NEWSLETTER TRANSITION OF BKPM ONE STOP SERVICE CENTER TO ONLINE SINGLE SUBMISSION: WELCOMING A NEW LICENSING ERA? An Overview

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1 NEWSLETTER 03 July 2018 TRANSITION OF BKPM ONE STOP SERVICE CENTER TO ONLINE SINGLE SUBMISSION: WELCOMING A NEW LICENSING ERA? An Overview In light of the issuance of Government Regulation No. 24 of 2018 on Online Single Submission Services ( GR 24/2018 ), the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM) just recently announced that BKPM suspends temporarily all processing and issuance of permits and licenses due to the transition of national investment licensing to the Online Single Submission ( OSS ) system. Suspension of Issuance of Investment Permits By BKPM In light of the implementation of the OSS system, BKPM through its press release announced that: 1 a) due to national transition of OSS system, as of 29 June 2018, BKPM shall suspend all processing and issuance of permits and licenses temporarily; b) all processing and issuance of permits and license will resume soon at the Coordinating Ministry for Economic Affairs ( Coordinating Minister ) (according to the statement from the Coordinating Minister, this will be done within days after the OSS system has been officially launched); c) in accordance with the direction from the Coordinating Minister, BKPM will in the time being accept all application of permits and licenses to be transferred to the OSS system after its official launch. On the other hand, BKPM is also developing the required infrastructure to takeover the management of OSS system from the 1 aan_kepala_bkpm_terkait_oss.pdf Muqthi Ali Head of Capital Investment and Government Relations (muqthi@umbra.law) Pramudya A. Oktavinanda Managing Partner (pramoctavy@umbra.law) Liyanto Wijaya Counsel (liyanto@umbra.law) Enrico Denis Sihotang Associate (enrico@umbra.law) UMBRA Strategic Legal Solutions Telkom Landmark Tower, Tower 2, 49 th Floor Jl. Gatot Subroto Kav. 52 Jakarta Indonesia UMBRA - Strategic Legal Solutions Our Services: Mergers & Acquisitions Capital Market & Securities Private Equity Compliance, Governance & Risk Management Banking & Financial Institutions Corporate & Project Finance Restructuring & Distressed Assets Management Power & Infrastructure Energy, Mining, Oil & Gas Property & Real Estate Joint Ventures & Foreign Direct Investment Telecommunications, Media & Technology (TMT) State-Owned Enterprises

2 Coordinating Minister within five months since its initial press release; and d) BKPM will still open normally to serve investors in responding to any queries and receiving applications of permits and licenses. As will be elaborated below, BKPM, as mandated under GR 24/2018, will be the government agency in-charge of OSS system implementation after temporary management by the Coordinating Minister. OSS System as Mandated by GR 24/2018 GR 24/2018 regulates, among others, the types, applicants, and issuers of Business Licenses (see the definition below), and the implementation of Business Licenses, OSS system, and OSS Agency. Applicants The applicants of Business Licenses under the OSS system may be Indonesian businessmen or any form of non-individual Indonesian business entities (such as, limited liability companies, public service entities, broadcasting agencies, cooperatives, commanditaire vennotschap, venootschap onder firm, and private partnerships). Upon registration with the OSS system, each business entity will obtain a Business Identification Number (Nomor Induk Berusaha NIB ) as an identification evidence that it has been registered with the OSS system. NIB will also be featured with an electronic signature. Under GR 24/2018, NIB will constitute as a replacement of: (a) Company Registration (Tanda Daftar Perusahaan TDP ), (b) Importer Identification Number (Angka Pengenal Impor API ), and (c) custom duties access rights as provided under the relevant regulations. Given its extensive scope, this new provision will require further amendment to the relevant existing regulations to clarify the implementation. In addition, all business entities that have obtained NIB will automatically be registered with health and employment social security programs. Therefore, separate process or registration with social security agency

