Omnibus Law on Job Creation Overview Series Part I

A Perspective From Investment, Limited Liability Company, Manpower, and National Social Security System Laws.

On 5 October 2020, the Indonesian House of Representative/Dewan Perwakilan Rakyat (DPR) has passed the proposed Omnibus Law on Job Creation (“Omnibus Law”). The Omnibus Law introduces significant adjustments to Indonesia’s laws by establishing new provisions on the investment ecosystems and amends 78 (seventy-eight) existing laws. To see a complete list of the amended law, please click here

Through the Omnibus Law, the government aims to improve the ease of doing business in Indonesia, particularly in regard to bureaucratic efficiency in business permits and investment. Eliminating numerous restrictions on investment hopefully will attract more investments, generate more jobs, and thus will support Indonesia’s economic recovery and long-term objective of becoming a wealthy country.

Legal Framework: In preparing the below executive summary, we refer to the following laws and regulation:

  1. Law No. 13 of 2003 on Manpower (“Manpower Law”);
  2. Law No. 25 of 2007 on Investment (“Investment Law”);
  3. Law No. 40 of 2007 on Limited Liability Company (“Company Law”); and
  4. Law No. 40 of 2004 on National Social Security System (“National Social Security System Law”).

Note: In preparing this executive summary, we refer to the 812-page Final Draft of the Omnibus Law circulated publicly on 14 October 2020. For your reference, the Omnibus Law is still under the final review and promulgation process with the State Secretary at the time being, thus the public has yet to obtain the final version.

Main Keys of the Omnibus Law: Please find the below main keys on notable amendments of existing Manpower Law, Investment, Limited Liability Company, and National Social Security System Laws by the Omnibus Law.

New Provision on the Risk-based Business Licensing: The Omnibus Law introduces a simplification of business licensing by implementing the risk-based approach (“RBA”). In this instance, the business license will be issued by considering the risk profile of each business. The following are detailed business licensing documents based on the risk profile of the business.

Risk Level

Business Licensing Document

Low

Business Identification Number/Nomor Induk Berusaha (“NIB”) (Art. 8 (1) of Omnibus Law).

Medium-low
  1. NIB; and
  2. A statement of certification standard provided by the business actor prior to conducting its business activities (Art. 9 (1) and (3) of Omnibus Law).

Medium-high
  1. NIB; and
  2. Fulfillment of certification standards by the business actor prior to conducting its business activities (Art. 9 (2) and (4) of Omnibus Law).

High
  1. NIB; and
  2. Business License (Art. 10 (1) of Omnibus Law).

In regard to the implementation of RBA, we also note that the issued business license will remain valid until the end of its validity period, and any on process business licenses will be adjusted to comply with the Omnibus Law (Art. 184 of Omnibus Law).

Relaxation on Indonesia’s Negative Investment List: The Omnibus Law regulates that all business lines are open for capital investment except for certain closed business activities and sectors that can only be carried out by the Central Government. We note that some specific business lines that are closed for investment among others on the narcotics cultivation, gambling and/or casino business, and fisheries of certain types of fish, and so forth (Art. 12 (1) and (2) of Investment Law as amended by the Art. 77 Point 2 of Omnibus Law). In this respect, the negative list of investment provisions is expected to be renewed soon following up on the enactment of the Omnibus Law.

Easing the Company Law Provisions: We note that the following are some essential changes to the existing Company Law:

a. Minimum Requirement of Company’s Authorized Capital: The omnibus has deleted the minimum requirement of company’s authorized capital. In this instance, the amount of authorized capital shall be agreed upon solely by company’s founders (Art. 32 (2) of Company Law as amended by Art. 109 Point 2 of Omnibus Law). However, please be advised that the minimum paid-up capital requirement of IDR2.5Billion for foreign companies/Perusahaan Modal Asing (PMA) under the Indonesia Investment Coordinating Board/Badan Koordinasi Penanaman Modal (BKPM) will still prevail.

b. Exemption on Minimum Requirement of Shareholders: We note that the Omnibus Law allows the following companies to have a sole shareholder:  

    1. Companies whose shares are wholly owned by the state;
    2. Regional Owned Enterprises/Badan Usaha Milik Daerah;
    3. Village Owned Enterprises/Badan Usaha Milik Desa;
    4. Companies that manage stock exchanges, clearing and guarantee institutions, depository and settlement institutions, and other institutions in accordance with the Law on Capital Markets; or
    5. Companies that fulfill micro and small businesses (“SME”) criteria (Art. 7 (7) of Company Law as amended by Art. 109 point 2 of Omnibus Law).

We note that on the existing company law, any companies must have at least 2 shareholders, except for company as stated on point (i) and (iv).

c. Establishment of SME: To improve the ease of doing business in Indonesia, SME now can be established solely through an Establishment Statement Letter/Surat Pernyataan Pendirian, instead of a notarial deed. We note that such statement letter must be further registered to the Minister of Law and Human Rights (“MoLHR”) system (Art. 153A (2) of Company Law as added by Art. 109 Point 5 of Omnibus Law).

Amendments related to Employment Sector: The Omnibus Law amends number of provisions with regard to the employment sector, among others the following:

a. Removal of Maximum Period of Fixed-Term Employment Agreement/Perjanjian Kerja Waktu Tertentu (“PKWT”): The Omnibus Law removes the maximum period of PWKT that previously stipulated under Art. 59 (4) of Manpower Law. However, the Omnibus Law still requires that PKWT shall not be entered for any permanent works. The government will issue a regulation that provides further provisions on the PKWT (Art 59 of Manpower Law as amended by the Art. 81 Point 15 of Omnibus Law).

b. Removal of Outsourcing Provisions: We note that the Omnibus Law still acknowledges outsourcing arrangement yet removes the outsourcing provisions that provide limitation of works that may be outsourced as stipulated under Art. 64 and Art.65 of Manpower Law (Art. 81 Point 18 and 19 of Omnibus Law). However, please note that the situation on the outsourcing arrangement still unclear due to the current implementing regulations on outsourcing which provide certain limitations of outsourcing still prevails. Therefore, the new implementing regulation, in the form of government regulation, who stipulates the outsourcing is expected to be issued soon.

c. Extension of Maximum Overtime Period: The Omnibus Law extends the maximum overtime hours to 4 hours a day and 18 hours a week (previously 3 hours a day and 14 hours a week). However, further clarification on the overtime hours and overtime payment will be further regulated under a government regulation (Art. 78 (1) and (4) of Manpower Law as amended by Art. 81 Point 22 of Omnibus Law).

Implementation Provisions of the Omnibus Law: We note that the implementation provisions of the Omnibus Law will be issued at the latest 3 months after the date of promulgation. The existing implementation regulations that do not contradict the Omnibus Law provisions will remain valid and shall be confirmed within 3 months (Art. 185 of Omnibus Law).

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.