Key point Government Regulation of the Republic of Indonesia No. 5/2021 concerning the Implementation of Risk-Based Business Licensing

On February 2, 2021, the Government enacted Government Regulation No. 5/2021 of the Republic of Indonesia concerning the Implementation of Risk-Based Business Licensing (“GR 5/2021“) as one of the implementing regulation of Law of the Republic of Indonesia No. 11/2020 concerning Job Creation which came into effect on the date of promulgation. GR 5/2021 revokes Government Regulation No. 24 of 2018 of the Republic of Indonesia concerning Electronically Integrated Business Licensing Services. In GR 5/2021, risk-based business licensing are classified as business activities with low risk level, business activities with medium-low and medium-high risk level and business activities with high risk level. Its’ aim is to improve upon and create a more effective and simplistic investment ecosystem and business activities.

The following are several notable key points in the GR 5/2021:

GR 5/2021 regulates that; Business actors who wish to start and conduct business activities will be required to meet (i) Basic Business Licensing Requirements and / or (ii) Risk-Based Business Licensing.

The basic requirements for Business Licensing include: The suitability of space utilization activities, environmental approvals, building approvals, as well as certificate of eligibility to function. Provisions of these requirements are respectively regulated within the laws and regulations in the field of spatial planning, environment and building.

The establishment of the new policy by the Indonesian Central Government for Risk-Based-Business-Licensing envelopes these following sectors:

a.    Maritime Affairs and Fisheries;

b.    Agriculture;

c.    Environmental and Forestry;

d.    Energy and Mineral Resources;

e.    Nuclear power;

f.     Industry;

g.    Trading;

h.    Public Works and Public Housing;

i.      Transportation;

j.      Health, Medicine and Food;

k.    Education and culture;

l.      Tourism;

m.   Religious;

n.    Post, Telecommunications, Broadcasting, and Electronic Systems and Transactions;

o.    Defense and Security; and

p.    Employment.

Risk-based Business Licensing in each of those aforementioned sectors regulates (i) relevant KBLI / KBLI codes, KBLI titles, scope of activities, Risk parameters, Risk level, Business Licensing, tenure, validity period, Business Licensing’s authorities. (ii) Requirements and/or obligations of Risk-based Business Licensing (iii) Guidelines for Risk-based Business Licensing; and (iv) Standards of business activities and/or Standards of product.

Risk-based business licensing carried out based on the stipulation of Risk level and the scale rating of business activities covers Micro, Small and Medium Enterprises (“MSMEs”), and/or large businesses, whereby the stipulation was made based on the results of Risk analysis conducted by the Central Government.

Business licensing for each risk level includes:

a.    business activities with LowRisk level are required to have NIB (which acts as an identity for the Business Actors as well as to provide the business with the legality to conduct business activities).

b.    business activities with Medium to Low-Risk and Medium to High-Risk levels are required to have NIB in addition to Standard Certificates.

c.    business activities with HighRisk level are required to have NIB as well as License. Such license is granted through the approval of Central Government or Regional Government for the business actors to conduct business activities prior to them engaging in said business activities.

On the occasions where GR 5/2021 applies, the provisions for the implementation of Risk-Based Business Licensing (as stipulated in GR 5/2021) exempts Business Actors whose Business Licenses have been approved and are in effect prior to the GR 5/2021 coming into force  except for circumstances within which these provisions in the Government Regulation are deemed to be more profitable for said Business Actors; In addition to circumstances where the Business Actors have obtained Business Licenses that have yet to come into effect prior to the new Government Regulation coming into force. Business Licenses are processed in accordance with the provisions in the GR 5/2021.


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