Businesses in Indonesia are entering a digital era of licensing. The Government has taken a significant step in changing how it delivers its licensing services by adopting the Online Single Submission (OSS) system, a fully-fledged electronic licensing model, which became operational on 9 July 2018.
What this essentially means for businesses is that they are now dealing with a centralised and automated process of licence registration instead of the old paper based system. We outline some concerns with the OSS and potential work-arounds.
Technology based services
By introducing services that rely heavily on technology, inherent challenges are created whereby successful implementation depends on sound infrastructure and robust functioning of the system. While the OSS aims at bringing in fast and easy access to administrative services in all sectors, its implementation to date has encountered some challenges.
Since its launch, the OSS has experienced down time which has delayed businesses filing licensing applications. Currently, there are no guidelines provided for businesses on how to apply and process licences manually in the case of the OSS server going down or any other technical issues affecting the OSS.
Users of the OSS have indicated that they are struggling to acquaint themselves with the processes of the system. E-licensing is a relatively new concept in Indonesia and businesses are yet to become accustomed to using an electronic platform. One of the potential issues when making an application through the OSS is the incorrect input of information and/or documents. Once a licence is issued electronically (which takes only about an hour or even less), rectification of a mistake has to be done manually by contacting the OSS help desk. There is no clear timeline on how long the rectification process may take. We note that the intention is to establish a more sophisticated version of the OSS in the future allowing businesses to rectify mistakes electronically. It is unclear, however, when such development will be implemented.
In the meantime, businesses should be mindful that the OSS diminishes the previous ‘person-to-person’ interaction whereby government officials physically review the completeness and accuracy of the application form and request missing data. Therefore, applicants need to ensure themselves of the completeness and accuracy of the information and/or documents they submit online.
Post-registration for PMA companies
One of the features of the OSS is that it is able to identify whether or not a business is subject to the investment negative list (DNI) and if there are any outstanding tax liabilities of the business (or with respect to the companies, the shareholders and/or the board of directors and/or commissioners). The OSS will automatically reject applications if they are not in compliance with the DNI and/or there are pending tax filings and/or unpaid tax due. As of the date of this alert, we are not aware of any appeal mechanism that can be used for any potential errors in rejection.
It should be noted that there is no longer a pre-approval process (as was previously the case with BKPM) for the purpose of the establishment of a new foreign investment (PMA) company or the conversion of PMA company status due to the acquisition of a local (non-PMA) company by a foreign investor and any subsequent change in the shareholding composition of a PMA company. The OSS requires and can only accommodate post-transaction registration by submitting: (a) the relevant notarial deed, and (b) the Ministry of Law and Human Rights (MOLHR) approval/receipt of notification, in connection with the establishment of a PMA company, the conversion of a non-PMA company to a PMA company and the change of shareholding in a PMA company.
In the context of foreign direct investment, it is critical for foreign investors to ensure compliance with the DNI prior to acquiring the shares of the company. For instance, if the investors complete an acquisition that breaches the applicable foreign ownership cap under the DNI (and for some reason missed by the DNI restriction detector that OSS features) only to find out later that the number of shares acquired exceeds the foreign ownership cap, they will need to divest their excess shares. The Government intends to apply a strict monitoring process after licences are issued by OSS.
Further, the OSS does not apply all previous policies applied by BKPM. For example, previously BKPM required that a PMA company needed to have a minimum investment of IDR 10 billion, whereby this amount could consist of IDR 2.5 billion in the form of paid up capital while the remaining IDR 7.5 billion could be in the form of future loans to be obtained by the PMA. Currently, OSS requires a minimum investment of IDR 10 billion in fully paid up capital.
Services integration and interconnection among government agencies
The OSS is a single access portal that integrates all licensing services, with the exception of a tax ID number (NPWP), domicile letter (SKDP) and a number of permits that remain under the authority of BKPM. It is the intention of the Government that businesses should no longer process any licences at the technical ministries, regional governments and/or any other government agencies other than through the OSS. However, the implementation remains to be seen.
The guidelines of the OSS issued by the Coordinating Ministry for Economic Affairs indicate that the system will be interconnected with the MOLHR online system. As of the date of this alert, the OSS has indeed been integrated with the MOLHR online system. However, such interconnection is not currently fully functional. In this case, any amendment made to the business entity information on the MOLHR online system must also be made on the OSS.
