How To Get a Business License in Indonesia

If you want to start a business in Indonesia, you’ll enjoy a good business environment.

The country boasts steady GDP growth, strong foreign direct investment (FDI), a large and young population, a rapidly growing digital economy, and significant improvement in ease of doing business.

However, your business journey needs a clear understanding of the legal framework, particularly with Indonesian business permits and license application processes. That’s what we’re going to discuss in the paragraphs below.

Dive into the process of acquiring a business license in Indonesia and make the most out your business idea. 

What is a Business License in Indonesia

When it comes to acquiring business licenses, Indonesia has made great improvements.

In fact, Indonesia has made significant improvements in the ease of doing business, ranking 40th out of 190 economies in the World Bank’s Doing Business report in 2020. It’s still not the best in the region, but this shows a good trajectory for improving its business environment.

If you want to be your own boss and open an establishment, there are three types of business entities to choose from, which are the following:

• Local Company (PT): A local company, also known as Perseroan Terbatas (PT), is the most common business entity in Indonesia’s market due to its small capital requirement and faster set-up time compared to foreign companies. Only local entrepreneurs can incorporate this entity, no percentage of foreign ownership is allowed for a PT.
  
• Foreign-owned Company (PT PMA): A Penanaman Modal Asing (PT PMA) company is a wholly or partially foreign-owned limited liability company governed by the Indonesian Investment Law. It’s the legal method for foreign-owned businesses to operate in Indonesia. 
• Representative Office (KPPA): A representative office is a foreign company’s liaison office in Indonesia, which can’t conduct any commercial activities. It’s for research and development, marketing, and promotional activities on behalf of the parent company.

Being aware of the business entities is the first step to the licensing process. Your business license is your formal recognition by the Indonesian government. Whichever business entity you register for, the general process is roughly the same.

Indonesian Business Permits: Categories and Requirements

Indonesia offers different business permits, each for different sectors and sizes of business. For local business licensing, or PT, you can skip straight to the application process.

However, as a foreign entity seeking to invest or open a PT PMA, you’ll be under the Job Creation Omnibus Law, or simply the Omnibus Law. 

Under this scheme, there are three categories for PT PMA, as follows:

• Low-risk businesses: Companies need to register their business and obtain a Business Identification Number (NIB) as a minimum requirement for conducting business.
  
• Medium-risk businesses: Companies must comply with certain business standards, as determined by the government. Those businesses that are medium-low risk only need to provide a statement that they comply, while those of medium-high risk will also be required to obtain a Standards Certification from either the central government or a regional government, confirming their fulfillment of the business standards.
  
• High-risk businesses: Companies are required to obtain various business permits plus an NIB to conduct business.

Understanding your specific business category is the first step. These categories dictate the requirements you need to fulfill, and it can be more complex than it seems. You need to prepare them before you can get to the license application process, and you might even need additional requirements before and after.

To know the specifics for your situation, company, and sector, it’s best to speak to a licensed professional.

License Application Process

The application process is relatively straightforward in Indonesia. You go through the Online Single Submission (OSS) System and comply with all the requirements.

Here’s a breakdown of the documentation checklist you can expect from the OSS:

• Approval of company name. The first step in the OSS system is to get approval for the company name, which must have three words and should not be vulgar or obscene.
  
• Deed of Incorporation. Prepare the Deed of Incorporation, including the Articles of Association. This document must be signed in the presence of a notary.
  
• Approval of Legal Entity. After the notary submits the Deed of Incorporation, the Ministry of Law and Human Rights will review and approve the legal entity status of the company.
  
• Registration of Tax ID (NPWP). With the legal entity status approved, the next step is to register for a Tax Identification Number (NPWP), which is crucial for tax obligations, banking activities, and securing other company licenses.
  
• Domicile Letter. Obtain a domicile letter to prove the location of your business. This is often required for various registration and operational purposes.
  
• Application for a Nomor Induk Berusaha (NIB). Apply for the Business Identification Number, NIB, a unique company profile number that facilitates immediate operation if no additional specific licenses are required. The NIB also serves as an import license and customs identification number. If you’re planning internationally, always mind the import and export duties in Indonesia.
  
• Obtaining Additional Licenses. Depending on the sector, additional licenses may be required before the company can start operations. These could include commercial licenses, tourism licenses, or industry-specific permits. More licenses will depend on the nature of the business and its operational requirements.

The business license issuance process is streamlined by the OSS system, which makes it more efficient for both local owners and foreign investors to enter the Indonesian market. No more need for scattered application forms.

Moreover, the timeline for the entire application has now been shortened to 1 – 1.5 months, compared to the 2 months plus before.

Local Business Licensing: Authority Guidelines

In Indonesia, several local and national government authorities are responsible for issuing business permits and licenses.

