Running a Construction Business in Indonesia

“Building Construction business sector includes residential or non-residential building construction activities, which are further divided into several sub-classifications, but permits and requirements are similar for each sub-classification.”

Building Construction business sector in the form of residential or non-residential building construction activities is regulated in Government Regulation Number 5 of 2021 on Implementation of Risk-Based Business Licensing (“PP 5/2021”). This classification is divided into several sub-classifications that specifically regulate building construction based on their respective purposes. The requirements and permits for this classification are generally similar.

A. Overview of Building Construction Business

The Building Construction business sector is in KBLI 4101, this business classification includes residential or non-residential building construction activities at own expense for sale or on a fee/contract basis. Building construction activities may be subcontracted in part or in whole. If only doing part of the construction process, then the activity is grouped into another classification. This classification includes the construction of all types of residential buildings, such as single-family houses and multi-family buildings, including multi-storey buildings, and includes the construction of all types of non-residential buildings, such as industrial buildings such as industrial plants, workshops, assembly plants, hospitals, schools. , office buildings, hotels, shops, malls, restaurants, airport buildings, indoor sports facilities, parking garages including underground parking, warehouses, and places of worship. This classification has several derivatives to more specifically regulate the scope of the building construction business by dividing the classification of derivatives as follows:

1. Residential Building Construction
2. Office Building Construction
3. Industrial Building Construction
4. Shopping Building Construction
5. Health Building Construction
6. Education Building Construction
7. Lodging Building Construction
8. Construction of Buildings for Entertainment and Sports Places
9. Other Building Construction

Remodeling or renovation of existing building structures in this classification does not include installation of prefabricated items for the construction as a whole from non-concrete parts, Construction of industrial facilities other than buildings, Architectural and engineering activities, or Project management activities related to construction.

Foreign investment in this classification can be made, with an investment value of more than IDR10 Billion excluding land and buildings, as well as provisions for foreign investment for foreign construction service business entities (“BUJK“) non-ASEAN at most 67%, and ASEAN foreign BUJK at most 70%.

B. Qualifications in Construction Implementation Services Business Sector

Construction implementation services business entities are divided into several qualifications, namely individual business (“P”), small (“K”), medium (“M”), and large (“B”). These qualifications are then divided further into sub-qualifications of P, K1, K2, K3, M1, M2, B1, and B2 according to the business’ financial level, personnel availability, and work experience. Regulation of Indonesian Construction Services Development Board No. 3 of 2017 concerning Certification and Registration of Construction Implementation Services Business (“LPJK Regulation 3/2017”) stipulates the details of each sub-qualification as follow:

1. P
2. the entity must have at least one certified Technical Person in Charge (Penanggung Jawab Teknis or “PJT”) with at least grade 1 Construction Competency Certificate (Sertifikat Keterampilan Kerja Konstruksi or “SKTK”);
3. K1
4. the entity must have net worth in the minimum of IDR 50,000,000 (fifty million rupiah) and the maximum of IDR 500,000,000 (five hundred million rupiah);
5. the entity must have at least 1 (one) certified PJT with at least grade 3 SKTK;
6. the entity is not required to have work experience;
7. K2
8. the entity must have net worth in the minimum of IDR 200,000,000 (two hundred million rupiah) and the maximum of IDR 500,000,000 (five hundred million rupiah);
9. the entity must have at least 1 (one) certified PJT with at least grade 2 SKTK;
10. the entity must have handled projects with the cumulative value of IDR 1,000,000,000 (one billion rupiah) in the past 10 (ten) years;
11. K3
12. the entity must have net worth in the minimum of IDR 350,000,000 (three hundred and fifty million rupiah) and the maximum of IDR 500,000,000 (five hundred million rupiah);
13. the entity must have at least 1(one) certified PJT with at least grade 1 SKTK;
14. the entity must have handled projects with the cumulative value of IDR 1,750,000,000 (one billion seven hundred and fifty million rupiah) in the past 10 (ten) years;
15. M1
16. the entity must have net worth in the minimum of IDR 500,000,000 (five hundred million rupiah);
17. the entity must have at least 1 (one) certified PJT with Competency Certificate (Sertifikat Keahlian or “SKA”), 1 (one) certified Classification Person in Charge (Penanggung Jawab Klasifikasi or “PJK”) with SKA, and 1 (one) PJBU;
18. the entity must have handled projects with the cumulative value of IDR 2,500,000,000 (two and a half billion rupiah) or a project with the value of IDR 833,000,000 (eight hundred and thirty-three million rupiah) in the past 10 (ten) years;
19. M2
20. the entity must have net worth in the minimum of IDR 2,000,000,000 (two billion rupiah);
21. the entity must have at least 1 (one) certified PJT with SKA, 1 (one) certified PJK with SKA, and 1 (one) PJBU;
22. the entity must have handled projects with the cumulative value of IDR 10,000,000,000 (ten billion rupiah) or a project with the value of IDR 3,330,000,000 (three billion three hundred and thirty million rupiah) in the past 10 (ten) years;
23. B1
24. the entity must have net worth in the minimum of IDR 10,000,000,000 (ten billion rupiah);
25. the entity must have at least 1 (one) certified PJT with SKA, 1 (one) certified PJK with SKA for each classification, and 1 (one) PJBU;
26. the entity must have handled projects with the cumulative value of IDR 50,000,000,000 (fifty billion rupiah) or a project with the value of IDR 16,660,000,000 (sixteen billion six hundred and sixty million rupiah) in the past 10 (ten) years;
27. B2
28. the entity must have net worth in the minimum of IDR 50,000,000,000 (fifty billion rupiah);
29. the entity must have at least 1 (one) certified PJT with SKA, 1 (one) certified PJK with SKA for each classification, and 1 (one) PJBU; and
30. the entity must have handled projects with the cumulative value of IDR 250,000,000,000 (two hundred and fifty billion rupiah) or a project with the value of IDR 83,330,000,000 (eighty-three billion three hundred and thirty million rupiah) in the past 10 (ten) years.

