central Government or Domestic Government based on the result of the fulfillment of standards for the implementation of business activities by business actors.

High a.       NIB; and

b.      License issued by the Central Government or Domestic Government on the approval of business activities that must be fulfilled by business actors before carrying out their business activities.

In the event that business activities with a high-risk business require the fulfillment of business standards or products, the Central Government or Domestic Government issued a Certificate of Business Standard or Standard Certificates of products resulting from verification of the fulfillment of standards.

 

By applying this concept of risk-based business licenses, the implementation of business license procedures shall be more effective because not all types of businesses must go through the same series of processes, all the required documents are measured proportionally based on various consideration mentioned earlier.

The risk-based business license mechanism that has just been introduced by the GR 5/2021 are expected to be solutions to the obstacles faced in running business in Indonesia, encourage ease of doing business and investment.

 

Supervision of Risk-Based Business License GR 5/2021

Supervision applied in the GR 24/2018 regime is by carried out supervising over the suitability of business and/or activities, validity of documents, and conformity of standards, certificates, licenses and/or registration. This time GR 5/2021 introduces additional supervision method which is a regular supervision, this supervision method will be carried out regularly based on the level of risk of the relevant business activities. Things which will be inspected include:

  1. administrative and/or physical inspection of fulfillment of standards of business activities and/or products/service;
  2. testing; and/or
  3. coaching

The regular supervision will be carried out based on types of business activities for a low-risk and medium-low risk business activities will be conducted 1 (once) in 1 (one) year period for each business location, meanwhile for a medium-high and high-risk business activities will be conducted 2 (twice) in 1 (one) year for each business location.

The government surely strengthen the supervision of the implementation under GR 5/2021 because they also ordered business actors to make a report on investment activities submitted every 6 (six) months in 1 (one) year. The term of obligation to report investment activities did not apply to SMEs business.

 

 

Transition Provision

The enactment of GR 5/2021 revokes the provisions of GR 24/2018. Every businessmen who has obtained a business license before GR 5/2021 is enacted remains valid. However, for businessmen whose Business Licensing is not yet effective must adjust to the provisions of the GR 5/2021. Businessmen who have obtained right to access in the OSS System before GR 5/2021 enacted are expected to update their data for regulatory adjustment. The implementation of Risk-Based Business License through the OSS System shall came into effect at least in June 2021.

 

DISCLAIMER

Any information in this article is provided for informational purposes only and should not be considered as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this Legal Updates without seeking legal or other professional advice.

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