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Indonesia Adopts Risk-Based Approach to Compliance, Simplifying Business Licensing

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In an effort to attract more investment and boost economic recovery, the Indonesian government has introduced a risk-based approach to compliance aimed at simplifying the process of obtaining a business license in the country. This new regulation, known as Government Regulation No. 5 of 2021 (GR 5/2021), categorizes businesses into four risk levels: low-risk, medium-low risk, medium-high risk, and high-risk.

Simplified Licensing Process

The GR 5/2021 has replaced the previous ex-ante licensing system with an ex-post licensing approach. This allows low- and medium-risk businesses to start operations without delay. The regulation also eliminates the need for a “Location Permit”, replacing it with a conformity of Spatial Utilization Activities (Kesesuaian Kegiatan Pemanfaatan Ruang).

Obtaining a Business License

To obtain a business license under the new regime, businesses must first register for a Business Identification Number (Nomor Induk Berusaha - NIB) through the Online Single Submission (OSS) system. The NIB serves as both a company’s formal identity and an import identification number.

Risk Level Classification

The type of license required depends on the risk level classification:

  • Low-risk businesses only need to obtain an NIB before commencing operations.
  • Medium-low risk businesses must also obtain a Certificate of Standards.
  • Medium-high risk businesses require verification of their Certificate of Standards by the central or regional government.
  • High-risk businesses need to obtain a license to operate after fulfilling certain conditions and verifications.

Covered Sectors

The GR 5/2021 covers 16 sectors, including:

  • Marine and fisheries
  • Agriculture
  • Energy and mineral resources
  • Industry
  • Trading
  • Public works and housing
  • And more

Assistance for Foreign Investors

For foreign investors looking to set up a business in Indonesia, Cekindo offers comprehensive services, including company incorporation, legal services, accounting, and HR activities. Our consultants can assist with obtaining required licenses and ensuring compliance with the new GR 5/2021 regulations.

A More Attractive Investment Climate

With this risk-based approach to compliance, Indonesia aims to create a more attractive investment climate, making it easier for businesses to operate in the country while maintaining high standards of regulatory compliance.