The specific permits required can depend on the nature of the business, its location, and the industry it operates in. The three most important agencies to note are the BKPM, the OSS System, and local government offices.

The Investment Coordinating Board (BKPM) is the central figure for streamlining business operations, serving both local and foreign investors. It issues the initial approval for foreign investment (PT PMA) companies, the Investment Registration (often the first step for foreign investors), and other related permits.

A critical tool for simplifying the business licensing process is the Online Single Submission (OSS) System.

Introduced as part of Indonesia’s ongoing regulatory reform, the OSS System is a one-stop shop for business permit applications. This includes the crucial Business Identification Number (NIB).

Lastly, local government offices play a complementary role in the licensing ecosystem, handling region-specific permits such as location and building permits. They ensure that businesses comply with local regulations and standards.

Submission and Documentation Review

Once submitted, the relevant government agency, whether it’s the BKPM for foreign investments or local government offices for specific local permits, reviews the documentation. The review process assesses the completeness and validity of the documents against the regulatory requirements.

In the case of discrepancies or missing information, businesses may be requested to provide additional documentation or clarification.

Businesses must comply with post-submission requirements, such as investment realization reporting and periodic renewals of certain licenses.

Renewal and Validity Periods

Different documents have different expiration dates, depending on their specific policies. Thus, the renewal and validity of business licenses vary by type and industry regulation. 

Here’s a concise summary of their validity periods:

• Business Identification Number (NIB): Permanent validity, there is no validity period so no renewal needed as long as the company adheres to legal requirements.
  
• Industry-Specific Licenses: Typically valid for 1 to 5 years, requiring renewal for continued operation in regulated sectors like finance and healthcare.
  
• Environmental Licenses: This needs review and possible update every 3 to 5 years, based on environmental assessments.
  
• Building and Location Permits (IMB and SITU): Remains valid unless there are significant changes to the premises. Modifications may necessitate reapplication.
  
• Employment of Foreign Workers (IMTA): Annual renewal is needed for each foreign worker’s permit.

Ensuring your licenses don’t reach expiration is crucial for legal compliance, avoiding penalties, and ensuring uninterrupted operations. This proactive approach helps you navigate legal complexities smoothly and ensures your long-term success in the Indonesian market.

Registration Fees

The cost of registering for business licenses varies, depending on the license type, business size, and specific local and national regulations.

These fees help cover the costs of processing applications, issuing licenses, and maintaining regulatory oversight.

For company registration, the NIB itself may incur minimal fees, but related costs, including notary services for incorporation documents and company domicile letters, can accumulate. Also, fields like finance, healthcare, and education might have their licensing fees.

Environmental licenses can be more expensive due to detailed environmental impact assessments, particularly for businesses with a large footprint. 

Local governments set fees for building (IMB) and location (SITU) permits, so they vary widely across Indonesia’s regions.

Assessing Regulatory Compliance for Your Business

Starting with a solid understanding and adherence to compliance from the beginning saves you headaches down the road. Compliance paves the way for a successful license application and builds trust with your customer base.

Here’s how you can assess regulatory compliance for your business in Indonesia:

• Understand compliance requirements. Know the rules about taxes, social contributions, and investments. Learn what reports you need, when they’re due, and what happens if you don’t follow the rules.
  
• Ensure employee payroll compliance. Ensure you’re doing right by your employees about their pay and social security. This covers both local workers and those from abroad.
  
• Mind the auditing and compliance requirements. Follow the rules for auditing your company’s finances, which are set out in Indonesian law, including keeping accounting records for at least 10 years.
  
• Establish internal controls. Set up teams to watch for your company’s money matters, ensuring everything is above board. This includes a rotation of accountants every three years for public companies.
  
• Always conduct fiscal year reporting. Submit your company’s taxes on time, based on the fiscal year, to avoid penalties.
  
• Comply with accounting standards. Your financial audits should stick to Indonesian standards, and you need to submit your financial statements annually, possibly in two languages if required.
  
• Always be ready for inspections. Welcoming government inspections with open records and transparency about business activities is vital for a positive relationship with regulatory bodies.
  
• Be aware of penalties for non-compliance. Not sticking to the rules lead to fines or even jail time for serious offenses like false tax or accounting documents.

Keeping up with regulatory compliance assessment might not seem important at first, but it just becomes more important as your business grows. Not only does it help you avoid penalties and legal trouble, but it also lays a strong foundation for your business’s long-term health and reputation.

Final Thoughts

As an aspiring entrepreneur, business licensing might be one of the things that you’re dreading. It’s understandable. Bureaucracy is often tiring and time consuming, especially if you don’t know how it all works.

That’s why we discussed everything you have to know in this article, from business entity legalities to application procedures.

Embrace the process with a positive outlook, and your business will thrive.