Unlike BUJKN, both BUJKA RO and BUJK Foreign Direct Investment Company (Penanaman Modal Asing/PMA) are required to have the minimum of B2 qualification. Consequently, the BUJKN which constitutes the partner shareholder of BUJK PMA must also have B2 qualification. For pre-existing BUJK PMA which has M2 qualification, it is possible to upgrade to B1 qualification. However, new applicants must only apply directly to B2 qualification.

C. Requirements and Licensing for Building Construction Business

Requirements and permits for building construction classification are regulated in the Regulation of the Minister of Public Works and Public Housing of the Republic of Indonesia Number 6 of 2021 on Standards for Business Activities and Products in the Implementation of Risk-Based Business Licensing in the Public Works and Public Housing Sector (“PermenPUPR 6/2021”). The business scale in this classification is divided into micro business scale, small business scale, medium business scale, and large business scale. The level of risk in this classification for all business scales is medium-high with requirements in the form of a standard certificate. The requirements for business licenses are to meet the eligibility qualifications of a construction service business, with the following explanation:

1. Annual Sales
2. National BUJK general construction consulting services and general Construction Works with medium and large qualifications that do not obtain annual sales within the validity period of the Construction Business Entity Certificate (“SBU“), the extension of the Construction SBU is carried out by reducing the qualifications to the sub-classification by 1 (one) level;
3. Foreign investment BUJK representative offices and foreign investment BUJKs in the extension of the Construction SBU must have work experience carried out in Indonesia.
4. Financial Capability

Financial capability is obtained from the total value of equity. Equity is calculated from the difference between assets and total liabilities.

• Availability of construction workers
• Ability to provide equipment
• Provision of construction equipment is assessed based on different types of equipment for each of the sub-classifications taken;
• Fulfillment of the commitment to provide construction equipment is carried out by submitting proof of ownership to the business entity certification body (“LSBU”) which conducts a feasibility assessment of the said Construction SBU no later than 30 calendar days after the issuance of the SBU;
• LSBU submits a verification report on the fulfillment of the commitment to provide construction equipment to the minister through the Construction Services Business Application.

Requirements for SBU Construction is carried out through the Online Single Submission (“OSS”) system, explained in PP 5/2021 that the submission of SBU is applied through the OSS system. The stages of the certification include:

1. Application;
2. Payment of fees;
3. Verification and Validation; and
4. Approval/Rejection of SBU of Construction Application.

The documents required are the feasibility of the construction service business qualifications as previously described. Business entities must pay the registration fee no later than 7 days. Furthermore, the verification and validation can be carried out after the submitted documents have been declared complete. In the approval of the Business Licensing Submission, the certificate will be issued if it has been approved no later than 15 days after the required documents are completed and in accordance with the requirement.

Author: Adam Kausar

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