The Crystalisation of the Incentives in the New Capital City of Indonesia
Key Highlights of Indonesian Government Regulation No. 29 of 2024
Ever since the Indonesian Government, during Jokowi era, announced various business incentives (mainly) for foreign investors who wish to set-up a presence in the new capital city of Indonesia (known as Nusantara), the number of foreign investors’ interest are steadily increasing.
Unfortunately, the incentives offered were followed by unclarities especially on the implementation.
In response to the high number of foreign investors’ interest and to further crystalise its commitment on the Nusantara incentives, on August 12, 2024, the Indonesian government issued Government Regulation No. 29 of 2024 (“GR 29”), which amends Government Regulation No. 12 of 2023 (“GR 12”) governing the granting of business license, ease of conducting business, and investment facilities for businesses in the capital city of Nusantara.
Key highlights are as follows.
Amendments to Business Licensing Process
GR 29 introduces the authority of verifying certain business risks to the Nusantara authority. The Nusantara authority could opt to assign a certified/accredited professional to carry out such verification at the Nusantara authority costs which derive from the state budget.
It is expected that by engaging a certified/accredited professional to carry out risk verification for certain type of business, the process of obtaining business license in Nusantara would be seamless and straightforward as the certified/accredited professional could bridge the gaps of understanding between regulators and the business.
Environmental Approvals
GR 29 amends Article 10 of GR 12 to provide clearer guidelines for the issuance of environmental approvals for businesses. Under GR 29, the environmental approval to be issued by Nusantara authorities based on:
- Environmental feasibility decision, for the business and/or activities that are obliged to secure the analysis document regarding environmental impact (abbreviated in Indonesian as “AMDAL”) or environmental management efforts and environmental monitoring efforts (abbreviated in Indonesian as “UKL UPL”).
- Statement of environmental management and monitoring capability (abbreviated in Indonesian as “SPPL”), for the businesses and/or activities that are obliged to obtain SPPL.
The changes are introduced by the Indonesian government to ensure that the business activities in Nusantara must adhere to environmental standards and contribute to sustainable development.
Expatriates Employment
GR 29 allows up to 10 years (extendable) term for the approval of foreign workers employment for businesses in Nusantara.
This is followed by clarifications of the conditions under which businesses in Nusantara can employ foreign workers, which are:
- If the business is carrying out Indonesian government strategic project, the business will be released from the obligation to compensate for the use of foreign workers for a certain period. The Nusantara authority will issue further regulation determining such period.
- The business must appoint an Indonesian worker to assist the foreign worker. No further elucidation on what is the ratio between Indonesian worker and foreign worker, and we expect this will be further governed by the regulation to be issued by Nusantara authority rather than to follow the central government current policy;
- The business must conduct trainings and education sessions for the Indonesian worker who is assisting the foreign worker as per the qualification and position of the foreign worker;
- Deport the foreign worker to his/her country of origin post the termination of the employment.
It appears to us that the Indonesian Government is keeping its view that businesses should be allowed the opportunities to hire foreign workers provided that the balance with hiring local workforce remains.
Land Rights Incentives
The regulation enhances investment incentives for businesses operating in Nusantara which include, amongst others, extended land rights and streamlined approval process.
Under GR 29, the Nusantara authority is granted with the authorities to grant up to 2 cycles of rights of land to investors by way of contract. The cycles are as follows:
- Cultivation rights (abbreviated in Indonesian as “HGU”) for up to 95 years and extendable for another 95 years;
- Building utilization rights (abbreviated in Indonesian as “HGB”) for up to 80 years and extendable for another 80 years;
- Utilisation rights for up to 80 years and extendable for another 80 years.
The Nusantara authority will be the party who coordinate with the relevant land authorities in Indonesia to request for and secure the rights (including the term for each cycle).
Every 5 years, the Nusantara authority may evaluate the grant of the land rights to ensure the following conditions are met:
- The land is utilized as per the nature and purpose of the rights granted;
- The right holder remains fulfilling the conditions to be the right holder;
- The conditions of rights granting are met by the right holder;
- The utilization of the land is in accordance with the spatial rules; and
- There is no indication that the land has been abandoned.
Ease of Doing Business
In its core, GR 29 sets out the authorities of the Nusantara authority to provide lands, facilities, and infrastructure to execute the investment into Nusantara city. This could include determining the ease of securing business license, tax benefits as per the business size/type, or providing the ease to source for qualified workers.
Closing note
Although the implementation of the incentives is further dependent on the regulations to be issued by the Nusantara Authority, GR 29 clarifies the intention and vision of the central government in terms of how the investment approval should be carried out by the Nusantara authority and what are the incentives to be made available.
In our view, GR 29 represents a significant step towards enhancing the regulatory framework for businesses in the new capital city of Nusantara. By amending existing regulations and introducing new provisions, the government aims to create a more conducive environment for business operations, attract investment, and promote sustainable environment.
For more detailed information and personalized legal advice, please feel free to contact us. We are here to assist you in navigating the complexities of this new regulatory framework.
To read the article in PDF version, click here.
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