Introduction
Establishing your new company is only the initial step in establishing your company to operate legally. The next step is obtaining the necessary business licenses to enable you to start conducting business operations. In Indonesia, there is a risk-based approach to determine whether or not you will need a license to operate and, if so, how many licenses you will need based on the amount of risk involved with your company.
Businesses must follow the Online Single Submission – Risk-Based Approach (OSS-RBA), which was established through the Omnibus Law, also known as the Job Creation Law. Becoming familiar with the procedures to obtain business licenses following the registration of your new company will help facilitate market entry and regulatory compliance with the legal requirements for both foreign and domestic entrepreneurs operating in Indonesia.
Understanding Indonesia’s OSS-RBA System
The Indonesian government maintains a centralised licensing system for businesses via the OSS-RBA web portal. The Ministry of Investment (BKPM) oversees this portal, which groups businesses into four categories (low, medium-low, medium-high, and high) based on their respective levels of risk and assigns the appropriate licensing requirements.
A company must register with the OSS web portal to obtain all required identification and licensing numbers prior to commencing operations after it has been formed. Rather than needing to get many different types of sector-specific approvals from various government agencies (as is often the case in other countries), Indonesia's OSS platform offers a consolidated and streamlined electronic means of receiving all of the necessary licenses needed to operate as a business in that country.
Pre-Requisites Before Applying for Business License
Basic post-incorporation requirements must be completed before applying for a business license for the company. The business has to be properly registered and have the valid constitutional documents, a registered office, and a tax ID.
If the company is foreign-owned (PT PMA), it must make sure that the business activity falls within Indonesia's POSITIVE INVESTMENT LIST (indeed, limits) of sectors where foreign investment is allowed, andthe ownership limit applies.
Obtaining a Business Identification Number (NIB)
Obtaining a Business Identification Number (Nomor Induk Berusaha or NIB) via the OSS system is the most important step after getting registered to do business in Indonesia. The NIB is the license and ID for a business.
A NIB has four major functions:
1. Certifies that a business has been registered
2. Lists the business as an importer (if applicable)
3. Allows access to import and export customs services
4. Identifies a business for licensing and taxes
Without an NIB, nowhere in Indonesia has the legal right to operate.
(Note: There are many other ways in which the NIB can help you do your job.)
Determining Business Risk Classification
The OSS system will assess your risk as a business as soon as it issues your NIB. It will use the KBLI (Indonesian Standard Industrial Classification) code you choose when you register to determine your risk. The type of license you need is determined by your risk classification.
Businesses classified as low-risk only need an NIB.
Businesses classified as medium-risk need an NIB and a standard certificate.
Businesses classified as high-risk will require an NIB and a specific licensing certificate issued after an assessment. Therefore, you must choose the correct KBLI code because if you do not, you may face some compliance problems later on.
Licensing Requirements Based on Risk Level
Low-risk businesses needing to obtain NIB will be able to start operations without having to gain additional approvals. Thus, the examples of businesses that fit into this category would be those in the areas of trading or consulting services, or those that offer digital services.
For businesses classified as medium risk, they must provide evidence of compliance with all of their industry requirements via a Standard Certificate from the company. In many instances, the business can self-declare compliance; however, some businesses will require verification from the appropriate authorities.
In the case of businesses designated as high-risk, they must hold a formal business licence; in addition, they must have regulatory approvals, undergo inspections, and possess environmental clearances and sectoral authorisations before they can begin operations.
Sector-Specific Licenses and Approvals
In some sectors, additional approval is required after obtaining OSS registration. The following sectors will require other forms of registration,n as well as obtaining OSS registration.n;
1) Manufacturing
2) Food and Beverage Industry
3) Health Care and Pharmaceutical Industry
4) Construction and Infrastructure Industry
5) Energy and Natural Resources Industries. The approval can come from the appropriate ministry or through a local government office and must be completed before conducting commercial business.
Environmental and Location-Based Approvals
Depending on the type of business you have, you may have to apply for some kinds of environmental licenses. Examples of these types of licenses include Environmental Management and Monitoring Plans (UKL-UPL) and Environmental Impact Assessments (AMDAL). In addition, you will also have to comply with the zoning and other location permits issued by your local or regional governments to ensure that the way you run your business is consistent with local land use laws.
Post-Licensing Compliance Obligations
Business Compliance Duty After Licenses are Issued. After you have been granted your business license, your compliance with government rules and regulations doesn’t stop there. You are still responsible for meeting the ongoing legal compliance and reporting requirements that will continue after you have received your business license.
Ongoing compliance and reporting generally consist of: Reporting and compliance through your OSS (Online Single Submission portal), Filing your tax returns with DI, Withholding tax Agent; Financial Reporting (CRS or equivalent); Employee social security account registration; and amendment of your OSS records regarding changes in your Business activities or Ownership.
If you are not meeting the compliance and reporting requirements listed above, your License may be suspended or revoked.
Common Challenges Faced by Businesses
Typical Issues that Many Businesses Encounter: Many businesses are delayed as a result of selecting the wrong KBLI, having missing documentation, or misinterpreting their risk classification. Additionally, because many foreign companies may be faced with language barriers and local jurisdiction regulations that differ from their home country, many foreign companies may face difficulty obtaining the required Licensing in Indonesia and may require the assistance of a Professional Advisor that has experience with the Indonesian licensing process to reduce the likelihood of delays and Compliance Issues.
Conclusion
In Indonesia, obtaining a business license after registering your company is part of the structured but necessary process that you must go through to get a business license via the OSS-RBA system. Once you have received your NIB, identified your business risk classification, and complied with all sector-specific requirements, you are legally allowed to start operating your business.
The Indonesian licensing framework is very advantageous for foreign and domestic investors. However, if you want your business to be successful, you must make sure that you complete your licensing requirements accurately and on time. A licensed business is less likely to incur regulatory fines or penalties and will have more confidence from its potential partners and investors, as well as governments.
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