3 should not be necessary for NIB holders (pending implementing regulations). Licenses GR 24/2018 stipulates two types of Business Licensing that can be applied through the OSS system, which are: (i) Business Licenses 2 ; and (ii) Commercial or Operational Licenses 3. From the definition, we understand that the licenses issued through OSS system includes a large scope of licenses required for business activities in every sector. For clarity, GR 24/2018 also lists down all permits to be issued under the OSS system as set out in the attachment to GR 24/2018. Business Licenses must be obtained by all business entities that have obtained NIB. The business entities include those which need or do not need facilities (prasarana) 4 to perform their business activities. Such provision might not be in line with some other regulations. For example, under BKPM Regulation No. 13 of 2017, business sectors that do not require construction activities are not obligated to obtain investment registration (equals to in-principle license or Business License under GR 24/2018) from BKPM and may directly apply for permanent business license (equals to Commercial or Operational License under GR 24/2018). From the hierarchy of regulation perspective, the provision of BKPM regulation should be superseded by GR 24/2018. BKPM, as well as other government agencies and regional government, will need to amend their relevant regulations to accommodate the provisions of GR 24/ GR 24/2018 defines Business Licenses as licenses issued by OSS Agency for and on behalf of minister, head of agency, governor, or regent/mayor after the business owners do the registration process and such license shall be used to commence operations and/or activities prior to the commencement of commercial operation by fulfilling the relevant requirements. 3 GR 24/2018 defines Commercial or Operational Licenses as licenses issued by OSS Agency for and on behalf of minister, head of agency, governor, or regent/mayor after the business owners obtain the required Business License and commence commercial operation by fulfilling the relevant requirements. 4 Based on the elucidation of Article 31 paragraph (2) of GR 24/2018, prasarana is defined as primary support of business activities or operations. For example, buildings, factories, waste processing unit, and land.

4 OSS Agency GR 24/2018 defines OSS Agency as a non-ministerial government agency that runs government affairs in capital investment coordination. OSS Agency is granted with the authority to: (a) issue Business Licenses through the OSS system, (b) establish implementing policies and instructions on the OSS system, (c) manage and develop the OSS system, and (d) coordinate with other parties in the execution, management and development of the OSS system. Given the definition and authorities bestowed to the OSS Agency, the OSS Agency referred to under GR 24/2018 should be BKPM. This understanding is in line with the fact that BKPM is now developing the required infrastructure for running the OSS system. Transitional Period Business licenses applied by business entities (either in-principle license or permanent business license) before the enactment of GR 24/2018 and relevant business licenses that have not been issued will be processed through the OSS in accordance with the terms of GR 24/2018. For business entities that have obtained in-principle license (Business License under the new regime) and/or permanent business license (Commercial License under the new regime) before the enactment of GR 24/2018 and are required to obtain new Business Licenses and/or Commercial Licenses for expansion of their business, the following terms apply: a) the application of issuance of business licenses or permits for the expansion of business or commercial operations must be submitted through the OSS system in accordance with the terms of GR 24/2018; b) existing Business Licenses and/or Commercial Licenses that have been obtained will remain to be valid until its expiry date, and will further need to be registered with the OSS system; and c) the business entities will be granted the NIB in accordance with the terms of GR 24/2018.

5 Closing The Government of Republic of Indonesia desires to implement the OSS system that will unify and simplify the licensing process nationwide, a significant move which might alter the licensing process forever. Indeed, the implementation of OSS system will affect all processing and issuance of business permits procedures in Indonesia. As BKPM is designated as the OSS Agency, and is under the direct control of the central government, there should be no significant challenge in adjusting the application process of BKPM related licenses and/or permits with the OSS system. This might not be the case, however, for licenses issued by regional governments that are now also mandated by GR 24/2018 to be processed under the OSS system since we suspect there will be a lot of relevant regional regulations that must be amended to further implement the OSS system. Regardless of the initial inconvenience that may arise from the enactment of GR 24/2018 (as there will always be costs for enacting a change to the status quo), the efforts of Jokowi s administration to unify business licensing submission system by issuing this regulation should be appreciated. If GR 24/2018 is successfully implemented, there is no doubt that Indonesia will be a more attractive target for foreign and local direct investment activities (after all, business players highly value ease of procedures in licensing activities). Needless to say, positive response and support from the relevant agencies and regional governments are of the essence to ensure that GR 24/2018 can be implemented swiftly. Disclaimer: This newsletter is intended for providing general information on the latest legal and/or regulatory issues. We have no intention to and do not: (i) provide any legal services to, and (ii) establish any client-attorney relationship with, anyone through this newsletter. We do not guarantee the completeness of all opinions stated in the newsletter and we shall not be liable in any way to you for using any materials contained in the newsletter. If you wish to follow up on any legal matter that is being discussed in this newsletter, kindly contact lawyers that are qualified to practice in Indonesia. No one may use or reproduce, by any means, any media and materials contained in this newsletter without prior approval from UMBRA - Strategic Legal Solutions. By reading this article or disclaimer, and/or entering into UMBRA's website, you acknowledge and entirely agree with the content of this disclaimer.