Proposed Changes To Business License Process Could Stir Trouble For Foreign Entrepreneurs in Bali

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Over the last few months, leaders in Indonesia have been reviewing visa categories for any potential loopholes or grey areas where foreigners have been able to abuse the country’s immigration system.

There is an ongoing crackdown on foreigners abusing the visa-on-arrival program, as well as the pre-investment visa category, and now political leaders want to see the business permit application reviewed for foreign applicants. 

Key political figure and the ex-Minister for Investment Luhut Binsar Pandjaitan wants to see a review of the application process for a foreign-owned UKUM business.

UKUM stands for Usaha Kecil dan Usaha Mikro, which translates into English as Small and Micro Enterprises, known by the English acronym of SMEs.

According to Pandjaitan, grey areas in the application process and business licensing verification processes have the potential to be exploited.

In fact, for most businesses in this category, a business licensing verification process is not needed. 

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Pandjaitan explained, “We believe that the absence of a verification process on low and medium low-risk licensing opens up opportunities for the misuse of permits given in the Standard Classification of Indonesian Business Fields (KBLI) for the Provision of Accommodation and Provision of Food and Drink.” 

In a letter signed on 7th October, before he finished his term as Minister of Investment and Maritime Affairs, he put forward a motion to introduce a moratorium on licensing and development in Bali.

The proposed moratorium has a specific focus on tourism businesses, such as hotels, beach clubs, villas, residential complexes designed for foreign investors, and small businesses that are designed to cater to the international market like cafes, coffee shops, and eateries. 

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Pandjaitan told the press, “We believe that the absence of a verification process on low-risk and medium-low business permits opens the opportunity for the misuse of permits given in the Standard Classification of Indonesian Business Fields (KBLI) for the Provision of Accommodation and Provision of Food and Drink.”

He is calling for a two-step solution moving forward. The first is to bring the moratorium into effect in Badung Regency, Gianyar Regency, Tabanan Regency, and Denpasar City as soon as possible.

This would effectively ban the opening of new tourism businesses in the accommodation, food, and beverage sector for two years in all of Bali’s major resorts, inclusive of Canggu, Seminyak, Legian, Kuta, Jimbaran, Nusa Dua, Sanur, Uluwatu and Ubud. 

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The second solution, Pandjaitan, is calling for closer supervision and vetting process for internationally owned medium, small, and micro enterprises to be granted their KBLI.

The KBLI stands for Klasifikasi Baku Lapangan Usaha Indonesia, which translates in English as Indonesia Standard Industrial Classification.

He wants to see this process made harder or more scrupulous so that foreign-owned businesses don’t outcompete locally-owned enterprises and that all foreign businesses contribute positively to the local economy. 

If all this goes ahead, what this means in practice for foreigners in Bali is that for foreign entrepreneurs specifically who want to set up a new accommodation, food, or beverage-based business in Bali will have to do so outside of Denpasar City, Gianyar Regency, Tabanan Regency or Badung Regency.

The second is that it will become harder still to complete the process of obtaining a KBLI. This, in turn, will impact how quickly and easily foreign entrepreneurs can subsequently arrange the appropriate visa for their time in Indonesia. 

Responding to Pandjaitan’s comments this week, the Head of the Investment and One-Stop Integrated Investment (PM-PTSP) Bali, I Wayan Sumarajaya, said that the matter was still under discussion at the Ministry of Investment.

As changes are on the horizon for foreign-owned businesses in Bali, Indonesia’s Immigration teams are still cracking down on foreigners found to be misusing their visas.

The latest round of deportations saw citizens of Pakistan, Morocco, India, and Serbia be sent to their home nations and added to the Indonesian list of deterrents, also known as the blacklist.