(Disclaimer: 22 Oct 2020, The Omnibus law is still under revision and has not fully legislated by the DPR.
As such, the contents in this special edition based on the latest draft of Omnibus Law.)
Monday (5/10/2020) The House of Representatives of Indonesia (DPR), has passed the Omnibus Law on
the Job Creation into law. The omnibus law is a concept for the formation of major laws that regulate
issues previously regulated by a number of laws or one law which simultaneously revises several laws.
After it was passed, light skirmishes between the authority and a group of concerned labor unions,
students and other occurred shortly in major cities, especially Jakarta. The main objective of Omnibus law
is to spur stronger economic growth and development to lift Indonesia out of the middle income trap by
2045. It is truly an ambitious target that Jokowi has envisioned to commemorate 100th anniversary of the
The term omnibus law itself appeared in Joko Widodo's first speech after being inaugurated as President
of the Republic of Indonesia for the second time. But why?
Annually, the amount of job seekers grows around 2-3 million, consisting of high school,
vocational school graduates, and informal sector workers. Therefore, to absorb such
amount, Indonesia needs to target 6-8% average economic growth rate for the next 25
years. This economic growth rate is necessary to i) accommodate 2 million new jobseekers
coming to the labor market annually in the upcoming decades and ii) to increase GDP per
capita by 6 folds, taking account average 1% assumed population growth.
On the other hand, the biggest obstacle for a business to expand is the overlapping
regulations leading to inefficient bureaucracy. Omnibus law try to simplify the complicated
business licensing procedures into a single permit.
WHAT WE NEED TO KNOW ABOUT OMNIBUS LAW
KIB E-newsletter October 2020
Being one of the major developing economies in Asia-Pacific region, Indonesia has experienced a
lacklustre growth during Jokowi’s first term, averaging 5% economic growth rate. Meanwhile, India and
Vietnam have stronger economic performance at the same period.
Graph 1. Economic growth rate comparison (World Bank figures)
Jokowi’s second term started with intensifying cold war between the United States and People’s Republic
of China, and the ongoing economic crisis due to COVID 19 pandemic. A bleak economic outlook and fear
of the next ‘Great Depression’ are forming. To revive Indonesia’s economic outlook in near and medium
term, the Omnibus Law could be the significant changes that Jokowi needs.
The Omnibus Law on Job Creation serves as Indonesia’s instrument to protect workers, promoting MSMEs
and cooperatives in order to create new employment. It is intended to create employment opportunities
while protecting the currently employed workers, simplify business licensing processes to diminish the
chances of corruption and illegal fees, harnessing and optimizing local start-up potentials and
strengthening MSMEs ability to compete against large-scale business.
EXITING THE MIDDLE INCOME TRAP
Graph 2: Estimation of Indonesia exiting the MIT. Source: Bappenas
2014 2015 2016 2017 2018 2019
Indonesia India Vietnam
Middle Income Trap (MIT) is a condition when a country's economy cannot upgrade to become a high
income country. As of 1 July 2020, Indonesia has upgraded to upper middle income class after being in
lower middle income since 1995. Countries trapped in the middle income trap tended to have weak
competitiveness, because they are unable to compete with cheaper labor wages in low income countries
and technology and productivity with high income countries.
The Omnibus Law on Job Creation which is a very strategic policy aimed at being able to restore and
improve the national economy, especially during the pandemic and post-Covid-19 (Completing Perppu
No. 1/2020 which has been ratified by Law 2/2020). It is expected for Indonesia to accelerate economic
transformation in order to spur economic growth needed to exit the middle income trap.
These are the 5 objectives that the Omnibus law intended to achieve.
THE MAIN SUBSTANCE
The Omnibus law consists of myriad of changes needed, whether amendments of current regulations or
adopting new regulations. This omnibus law consists of 79 Laws and 1244 articles. It focuses greatly on
these 10 major points.
1. Business licensing simplification
2. Enhancement of Investment Ecosystem
4. MSMEs and cooperatives
5. Research and innovation, and Ease of doing business
7. Economy zone and land procurement
8. Government administration
9. Government investment and ease of national strategic projects
and employee welfare
Empowerment of MSMEs
1. Business Licensing Simplification
Application of Risk Based Licensing
Changing from license base to risk based
o High risk (license)
o Medium high risk (compliance with standards)
o Medium high risk (standard statement)
o Low risk (just registration / NIB)
Suitability of spatial layout
o Remove the location permit when it is in accordance with the RDTR digital
o Integration of coastal, marine, and land spatial planning
o Accelerate RTRW determination and implementation of One Map (Satu Peta).
