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License Requirement for Foreign Investment Company in Indonesia

Mega Global Investment

Sep 18, 2024

Indonesia’s investment landscape has undergone significant changes with the introduction of the Omnibus Law, simplifying and streamlining business licensing. For foreign investors looking to establish a company in Indonesia, understanding the risk-based classification approach is crucial, as licensing requirements vary depending on the level of risk associated with the business activity.

Understanding the Risk-Based Classification Approach

The Indonesian government has categorized businesses into four risk levels, each with different licensing requirements. This approach aims to ease the regulatory burden on low-risk businesses while ensuring strict oversight for industries with greater economic, environmental, and social impact.

1. Low-Risk Businesses

These businesses face minimal regulatory scrutiny and require only a Nomor Induk Berusaha (NIB) or Business Identification Number to operate. The NIB serves as the primary business license, taxpayer identification, and import-export license in one.

Example:Consulting firms, small-scale trading businesses, and other service-based businesses with no significant impact on health, safety, or the environment.

2. Medium-Low Risk Businesses

In addition to an NIB, these businesses must obtain a self-declared Standard Certificate confirming compliance with relevant industry standards. Some industries may also need to complete environmental regulation forms to ensure minimal environmental impact.

Example:Food and beverage businesses, small-scale manufacturing, and certain retail operations.

3. Medium-High Risk Businesses

The key distinction between Medium-Low and Medium-High Risk businesses is the verification process for the Standard Certificate. Instead of self-declaration, government authorities must verify compliance before granting approval. This added layer of oversight ensures businesses adhere to safety, environmental, and operational standards.

Example:Construction companies, logistics businesses, and manufacturing industries handling regulated materials.

4. High-Risk Businesses

Industries classified as high-risk require an NIB and additional sector-specific licenses, depending on the nature of the business. These licenses often involve extensive regulatory approvals, environmental impact assessments, and compliance with national and international safety standards.

Example:Mining, energy, healthcare, and financial services companies, where regulatory oversight is critical to mitigate risks.

Why This Matters for Foreign Investors

Understanding these classifications helps foreign investors navigate Indonesia’s regulatory framework efficiently. By ensuring compliance from the outset, businesses can avoid unnecessary delays, legal complications, or financial penalties.

If you're planning to invest in Indonesia, consider consulting with local legal advisors or the Indonesia Investment Coordinating Board (BKPM) to ensure your business meets all requirements.

At Mega Global Investment, we specialize in helping businesses secure the necessary licenses efficiently and compliantly. If you need assistance with the licensing process, feel free to reach out—we’re here to help simplify your entry into the Indonesian market.

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