Legal Overview on the Implementing Regulations of Indonesian Omnibus Law: General Aspect of Risk-Based Business Licensing

In respect to the promulgation of Law No. 11 of 2020 on the Job Creation (“Law 11/2020”), commonly known as Omnibus Law, the government has issued Government Regulation No. 5 of 2021 on the Implementation of Risk-Based Business Licensing (“GR 5/2021”).

GR 5/2021 stipulates a new approach in business licensing, based on business risk assessment. The main objective of this regulation is to reorganize and simplify the licensing requirement and procedures, even removing the licensing prerequisite for certain businesses.

Legal Frameworks: The below executive summary is referred to GR 5/2021. (Note: The promulgation of GR 5/2021 has repealed and replaced the existing legal framework, Government Regulation No. 24 of 2018 on Electronically Integrated Business Licensing Services).

Main Keys of Risk-Based Approach (“RBA”) Business Licensing: Please find below some main keys of GR 5/2021 provisions regarding implementation of RBA in Indonesia’s business licensing.

The Objective of the RBA: The RBA business licensing aims to improve the investment ecosystem and business activities through: (i) the implementation more effective and simpler implementation of business license issuance; and (ii) transparent, structured, and accountable supervision of business activities (Art. 3 of GR 5/2021).

Implementation of RBA to Various Business Sectors: The following are some sectors that implement the RBA business licensing (Art. 6 (2) of GR 5/2021):

a. Maritime affairs and fisheries; i.Transportation;
b. Agriculture; j. Health, drugs and food
c. Environment and forestry; k. Education and culture;
d. Energy and mineral resources; l. Tourism
e. Nuclear power m. Religion
f.  Industry n. Post, telecommunications, broadcasting, and electronic systems and transactions;
g. Trade o. Defense and security; and
h. Public works and public housing p. manpower

Note: Please refer to Appendix I and II of GR 5/2021 for details regarding the list of business activities, risks, and requirements for each sector. 

Risks Analysis of Business Activities and Determination of Required Business Licenses: We note that the risk analysis of business activities and determination of required business licenses are undertaken by taking consideration of the following (Art. 8 of GR 5/2021):

  1. Level of hazard of each business activities and/or the utilization and management resources; and
  2. Risk potential of such hazard i.e., almost impossible, unlikely, likely, or almost certain to happen (Art. 9 (4) of GR 5/2021).

Classification of Business Risks and Its Business Licensing Documents: The risks of business activities are classified into: (i) low risk, (ii) medium risk, which further classified into medium-low risk and medium-high risk; and (iii) high risk (Art. 10 (1) and (2) of GR 5/2021).

Business licensing requirements based on the above risk classifications are detailed as follows:

Risk Level

Business Licensing Document

Low Risk

Business Identification Numbers/Nomor Induk Berusaha (“NIB”), which will also apply as: (i) Indonesian National Standards/Standar Nasional Indonesia (SNI); and/or (ii) halal guarantee statements (Art. 12 (1) and (2) of GR 5/2021).

Medium-Low Risk
  1. NIB – the basis for business actors for the preparation of operational and or commercial activities; and
  2. Standard certificates in the form of independent statements to be in compliance with standard requirements that are submitted through the Online Single Submission (“OSS”) system (Art. 13 (1) jo. Art. 13 (2) of GR 5/2021).

Medium-High Risk
  1. NIB; and
  2. Standard certificate that is issued by the central government or regional governments based on the results of verifications of compliance with business activity implementation standards (Art. 14 (1) jo. Art. 14 (2) of GR 5/2021).

High Risk
  1. NIB;
  2. Business License that must be obtained prior to commencing the operational/commercial activities; and
  3. Standard certificate, if required (Art. 15 (1) jo. Art. 15 (5) of GR 5/2021).

Regular Supervisory Procedures:  We note that regular supervisory procedures under GR 5/2021 are to be done through the following procedures:

  1. Investment realization report: businesses are obligated to submit: (i) a quarterly report on the investment and manpower realization; and (ii) an annual report on the realization of production, corporate social responsibility, partnership, training, and technology transfer (Art. 221 (1) Letter A and (2) of GR 5/2021); and
  2. Post-audit supervisory: This measure shall be conducted by government agencies through direct or virtual field inspection (Art. 221 (1) Letter B jo. Art. 222 (1) of GR 5/2021).

Impact of RBA Implementation to Existing Businesses: Please be advised that any existing businesses that have obtained an effective business license will not be affected. However, businesses who have not yet fulfilled their commitments and business license is noneffective may have to adjust their compliance as their application will now be processed in accordance with GR 5/2021 (Art. 562 of GR 5/2021).

The article above was prepared by Marshall S. Situmorang (Partner) and Aniendita Rahmawati (Associate). 

Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances. For more information, please contact us at mail@nusantaralegal.com.