o Integration of environmental agreements into business licensing
o AMDAL still exists for activities with high risk to the environment
Building approval and certificate of eligibility to function
o Application of risk-based building standards
o For simple buildings, follow Government standards
Arrangement of business licensing authority (central and regional)
o The implementation of licensing authority is carried out by the Regional Government
with the Norms, Standard Procedures and Criteria (NSPK) set by the Central
o The Central Government can take over the business license if the Regional
Government does not implement or not in accordance with the NSPK.
o Business Licensing for National Strategic Projects and Programs (PSN) granted by the
2. Enhancement of Investment Ecosystem
Amendments to 4 Laws (Food Law, Law on Animal Husbandry and Animal Health, Law on
Horticulture and Law on Protection and Empowerment of Farmers).
Follow up on WTO decisions on Dispute Settlement (DS) 477 and DS 47.
Room for protection of domestic agricultural products remains.
Marine and Fisheries
The integration of fishing vessel business licenses carried out by the KKP. Government
provides support related to the nationality of the ship according to international
regulations and gross ship certificate.
o Most of the material issued in the mineral and coal mining sector is covered in
Law No. 3 of 2020. Additional arrangements for incentives for coal cultivation
o Government cq. The Ministry of Energy and Mineral Resources revokes the
provisions of the Special BUMN to carry out upstream oil and gas activities
because it will be regulated in an amendment to the Oil and Gas Law (already
included in Prolegnas)
Halal Product Guarantee
o Expanding the Halal Inspection Agency (can be carried out by Islamic
organizations and state universities).
o MUI still issued halal fatwa
o Acceleration of the process of issuing the halal certificate where BPJPH can take
over the issuance of the MUI halal certification if it is not issued within the
stipulated time period
o Halal certification for micro and small enterprises (MSE) can be done free of
o The obligation to be halal certified for MSEs is based on statements from SMEs
according to BPJPH standards
Establishment of the Agency for the Acceleration of Housing Management to manage
funds and accelerate the construction of public houses, especially for low-income
Education and Culture
o The implementation of educational unit permits can still use the Business
Licensing system regulated in Omnibus law of Job Creation
o The implementation of foreign education including foreign universities can be
carried out in KEK (regulated in the amendment of the KEK Law)
o The government c.q The Ministry of Education and Culture revokes 5 laws related
to education (the National Education Law, the Higher Education Law, the Teacher
and Lecturer Law, the Medical Education Law, the Midwifery Law)
o Regulations for non-profit education units are considered contrary to the
Constitutional Court decision (non-profit education units)
The obligation to migrate terrestrial TV broadcasting and analog to digital technology is
carried out within 2 years.
o Capital ownership of the main equipment industry is carried out by BUMN and /
or domestic business entities with the approval of the Minister of Defense, the
Ministry of Defense also implements a supervisory system starting from the
production process to sales
o Ownership of capital for the main and / or supporting components and / or
supporting industrial components and supplies industry and the raw material
industry refers to the investment provisions.
o Min. size of Forest Area 30% which was originally regulated in the Law will be
regulated with PP
o The implementation of the Important Impact, Broad Scope and Strategic Value
(DPCLS) which originally involved DPR will be changed to be done by the
Government with consideration. DPCLS is a technocratic activity and Forest area
integrated with the layout
Forest Area Sustainability Solutions
o There are smallholders and corporations estate in the forest area which do not
have license. This is a Criminal offense (Law Number 28 of 2013)
o Such continuity needs to be resolved. Corporations will be get fines. Violations of
activities in the forest area after the Omnibus Law on Job Creation will be
Investment Requirements for Closed and Open Business Sectors
o Closed business fields are based on the national interest of propriety and
international conventions including:
a. Narcotics Cultivation and Production Category I
b. Gambling and Casinos
c. Catching of Fish Species Listed in Appendix I
d. Utilization of taking Coral from nature
e. Chemical Weapons Manufacturing Industry
f. Ozone Depleting Substance Industry
o Removing investment requirement provisions in the sector law and will be
regulated in the Presidential Decree on the Investment Priority List
o PMA status is only related to the limit of foreign ownership
For employment, the government made several amendments on specific factors needed to boost
Definite working agreement
o Employees will get compensation at the end of definite working agreement with the
o There will be government regulation for the type, nature, activities and time in
definite working agreement.
o Outsourcing vendors will be responsible for the workers’ welfare and working rights.
