At the start of 2020, Indonesia’s House of Representatives made a consequential move in approving the first omnibus law in the country’s history. It is a significant move in proving Indonesia move to a serious position in working up the investment environment. Being the largest economy in Southeast Asia and the fourth most populous country in the world, most would expect Indonesia to have high economic performance but, in contrast, Indonesia’s performance is not up to par. Most blame the lengthy bureaucratic process, excessive foreign investment regulation, high rate of taxation, and more. This is where the new Omnibus Law hopes to make significant changes. Omnibus law covers job creation law and tax law. The details of the law will be discussed below.
The new Omnibus Law with 1,244 articles and 79 laws covers many subjects, most notably regulation on foreign investment, taxation, sovereign fund, labor rules, and environment. This will affect numerous sectors such as infrastructure, plantation, forestry, mining, health, energy, tourism, hospitality, and many more. It will be a game-changer in the hospitality sector, especially in tourist populated areas such as Bali that have been relying heavily on foreign investments for a long time now. This is where Indonesia’s government is hoping, the new law could bring changes. The makers of the mentioned law are optimistic that the law will benefit both foreign and domestic investors with its lucrative bills which include relaxation in licensing requirements, reduction in corporate income tax, also ease in doing business.
First, the most remarkable key revision is for enhancing the ease of doing business. Before the Omnibus Law was passed, investors were required to submit dozens of applications for business permits and licenses for even simple businesses. Through the new law, business permits can be obtained centralized through the Investment Coordinating Board. Low-risk business activities like the hospitality sector will only require a business identity number (NIB) to operate. Land use and permits, that were formerly obtained through the decentralized system, are now obtained through the central government with a one-map policy to resolve overlapping claims issue. Investors are no longer required to obtain a nuisance permit which was previously used as a permit for doing business in potentially dangerous locations. There is also the removal of minimum authorized capital which will motivate investors to set up their company easily with smaller capital, with exception of foreign investment companies (PMA). Foreign investment companies (PMA) still have to follow the regulations of the current Investment Coordinating Board.
After the establishment of the company, the second most important thing for investors to consider before investing in any country is the taxation rate they have to pay. The high rate of corporate income tax will be gradually cut to 20% (twenty percent) in 2023, from 22% (twenty-two percent). The current corporate income tax stands at a whopping 25% (twenty-five percent) high. There is great relaxation on personal income tax for foreign investors who live in Indonesia or are expatriates. Foreigners who work in Indonesia will be taxed only for the income they earn in Indonesia. Adjustments over administrative tax sanctions are also made from the current flat rate of 2% (two percent) calculation to more flexible interest rates determined by the Minister of Finance.
All of the new provisions from the Omnibus Law are a solid move by the government to finally show the will to create a better environment for more domestic and foreign investments. Despite the massive rejection and protests at the beginning of the year, the thousand pages of Omnibus Law hope to positively impact the investment atmosphere of Indonesia. Revocation of the previous minimum authorized capital, simplification in obtaining a business license and permit, relaxation of taxation rate, also ease of registering micro, small and medium business without requirements of being under limited liability company entity, and many other provisions, make Indonesian government’s aim clear in passing the historical Omnibus Law.
If you want to find out more information on the Omnibus law feel free to view our references for this article below.
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AHP. “How the Omnibus Law Will Simplify Investment in Indonesia.” Assegaf Hamzah and Partners . How the Omnibus Law Will Simplify Investment in Indonesia, 2020, www.ahp.id/how-the-omnibus-law-will-simplify-investment-in-indonesia.
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Indonesia’s Omnibus Law: A Magic Wand amidst a Global Pandemic?, 2020, www.withersworldwide.com/en-gb/insight/indonesias-omnibus-law-a-magic-wand-amidst-a-global-pandemic?utm_source=Mondaq.
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The Jakarta Post. “5 Things You Need to Know about Omnibus Bill on Taxation.” The Jakarta Post, 2020, www.thejakartapost.com/news/2020/02/24/5-things-you-need-to-know-about-omnibus-bill-on-taxation.html.
The Jakarta Post. “Guide to Omnibus Bill on Job Creation: 1,028 Pages in 10 Minutes.” The Jakarta Post, 2020, www.thejakartapost.com/news/2020/02/21/guide-to-omnibus-bill-on-job-creation-1028-pages-in-8-minutes.html.
Kemdikbud, DIKTI. OMNIBUS LAW CIPTA LAPANGAN KERJA. 2020, dikti.kemdikbud.go.id/wp-content/uploads/2020/10/Booklet-UU-Cipta-Kerja.pdf.
Tomlison, Peta. “Why Now Is the Time to Buy That Tropical Dream Home in Indonesia.” South China Morning Post, 12 Dec. 2020, www.scmp.com/magazines/style/news-trends/article/3113611/indonesia-real-estate-covid-19-relaxed-foreign.