BUSINESS LICENSES
Category: Business Establishment & Licenses
Written by Rivary Finan Hernawan on 21/04/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.
When we say the word license, a lot of things might come into our mind. To legally drive a car, we need a driving license. To legally use software, we need a software license. Similarly, doing business is not too different from those two examples. Before a company wants to legally do its business activity, it must obtain a license. This license is what we usually refer to as Business Licenses.
In this article, we will be discussing business licenses. This article aims to raise people’s awareness of the types of business licenses in Indonesia, the laws concerning them, and the steps they need to take to obtain them.
With this service, we aim to help you by obtaining the necessary licenses to operate your business legally in Indonesia as well as help you to comply with any additional commitments needed.
Table of Contents
Business Licenses in Indonesia
Business Licenses are permits issued by government agencies that allow individuals or companies to conduct business within the government’s geographical jurisdiction. To put it simply, it is a license to start a business issued by the local government.
As it is regulated based on geographical jurisdiction, the requirement of business licenses typically varies between countries. Often it is required to own multiple licenses that are issued by various government departments and/or agencies. As such, a company may be required to own a lot of business licenses before they want to do its business. Without an appropriate business license, government agencies can fine or close the operating business.
In Indonesia, it is also compulsory for companies to obtain business licenses according to the regional jurisdiction. The licenses will be issued by the government once the company has fulfilled its requirements.
Both foreign and domestic investments are administered by BKPM, as it regulates the Company Law and the Foreign Investment Law. Investors must apply for BKPM approval first. Despite that, BKPM does not issue licenses for some high-risk industries such as financial institutions, insurance, or oil and gas. They are issued by the corresponding industries’ regulating bodies. For example, import and licenses for hiring non-Indonesian workers are issued by the Ministry of Labour.
Why Should I Obtain a Business License in Indonesia?
To start a business in Indonesia, it goes without saying that a business license must be acquired beforehand. The reason is that we need to inform the government about our legal business activities. In addition to that, the following points also serve as additional reasons for having a business license in Indonesia.
- Assuring the public that our business activities are safe and comply with Indonesian law;
- Assuring the government and other authorities that we and our company can be trusted and follow pertinent laws;
- Serving as tangible proof about what kind of business activities our company engages in;
- Companies must go through the necessary procedures and paperwork to organize the businness situation within Indonesia. This helps avoid chaos in the country, particularly in the business sector.
Not only does it serve as a requirement for starting the business activity, but a business license also comes with the following advantages:
- Tax Compliance
Business licenses allow owners to easily keep up and reminded with taxes, as they provide the government a record of businesses who may owe taxes to the country. - Legal Protection
Having a business license can prevent the owner from being closed due to doing illegal business. - Funding Opportunity
To be eligible for funds, a business must have a license, as it shows that the country approves of the business. - Credibility
By showcasing the business license on the company website, customers will be convinced that they are interacting with a legal business and not a scam one. - Trademarking
A business license inherently serves as a proof of ownership over the company's brand name.
Which Law Governs Business Licenses in Indonesia?
In order to establish a company in Indonesia, there are four laws that you have to look for:
- BKPM (Capital Investment Coordinating Board Regulation) Regulation Number 14 of 2015
Article 62 verse 2 on guidelines and procedures for Capital Investment Principle Licenses mandates companies that have obtained a principle license before the promulgation of BKPM Regulation 14/2015, where that principle license has expired, to apply for a business license as mentioned in Article 83 of Head of BKPM Regulation No. 15/2015.
This regulation also mandates all newly formed foreign companies to provide their financial audit before they could apply for permanent business licenses and/or other licenses (example: import licenses). This regulation was created in hope that foreign investor can realize their investment plan. Therefore, foreign investments company in Indonesia could achieve higher credibility. - Government Regulation Number 24 of 2018 on Electronic Integrated Business Licensing Services
Regulating the OSS (Online Single Submission) system. Most of the capital investment licensing matters have been transferred from the BKPM and some other government bodies to the OSS system. The OSS system is now under the supervision of the KKBP (Kementerian Koordinator Bidang Perekonomian / Coordinating Ministry for Economic Affairs).
License reforms in industries not covered by this regulation are implemented with compliance of the sector. According to this regulation, there are three kinds of businesses that require business licenses to operate. Those are:
- Businesses that do not require infrastructure to do their business operations.
- Businesses that require infrastructure but do not have it yet.
- Businesses that require and have the infrastructure to perform business activities.
- Businesses that do not require infrastructure to do their business operations.
