Government Clarifies Risk-Based Business Licensing
Following the issuance of Law No. 11 of 2020 dated November 2, 2020 on Job Creation (the “Job Creation Law”) that introduces risk-based business licensing (the “Risk-Based Business Licensing”), on February 2, 2021, the government issued Government Regulation No. 5 of 2021 on the Administration of Risk-Based Business Licensing (“GR 5/2021”). GR 5/2021 replaces and revokes Government Regulation No. 24 of 2018 dated June 21, 2018 on Electronically Integrated Business Licensing Service (“GR 24/2018”) which governs the licensing system through the Online Singe Submission (the “OSS”). GR 5/2021 entered into force as of February 2, 2021.
Through the Job Creation Law, the government introduces the Risk-Based Business Licensing system in the hope of implementing a simpler and more effective licensing system as well as ensuring a transparent, structured and accountable supervisory system. GR 5/2021 itself stipulates matters on the general provisions of Risk-Based Business Licensing; the norms, standard, procedures and criteria (norma, standar, prosedur, dan kriteria or “NSPK”) of Risk-Based Business Licensing; the OSS system implementation; guidelines on supervision; evaluation and policy reformation; funding; dispute settlement; and sanctions.
In this newsflash, we will focus on key provisions on Risk-Based Business Licensing under GR 5/2021.
- Risk-Based Business Licensing
Under GR 5/2021, for a business actor to conduct its business, one must fulfill basic requirements of business licensing and/or obtain Risk-Based Business Licensing that include the utilization of space, environmental approval, building approval (persetujuan bangungan gedung, previously building permit or IMB), and certificate of worthiness (sertifikat laik fungsi or SLF).
The Central Government carries out the risk analysis to determine the risk level for each business activity in the following sectors:
- marine and fishery;
- agriculture;
- environment and forestry;
- energy and mineral resources;
- nuclear energy;
- industry;
- trade;
- public works and public housing;
- transportation;
- health, medicine, and food;
- education and culture;
- tourism;
- religious affairs;
- post, telecommunications, broadcasting and electronic system and transactions;
- defense and security; and
- employment
Such risk analysis is conducted through the identification of the business activity, assessment of hazard level, assessment on potential hazard, determination of risk levels and scale of business, and the type of Business Licensing. Through this risk analysis, business activities are categorized into:
- low risk business activities;
- medium-low risk business activities;
- medium-high risk business activities; and
- high risk business activity.
The risk category for each business activity is listed under Appendix I of GR 5/2021. GR 5/2021 also stipulates the scope and scale of the activity; whereby different scopes and scales of the same business activity may be categorized into different risks. Business actors shall identify their business activities under Appendix I of GR 5/2021 to determine the risk category of their business activities.
The table below illustrates an example of risk categorization under Appendix I of GR 5/2021.
| KBLI Code | KBLI Title | Business Scale | Land Area | Risk Level |
| 5510
55110 |
Hotel, with less than 61 rooms or less than 41 employees | Micro, small, and medium | Less than 4,000 m2 | Low |
| Hotel, with 61-100 rooms or 41-99 employees | Micro, small, medium, and large | 4,000-6,000 m2 | Medium-low | |
| Hotel, with 101-200 rooms or 100-200 employees | Micro, small, medium, and large | More than 6,000 m2 to less than 10,000 m2 | Medium-high | |
| Hotel, with more than 200 rooms or more than 200 employees | Micro, small, medium, and large | More than 10,000 m2 | High |
Each risk level will require different Risk-Based Business Licensing. We set out below the summary of Business Licensing for each risk.
| Risk | NIB | Certificate of Standards | License |
| Low risk | |||
| Medium-low risk | Self-statement | ||
| Medium-high risk | Verified certificate | ||
| High risk | *) Only if required |
The requirements for the Risk-Based Business Licensing in each sector are stipulated under Appendix II of GR 5/2021.
- Low Risk Business Activities
Low risk business activities will only require the Business Identification Number (Nomor Induk Berusaha or “NIB”) which shall also serve as the Statement Letter on Environmental Management and Monitoring Undertaking (Surat Pernyataan Kesanggupan Pengelolaan dan Pemangauan Lingkungan Hidup or “SPPL”). For low risk business activities carried out by micro and small enterprises, the NIB also serves as the Indonesian National Standard (Standar Nasional Indonesia or “SNI”) and statement of halal guarantee.
The NIB shall be the identity of the business actor as well as the legal basis to carry out the business activities.
- Medium-Low Risk Business Activities
The business licensing for medium-low risk business activities consist of an NIB and a certificate of standards that shall be in the form of a statement by the business actor to fulfill business standards that shall be submitted through the OSS. Although the certificate of standards is in the form of self-statement, the business actor shall fulfill such standards when it conducts the business activities.
Further, if the business activity is required to fulfill the Environment Management Efforts and Environment Monitoring Efforts (Upaya Pengelolaan Lingkungan Hidup dan Upaya Pemantauan Lingkungan Hidup or “UKL-UPL”) standards, the business actor shall fill in the UKL-UPL form in the OSS system in order to obtain the NIB and the certificate of standard. Otherwise, the business actor shall fill in the SPPL form in the OSS system.
The NIB and the certificate of standard shall be the legal basis for the business actors to conduct the business activities, both in the preparation and the operation/commercial stages.
- Medium-High Risk Business Activities
Similar to medium-low risk business, businesses categorized as medium-high risk also require an NIB and a certificate of standards. However, the certificate of standards for medium-high risk businesses shall be issued by the Central or Regional Government based on verification of the fulfillment of standards by the business actor. The Central or Regional Government (based on their respective authority) shall verify the fulfillment of standards or assign the verification to certified or accredited institution or expert profession.
Once the unverified certificate of standards has been issued, the business actor may perform actions relating to the preparation stage of the business. The NIB and the verified certificate of standards shall be the legal basis for the business actor to conduct the operation/commercial stage of the business.
- High Risk Business Activities
Under the Risk-Based Business Licensing scheme, only high risk business activities are required to obtain licenses (in addition to the NIB). In the event the high risk business activities require fulfillment of business and/or product standards, the Central or Regional Government will also issue the certificate of standards based on verification of fulfillment of standards.
Prior to the issuance of license, business actors may use the NIB for the preparation stage of the business. Only after obtaining the license, the business actors may commence the operation/commercial stage of the business.
GR 5/2021 provides that the preparation stage consists of (i) land acquisition, (ii) construction of building, (iii) procurement of equipment or facilities, (iv) procurement of human resources, (v) fulfillment of business standards, and/or (vi) other activities including feasibility studies and operational funding during construction stage. As for the operational/commercial stage, it consists of (i) production of goods/services, (ii) logistics and distribution of goods/services, (iii) marketing of goods/services, and/or (iv) other activities in the framework of operational/commercial activities.
- Transitional Provisions
The implementation of the Risk-Based Business Licensing under GR 5/2021 is exempted for business actors that have obtained business licensing that have been approved and effective prior to the enactment of GR 5/2021, except if the terms of GR 5/2021 is more beneficial for the business actor. As for business actors that have obtained business licensing but are not yet effective, the business licensing will be processed in accordance with GR 5/2021.
GR 5/2021 also requires business actors that have obtained access rights to the OSS to update their data at the OSS system. However, the implementation of the Risk-Based Licensing in the OSS system will only be effective 4 (four) months after the promulgation of GR 5/2021 (or by June 2, 2021).
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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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