In 2015, the government issued Regulation No. 142 of 2015 on Industrial Areas (“Regulation 142/2015”). As its title suggests, Regulation 142/2015 outlined the requirements that have to be met whenever developing industrial zones that are equipped with supporting infrastructure and managed by industrial areas companies (collectively referred to as “Industrial Areas”),[1] with the primary goal of accelerating and evenly distributing industrial activities across Indonesia.[2]

However, in a bid to further boost the contributions of the industrial processing sector outside of the island of Java and to establish new industrial hubs, the government has now introduced Regulation No. 20 of 2024 on Industrial Regionalization (“Regulation 20/2024”).[3] Upon its enforcement on 7 May 2024, Regulation 20/2024 simultaneously repealed and replaced Regulation 142/2015.[4] However, the various implementing frameworks to Regulation 142/2015 will remain applicable, provided that their provisions are in line with Regulation 20/2024.[5]

While maintaining most of the core provisions originally set out under Regulation 142/2015, Regulation 20/2024 introduces a number of significant revisions, particularly regarding the development of different types of areas, the securing of business licenses and the available incentives. These adjustments apply to companies managing and developing Industrial Areas (“Industrial Area Companies”) and industrial companies operating within Industrial Areas (collectively referred to as “Companies”).

It should be noted that industrial companies that operate within Industrial Areas and that secured relevant business permits and tax incentives prior to the enforcement of Regulation 20/2024 may continue their operations and retain their given incentives.[6]

Due to the wide scope of Regulation 20/2024, this edition of Indonesian Legal Brief (ILB) will limit its discussion to a summary of the following topics:

1. General Incentives;
2. Industrial Growth Center Areas (Wilayah Pusat Pertumbuhan Industri – “WPPI”);
3. Small- and Medium-Scale Industry (Industri Kecil dan Menengah – “IKM”) Centers; and
4. Updated Obligations for Companies.

General Incentives

Previously, under the framework of Regulation 142/2015, various solely tax-related and regional incentives were available to be secured by Companies. However, Regulation 20/2024 has now broadened these incentives to encompass both fiscal and non-fiscal categories, as summarized in the following table:[7]

Additionally, Regulation 20/2024 retains the facilitation of benefits initially provided under the previous framework of Regulation 142/2015, such as ease of construction and management of electrical power facilities for personal use.[9]

WPPI

Regulation 20/2024 introduces a new classification of areas through the term WPPI, which may be designated as nationally strategic areas by the Minister of Industry. The main objectives and establishment criteria for these new areas break down as follows:

In order to further promote industrial development within these new areas, more facilities will be specifically made available to Companies that are located in WPPI. In this regard, Regulation 20/2024 explicitly specifies the types of Companies that will be deemed eligible to receive these facilities, as well as the forms of non-fiscal facilities that will be made available to said Companies, as summarized in the following table:

IKM Centers

While Regulation 142/2015 stated that lands that are allocated by Industrial Area Companies may be designated as IKM Centers,[14] the new framework of Regulation 20/2024 has now clarified that such IKM Centers are defined as clusters of IKM in a single location that comprise at least five business units that offer similar products and utilize similar raw materials and/or production processes.[15] In this regard, Regulation 20/2024 outlines various facilities for the accelerated development of IKM Centers, as well as the types of IKM located in IKM Centers that are eligible to be prioritized. Both of these aspects break down as follows:

It should also be noted that determinations of the locations and types of flagship products or main production processes within IKM Centers fall under the authority of regional regents or mayors.[18] In terms of their development, IKM Centers must now meet the following minimum requirements:[19]

Additionally, during the development of IKM Centers, the regional government must provide various mandatory facilities in order to support the relevant industrial activities, which break down as follows:[20]

Updated Obligations for Companies

The now-revoked framework of Regulation 142/2015 initially utilized the term Industrial Area Business Permit (Izin Usaha Kawasan Industri – “IUKI”) when referring to permits that were issued to entities that were located in designated industrial areas (Kawasan Peruntukan Industri/KPI). However, Regulation 20/2024 no longer features IUKI and instead refers to relevant permits as business licenses (Perizinan Berusaha).[21]

While maintaining the majority of obligations of Industrial Area Companies that were originally outlined under Regulation 142/2015  (e.g. provision of land for IKM activities, drafted area regulations, facilitation of one-stop licensing services and so forth),[22] the new framework now mandates that Industrial Area Companies must also draft Industrial Area master plans.[23]

Meanwhile, in terms of the obligations of industrial companies that are located in Industrial Areas, the new framework newly requires such companies to draft environmental management and spatial plans that are approved by the relevant Industrial Area Company or Industrial Area manager.[24] Moreover, industrial companies that are located in Industrial Areas are also mandated to ensure the conformity of spatial utilization activities in accordance with relevant Laws and Regulations.[25]

It is also worth noting that Regulation 20/2024 omits the exceptions that were previously mandated under the framework of Regulation 142/2015, which explicitly exempted industrial companies from the obligation to prepare environmental impact analyses (Analisis Dampak Lingkungan/AMDAL) and traffic impact analyses (Analisis Dampak Lalu Lintas/ANDALALIN).[26]

Key Takeaways

Marking a shift in the regulatory framework that applies to industrial areas, Regulation 20/2024 is significantly more detailed and structured than its predecessor, while expanding the scope of the available incentives in an effort to boost industrial growth outside of Java and develop new industrial hubs. A clear delineation of authorities and coordination between government entities should ensure effective policy implementation, while the various obligations of Companies have been updated to ensure compliance with environmental and spatial planning. Additionally, the shift in terminology from IUKI to business licenses is seen as an effort to bring the permits and licensing regime for industrial areas into line with broader regulatory reforms. Overall, Regulation 20/2024 may ignite hope for sustainable growth within Indonesia’s industrial landscape.

Source: hukumonline.com