Norms, Standards, Procedures, and Criteria for Risk-Based Business Licensing Clarified

In addition to stipulating the types of license applicable for each risk level of business activities that we discussed in our previous newsflash, Government Regulation No. 5 of 2021 dated February 2, 2021 on the Administration of Risk-Based Business Licensing (“GR 5/2021”) also sets out other provisions, including the norms, standards, procedures, and criteria (norma, standar, prosedur, dan kriteria or “NSPK”) of the risk-based business licensing (the “Risk-Based Business Licensing”).

We set out below key provisions on NSPK as well as other notable provisions stipulated under GR 5/2021.

• NSPK of Risk-Based Business Licensing

Under GR 5/2021, the Central Government formulates and stipulates the NSPK for the Risk-Based Business Licensing for each of the following sectors:

1. marine and fishery;
2. agriculture;
3. environment and forestry;
4. energy and mineral resources;
5. nuclear energy;
6. industry;
7. trade;
8. public works and public housing;
9. transportation;
10. heath, medicine, and food;
11. education and culture;
12. tourism;
13. religious affairs;
14. post, telecommunications, broadcasting and electronic system and transactions;
15. defense and security; and
16. employment.

The NSPK shall be the sole guideline for the implementation of the Risk-Based Business Licensing by the Central and Regional Government. The NSPK for Risk-Based Business Licensing in each sector are stipulated in Chapter III of GR 5/2021.

Specifically for standards of business activities and standards of products for each sector shall be further stipulated in the regulation of the relevant minister of head of government institution that oversees such sector. GR 5/2021 sets out a guideline for the ministers and heads of government institutions for the drafting of such standards under its Appendix IV.

Business actors shall pay attention to the NSPK applicable for their relevant business activities as sets out under GR 5/2021. As an example, for marine and fishery sector, GR 5/2021 sets out the tonnage criteria for fishing boats.

• Supervision and Sanction for Risk-Based Business Licensing

The Risk-Based Licensing implementation is supervised by the Central Government, Regional Government, and/or other relevant authorized officials. Supervision is conducted by way of routine supervision and incidental supervision. Routine supervision shall be based on periodical reports submitted by the business actors and field inspection by the relevant officials. The periodical reports include the investment activities report (laporan kegiatan penanaman modal or LKPM) and relevant reports applicable for each sector.

GR 5/2021 also sets out administrative sanction provisions, both applicable to government officials and business actors who violate the provisions thereunder. Sanctions for business actors are stipulated for each sector.

• Minimum Foreign investment Value

GR 5/2021 stipulates the application of the Risk-Based Business Licensing through the OSS system, such as the process to obtain NIB, utilization of foreign employees, and minimum investment requirement for foreign investment. Similar to the Presidential Regulation No. 10 of 2021 dated February 2, 2021 on Capital Investment Business Lines (“PR 10/2021”), GR 5/2021 also stipulates that the foreign investment shall have a minimum investment of more than Rp10 billion, excluding the value of land and building. GR 5/2021 clarifies that such minimum investment is applicable for each business line based on 5-digit KBLI code per project location.

GR 5/2021 sets out exception to the general rule of minimum foreign investment, which was previously provided under the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) Regulation No. 1 of 2020 dated April 1, 2020 on Guidelines for the Implementation of Electronically Integrated Business Licensing Services (“BKPM Reg 1/2020”). We set out below a comparison of such exception.

Although GR 5/2021 does not revoke BKPM Reg 1/2020, the exception to the minimum investment value for foreign investment stipulated under GR 5/2021 above shall supersede the exception under BKPM Reg 1/2020.

• Other Notable Provisions

GR 5/2021 stipulates that disputes and hindrances for the implementation of the Risk-Based Business Licensing are to be settled in accordance with the relevant laws and regulations. In the event the laws and regulations do not stipulate the settlement of disputes and hindrances, the relevant authorized officials may stipulate a decree and/or carry out actions required to settle such dispute or hindrance provided that it is in accordance with the good governance principles (asas umum pemerintahan yang baik).

In addition to the authority to settle disputes and hindrances, GR 5/2021 stipulates that in the event there is a lack of, incomplete, unclear and/or stagnation in regulations, the ministers, head of institutions, or other relevant authorized officials may execute their discretion to solve concrete issues in the implementation of governmental matters related to the Risk-Based Business Licensing. There is no further elucidation to this provision. We hope that the authority to execute such discretion would not lead to legal uncertainty in the implementation of the Risk-Based Business Licensing.

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March 5, 2021

Please contact Inka Kirana (ikirana@aksetlaw.com), Alfa Dewi Setiawati (asetiawati@aksetlaw.com), Nurana Sekar Lestari (nlestari@aksetlaw.com), or Faiz Naufaldo (fnaufaldo@aksetlaw.com) for further information.

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Norms, Standards, Procedures, and Criteria for Risk-Based Business Licensing Clarified

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