On 15 July 2015, the Indonesian Capital Investment Coordination Board (Badan Koordinasi Penanaman Modal or "BKPM") issued a circular letter on a new mechanism and procedures for Principle License applications, aimed particularly at businesses in consulting services. It took effect on 3 August 2015 and is formally known as Circular Letter No. 16 of 2015 concerning the New Mechanism and Procedures to Submit Foreign Investment Principle License Application at the Central One-Stop Integrated Services of BKPM for Consultation Services Other than Public Works Sector and Any Other Certain Business Sectors ("New Certain Business Sectors Mechanism").
Over the last few years, 7 of 10 Principle License applications for investment in service businesses have been for consulting services. However, the investment realization of these businesses is very low. By July 2015, BKPM had revoked more than 10,000 Principle Licenses which had been approved between 2000 and 2006, because of the investors' failure to proceed with the application of permanent business license (Izin Usaha Tetap or "IUT") and / or to submit Investment Activities Report (Laporan Kegiatan Penanaman Modal or "LKPM").
Through the New Certain Business Sectors Mechanism, BKPM expects investors to be ready to invest when they apply for investment licenses. This is to create better investment realization.
PRINCIPLE LICENSE APPLICATION
The New Certain Business Sectors Mechanism emphasizes and elaborates requirements for presentation when investors apply for a Principle License. It implements Article 26 (2) of the Chairman of BKPM Decree No. 5 of 2013 and Article 27 (1a) of the Chairman of BKPM Decree No. 12 of 2013 on Guidance and Procedures on Capital Investment Licensing and Non-Licensing. The Articles mandate investors in Certain Business Sectors to perform a presentation during the Principle License Application process.
Points to be covered by investors in the presentation are as follows:
a. Business Activity
- Timeline of business planning until it is ready to operate.
- Legality of business activity including compliance with any existing limitation of foreign shares ownership.
- The clarity in workflow and work division.
b. Service Products
- Uniqueness/technology/added value compared to existing, similar service products.
- Legality of service products.
- Compatibility of service products with parties providing the services.
c. Human Resources
- Competency of human resources in conducting business activities. This includes that the expert who advises on the company's activities must have the skill, educational background and experiences proven by documents such as curriculum vitae, education certificate, competence certificates and recommendation/statement letters. The investor must have an expert who is particularly competent for the chosen business line. If the expert evidentiary documents are issued abroad, the documents must be legalized by the local Indonesian Embassy, Consulate General or the BKPM's Indonesian Investment Promotion Center. Documents evidencing the expert competencies must be submitted along with the rest of Principle License required documents. It is also mandatory for the investor to be accompanied by the expert when attending the presentation process.
- Conformity of remuneration for human resources with competence, educational background and experiences.
- Transfer of knowledge in the guidance given to local human resources.
d. Facilities and Infrastructure
- Facilities and infrastructure, as well as the financial capability of the investor to obtain such facilities and infrastructure.
- Suitability of the location for business activities (whether to rent or buy and other relevant considerations).
e. Business Opportunities
- Profitability of the income compared to investment necessities.
- Specific strategy to achieve the proposed capacity.
f. Client target (1 client, minimum)
- Validity of potential clients (proven by statement letter from the potential client).
- Commitment of the target client.
- Client's continual need of the services (long term).
- Certain specification that the potential client might need for the services.
g. Investment Value, investor's financial capability to fulfill the investment value.
Upon presentation, a committee will conduct an internal meeting to decide whether to approve or reject a Principle License application. Investors are given a one-time opportunity to repeat the presentation, if the presentation is deemed insufficient.
Last July (2015), BKPM explained that the flow and timeline for Principle License issuance will be improved with the process now to take approximately 7 days upon the receipt of all relevant documents.
Currently, there are 19 service business sectors that require a presentation, mainly in the services of information technology and other sectors of consulting services. Nevertheless, there are chances that the mechanism for Principle License application in other business sectors will also follow the New Certain Business Sectors Mechanism. It is advisable for investors to consult with the BKPM prior to submitting its Principle License application.
BKPM has also amended the time period for project realization from the Principle License issuance to the application of IUT from the previous 12 months to a strict 6 months. During this time, the company must already have a paid-up capital of minimum IDR 2,500,000,000 (two billion five hundred million Rupiah). Failure to fulfill the requirements during the 6-month time period will result in the re-application of Principle License.
The BKPM is continuing to revise and refine its application mechanisms and it also welcomes feedback from investors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.