- BKPM Regulation Number 1 of 2020
- Providing technical guidance for the issuance of business licenses through the OSS System and serves as a legal basis for new features implemented in the newer OSS System.
- Addressing the technical details of the requirements of the business licenses and other licenses, such as commercial or operational licenses.
- Dividing business licenses and commercial or operational licenses into four categories, depending on the commitments the PT PMA must fulfill to activate the relevant license.
- Changing the format of business licenses and commercial/operational licenses issued under the new regulation.
- Establishes the action that BKPM takes in the case of violations by PT PMA.
- Law Number 11 of 2020 on Jobs Creation (the “Omnibus Law”)
The law aims to promote investment and job creation by streamlining regulations, simplifying the licensing process, and promoting business in Indonesia. - Government Regulation 5 of 2021 on Risk-Based Business Licensing
Based on the scale of the potential hazards a business might cause, the government categorized businesses into these three classifications: - Low-risk businesses;
- Medium risk businesses; and
- High-risk businesses.
The business licensing requirements typically differ based on which classification a business is in. The higher the business risk, the harder and stricter the business licensing requirements will be.
Types of Business Licenses in Indonesia
According to their purpose, we can divide business licenses into several types. For instance, there are general licenses and special licenses.
- General License is a license that permits generic business activities such as goods and services trade.
- Special License is a license that permits more specific business practices such as brokerage or properties.
Business licenses can also be categorized between primary and non-primary licenses.
- Primary Licenses are the most widely used business licenses. General, industrial, and construction business licenses fall into this category.
- Industrial business license is mainly used by companies that manufacture oil, gas, or geothermal activity, even if they don’t directly involve in them; and
- Construction business license is a must-have for building companies before they begin any of their commercial activity.
- Non-Primary Licenses are licenses that are needed before a business could initialize its operations. This includes operational licenses or permits.
While there are a lot of other types of business licenses that exist in Indonesia, the two types listed above, along with general business licenses, are by far the most frequent.
Steps to Obtain a Business License in Indonesia
To obtain a business license in Indonesia, in general, a company must prepare the following requirements beforehand:
- Company's AOA (Articles of Association);
- Approval from the Ministry of Law and Human Rights;
- NIB (Nomor Induk Berusaha/Business Identification Number);
- Company Tax ID; and
- Value of investment details.
On top of those, the company may also be required to acquire the following permits in their business areas:
- Location Permits;
- Water Location Permits;
- Environmental Permits; and
- Building Permits.
Other requirements might be needed depending on the business.
Many operational licenses may now be applied through the Online Submission System (OSS). The system links our company’s data to different government agencies such that multiple permits and registration are issued through the system.
Here are the steps for a company to acquire a business license. The first three steps encompass the way to obtain NIB as well.
- Register at OSS
Go to the OSS website, create an account. Choose whether you are Micro and Small Enterprises or Non-Micro and Small Enterprises. - Complete the Registration
For individual business owners, an Identification Number (NIK) will be needed. For non-individual business owners, we will need to provide the number of ratifications of the deed of establishment, as well as the legal basis for the formation of a company. - Input Company Information
After obtaining OSS access, businesses must input their information into the system. This includes, but is not limited to, the name of the business, Identification Number, address, type of investment, business field, location of investment, the planned amount of investment, contact number, and NPWP. Once the required data has been inputted, the OSS system will issue the NIB. - Apply for Business License
After completing the OSS process and acquiring a NIB, businesses can apply for business licenses.
However, without prior experience, it may be challenging to navigate through the system and obtain the required licenses. Furthermore, some business licenses require additional commitments, and failure to fulfill them will result in licenses that are non-effective. The additional commitments are not specifically listed in the system, and this may confuse the applicants.
How We Can Help
References
O’Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall. p. 186. ISBN 0-13-063085-3.
BKPM – Indonesia Ease of Doing Business 2018
UK Departement for International Trade – Exporting Guide to Indonesia
NSWI BKPM – Business Area Establishment
Sekretariat Kabinet Republik Indonesia – OSS for Business Licensing
FAQs
SIUP is one of many forms of business license. Specifically, it is a license for a business entity to conduct trade or business activities. However, the functionality of SIUP has been replaced by NIB and Business Licenses.
In addition to the requirement, a company must have completed its manufacturing phase. In other words, they have to be in at least the production phase.
While they serve the same purpose based on functionality, some riskier business services, such as financial business, may strictly require a business license instead of NIB. However, NIB itself is sufficient for lower-risk businesses, such as when you want to run a cafeteria.
Even if a business already has a Business License, it is still obligated to register the business through the OSS system to obtain a NIB. The Business License will still be in effect after getting the NIB.
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