Omnibus Law Finally Passed

On October 5, 2020, the House of Representatives finally passed the long-awaited Job Creation Law or what is publicly known as the Omnibus Law, amidst controversies during the drafting process.

At the time this newsflash is issued, this Job Creation Law is still undergoing final redactional review and promulgation process with the State Secretary. The public has yet to obtain the final version of the Law at this moment. The discussion of this newsflash is based on the final draft of the Job Creation Bill circulated publicly on October 5, 2020. We expect some changes in the Law is enacted, but no substantial changes should be made to the Law.

In total, the Omnibus Law amends 81 existing laws. Among the numerous amended laws, some of the most notable amendments are laws on capital investment, limited liability companies, and manpower. The complete list of the amended laws may be found in the following link.

In addition to the amendment of laws, the Omnibus Law stipulates segmentation for licensing based on the risk profiles of business activities. This is intended to simplify licensing the process and doing business in Indonesia, including the institutionalization of micro and small enterprises.

Further, in relation to taxation matters, Government of Indonesia originally intended to pass a separate “omnibus law” on taxation. However, this newly-enacted Job Creation Law already includes amendments on taxation laws (i.e., the Law on General Provisions of Taxation, the Law on Income Taxes, and the Law on Value Added Taxes and Sales Taxes for Luxury Goods). It remains to be seen whether the omnibus law on taxation will still be discussed and passed separately by the House of Representatives.

Please find below the key provisions in the Omnibus Law. We will issue a series of newsflashes with in-depth discussion on each of these items.

  • Risk-based Business Licensing

The Omnibus Law introduces a new segmentation of business licensing based on risk profiles of the business namely: low, medium, or high risks. The risks are determined based on an evaluation of the health, safety, environment, resources utilization and management, and volatility of the businesses.

Based on the risk profiles of the businesses, the documents required for the relevant business are as follows.

 

Risk Business Licensing Document
Low A Business Identification Number (Nomor Induk Berusaha or “NIB”)
Medium-low a.      An NIB; and

b.      A Statement of certification standard by the business actor.

Medium-high a.      An NIB; and

b.      Fulfillment of certification standards.

High a.      An NIB; and

b.      A License.

We expect the implementation of this risk-based business licensing to be incorporated in the Online Single Submission (“OSS”) system.

  • Transitional Clauses

In light of the issuance of this Omnibus Law, existing Business Licenses will still be valid until the end of their validity period, and any issued Business License may be adjusted in accordance with the Omnibus Law.

Under the Omnibus Law, the implementing regulations should be issued in three months from the date of the Law’s promulgation. Existing implementing regulations will still be valid as long as the provisions therein do not contradict those of the Omnibus Law, and they shall be conformed within three months.

  • Amendments of Capital Investment Law

The Omnibus Law amends the Capital Investment Law to include specific business lines that are closed for capital investment. Other than these closed business lines and activities that may only be carried out by the Central Government, all business lines are open for investment. We expect the new negative list of investment to be issued in the near future following the enactment of the Omnibus Law.

  • Amendments of Company Law

Under the amendment of the Company Law in the Omnibus Law, there is no longer a minimum requirement for the authorized capital. The amount of the authorized capital shall be agreed upon by the founders of the company and 25% of such authorized capital shall be issued to and paid-up by the shareholders.

It is important to note that under the current BKPM regulations, foreign investment companies are still required to have the issued and paid-up capital of at least Rp2.5 billion.

Another new concept introduced under the Omnibus Law is the simplification of the company establishment for micro and small businesses. Micro and small companies may be established by a sole shareholder pursuant to an establishment statement. With this provision, micro and small businesses may be institutionalized with more lenient requirements, thus creating a separation of liability between the company and the individual owner.

  • Amendments of Manpower Law

The Omnibus Law amends various provisions under the Manpower Law, among them are treatment on terms of fixed-term employment agreement, outsourcing rules, and employment termination benefits.

The amendments of the Manpower Law under the Omnibus Law no longer stipulate the maximum period of a fixed-term employment agreement, although the Omnibus Law still states that fixed-term employment agreements shall not be entered into for works that are permanent in nature. Further provisions on fixed-term employment agreements will be stipulated under a Government Regulation.

The amendments to the Manpower Law remove subcontracting from the Manpower Law, and do not set out the types of works that may be outsourced to outsourcing companies, while still acknowledging outsourcing arrangement itself. However, because the Minister of Manpower Regulations currently in effect still contain the said conditions (e.g., that outsourcing may only be for supporting activities separate from main business activities), it is unclear whether these conditions will be considered a contradiction that will require an adjustment to conform with the Omnibus Law. Therefore, it remains to be seen whether the Minister of Manpower will issue new regulations on outsourcing due to changes in outsourcing rules in the Omnibus Law.

Other notable amendments under the Manpower Law are changes on employment termination benefits. Under the Omnibus Law, there is no longer multiplier for termination benefits in relation to termination of employment under specific circumstances (e.g., in the event of efficiency or merger of companies). We understand that these changes are what causes the most controversies and objection from labor workforce, since these have greatly reduced their employment termination entitlements in cases of mergers, efficiencies, or death.

  • What to Expect

Despite its intention to ease licensing process and doing business in Indonesia, various matters under the Omnibus Law still remain to be further stipulated to ascertain that these ideas work for all stakeholders across the board.

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October 7, 2020

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