NEWS DETAIL

22 Dec 2021
‘Omnibus Law’ Ruling Presents Further Challenge to Rollout of Risk-based Business Licensing System

 

The Constitutional Court recently declared the Job Creation Law (colloquially, the “Omnibus Law”) “conditionally unconstitutional” (see our ABNR Legal Update here for more detail). Prior to the Court’s ruling, the Government had already issued a number of important implementing regulations for the Omnibus Law, including Government Regulation No. 5 on Risk-Based Business Licenses[1] (“GR 5/2021”), which was aimed at significantly streamlining the overall business licensing procedure in Indonesia.

 

The Court has given lawmakers two years to complete the critical do-over. For the time being, the Omnibus Law, including its implementing regulations, will remain in force. Notwithstanding this, the implementation of GR 5/2021 faces a number of practical challenges.  

 

OSS RBA system

 

The Government launched its Risk-Based Assessment Online Single Submission System (“OSS RBA”) on 9 August 2021. The OSS RBA is founded on both GR 5/2021 and Investment Coordinating Board (“BKPM”) Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities[2] (“BKPM Reg. 4”).

 

OSS RBA affects almost all business undertakings in Indonesia, apart from sole proprietorships and unincorporated partnerships. Undertakings previously registered under an earlier OSS (version 1.1) must: (i) re-register with OSS RBA for a  new right of system access (via a new username and password); and (ii) migrate their investment data from OSS 1.1 to OSS RBA.

 

Businesses will need to take certain steps as a result. Depending on their status , these steps include:

 

  1. Newly established businesses incorporated after the effective date of GR 5/2021 must register to obtain access to the system after applying for a Business Identification Number (“NIB”) and subsequent  Business Licensing from OSS RBA;
  1. Businesses licensed  under OSS version 1.1  must re-apply for a license from OSS RBA;
  1. Businesses with an OSS version 1.1 license may continue to operate (provided that no changes to the business have occurred since the original license was issued). In theory at least, OSS RBA should re-issue or display an effective business license to businesses in this position.

 

However, what we have seen in practice is that OSS RBA is currently often unable to re-issue or display  effective OSS version 1.1 licenses due to either administrative or IT issues, or a combination of both. Therefore, it is unclear whether companies can continue to rely on their existing licenses (issued by OSS version 1.1) given that these licenses cannot be reissued or displayed.

 

Further, should an undertaking not be able to obtain an NIB as the first step in applying for a business license due to the administrative and IT issues that have become apparent, it will be unable to obtain the other licenses needed from various sectoral ministries involved.

 

Practical Challenges to OSS RBA

 

Widespread data-migration glitches are currently being experienced by businesses attempting to re-license in compliance with the requirements of OSS RBA.

 

An inability to migrate data as required will seriously affect the lawful operation of businesses having regard to the business licensing setup established under GR 5/2021 and its implementing regulations. This is especially true for those already registered under the OSS 1.1 version, or yet to  be issued with a valid business license. While the authorities have given verbal assurances that the OSS RBA rollout should be completed by the end of December 2021, we have not seen any significant proress to date in this regard.

 

Another difficulty facing businesses is that some of the licensing requirements prescribed by GR 5/2021 are as yet incapable of being accommodated by OSS RBA. Just to take one example, in order to obtain an NIB, a company must verify that its operations are compliant with the local land-use zoning rules. To do this, the company should  enter the location coordinates of its premises, which should then be verified by the system. However, the reality is that the system is as yet unable to do this in many parts of the country. Even worse, the business-license application feature (which would allow companies to apply for sectoral licenses from the various line ministries) is not yet operational.

 

Business Licensing in the Regions

 

The Government has also issued Regulation No. 6/2021 on the Implementaton of Business Licensing in the Regions[3] ("GR 6/2021”), which came into effect on 2 February 2021.

 

GR 6/2021 delegates authority for the implementation of the business licensing regime in the regions to the Investment and One-Stop Integrated Services Agency (or DPMPTSP by their Indonesian abbreviation) established in each province and regency / municipality. The expectation is that the regional investment agencies will be able to process licensing applications made under the OSS RBA more efficiently and effectively.

 

The regional agencies are responsible for the implementation of the business licensing system in all key economic sectors, including fisheries, agriculture, manufacturing, public works and housing, transportation, health, education and culture, tourism, telecommunications, broadcasting, and defense and security.

 

The transitional provisions of GR 6/2021 require provincial and regency/municipal governments to make the necessary changes to the organization of the agencies in their respective jurisdictions so as to comply with GR 6/2021 within 2 months of the OSS RBA becoming operational. Thus, the process should have been completed by the end of October 2021. However, many regions have failed to make the necessary changes thus far.

 

It should also be noted that as OSS RBA is itself not yet fully operational, the regional business licensing process set out in GR 6/2021 cannot be implemented in practice, even where the regions have made the required adjustments to their local investment agencies.

 

ABNR Commentary

 

As a result of the Constutional Court’s imposition of a moratorium on the issuance of new implementing regulations for the Omnibus Law, further unanticipated  delays in the ongoing rolling out of OSS RBA appear inevitable.

 

This is of concern as the rollout was originally scheduled to be completed by the end of December 2021. Meanwhile, businesses now face further uncertainty as they attempt to navigate the country’s still-evolving business licensing environment.  

 

Should you have any queries on this ABNR Legal Update or require legal advice on how you can best protect your interests, please email us at info@abnrlaw.com.

 

This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law. 

 


[1] Peraturan Pemerintah Nomor 5 Tahun 2021 tentang Penyelenggaraan Perizinan Berusaha Berbasis Risiko.

[2] Peraturan Badan Koordinasi Penanaman Modal Nomor 4 Tahun 2021 tentang Pedoman dan Tata Cara Pelayanan Perizinan Berusaha Berbasis Risiko dan Fasilitas Penanaman Modal.

[3] Peraturan Pemerintah No. 6 tahun 2021 tentang Penyelenggaraan Perizinan Berusaha di Daerah.