OSS System – Indonesia’s Answer to Minimize Bureaucracy and the Lengthy Licensing Regime

Authored by Kurniawan Tanzil and Stephanie Kandou




On 21 June 2018, the Indonesian Government introduced the Online Single Submission (“OSS”) system under Regulation No. 24 of 2018 (“GR 24/2018”) on Electronically Integrated Business Licensing Services. This system was first planned under Presidential Regulation No. 91 of 2017 on the Acceleration of Business Implementation and was launched as the Government’s effort to accelerate and facilitate licensing services in Indonesia. It is intended to unify Indonesia’s licensing system by creating an online integrated services system so all licensing applications are processed through one online system, and thereby reduce the bureaucratic steps needed to obtain business licenses, at both local and national levels as well as to promote transparency.

The Investment Coordinating Board (“BKPM”) as the OSS Agency

The OSS system is now administered by the BKPM, after taking it over in early 2019 from the Coordinating Ministry for Economic Affairs, who initially operated the system. The BKPM is now preparing to launch an updated version of the OSS system (version 1.1) sometime this year (2019), the details of which will be provided in a BKPM regulation. This updated version is expected to improve the current system by among other things, standardizing various requirements and procedures for licensing services through the OSS system.

The Obligation to obtain a Business Identification Number (Nomor Induk Berusaha / “NIB”)

All existing and new business entities, whether established as a local company or a foreign investment company (PMA company), must apply for an NIB. To obtain an NIB, business entities must first register themselves with the OSS system. The NIB registration process is reasonably straightforward. Once all the required information has been uploaded, the OSS system will issue the NIB automatically within one day, if not in a matter of hours. The NIB is valid for as long as the business entity remains in business in accordance with the prevailing laws and regulations. Business entities must have been legally established to apply for licenses through the OSS system. An NIB serves as the business entity’s identity and is required for applications for business licenses, permits and approvals. The advance is that it also serves as the Company Registration Certificate (Tanda Daftar Perusahaan / “TDP”), Importer’s Identification Number (Angka Pengenal Importir – API) and Customs right of access. Once it has an NIB, a business entity is simultaneously registered as a participant in the health and manpower social security programs, as well.

Business Licenses

Having obtained an NIB, before commencing its commercial operations, a business entity must apply for its business licenses. Under GR 24/2018, two types of business license (perizinan berusaha) are available: a business license (izin usaha) and a commercial or operating license (izin komersial atau operasional). Only certain businesses are eligible for a commercial or operating license and may only apply for one after they have obtained their business license. For its business license to be effective, the applicant may have to complete certain commitments. For example, a pharmaceutical company’s commitment is to make sure its production facility complies with Good Manufacturing Practice. The business entity is given a time limit to complete its commitment(s). Once completed, and in some businesses, the official licensing fee has been paid, the business license becomes effective. Business licenses are now issued automatically after all the required information and supporting documents have been submitted to the OSS system.

The role of notaries and post-audits in the context of the OSS system

Since the OSS system is an online integrated system created to minimize bureaucracy, it issues licenses, especially NIBs and business licenses automatically once all the required information and supporting documents have been submitted to the OSS system. To support this new online system, notaries must ensure that the line(s) of business stated in the Articles of Association are in line with the relevant classification(s) in the Standard Indonesian Business Sector Classifications (Klasifikasi Baku Lapangan Usaha Indonesia / KBLI) and are open to foreign investment under the Negative List (a list of business sectors that are closed and open with conditions to investment). Previously, the BKPM would determine whether a business activity was open to foreign investment when the business entity applied for its In-Principle License, which at that time was the initial step in investment. Investors needed prior approval from the BKPM to establish a company, change their company or investment data or take any other corporate action. Under the OSS system, responsibility for ensuring that its business activities comply with the prevailing laws and regulations has been shifted to the business entity. The OSS Agency still closely monitors the activities of business entities and their investments in Indonesia, including by conducting post-audits.

Financial institutions also require an NIB

As explained above, the OSS system is available to all business entities in Indonesia for the issuance of their business licenses. However, since under GR 24/2018, licensing in the financial sector, for both banks and non-bank financial institutions, is outside the OSS system, financial institutions are excluded from the OSS system as they have their own regulatory regime (note that this is also the case with the licensing in the mining, oil and natural gas sectors). Licenses are issued by the Financial Services Authority (Otoritas Jasa Keuangan / “OJK”) or Bank Indonesia according to the prevailing laws and regulations, which means that banks and non-bank financial institutions, such as insurance companies, pension funds, leasing companies, venture capital companies must still apply for their business licenses to the OJK or Bank Indonesia.

However, since as an Indonesian company, a financial institution is also required to register itself under Law No. 3 of 1982 on Mandatory Company Registration and, as explained above, company registration is now administered through the OSS system under Regulation of the Minister of Trade No. 76 of 2018 on Organizing Company Registration, financial institutions also require an NIB, which also serves as their TDP for company registration purposes, although they do not apply for their business or operating licenses through the OSS system.

Conclusion

The OSS system was created to promote investment growth by minimizing bureaucracy and expediting the issuance of licenses. Now that the system has been in operation for over a year and its operation has been handed over to the BKPM, to address various issues encountered during its operation and inputs from the users as well as to integrate the system further and make it more reliable and user friendly, an updated version of the system (called version 1.1) will be launched soon. Specifically for financial institutions, although they also require an NIB, since their businesses are administered separately by the OJK and Bank Indonesia, subsequent licensing is not conducted through the OSS system.

 

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Kurniawan Tanzil
Partner
Kurniawan.Tanzil@makarim.com
Kurniawan Tanzil heads the Banking & Finance department of Makarim & Taira S. He has broad expertise in legal matters, and has been involved in various types of Banking & Finance transactions as well as corporate and commercial lending and finance arrangements. His wide range of experience in Banking & Finance is supported by his extensive knowledge and experience in corporate & commercial areas. His practice highlights include complex financial transactions acting for both lenders and major corporate borrowers. He also has extensive experience in project finance, M&A, employment, aviation, TMT and capital markets. He has been named an A-lister, one of the top 100 lawyers in Indonesia, and a Leading/Highly-Regarded Lawyer in Banking & Finance, corporate/M&A and capital markets.



Stephanie Kandou

Senior Associate
Stephanie.Kandou@makarim.com
Stephanie Kandou is a member of the Banking & Finance department of Makarim & Taira S. She has been involved in various types of Banking & Financing transactions including syndicated loan and various other loan transactions. In addition, she also has extensive experience in corporate commercial, foreign investment, mergers and acquisitions.