Indonesia Issues Guidance For Online Licensing Service.
Legal News & Analysis - Asia Pacific - Indonesia - Regulatory & Compliance
14 May 2020
The Indonesian Investment Coordinating Board (“BKPM”) on April 1, 2020, issued BKPM Regulation No. 1 of 2020 regarding Guidelines for the Implementation of Electronic Integrated Licensing Services (“BKPM Reg. 1/2020”).
The BKPM issued this regulation as part of its authority to provide guidance on business licensing services through the Online Single Submission System (the “OSS System”) under Article 94(1) of Government Regulation No. 24 of 2018 regarding Electronic Integrated Business Licensing Services (“GR 24/2018”) and Presidential Instruction No. 7 of 2019 regarding Acceleration of Ease of Doing Business.
With the issuance of BKPM Reg. 1/2020, the BKPM has set the norms, standards, procedures and criteria for the business licensing framework through the OSS System, as presently governed under BKPM Regulation No. 6 of 2018 regarding Guidelines and Procedures for Capital Investment Licensing and Facilities, and its amendment, BKPM Regulation No. 5 of 2019. BKPM Reg. 1/2020 does not revoke or amend any past BKPM regulations.
Scope of New Regulation
BKPM Reg. 1/2020 covers:
a. Services relating to:
i. access right to the OSS System;
ii. issuance of Business Registration Number (Nomor Induk Berusaha or “NIB”);
iii. business license;
iv. issuance of licenses related to business infrastructure;
v. representative offices; and
vi. other services relevant to business licensing.
b. Supervision of business licensing compliance.
With 69 articles, BKPM Reg. 1/2020 provides technical guidance on the application for and the issuance of business licenses through the OSS System and a legal basis for new features implemented in OSS System version 1.1.
BKPM Reg. 1/2020 contains provisions applicable to all businesses, foreign and domestic, individuals or entities. However, we will limit our discussion here to provisions relevant to foreign investment. In that context, below are some of the more noteworthy provisions in BKPM Reg. 1/2020.
a. Minimum total investment value. In general, the BKPM requires a minimum total investment value of more than IDR 10 billion (excluding land and buildings) for each line of business per project location as determined by the five digits of its Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”) number.
This means that if a foreign investment company, typically referred to as a PT PMA, intends to engage in the mining services business under KBLI No. 09900 and wholesale trading of office and industrial machinery, spare parts and paraphernalia, which falls under KBLI No. 46591, the total investment value of that company must be more than IDR 20 billion. Or if a PT PMA operates as a data center service provider under KBLI No. 63112, but does so in Jakarta, Surabaya, and Medan, the total investment value of that company must be more than IDR 30 billion because it has three separate project locations.
This has long been an unwritten policy of the BKPM, albeit with inconsistent enforcement, and has now been made an express requirement under this new regulation.
The BKPM provides the following exceptions for wholesale trading, food and beverages, and construction business activities:
1. For wholesale trading, the BKPM requires an additional minimum total investment value of more than IDR 10 billion if a PT PMA engages in wholesale trade activities under KBLI classification numbers whose first two digits are different. For example, if a PT PMA engages in wholesale trading of office and industrial machinery, spare parts and paraphernalia under KBLI No. 46591, and wholesale trading of new cars under KBLI No. 45101, the PT PMA will be required to have a minimum total investment value of more than IDR 20 billion because the first two digits of the KBLI numbers are different. In contrast, if a PT PMA engages in wholesale trading of bread products under KBLI No. 46332 and wholesale trading of confectionary items under KBLI No. 46331, the PT PMA will not be required to have a minimum total investment value of more than IDR 20 billion.
2. For food and beverage services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only for project locations that are not in the same regency or city.
3. For construction services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only if the business activity is not part of one activity. BKPM Reg. 1/2020 does not offer an explanation as to what constitutes one activity. However, in our discussions with a BKPM official, we were informed that this means an additional total investment value of more than IDR 10 billion would be required for each construction project/work. We note, however, that this view is far from official policy and is subject to change as the BKPM begins to put this regulation into actual practice.
Interestingly, the above total investment value requirement is being imposed on PT PMAs that obtained their license on or after the effective date of GR 24/2018, which was June 21, 2018, not after the effective date of BKPM Reg. 1/2020 itself. A possible explanation for this is that the BKPM intended to expressly impose this investment value requirement with the introduction of the OSS System by GR 24/2018, but the system was not yet capable of such implementation and now the BKPM is playing catch up with the rollout of the upgraded OSS System version 1.1.
b. NIB can be revoked. BKPM Regulation No. 7 of 2018 regarding Procedure and Guidance for the Supervision of Investment Implementation discusses the revocation of business licenses as one of the administrative actions the BKPM can take in its supervisory role, but it does not contemplate the revocation of NIBs.
Under BKPM Reg. 1/2020, the BKPM can revoke a PT PMA’s NIB if it finds that the company has conducted business activities that are inconsistent with its NIB or has violated any provisions of prevailing laws and regulations, or if the PT PMA’s NIB is declared voided or invalid based on a binding court decision and/or the PT PMA requests the revocation of its NIB.
c. Main project and supporting project. Under OSS System version 1.1 and BKPM Reg. 1/2020, a PT PMA can now separate business activities into main project and supporting project. A business activity is considered to be a supporting project if it:
1. falls under a different KBLI number than the main project;
2. is intended only to support the main project;
3. is not utilized to generate revenue; and
4. is carried out in accordance with the applicable laws and regulations.
A PT PMA is required to fulfill the commitments under both the main project and supporting project, although only the main project is used to determine the minimum total investment value.
d. Business licenses and commercial or operational licenses. BKPM Reg. 1/2020 addresses business licenses and commercial or operational licenses at length, particularly the technical details of fulfilling commitments related to the licenses.
BKPM Reg. 1/2020 divides business licenses and commercial or operational licenses into four categories, depending on the commitments the PT PMA must fulfill to effectuate the relevant license. BKPM Reg. 1/2020 also changes the format of business licenses and commercial or operational licenses issued under BKPM Reg. 1/2020.
BKPM Reg. 1/2020 also specifies measures to be taken by the BKPM in the event of incompliance by a PT PMA.
e. BKPM to issue registration and licenses as well as NIB for representative offices. The BKPM now issues registration and licenses for all types of representative offices – foreign company representative office (KPPA), foreign trade company representative office (KP3A), foreign construction company representative office (BUJKA), foreign franchisor and foreign futures traders. A representative office is also required to obtain an NIB, in addition to the appropriate registration or licenses.
Through the issuance of BKPM Reg. 1/2020, it appears the BKPM is trying to minimize uncertainty in the licensing process. It remains to be seen, however, whether OSS System 1.1 itself and the enforcement in the field will raise more questions than BKPM Reg. 1/2020 can answer.
For Further Information, please contact:
Ira A. Eddymurthy, Soewito Suhardiman Eddymurthy Kardono