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Doing Business in Indonesia

ByPardani and Partners Lawfirm

Oleh: Assyifa Umaiya Umar

The General Business, Economic and Cultural Climate

Economy

Indonesia has a mixed economy. Business is conducted by private and public enterprises. Certain industries are deemed vital to public interest and as such are more highly regulated or, in certain cases, controlled by the state through public enterprises.

Dominant Industries

Indonesia’s dominant industries are manpower-intensive industries such as food processing and textile manufacturing, as well as natural resource-based industries such as oil and gas, mining, agriculture, and metal manufacturing.

Business Culture

Indonesia generally uses a five-workday system. General business hours for companies in Indonesia are from 8am to 5pm. Indonesia recognises 16 public holidays. This includes so-called collective leave (cuti bersama) days on which certain government offices are closed (due to the proximity of those days to important public holidays).

Key Business and Economic Events

Various economic sectors experienced contractions in 2020 as a result of the ongoing COVID-19 pandemic. These included the transportation, accommodation, and tourism sectors. Sporadic and unco-ordinated lockdown measures aimed at preventing the spread of COVID-19 caused uncertainty for business activities in several regions.

Political Events

Several politicians in Indonesia have, controversially, claimed that there is a plan in the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat) (MPR) to amend the Indonesian Constitution to increase the presidential term limit from two to three terms. It is not clear whether the MPR, the legislative body in Indonesia, will actually submit a proposal for such amendment.

New Legislation

The Indonesian Government passed Law No. 11 of 2020 regarding Job Creation (Job Creation Law), which revises various provisions in laws across numerous sectors. In February 2021, the government enacted 47 government regulations (peraturan pemerintah) and four presidential regulations (peraturan presiden) to implement the provisions of the Job Creation Law.

One of the biggest changes was the enactment of Government Regulation No. 5 of 2021 regarding the Implementation of Risk-Based Business Licensing (GR 5/2021). GR 5/2021 intends to further overhaul and integrate the business licensing system managed by the Online Single Submission (OSS) system (maintained by the Capital Investment Co-ordinating Board (BKPM)). In essence, GR 5/2021 categorises businesses based on their level of risk. All businesses must be registered in the OSS system and obtain a Business Identity Number (NIB). However, only high-risk businesses are required to obtain a business licence, and medium-risk businesses must obtain a standard certificate. The implementation of the new risk-based licensing in the OSS system became effective four months after the enactment of GR 5/2021 on 2 February 2021.

In addition, the BKPM issued Regulation No. 4 of 2021 regarding Guidelines and Procedures for Risk-Based Business Licensing Services and Capital Investment Facilities (BKPM Reg 4/2021), dated 1 April 2021, which came into effect on 2 June 2021. One of the biggest changes under BKPM Reg 4/2021 is that a foreign investment company (perusahaan penanaman modal asing) (PT PMA) is required to have minimum issued and paid-up capital of IDR10 billion. BKPM Reg 4/2021 is silent on whether this minimum capitalisation applies per business activity or on a per project location basis. However, the authors consider that this requirement will apply per company, irrespective of the number of business lines in which the company engages.

  • Additionally, the Job Creation Law revises various provisions in Law No. 5 of 1999 regarding Prohibition on Acts of Monopoly and Unhealthy Competition (Anti-Monopoly Law). It amends four articles and deletes one article from the Competition Law. At a glance, the changes may appear to be minor, but these small changes may have big consequences for business players, domestic and foreign alike.
  • Some important changes concern the appeals process at the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) (KPPU). These changes are meant to designate the Commercial Court as the venue for any appeal of a KPPU decision. Previously, the appeal had to be submitted to the relevant district court. Now the Commercial Court, which specialises in handling commercial disputes such as bankruptcies, liquidations and intellectual property disputes, will have jurisdiction over competition matters.
  • The Job Creation Law also deletes the cap on administrative fines imposed by the KPPU. Formerly, under Article 47 of the Anti-Monopoly Law, the KPPU could impose administrative fines of between IDR1 billion and IDR25 billion. Under the Job Creation Law, Article 47 of the Competition Law is amended to remove the IDR25 billion cap. This means the KPPU may have the power to impose even larger administrative fines for violations of competition laws and regulations.
  • Removing the cap on the administrative fine would potentially give the KPPU the power to impose a daily administrative fine without limit until the merger filing is made to the KPPU. If this proves to be true, business players would need to carefully consider the potential higher exposure on merger filings and any other competition regulations applicable to them.
  • The removal of the cap on administrative fines is concerning because business players would be exposed to unlimited administrative fines. However, the government is trying to balance this new risk by limiting the potential exposure to criminal sanctions for violations of the Competition Law. It remains to be seen if this effort will strike the kind of balance that would encourage business players to enter and stay in the Indonesian market.

The Constitutional Court recently issued Decision No. 91/PUU-XVIII/2021. The decision declared the Job Creation Law conditionally unconstitutional and ordered its revision within two years as of the court’s ruling on 25 November 2021, including the suspension of the enforcement of any acts/policies that are widespread in nature. As such, there is no guarantee on the applicability of the implementing regulations of the Job Creation Law. However, as a matter of practice, the new licensing regime under the Job Creation Law remains applicable to date.

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