IND 
In an effort to boost Indonesia’s ailing economy, since September this year the Indonesian government has unveiled a series of policy packages. The focus of these packages is to create a conducive economic environment, especially for the real sector1. As such the policies touch on a vast number of issues and sectors – from trade, tax, diesel and electricity price, employment, banking and many more. In this article we zoom in on one aspect, namely the supposed streamlining and acceleration of obtaining an investment permit for industrial estates at BKPM (Indonesia’s Investment Coordination Board). That process is slated to be shortened from 8 days to just 3 hours. This fast track will be available for those who will invest at least IDR 100 billion (approximately USD 7 million) in an industrial estate and plan to employ at least 1,000 Indonesians.
At first glance, this may sound like a fantastic development. But as sometimes said: if something is too good to be true, it usually is. While any improvement is a step in the right direction, this 3-hour licensing does not address the essential problems often found by potential investors at BKPM. Furthermore, much more still needs to be done by the government to boost investment especially in implementing the single-window investment licensing through BKPM. These issues are discussed below.
At the outset, there may be questions why the government restricts this service to just a select group of mega-investors. While we are not able to obtain specific data, our experience in legal practice – even in top Jakarta law firms – shows that investment applications of such scale (IDR 100 billion employing 1,000 people) do not come everyday. Therefore, this 3-hour licensing may end up affecting only a certain small percentage of investments in Indonesia.
When it comes to the scope of the 3-hour licensing, we also must not lose sight of the fact that the documents obtained through this service only make up a fraction of the long and arduous process of going through various regulatory requirements. In those 3 hours the investors will only obtain the Principal License (Izin Prinsip), the Deed of Establishment, the Minister of Law’s Decree of Incorporation, Tax Registration Number (NPWP) and the booking for the land where the investment will operate. There are many further steps and obstacles to clear before an investment can actually start operating. The entire process until actual operation is summarised in Figure-1 below, while Figure-2 below shows the process of applying for an investment license within BKPM.
1 The ‘Real Sector’ refers to industries that are actually producing goods or services, as opposed to industries that are concerned with financial/capital markets. Indonesian Trade and Investment Policy Quarterly October 2015
In Figure-1 above, the Principal License and the establishment of an Indonesian company as an investment vehicle both fall into the Preparation stage. Afterwards, numerous licenses must still be obtained. Some of those licenses are also obtained from BKPM, but many crucial sectoral licenses are still handled by the relevant ministries as well as regional governments. Since the administration of President Susilo Bambang Yudhoyono, the government has professed a single- window policy for investment licensing. However, its implementation has been lacklustre. Even among the ministries which have formally delegated their licensing procedure to BKPM pursuant to ministerial decrees, in practice some of them (such as the Ministry of Energy and Mineral Resources and the Ministry of Manpower) have simply continued to process their own licenses.
Meanwhile, in Figure-2 above the crucial point is the verification stage, marked in points 3 through 5, where a given application for license must be completed – often by consulting with officers at BKPM’s application desk. It is, in fact, the opaque or ever-changing requirements or policies imposed by BKPM during the verification stage that often prolongs the licensing process. This issue usually turns up during applications at the post-Principal License stage. For example, currently BKPM requires an applicant to enclose evidence of spending (based on the Principal License) before it can apply for a Business License to operate commercially – previously this had not been required by BKPM. Another example would be the added requirement to enclose the Deed of Establishment of the law firm representing the investor and an assignment letter from the firm for the particular lawyer appearing at BKPM.
" the 3-hour service will not have far-raching effect if not accompanied by some measures to address the issues often encountered by investors in practice. "
Given all the practical issues above, the 3-hour service will not have far-reaching effect if not accompanied by some measures to address the issues often encountered by investors in practice. Firstly, the uncertainty and unclear policies during the verification stage at BKPM must be addressed. Second, sectoral permits must as far as possible be brought within the single-window process at BKPM.
Furthermore, some of the items included in the 3-hour process are not particularly problematic. Many investors, especially foreign investors and those who invest in the tens or hundreds of millions of US Dollars, often already have a fairly clear and specific idea about the content of their deed of establishment and coordinate this with their preferred notary. The deed and the subsequent Minister of Law’s decree and NPWP can nowadays take only very few days to finish. On the other hand, issues may arise about the ability of a BKPM-provided notary to deal with various requests for a tailored deed of establishment by the investors. It is easy to imagine that those investors will not be satisfied with a standard deed of establishment, at least this would likely be the case if they are bringing in investments worth IDR 100 billion; there will most likely be specific revisions to cater to the investor’s particular circumstances.
In summary, the 3-hour licensing procedure at BKPM may be an improvement. As always, any improvement is to be welcomed. But without coordination and streamlining with other relevant ministries or governmental authorities, this new policy is not essential and may in fact present certain complications in practice. Some corporate lawyers in Jakarta that we have spoken with are still doubtful that the 3-hour licensing procedure would lead to a less bureaucratic investment process, and they believe that the back-and-forth-inquiry with BKPM will remain. The attitude is, at best, to wait and see how the policy is implemented. The government, and BKPM in particular, still has a lot on its checklist. Topping this list is the need for a follow-up agenda to ensure that the documentary and substantive requirements in order to complete an investment license application are made very clear, as well as including as many sectoral permits as possible within the BKPM process. This would enable a true single-window investment licensing process.
John Lumbantobing is a lecturer at the Law Faculty of Universitas Katolik Parahyangan (Unpar), focusing among others on international investment law. John previously practiced commercial litigation and worked on foreign investment matters at Ignatius Andy Law Offices in Jakarta. He obtained his law degrees from Unpar
(S.H./LL.B) and the University of Cambridge (Hughes Hall).
