Business licenses are crucial parts of the process of starting and owning a company in Indonesia. The country’s laws forbid certain business activities from being conducted if the business in question does not possess any of the necessary business licenses. Any business which fulfills the requirements for obtaining any license or permit may apply to do so. Should the government authorities be satisfied with the application, the business license will be issued.
The primary law which governs the issuance of business licenses in Indonesia is Regulation of Government No. 24 of 2018 on the Electronically Integrated Business Licensing Service. This law is better known as “Regulation 24/2018”. Regulation 24/2018 is divided into five subtopics: the Online Single Submission (OSS) system, license reform, business identity numbers (NIBs), business licenses, and commercial and operational licenses.
The OSS is a system which facilitates the processing of business licenses. It may be used on behalf of such people as governors, ministers, mayors, heads of government agencies, regents, and other official authorities. The OSS may be used by business entities of all types including partnerships, sole proprietorships, limited-liability companies, and state-owned companies, among others. Among the items that may be processed through the use of the OSS are business licenses, NIBs, commercial and operational licenses, and Foreign Worker Recruitment Plans (RPTKAs).
Regulation 24/2018 also requires the relevant authorities to initiate the process of business license reform. Business license reform includes reclassification, removal, merging, changes of names, and changes of requirements of licenses whenever necessary. It also defines the procedures required to receive a license. There are 20 business sectors which have licenses subject to business license reform. Among these are agriculture, forestry, trade, communication, tourism, higher education, and nuclear power. The implementation of license reforms in sectors not mentioned in Regulation 24/2018 are carried out according to the regulations which exist in those sectors.
All businesses are to apply for NIBs by using the OSS. NIBs are unique numbers given to each business which will serve as a means of identification for each business. An NIB is used by a business to apply for any license which it may need. It also functions as a company’s registration certificate, import identification number, and proof of participation in the government’s social security programs for health and employment. An NIB is valid for as long as the company’s business activities are being undertaken. It may be revoked by government authorities upon the violation of any of the terms of the NIB by the business which owns one. To obtain an NIB, a business must register with the OSS by submitting information such as Taxpayer Identification Number (NPWP), deed of establishment number or citizenship identity number (depending on whether the applicant is a business or an individual), and the business sector in which business activities will be conducted.
Regulation 24/2018 also states that there are three types of businesses which require business licenses for operations. These are businesses which do not require infrastructure to perform business activities, businesses which require but do not yet have the infrastructure to perform business activities, and businesses which require and have the infrastructure to perform business activities. Businesses which require infrastructure but do not yet have it must first apply for a location permit, a water permit, and an environmental license; all of these are issued based on commitment. Businesses with licenses may change their land area; conduct production and commissioning activities; procure land, human resources, facilities, and infrastructure; and construct and operate buildings. Business licenses are valid until the business no longer conducts business operations unless any relevant laws or regulations state otherwise.
Commercial and operational licenses are to be issued based on commitment. They are related to the products which are to be marketed or procured; the standardization, certification, and licensing of business activities; and the registration of goods and services required for the carrying out of business activities. They are valid for as long as their validity period specifies.
Primary Business License Types
Most businesses in Indonesia make use of one of three primary business license types. The most common of these is the business license. This license is used by companies involved in general business activities as well as the provision of goods and services. Companies involved in manufacturing but are not involved in oil, gas, or geothermal activity require an industrial business license. Construction companies need a construction business license before commencing any business activities. Although other business license types do exist in Indonesia, the preceding three types are by far the most widely used.
Reasons to Obtain a Business License in Indonesia
Businesses all over Indonesia require business licenses of all types. Even though business owners may apply for one or more of such licenses, they might not necessarily be aware of the reasons why application for business licenses in Indonesia is important. The most important reason, of course, is that of legalization of the business entity and its business activities. A business entity which attempts to conduct business activities without holding any necessary license has violated Indonesia’s business laws and will face any of several possible punishments. Such businesses could potentially even be punished by closure of the business through the government’s mandate.
A company with a business license has a form of confirmation that all of its trading activities are being conducted in a legal and proper manner. Such is also true with regard to the marketing of its products as well as its setup. Thus, those who know that the business in question has received an official license will know that the business and business owner are honest and trustworthy because they have undergone all of the necessary verification procedures. This in turn will increase the level of profit which they will be likely to receive.
Another important reason for a company to obtain a business license is the fact that certain business licenses pertain to certain business sectors. Businesses in these sectors which have such licenses have evidence that their expertise and experience in the field is genuine and that they are therefore better able to serve the needs and desires of their customers. This will boost the reputation and subsequently the revenue of the business.