OMNIBUS LAW－REFORMATION OF INDONESIAN REGULATIONS

Background

　On 12 February 2020, draft of the job creation law (the “Bill”) was submitted to the parliament (house of legislature) to be discussed further and it has been made available to the public. The Bill contains 174 provisions in over 1,020 pages and it is expected to become one of the most complex regulations in the history of Indonesia’s legal system. Once the Bill is passed, it will amend 79 existing statutes covering all major business and economic aspects, including changes made to improve the ease of doing business.
　The Bill has been widely criticized by academics and legal practitioners as they believe there was lack of comprehensive studies and public participation prior to the creation of the Bill.
　Law critics further argue that certain provisions in the Bill are wide open to constitutional challenge, particularly regarding the power that the Bill would give to the central government to amend existing and future statutes [1], and the power accorded to the President to overturn regional/local government regulations and ordinances by way of Presidential regulation [2].
　Despite some controversies, the government has assured that the Bill will have a positive impact on many aspects, such as allowing for a more streamlined bureaucracy and centralized expedited process of improving conditions for Indonesian investment. 
　The Bill particularly focuses on: (a) increasing the ease of doing business in Indonesia (e.g., simplifying the licensing processes, requirements, land acquisition processes, and removing several local filings and registrations); and (b) centralizing the government's investment activities (e.g., creating a government investment authority and fund) and licensing processes.

Foreign Investment Restriction

　The Bill amends some important provisions on investment restrictions in order to loosen some of the requirements for investors (including foreign investors). One of the most important changes particularly relate to business activities that are available for investments (including foreign investments).
　As described in the Bill “businesses are either open for investment (including foreign investment), restricted, or designated for the central government”, which seems to suggest removing all existing foreign investment requirements, including:

‐ foreign shares ownership threshold in a company;
- requirement to operate in certain or a specific location; and/or
- requirement to partner up with local small and medium business enterprise.

　Should that be the case, all investments and activities, other than those that are restricted or designated for the central government, would be 100% open to foreign ownership.
　Some law practitioners believe that it is far too controversial and hence, the government will ultimately impose some new restrictions in a Presidential Regulation in order to protect local businesses and micro, small and medium enterprises and cooperatives.
　Other important change is the removal of the local government’s right to have any stake in commercial businesses.  This may have an impact on the existence of regional-owned enterprises.

Risk Based Business Licensing

　The Bill introduces new concept of “risk-based business licensing” in order to give legal certainty for business players, including foreign investors in the licensing process. It is intended to expedite the business licensing application process.
　Based on this concept, business activities will be classified into either (i) low-risk business, (ii) medium-risk business and (iii) high-risk business. This will be determined by performing pre-assessments of the risk level.
　The result will further determine which type of license is applicable for the business. For example, low-risk business activities are only required to have a business identity number called NIB, which is easier and faster to obtain, while high-risk business must obtain a NIB as well as a business license to conduct its operation. Previously, all businesses were required to obtain business licenses.

Simplified Licensing Process:

Business licensing and land acquisition process are simplified through, for example:

1. integrating plan between each regional government into one system;
2. amending certain existing regulations and introducing new regulations to simplify the procedures to obtain certain approvals (for example, environmental and building related approvals); and
3. amending certain existing sectoral regulations to simplify the sectoral business licensing processes and investment requirements.

Education Sector

　The Bill provides more flexibility for foreign education institutions to set up their businesses in Indonesia. It no longer requires cooperation with Indonesian schools as provided in the existing regulation. The Bill also shows the Government's intention to welcome the world's reputable universities to set up their businesses in Indonesia.

Commentary

　It remains to be seen how things will develop regarding the enactment of this Bill into a formal law. Given Indonesia’s politics instability, it is impossible to predict the final outcome of House of Representative deliberations.

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For further information on the above, please contact this form.

Click here for the Japanese translation article.

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[1] Article 170 of the Bill.

[2] Article 166 of the Bill.

The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.