Valery Sarumpaet is a partner at Sulaiman & Herling Attorneys at Law, Jakarta. He holds a bachelor of law degree from the University of Parahyangan. His practice focused on foreign investment, employment and settlement of commercial disputes.
In 2010, Valery was one of the appointed advisors to the Director General of Tax in relation to the drafting of government regulation on cost recovery (oil and gas).
At first glance, this may sound like a fantastic development. But as sometimes said: if something is too good to be true, it usually is. While any improvement is a step in the right direction, this 3-hour licensing does not address the essential problems often found by potential investors at BKPM. Furthermore, much more still needs to be done by the government to boost investment especially in implementing the single-window investment licensing through BKPM. These issues are discussed below.
At the outset, there may be questions why the government restricts this service to just a select group of mega-investors. While we are not able to obtain specific data, our experience in legal practice – even in top Jakarta law firms – shows that investment applications of such scale (IDR 100 billion employing 1,000 people) do not come everyday. Therefore, this 3-hour licensing may end up affecting only a certain small percentage of investments in Indonesia.
When it comes to the scope of the 3-hour licensing, we also must not lose sight of the fact that the documents obtained through this service only make up a fraction of the long and arduous process of going through various regulatory requirements. In those 3 hours the investors will only obtain the Principal License (Izin Prinsip), the Deed of Establishment, the Minister of Law’s Decree of Incorporation, Tax Registration Number (NPWP) and the booking for the land where the investment will operate. There are many further steps and obstacles to clear before an investment can actually start operating. The entire process until actual operation is summarised in Figure-1 below, while Figure-2 below shows the process of applying for an investment license within BKPM.
1 The ‘Real Sector’ refers to industries that are actually producing goods or services, as opposed to industries that are concerned with financial/capital markets. Indonesian Trade and Investment Policy Quarterly October 2015
In Figure-1 above, the Principal License and the establishment of an Indonesian company as an investment vehicle both fall into the Preparation stage. Afterwards, numerous licenses must still be obtained. Some of those licenses are also obtained from BKPM, but many crucial sectoral licenses are still handled by the relevant ministries as well as regional governments. Since the administration of President Susilo Bambang Yudhoyono, the government has professed a single- window policy for investment licensing. However, its implementation has been lacklustre. Even among the ministries which have formally delegated their licensing procedure to BKPM pursuant to ministerial decrees, in practice some of them (such as the Ministry of Energy and Mineral Resources and the Ministry of Manpower) have simply continued to process their own licenses.
Meanwhile, in Figure-2 above the crucial point is the verification stage, marked in points 3 through 5, where a given application for license must be completed – often by consulting with officers at BKPM’s application desk. It is, in fact, the opaque or ever-changing requirements or policies imposed by BKPM during the verification stage that often prolongs the licensing process. This issue usually turns up during applications at the post-Principal License stage. For example, currently BKPM requires an applicant to enclose evidence of spending (based on the Principal License) before it can apply for a Business License to operate commercially – previously this had not been required by BKPM. Another example would be the added requirement to enclose the Deed of Establishment of the law firm representing the investor and an assignment letter from the firm for the particular lawyer appearing at BKPM.
" the 3-hour service will not have far-raching effect if not accompanied by some measures to address the issues often encountered by investors in practice. "
Given all the practical issues above, the 3-hour service will not have far-reaching effect if not accompanied by some measures to address the issues often encountered by investors in practice. Firstly, the uncertainty and unclear policies during the verification stage at BKPM must be addressed. Second, sectoral permits must as far as possible be brought within the single-window process at BKPM.
Furthermore, some of the items included in the 3-hour process are not particularly problematic. Many investors, especially foreign investors and those who invest in the tens or hundreds of millions of US Dollars, often already have a fairly clear and specific idea about the content of their deed of establishment and coordinate this with their preferred notary. The deed and the subsequent Minister of Law’s decree and NPWP can nowadays take only very few days to finish. On the other hand, issues may arise about the ability of a BKPM-provided notary to deal with various requests for a tailored deed of establishment by the investors. It is easy to imagine that those investors will not be satisfied with a standard deed of establishment, at least this would likely be the case if they are bringing in investments worth IDR 100 billion; there will most likely be specific revisions to cater to the investor’s particular circumstances.
In summary, the 3-hour licensing procedure at BKPM may be an improvement. As always, any improvement is to be welcomed. But without coordination and streamlining with other relevant ministries or governmental authorities, this new policy is not essential and may in fact present certain complications in practice. Some corporate lawyers in Jakarta that we have spoken with are still doubtful that the 3-hour licensing procedure would lead to a less bureaucratic investment process, and they believe that the back-and-forth-inquiry with BKPM will remain. The attitude is, at best, to wait and see how the policy is implemented. The government, and BKPM in particular, still has a lot on its checklist. Topping this list is the need for a follow-up agenda to ensure that the documentary and substantive requirements in order to complete an investment license application are made very clear, as well as including as many sectoral permits as possible within the BKPM process. This would enable a true single-window investment licensing process.
John Lumbantobing is a lecturer at the Law Faculty of Universitas Katolik Parahyangan (Unpar), focusing among others on international investment law. John previously practiced commercial litigation and worked on foreign investment matters at Ignatius Andy Law Offices in Jakarta. He obtained his law degrees from Unpar
(S.H./LL.B) and the University of Cambridge (Hughes Hall).
Valery Sarumpaet is a partner at Sulaiman & Herling Attorneys at Law, Jakarta. He holds a bachelor of law degree from the University of Parahyangan. His practice focused on foreign investment, employment and settlement of commercial disputes.
In 2010, Valery was one of the appointed advisors to the Director General of Tax in relation to the drafting of government regulation on cost recovery (oil and gas).