Search

The Omnibus Law and the Indonesian Economy

Pete Larsen
Pete Larsen
November 9th, 2020

The Omnibus Law on Job Creation (Undang-Undang Cipta Kerja) was approved by the Indonesian House of Representatives (DPR) earlier this month. This bill is one of the key priorities of the Jokowi administration. With the amendment of 76 existing laws, it is aimed at reducing bureaucracy and boosting investment in the country.

With the passing of the Omnibus Law, Indonesia is now awaiting the technical regulations to implement the momentous statute. The law introduces high-level changes to the country’s business regulatory framework, serving as a major step towards boosting the Indonesian economy and the recentralisation of government power. The amendment of thousands of articles within 76 existing laws will create a far-reaching effect throughout all industries in Indonesia.

The bill addresses 9 critical clusters identified by the government, including capital investment, business licensing, land acquisition and labour laws. One of the main priorities of the document is to address over-regulation by streamlining existing redundant regulations. Being in line with the Jokowi administration’s goal of climbing from 73rd on the World Bank’s Ease of Doing Business List to 40th, the law makes great strides to encourage market competitiveness, job creation and ease of doing business.

The efforts to simplify business licensing is multi-pronged with the Investment Coordinating Board (BKPM) playing a pivotal role in streamlining the framework of business license issuances. Indonesia will introduce a risk- based approach to the business license procedure. With this, businesses are classified as low-risk, mid-risk and high-risk, with varying levels of requirements. Respectively, such requirements would be a registration number, a standard certification and a full business license, thereby making the process simpler and easier for smaller-sized businesses. The licensing procedure will also be centralised into the Online Single Submissions (OSS) System, eliminating the need to go through multiple ministries.

Moreover, the law provides for a unification of Indonesia’s scattered tax regulatory framework, overhauling the current system that is inclusive of regional tax rates. Further changes made in respect to corporate tax are the minimisation of overlapping tax regulations, provision of corporate tax incentives and adjustments on tax rates. Corporate income tax will gradually decrease from 25% to 20%, with a further cut for newly public corporations.

Furthermore, the law is making strides to encourage foreign investment. Indonesia’s Negative Investment List, which outlines business lines where foreign ownership is capped, will be overhauled by a Positive List, which will outline priority industries for both foreign and domestic investment. Business activities for foreign entities will be expanded to include industries within the transportation, education, healthcare, telecommunication and tourism sector. The list of business sectors fully closed to foreign investment has also been reduced from 20 to 6, with those six being protected industries also remaining closed to domestic private investment.

One of the most controversial changes made by the bill is the relaxation of Indonesia’s relatively strict labour laws. The country is known to be the most labour-friendly nation of the APAC region with generous mandatory severance compensation and extensive obligations of employers, including the requirement to pay for employee transportation costs. The easing of worker protections has brought upon considerable resistance from labour unions and several protests throughout the country.

The Omnibus Law covers extensive amendments within the nine clusters that follows: (1) Business Licensing (2) Investment Ecosystem (3) Manpower (4) Micro, Small and Medium-Sized Enterprises (UMKM) and Cooperatives; (5) Research, Innovation and Ease of Doing business; (6) Taxation; (7) Economic Zones and Land Procurement; (8) Government Administration and (9) Government Investment and Facilitation to National Strategic Projects.

Within the next three months, extensive discussions between the Indonesian government and labour unions will take place to tackle aspects of the technical regulations required to enact the Undang-Undang Cipta Kerja. Indonesia is yet to issue 34 implementing Government Regulations and 5 Presidential Regulations to further specify how the Omnibus Law and the respective amendments made are to be enacted. Nevertheless, with the provisions that have already passed, it is evident that the Undang-Undang Cipta Kerja will drastically transform the manner of business and the economic landscape for both domestic and foreign firms. The transition to a liberalised economy and centralised regulatory system will offer businesses an influx of both opportunities and challenges in the years to come.

FLI regularly advises clients on corporate portfolio management and strategy, with a key focus on global roll-outs and investments. With over 17,000 lawyers worldwide in over 100+ jurisdictions, FLI benefits its clients by providing access to local industry and jurisdictional experts. If you would like to discuss how this may relate to your outside counsel requirements or to explore how FLI may render assistance to your firm both domestically or in cross-border matters, please feel free to get in touch with Daniel Casares-Lauritsen at dcasares@first-law.com

Join 10,000 legal professionals
on our mailing list.

Expertly curated emails that will keep you up to date with the latest in the industry.

Pete Larsen

Pete Larsen

Pete Larsen brings more than fifteen years of experience as corporate in-house, litigation-management across the country involving banks and financial institutions, commercial real estate law, title, commercial leasing, and litigation related to residential, multi-family and commercial real estate.

Prior to joining FLI, Pete served as Associate General Counsel for a premier commercial real estate and loan and financial advisory services company, Situs. He primarily supported Situs’ loan-servicing and special servicing business units, providing legal expertise within commercial the commercial mortgage servicing industry, including servicing and securitization.

His responsibilities also include complex contract preparation and negotiation, litigation-management, banking and finance, legal department management, mergers and acquisitions, risk assessment and insurance.

In October 2011, Mr. Larsen was the lead attorney on the purchase of loan servicing rights of approximately 9.7 billion Euros, more than doubling the company’s European assets under management at that time.

Related Articles


November 9th, 2020 Land Owner Transparency Act

A signature piece of legislation addressing hidden ownership of real estate will be coming into force in British Columbia. Effective November 30, all acquisitions of interest in land will be subject to LOTA’s disclosure rules.

See more
Copyright © 2021 First Law International
143 Avenue Louise, B-1050 Brussels, Belgium. Privacy Policy

Get Started

Whatever your industry, connect with a member of our cross-border team today. We’ll take care of the rest.