Protection of Small and Medium Enterprises in Indonesia

Introduction

Indonesia’s licencing system splits licences into MSE and Non MSE categories.

Larger than MSEs are Non-Micro and Small Enterprises (Non MSEs). MSEs are companies owned by Indonesian nationals, including both people and corporate entities, with a maximum capitalization of Rp 5 billion, excluding land and structures for use as business premises.

SMEs in Indonesia[Image Source: Freepic]

There are three categories for non-MSEs. The first category is Medium Businesses. With a company capital of more than Rp 5 billion and up to Rp 10 billion, excluding land and buildings for commercial premises, medium enterprises are companies held by Indonesian nationals, including individuals and business entities. Large corporations are the second. Big businesses are defined as business entities with a business capital of more than Rp. 10 billion, excluding land and buildings for business premises, and held by foreign or domestic investment. Representative offices are the third. Representative offices are people, whether they are foreigners or Indonesian nationals, or companies that are agents for foreign companies whose establishment of offices in Indonesia has been authorised. The fourth are overseas business entities. Overseas business entities are foreign business entities established outside the territory of Indonesia and conducting business and/or activities in certain fields.

SMEs are organisations whose employee counts are below specific thresholds. Construction, manufacturing, retail, agriculture, forestry, fishing, hunting, mining, quarrying, oil and gas exploitation, and many other industries are examples of SMEs.

The primary challenge for a country in this stage of development in this industry is to stay focused while delving deeply into their product and knocking on doors while simultaneously creating new sales channels. Businesses right now require assistance in developing a strong sales channel across the nation’s regions in order to increase their sales coverage.

The government is making numerous measures to aid SMEs in surviving the epidemic, one of which is to make business licencing easier. The government has made it simple to apply for licences online and has made it feasible to do so without difficulty. The risk-based Online Single Submission (OSS) mechanism is used to accomplish this. You may get to this by going to www.oss.go.id.

Indonesia currently bases its licencing system on the degree of company risk. Low, medium Low, Medium High, and High are the various levels. For the low-risk commercial activity, the system mandates that companies get an NIB, which serves as a single licence. An Importer Identity Number (API), a Company Registration Certificate (TDP), a Customs Access Right, and an identification number are all possible uses for the NIB. Obtaining an NIB also guarantees a registration as a participant in health social security and employment social security.

The government is making numerous measures to aid SMEs in surviving the epidemic, one of which is to make business licencing easier. The government has made it simple to apply for licences online and has made it feasible to do so without difficulty. The risk-based Online Single Submission (OSS) mechanism is used to accomplish this. You may get to this by going to www.oss.go.id.

Indonesia currently bases its licencing system on the degree of company risk. Low, medium Low, Medium High, and High are the various levels. For the low-risk commercial activity, the system mandates that companies get an NIB, which serves as a single licence. An Importer Identity Number (API), a Company Registration Certificate (TDP), a Customs Access Right, and an identification number are all possible uses for the NIB. Ministry of Investment/BKPM also consistently requires large investments to cooperate with MSME actors.

The Omnibus Law’s implementing rule, Government Regulation 7 of 2021 (GR 7/2021), aims to strengthen the protection and empowerment of Indonesia’s cooperatives, micro, small, and medium-sized businesses (MSMEs). GR 7/2021 mandates that regional governments set aside at least 30% of the total land area for commercial areas for the development and promotion of MSMEs, among other provisions, in order to support the growth of local MSMEs. The rule has also made it simpler for MSMEs to get a business license, qualify for tax breaks, and be exempt from having to pay the provincial or local minimum wage.

Ministry, state-owned enterprise, regionally owned, and privately owned companies are required by GR 7/2021 to dedicate 30% of their commercial spaces, retail malls, and public infrastructure to the development of MSMEs. Airports, rest stops and service areas on toll roads, railroad stations, and terminals are examples of public infrastructure. A maximum of 30% of the commercial leasing cost should be paid for the space utilised for MSME promotion.

Another Omnibus Law implementing regulation, Presidential Regulation 10 of 2021 (PR 10/2021), stipulates that certain business activities must be allocated to cooperatives and MSMEs or require large businesses to partner with cooperatives and MSMEs.

PR 10/2021 states the following criteria for business fields that are reserved for MSMEs:

  • Business lines that do not use advanced technology;
  • Are labour-intensive businesses, characterized by a special cultural heritage; or
  • The capital for the business activities does not exceed 10 billion rupiah (US$701,000).

Conclusion

New guidelines have also been added to support Indonesian cooperatives. In order to increase membership through this business, GR 7/2021 reduces the number of primary cooperative members from 20 to 9. Additionally, cooperatives can now be either single- or multi-purpose organisations. The Indonesian government has taken further steps to ensure that SMEs can endure the pandemic. As part of these initiatives, SMEs are helped by expanding access to fresh funding, including through partnerships with investors. MSMEs must be inspired to collaborate with both foreign and domestic investors. To safeguard MSMEs, new business models must be developed. Businesses can make use of investment initiatives that are listed in the OSS.

Author: Tanya Saraswat, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

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