The law is an all-in-one document that amends dozens of laws in the spirit of improving the Ease of Doing Business in Indonesia and boosting the national investment climate. The government promises to complete the implementing regulation of the amendments by the end of the year.
On October 5, 2020, the Indonesian parliament (DPR) passed the much-awaited Omnibus Law on Job Creation. First introduced to the DPR by President Joko Widodo in his state of the nation address on August of last year, the Omnibus Law went through 64 Parliamentary meetings over 167 days before being passed into law. In its final form, the 821-page document amends 79 laws and 1,244 articles that nearly runs the whole spectrum of doing business in Indonesia, from spatial layout to government administration.
The aim of the law is to improve the Ease of Doing Business in Indonesia and boost the national investment climate by amending overlapping laws and/or regulations that are deemed to be obstructive towards foreign investments. These laws have been grouped into nine clusters - simplified from the 11 clusters identified by the government in the earlier manifestations of the Omnibus Law.
These clusters, as identified by the subjects that which the Omnibus Law aims to cover, are: (1) Business Licensing; (2) Investment Ecosystem; (3) Manpower; (4) Micro, Small, and Medium-Sized Enterprises (UMKM) and Cooperatives; (5) Research, Innovation and Ease of Doing business; (6) Taxation; (7) Economic Zones and Land Procurement; (8) Government Administration; (9) Government Investment and Facilitation to National Strategic Projects.
Below are some highlights of the amendments for each of the clusters:
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Business Licensing
- A risk-based licensing is implemented for applications of business licenses.
- Location permits is based on the government鈥檚 Detailed Plan for Spatial Planning (RDTR)
- Environmental Audit (AMDAL) is based on risk-based business licensing.
- Building Construction Audit is also based on risk-based business licensing.
- Some Business Licensing for National Strategic Projects and Programs is handled by the Central Government.
2.Investment Ecosystem
- Amendments towards four Agriculture Laws in a follow up to a WTO decision on dispute settlement but with protective space still available for domestic agricultural products.
- Fishing licensing integration is done by the Ministry of Fisheries and Marine Affairs with support from the Ministry of Transportation in regards to vessel nationality and grosse vessel registration.
- Simplification of Mineral and Coal Mining regulations and further incentives for the down streaming of coal products.
- Expansion of halal certification organizations and omission of halal certification fees for UMKM.
- Establishment of the Agency of Housing Acceleration to manage housing funds.
- The allowance of the establishment of foreign universities in Special Economic Zones.
- Mandatory migration from terrestrial and analog signal to digital for broadcasters.
- The simplification of the Negative Investment List from 20 to 6, with a presidential regulation on a Prioritized Investment List to follow.
3. Manpower
- Simplified permit process for foreign experts.
- A reduction in severance pay from a single month鈥檚 salary multiplied by 32 to a single month鈥檚 salary multiplied by 25 with a 19:6 provision ratio between the employer and the government via the government鈥檚 Work-Loss Insurance (JKP) program.
- The allowance of more flexible working hours to allow part-time workers.
4. UMKM and Cooperatives
- One-off licensing for UMKM via registration.
- More fiscal and financing incentives for UMKM.
- Prioritizing UMKM products and services in the procurement of goods and services for government activities.
- Requirement of establishing a cooperative reduced from 20 to 9 members.
5. Research and Innovation and Ease of Doing Business
- State-owned enterprises to be tasked with holding research and innovation.
- Research and Innovation institutions to be developed in regional areas.
- Capital requirement to establish a limited liability company (PT) is eliminated.
- Hinder Ordonnantie, a letter of no-disturbance, as well as SKDU (Letter of Business Domicile) and SITU (Letter of Business Permit), generally required by regional administrations, eliminated from the requirement of doing business.
6. Taxation
- Foreigners who have stayed longer than 183 days in Indonesia are not subject to domestic taxes (SPDN).
- Elimination of income taxes for domestic dividends and for foreign dividends that have been reinvested domestically.
- Central government to establish a national fiscal policy in regards to regional taxes, including by establishing regional tax tariff applicable in the national level.
7. Economic Zones and Land Procurement
- Expansion of allowed business activities by foreign entities, including in the fields of education and healthcare, in special economic zones.
- Application for economic zones by private entities to require a minimum of 50% ownership of the land.
- A land-bank is to be established, the tasks of which include land redistribution of at least 30% of the land being managed.
8. Government administration
- License application to be considered as approved if the process has gone over the deadline as stipulated in the Service Level Agreement.
- The establishment of NSPK (Norms, Standards, Procedure and Criteria) in the execution of business licensing to be issued later in the form of Government Regulation.
- Allowing regional governments to issue regional bonds or sharia bonds to fund infrastructure development and/or investments (per the approval of the Ministry of Finance).
- Presidential Regulation to no longer cancel Regional or Regional Head Regulation. Synchronization of Central and Regional policies to be implemented via Government Regulation with the applicable administrative sanctions.
9. Government Investment and Facilitation to National Strategic Projects
- A government-owned Sovereign Wealth Fund will be created to manage state funds or assets that is further allowed to cooperate directly or indirectly with third parties via a specially formed entity.
- The Central Government will provide land and all the licensing required in the execution of nationally strategic projects.
For a more detailed analysis of the changes within each cluster, EKONID has compiled a FAQ/Table of Changes on the Omnibus Law here
As to whether the Omnibus Law itself will have the intended effect is more difficult to ascertain. Based on the contents of the Omnibus Law that EKONID has been able to verify independently, it does carry the potential to improve conditions for the business community. However, that still depends on how the law and the more specific regulation will be finally implemented.
For example: the amendment to the negative investment list. According to the Omnibus Law, there are now only six business sectors close to foreign capital investments - namely the Cultivation and Production of Type 1 Narcotics; Gambling and Casinos; Fishing of specific Marine Species; extraction of corals; chemical weapons industry and ozone layer-damaging material industry. Compared to the last major revision of the Negative Investment List in Presidential Regulation No. 44/2016 (), the amendment in the Omnibus Law omits 14 industries within the transportation, education, telecommunication, and tourism sector. It鈥檚 worth noting however that the same regulation also limits foreign ownership to some extent 鈥� specifically having 145 industries open for foreign investors of UMKM only and 350 open to foreign investors with maximum ownership of shares of between 20 and 100% depending on the industry.
Therefore, while the Omnibus Law have further simplified the number of business sector closed to foreign investment from 20 to 6, it does not necessarily mean that all other business fields outside of the aforementioned sectors will be completely open. The amendment also states that businesses that can only be carried by the Central Government are still restricted to foreign investments - which businesses are not specified. EKONID expect this list, called 鈥淧ositive Investment List鈥� by a number of high-ranking officials, to be issued in the coming months.
To conclude the process, the government must still deliver on 34 implementing Government Regulations and 5 Presidential Regulations that will further specify how the amendments are to be put into force. The government will continue to hold discussions with business associations as well as worker unions on the specifics of the implementation - a task that President Widodo has demanded his cabinet to complete in the next three months following the enactment of the Omnibus Law.