Moreover, workers’ welfare and working rights will be protected under the
o The outsourcing vendors must be legal entities with business licenses.
o In the event of a change in the vendor, the regulation stipulates the mandatory
protection workers’ right and work in the definite working agreement.
o Elimination of minimum wages by sector. Wages above minimum wages will be
determined between the employers and employees.
o The provincial minimum wages will be mandatory. However, municipal and regency
minimum wages can be determined after it meets specific requirements, especially
economic and inflation growth rate.
o The raise for minimum wages will depend on provincial’s economic growth or
o For micro and small enterprises, the minimum wage regulation is not applicable.
Foreigner working permits
o It will be easier for firms to get working permit to employ required foreign experts as
they will need one permit instead of 2 permits.
o The exemption of foreigners working permit will include director and shareholders
with ownership interest in a firm operating in Indonesia.
o The exemption also include activities that has been closed, especially on technology
based start-up, research and development and business visits.
Job Losses Security (JKP), is a new social security created under the Omnibus Law.
o It acts as a counter-cyclical economic policy to give unemployment benefits to people
who recently lose employment.
o The benefit will be in the form of cash payments, job training and access to labor
o It will be funded greatly using the BPJS Ketenagakerjaan, central government’s initial
capital and rearrangement of social security programs.
o This social security will not affect JKK, JKM, JHT and JP.
Employment Termination & Separation pay
The procedures for employment termination and the amount of
compensation will be regulated under government’s regulation.
Meanwhile, the Law only regulates basic matters related to
reasons for employment termination.
The compensation will be 25 times, consisting of 19x of wages in
the form of Separation Pay, and 6x of wages from JKP.
o Increased in maximum overtime working hours from 14 to 18 hours a week and 3 to
4 hours a day.
o The company has discretion to implement its technical leave/rest policy through
working agreements or company policies instead of adhering to government
The violation of administrative nature change from criminal sanctions to administrative
o For violation of administrative natures, the entities would be fined, revoke or
suspense the business license.
o Such violation consists of manpower placement agent, advising and explaining
company’s regulation, and making of the letter of assignment.
o Placement companies are required to have appropriate business license instead of
written permit in the form of SIP3MI
o Branch offices of Placement companies are required to comply with the business
license issued by the Regency/ Municipality
o Include company training institution to the list of training institutions.
o Private job trainings are obliged to comply with business license issued by Regency/
o Manpower placement agent consists of government and private manpower
placement agency. The former will oversee the manpower affair. The latter would
require business license form the central government.
4. MSMEs and Cooperatives
Single licensing for MSEs through registration
Provide incentives and facilities for Medium and Large Enterprises that partner with MSEs
Integrated management of MSEs through synergy with stakeholders
Fiscal and Financing Incentives for the expansion and development of MSMEs
The government has prioritized the use of DAK to fund development and empowerment
activities for MSMEs
Provide facilitation services for legal assistance and protection for MSEs
The priority of MSE service products in the procurement of government goods and services
Partnership for MSEs: rest areas and services (rest areas), stations and transport terminals,
ports and airports market MSE products with a partnership pattern
Convenience for Cooperatives: (a) Primary Cooperatives are formed of at least 9 people; (b)
Representatives of the Annual Meeting of Members (RAT) may be represented; (c) Book of
lists of members in written or electronic form; and (d) Cooperatives can implement Sharia
5. Research and innovation, and Ease of doing business
To promote research and innovation and ease of business, the new law will loosen specific
Research and Innovation
o Assign State Owned Enterprises to do research and innovation
o Establishment of research and innovation institutions in the regions
Ease of doing business
Visit Visa for Pre Investment visit and guarantee for visa can be in the form of
Expansion of the scope of permanent residence permits can also be granted
for second house.
Patent process acceleration
The mandatory patent application should be done by import
Simplification and acceleration of process.
o Limited company (PT)
MSEs can establish individuals’ limited company.
Abolition of the legal provisions for limited company.
Changing PT announcements from the State Gazette and Supplement to the
State Gazette to electronic website (simplifying the process and reducing the
cost of establishing a PT)
o Nuisance Permission Removal
o Village Owned Enterprise (BUMDesa)
BUMDesa is in the form of a legal entity.
