“The risk-based approach licensing regime divided the licensing into three risk levels: low, medium, and high risk. Medium risk contains two categories: medium-low and medium-high risk. For the low-risk category, the NIB also has the function of a business license. Meanwhile, for medium, both medium-low and medium-high risk, the company needs to activate the standard certificate as a business license aside from having NIB. As for the high-risk business, the company must obtain an additional permit as a business license.”
Risk Based Approach Licensing
In Indonesia, the establishment and operation of businesses necessitate the acquisition of specific licenses aligned with the nature of their operations. This requirement is stipulated by Law No 11 Year 2020 on Job Creation, subsequently amended by Government Regulation No 2 Year 2022 on Job Creation. The regulatory framework was further implemented through Government Regulation 5 Year 2021 (“GR 5/2021“), which adopts a Risk-Based Approach (“RBA“) scheme to govern the issuance of business licenses.
Under the RBA scheme, mandatory business licenses are evaluated based on the risk level and scale of the business activities. Business scale is delineated into four main categories: Micro, Small, Medium, and Large Scale Business. Simultaneously, in accordance with Article 10 of GR 5/2021, business activities are categorized into three risk levels:
1. Low Risk;
2. Medium Risk;
- 2.1 Medium-Low
- 2.2 Medium-High
3. High Risk
For a low-risk business, the prerequisite is the acquisition of a Business Identification Number (“NIB“), serving as both the identity of a business actor and the legal authorization to conduct business activities. In the case of Medium-Low and Medium-High Risk businesses, the required licenses extend beyond the NIB to include a Standard Certificate. Conversely, High-Risk Businesses necessitate not only the NIB but also additional permits. These licenses collectively serve as the foundation for Business Actors to engage in preparatory, operational, and/or commercial activities.
Standard Certificate
A Standard Certificate, as defined in Article 1 GR 5/2021, serves as a documented confirmation of compliance with business activity implementation standards. This certification is obtained through the Online Single Submission System, a comprehensive electronic platform designed for the issuance of permits, business licenses, and operational licenses.
There are two distinct types of Standard Certificates based on the perceived level of risk: the Standard Certificate of Medium-Low Risk and the Standard Certificate of Medium-High Risk.
When a business falls into the category requiring a standard certificate, the initial step involves submitting essential data to acquire a NIB. This data includes the company profile, capital, taxpayer identification number, Indonesia Standard Industrial Classification (“KBLI”) number, and the business location.
Following the submission of this information, the business actor is required to provide a statement affirming their capability to meet the prescribed business activity standards. The subsequent process differentiates between Standard Certificates for Medium-Low Risk and Medium-High Risk businesses.
For Medium-Low Risk Businesses, the OSS System automatically issues the standard certificate upon successful submission. Conversely, for Medium-High Risk Businesses, the status remains unverified after submitting the statement of ability. Subsequently, the business entity is obligated to meet the specified business activity standards within a designated time frame, adhering to established norms, standards, procedures, and criteria through the OSS.
Once the business fulfills these standards, the OSS transmits the information to the relevant institutions vested with respective authorities for verification. These institutions encompass ministries, provincial DPMPTSP, district/city DPMPTSP, KEK Administrators, and KPBPB Concession Agency. In the event that the OSS has received a notification of compliance from the relevant institution, the OSS System will include information stating that the Standard Certificate has been verified.
Compliance and Consequences
The legal ramifications for a business initiating operations without activating the required standard certificate depends upon the specific industry in which the business operates. Sanctions, in this context, may take the form of administrative penalties, fines, written warnings, operational suspension, product recall from the market, business license revocation, and potentially even business foreclosure.
Therefore, adherence to all regulatory prerequisites, including the acquisition of essential certificates and permits before the commencement of operations, is imperative for businesses to avoid these legal consequences.
Author: Felicia Cindy Hanubrata
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