Shortly after being reelected on October 20, 2019, President Joko Widodo set five priorities for his second term. One of them was simplifying regulations – or eliminating them entirely. The Omnibus Law on Job Creation has turned out to be an ambitious package of reforms, which covers 11 subjects over 1187 pages, amends 77 laws, scraps two entirely and introduces a framework law for a national fund. The law was published and put into effect on November 2, 2020.
The most important changes at a glance:
Investment: Fundamental changes
The Omnibus Law reforms the investment sector the most. Notable changes include the following:
- The category “Sectors Open with Conditions” with more than 400 sectors has been scrapped.
- The previous governmental duty to reserve certain sectors for SMEs and cooperatives has been cancelled.
- Sectoral discrimination against foreign direct investments has been removed from five laws.
However, a provision allows the president to reintroduce conditions for investments in certain sectors. The implementation provisions will clarify this if necessary.
Trade: Approval authority of the cabinet
Many responsibilities regarding economic regulations and trade restrictions were previously distributed among Indonesian ministries and agencies.
- The Omnibus Law withdraws the authority from the trade ministry and the sectoral ministries.
- The authority to grant licenses and authorization now lies with the cabinet.
Intangible goods: Changes to the patent law
Until now, patent holders in Indonesia were forced to implement their inventions domestically within three years of the patent being granted by way of manufacturing or usage of the process.
- Now, import of the corresponding product or process also counts as a domestic implementation.
With the adopted amendment, the non-WTO/TRIPS-compliant exclusivity of a local production is regarded as the implementation of a patent.
Founding a company: Quicker and simpler
Due to three prerequisites – minimum capital, at least two partners, and notarial certification – many micro companies and SMEs in Indonesia have previously refrained from setting up limited liability companies (LLC).
- The Omnibus Law cancels the minimum capital requirement.
- A single partner is enough to establish an LLC.
- Thanks to standardization, the approval and licensing procedures of central and regional governments are harmonized.
Environment: Simplified procedure for lower risks
15 laws have been amended in the area of natural resources and environmental protection. The most important changes:
- The responsibility for land-use planning is being stripped from regional authorities and placed under the control of the central government.
- Fines for violations are being increased.
- With the introduction of a risk-based approach, only high-risk projects will be subject to thorough environmental impact assessments.
- Representatives from environmental associations are being excluded from the environmental impact assessment bodies. Only communities directly affected by specific projects will be included.
Taxes: Digital taxes – reforms for expats
Many changes from the original Tax Omnibus Bill have been included in the new law:
- A digital tax for the income earned in Indonesia by offshore technology operators is being introduced.
- Expats profit from a four-year tax exemption for income generated outside of Indonesia.
Work: Rules relaxed – for micro companies and SMEs in particular
The law exempts micro and small companies – who employ 76% of workers – from paying the minimum wage. At the same time, a provision is introduced that wages should be “above a certain threshold”. The details will be regulated by implementation provisions.
- Severance pay is being reduced by 13 to 40 percent.
- The previously strict dismissal protection is being relaxed.
- The upper limit of three years for fixed term employment contracts is being rescinded.
Dismissals now have to be justified however. In addition, a job-loss guarantee is being introduced. The details will be governed by the implementation provisions.
Work permits: Lower barriers for foreigners
The law removes barriers when it comes to hiring foreign employees:
- The list of positions for which foreign workers no longer need approval has been expanded.
- The process for obtaining a work permit has been simplified.
What next?
The implementation provision should be published within three months of the law entering into force, i.e. by February 2, 2021 at the latest. The government wants to consult its citizens regarding the implementation provisions (which it did not do for the Omnibus Law) and has thus launched a public consultation portal online.
Unions and students are critical of the fact that the law is not transparent and has been rushed through. They have already organized several protests. In the first quarter, the implementation provisions still to be issued must address the as yet unanswered questions regarding the loosening of environmental protection regulations and many other areas.
