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Definition of UMKM (Law No. 20 of 2008)

Micro, Small, and Medium Enterprises (Usaha Mikro, Kecil, dan Menengah or UMKM) play a crucial role in Indonesia's economic development, particularly in job creation, income distribution, and strengthening local economies. According to Law No. 20 of 2008 concerning Micro, Small, and Medium Enterprises, UMKM are defined as productive economic businesses owned by individuals or business entities that meet certain criteria based on assets and annual revenue. This definition has been further refined through Government Regulation No. 7 of 2021, which aligns UMKM classification with capital and turnover to better reflect current economic conditions.

UMKM Classification (Government Regulation No. 7 of 2021)

UMKM are categorized into three main groups: micro, small, and medium enterprises.

• Micro enterprises: capital of up to IDR 1 billion (excluding land and buildings), annual revenue up to IDR 2 billion.
• Small enterprises: capital between IDR 1 billion and IDR 5 billion, annual revenue between IDR 2 billion and IDR 15 billion.
• Medium enterprises: capital between IDR 5 billion and IDR 10 billion, annual revenue between IDR 15 billion and IDR 50 billion.

These classifications are essential for determining access to government support, financing, and regulatory requirements.

Food UMKM & Special Regulations

One important sector within UMKM is the food sector, commonly referred to as Food UMKM. Food UMKM include businesses engaged in food production, processing, and distribution, such as home-based catering, packaged food production, street food vendors, and small-scale restaurants. Compared to other types of UMKM, food businesses are subject to stricter regulations due to their direct impact on public health and safety. As a result, Food UMKM must comply not only with general business regulations but also with food safety, hygiene, and product certification standards (Republic of Indonesia, 2012). To operate legally in Indonesia, UMKM, including those in the food sector, must register through the Online Single Submission (OSS) system, which is the government's integrated platform for business licensing. The primary output of OSS registration is the Business Identification Number (Nomor Induk Berusaha or NIB), which serves as the official legal identity of a business (OSS, n.d.).

OSS Registration Requirements

To register in OSS, business actors must fulfill several administrative and operational criteria:

• Individuals must have a valid National Identification Number (Nomor Induk Kependudukan or NIK), while business entities must provide legal documents such as a deed of establishment and tax identification number (NPWP).
• Applicants must determine their business classification using the Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI), which defines the type of business activity.
• Businesses must provide basic information, including business address, scale of business (micro, small, or medium), and planned operational activities.

These requirements ensure that the business is properly identified and categorized within the national system (OSS, n.d.).

Risk-Based Licensing (OSS)

In addition to administrative requirements, OSS applies a risk-based licensing approach. Businesses are classified into low, medium, or high risk depending on their potential impact. For low-risk businesses, such as small-scale food sellers, registration only requires an NIB and a self-declaration of compliance. Medium-risk businesses must obtain an NIB along with a standard certificate verifying that they meet operational standards. High-risk businesses, particularly those producing processed or packaged food, must fulfill additional requirements, including operational permits, facility feasibility verification, and compliance with food safety standards (Republic of Indonesia, 2021).

Additional Certifications for Food UMKM

For Food UMKM specifically, additional criteria apply beyond OSS registration. Businesses engaged in food production must obtain either a Home Industry Food Production Certificate (PIRT) for small-scale operations or approval from the National Agency of Drug and Food Control (BPOM) for larger-scale or packaged food products. Furthermore, Halal certification is required under Law No. 33 of 2014 concerning Halal Product Assurance, particularly for products intended for Muslim consumers (Republic of Indonesia, 2014). These additional requirements are essential to ensure food safety, hygiene, and consumer protection.

Legal Framework for UMKM in Indonesia

The legal framework governing UMKM in Indonesia consists of several key regulations. The primary law is Law No. 20 of 2008, which establishes definitions, classifications, and government support mechanisms for UMKM. This is complemented by Law No. 11 of 2020 on Job Creation and its amendment under Law No. 6 of 2023, which aim to simplify licensing processes and improve the business climate. Government Regulation No. 7 of 2021 further details the implementation of these laws, including business licensing, empowerment programs, and support for UMKM development (Republic of Indonesia, 2023). For Food UMKM, additional legal provisions apply. Law No. 18 of 2012 on Food regulates food safety, quality, and distribution to ensure public health protection. BPOM regulations govern the safety and labeling of processed food products, while PIRT certification applies to home-based food industries. Together with halal certification requirements, these regulations form a comprehensive framework that ensures food products produced by UMKM are safe, hygienic, and compliant with national standards.

Conclusion

In conclusion, UMKM represent a vital pillar of Indonesia's economy, with Food UMKM being one of the most dynamic yet highly regulated sectors. To operate legally and sustainably, Food UMKM must meet both general business criteria and specific food safety requirements. The OSS system simplifies business registration through a risk-based approach, while the broader legal framework ensures that UMKM development is balanced with consumer protection and public safety.