Indonesia: Gov't Moves To Boost Interest In Indonesia's New Capital Through Improved Investment Facilities And Licensing Procedures

A. Introduction

To follow up on the enactment of Law No. 3 of 2022 on the National Capital City,¹the government has issued Government Regulation No. 12 of 2023 on Business Licenses, Ease of Doing Business, and Investment Facilities at the National Capital City (Ibu Kota Nusantara /"IKN") ("GR 12/2023"). ² The new regulation, effective 6 March 2023, details the crucial role that the IKN Authority will play as regards investment facilities and licensing, with the clear implication being that IKN will be developed as a capital city that will play a pivotal role in the nation's future economic growth.

B Business Licensing and Investment Incentives

The key aspects of GR 12/2023 as regards business licensing and investment incentives are as follows:

1. Licensing
   
   Under GR 12/2023, licensing verification for businesses at specified risk levels at IKN will be carried out by the IKN Authority, which will also have business licensing authority. This clearly departs from the rules set out in Government Regulation No. 5 of 2021 on Risk-Based Business Licensing ("GR 5/2021")³, under which verification is conducted by the central or regional government, or relevant ministry offices, for the business sector concerned. Although the process has been integrated into the Online Single Submission ("OSS") System, GR 12/2023 aims to create a much more streamlined and straightforward licensing regime. In addition, the restrictions on foreign ownership that would otherwise apply will be waived for particular business activities at IKN.
   

2. Building Approval ("PBG") and Land Use Conformity Certificate ("SLF")
   
   Under GR 12/2023, businesses that have obtained written confirmation of land use conformity with the local spatial plan and environmental approval will be granted the required PBG and SLF by the IKN authority.
   
   In contrast to Article 253 of Government Regulation No. 16 of 2021 ("GR 16/2021"),⁴ which requires a business to obtain a PBG before construction work starts, GR 12/2023 permits construction to commence based on the plans that have been submitted to the planning authority while awaiting approval of the PBG application.
   
   Further, GR 12/2023 determines that an SLF will be valid for 20 years, extendable, if the proposed land use conforms with the local spatial plan. This is also different to GR 16/2021, which determines that an SLF is valid for: (i) 20 years for detached or terraced dwellings, and (ii) 5 years for other types of building.

3. Land Rights
   
   GR 12/2023 sets out a number of provisions governing the IKN Authority's Right to Manage ("HPL") over the land vested in it by the state, and for the granting of subsidiary land rights over HPL land to third parties, such as businesses. Such third-party land rights may consist of the right to: (i) cultivate ("HGU"), (ii) build ("HGB"), or (iii) use ("HP") (collectively, "Land Right"). The maximum terms for each of these are as follows:
   

4. Expatriate Workers
   
   With regard to expatriate employment issues, GR 12/2023 makes no change to the general rule that businesses may hire expatriate employees for specified positions in accordance with the prevailing laws and regulations. However, what is new is that business at IKN may be granted Foreign Worker Utilization Plan Approval ("RPTKA") for an extendable period of 10 years. This is significantly more generous than under the usual rules on RPTKA set out in Government Regulation No. 34 of 2021 on Utilization of Expatriate Workers ("GR 34/2021"),⁶ which are as follows:
   

5. Investment Facilities
   
   GR 12/2023 also makes provision for a range of fiscal and non-fiscal investment incentives, including reductions in: (i) corporate income tax, (ii) value-added tax and luxury goods tax, and (iii) customs duties. The fiscal and non-fiscal incentives provided vary, and the more an investor contributes to the development of IKN, the greater the tax breaks they will be entitled to. For example, an automotive-parts company investing more than IDR 10 billion in IKN between 2023 and 2045 for the establishment of spare-parts stores will be eligible for a 100% reduction in corporate income tax for a period of 10 years. Meanwhile, a company engaged in the provision of public infrastructure and services will be eligible for a 100% reduction in corporate income tax payable for a period of 20 to 30 years.
   

C. ABNR Commentary

Despite their undoubted attractiveness to investors, the various benefits and incentives offered by GR 12/2023 might ultimately prove to be little more than a chimera: As presidential elections are in the offing next year (along with likely consequent changes of direction in policy), the IKN project may ultimately end up being sidelined as the next government focuses on its own priorities. Indeed, none of the presidential candidates confirmed to date have had much to say about IKN. While frontrunner Prabowo Subianto's Gerindra Party has generally intimated that he is committed to the project, Prabowo himself has hardly mentioned IKN, despite its strategic importance and enormous cost. Consequently, many private-sector investors, both domestic and foreign, are likely going to wait until they see how the wind blows after the next election before risking their money in IKN.

On a more practical, nuts-and-bolts level, GR 12/2023 provides that business licensing for IKN projects will be managed via the Online Single Submission ("OSS") system run by the Ministry of Investment/Investment Coordinating Board (BKPM). For the convenience and comfort of investors, it is essential that the government ensures that the proposed investment and licensing incentives for businesses investing at IKN be made available promptly on the OSS System.

This is important as, to date, the OSS system remains, in some cases incapable of accommodating applications for investment facilities already available under GR 5/2021. Further, in many cases it is unable to handle OSS regulatory requirements that involve more than one ministry or government agency (for example, where the issuance of a particular license requires the approval of more than one ministry). These issues result in widespread, entirely avoidable, delays in license approvals and issuance.

For the sake of the country's reputation as a reliable, efficient and easy place to do business, it is therefore crucial that the "regulatory promised land" offered by GR 12/2023 actually comes to fruition so that people are not forced to spend months trekking around from one government office to another in order to invest in the country's new capital.

Footnotes

1. Undang-undang No. 3 Tahun 2022 Ibu Kota Negara

2. Peraturan Pemerintah No. 12 Tahun 2023 tentang Pemberian Perizinan Berusaha, Kemudahan Berusaha, dan Fasilitas Penanaman Modal bagi Pelaku Usaha di Ibu Kota Nusantara

3. Peraturan Pemerintah No. 5 Tahun 2021 tentang Penyelenggaraan Perizinan Berusaha Berbasis Risiko

4. Government Regulation No. 16 of 2021 on the Implementation of Regulation of Law No. 2 of 2002 on Building Construction / Peraturan Pemerintah No. 16 Tahun 2021 tentang Peraturan Pelaksanaan Undang-Undang No. 28 Tahun 2002 tentang Bangunan Gedung

5. Peraturan Pemerintah No. 18 Tahun 2021 tentang Hak Pengelolaan, Hak Atas Tanah, Satuan Rumah Susun, dan Pendaftaran Tanah

6. Peraturan Pemerintah No. 34 Tahun 2021 tentang Penggunaan Tenaga Kerja Asing

7. As regulated under Ministry of Law and Human Rights Regulation No. 29 of 2021 on Visa and Stay Permits (Peraturan Menteri Hukum dan Hak Asasi Manusia Nomor 29 Tahun 2021 tentang Visa dan Izin Tinggal), a foreign worker stay permit may be granted for a maximum of 5 years.

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