Income Tax (PPh)
o Determination of Individual Tax Subjects
Foreigners >183 consecutive days in Indonesia are subject to domestic tax
Indonesian citizens >183 consecutive days outside Indonesia can become
foreign tax subjects
o Abolition of Domestic Dividend Income Tax invested in Indonesia and corporation for
o Abolition of Foreign Dividend Income Tax reinvested in the domestic market
Value Added Tax on Goods and Services and Sales Tax on Luxury Goods
o Transfer of Taxable Goods (BKP) and/or merger, consolidation, expansion, splitting,
and business takeover as well as transfer of BKP for capital replacement shares
o Crediting BKP and / or Taxable Services and / or export of Taxable Goods and / or
Taxable Services, Input Tax on the acquisition of Taxable Goods and / or Taxable
Services, import of Taxable Goods, and utilization of Intangible BKP and / or utilization
Taxable Services from outside the Customs Area in the Customs Area
General Provisions and Tax Procedures
o Administrative sanctions for correcting tax payments or deposits
o Interest compensation on the return of tax overpayments
o Termination of investigation of criminal offenses in the field of taxation (The taxpayer
has paid off the tax debt)
Local Taxes and Retributions (PDRD)
o The government establishes a national fiscal policy related to PDRD, including setting
the PDRD tariff that applies nationally
o The government evaluates the Regional Regulation on PDRD to test its suitability with
the provisions of higher laws and regulations and / or national fiscal policy
7. Economy zone and land procurement
Special economic zones (SEZs)
o The administrator of SEZs will be given autonomy to give business licenses.
o The local governments are obliged to support SEZs.
o Additional facilities to import goods for non-industrial SEZs.
o Expansion of SEZs economic activities to education and healthcare.
o New firms in SEZs required to have at least 50% of the required land.
o The SEZs can implement employment incentives under PP.
Free Trade Zones
o The trade bodies will be given the autonomy to give business licenses.
o Institutionalized the Free Trade Zones.
Land procurement and land bank
o Improved land auction processes for constructions deemed important for the public
o The regulation will strengthen the exercise of land rights. The issued building rights
on top of land rights could be extended and renewed after the building is operational
o The creation of land banks to improve the efficiency of land management. One of its
task will be to redistribute land at least 30% of managed land.
o Organizational structure of the land banks will consists of committee, supervisory
council and management board.
The supervisory council will consists of 3 representatives chosen by the DPR
and 3 (three) government representatives.
8. Government Administration
The authority of the Minister, Head of Institution, or Regional Government which has been
stipulated in the Law to implement or form the statutory regulations must be interpreted as
the exercise of the President's authority.
Standardizations of Government Administration
Discretion can be carried out by the President in the name of national interest, with
conditions: in accordance to the objectives and Principles of Good General Governance
(AUPB) based on objective reasons that do not cause conflicts of interest and carried out in
Implementing the use of electronic decisions that are processed through an electronic
Supervision of licensing implementation can be carried out by a certified expert.
The application for a license is deemed approved when the time limit in the Service Level
Agreement (SLA) has passed
Determination of the NSPK in the context of implementing Business Licensing (Central
Government and Local Government) in the form of PP
NSPK is a standard that refers to good practices
The Regional Head may issue Regional Bonds to finance infrastructure and / or investment in
the form of public service provision activities with the approval of the Minister of Finance
Simplification of licensing services and carried out electronically in accordance with NSPK
Local Regulations (Perda & Perkada)
o The provisions of the repeal of Perda and Perkada with the Presidential Regulation
were repealed because they were considered contrary to the MK Decision
o The Central Government harmonizes and synchronizes the laws and regulations under
the law, including regulations and provisions to comply with the Copyright Act
o Local governments that do not want to make regulations and Perkada can be subject
to administrative sanctions set out in the PP
9. Government investment and ease of national strategic projects
Central Government Investment
Establish a Central Government Investment Management Agency (Sovereign Wealth Fund)
to manage and place a number of funds and / or state assets. SWF institutions in the form of
Indonesian legal entities which are fully owned by the Government. Investment Management
Institutions can directly or indirectly carry out investments, cooperate with third parties, or
through the formation of special entities.
Information: The Initial Capital is set to be at least IDR 15 Trillion in cash, and according to the results
of the meeting of Government Investment (30 September 2020), it was decided that the initial capital
of LPI was USD 5 billion.
Ease of National Strategic Projects (PSN)
Government provides land (land or forest areas) and all permits required in the
implementation of national strategic projects from the Central Government, Local
Government, State Owned Enterprise (BUMN), and Regional Owned Enterprise (BUMD).
Land procurement can be carried out by the private sector (if there is no budget from the
Restructuring of sanctions by applying Ultimum Remedium
o Violation of administrative provisions is subject to administrative sanctions
o Violations that pose a risk in Safety, Security, Healthy, and Environment are subject
to criminal sanctions
Civil Servant Investigator (PPNS)
The PPNS arrangement is returned to the existing Law with the consideration of avoiding
duplication of authority with the Police
Merger & Acquisition
Operational & Legal
Accounting & Tax
Outstanding debt collection
Business & Asset Appraisal
Transfer Pricing Documentation
Company Setup & Liquidation
Copyrights & Patent Dispute
Copyrights & Patent Registration
Tax and Custom Consulting
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