Changes to Investment Law Under Omnibus Law

This newsflash is a follow up to the previously issued newsflash dated November 5, 2020, on the general overview of the Job Creation Law or what is publicly known as the Omnibus Law (link here).

This newsflash will cover further discussion on the amendments to the Law No. 25 of 2007 dated April 26, 2007 on Capital Investment (the “Investment Law”) under the Omnibus Law. The amended Investment Law shall now be the main reference for investment, either domestic or foreign, in all lines of business in Indonesia.

We set the following key provisions.

  • Closed Lines of Business and Activities Reserved for the Central Government

Under the Omnibus Law, in principle, all lines of business are open for investment, except for business activities that are closed for investment and activities reserved for the Central Government. Under the elucidation of the Omnibus Law, activities reserved for the Central Government are service activities or other activities under the defense and security sectors, among others, main weaponry systems, public museums, historical and archaeological remains, provision of air navigation, telecommunication/aids to shipping navigation and vessel.

Previously, the Investment Law did not include an exhaustive list of business activities that are closed for capital investment. These closed business activities were listed under Appendix I of the Negative Investment List. Now it seems that it will be more difficult to change the list of business activities that are closed for investment, since the revision will require the process of getting such revision be passed by the House of Representatives.

Based on the existing Negative Investment List, there used to be 20 (twenty) business activities that are closed for capital investment. The Omnibus Law now simplifies the closed business activities into 6 (six) lines of business. The following business activities are closed for capital investment under the Omnibus Law:

  1. cultivation for and industry of type I narcotics;
  2. gambling and/or casino;
  3. fishing of species in Appendix I of Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);
  4. utilization and retrieval of coral;
  5. manufacture of chemical weapons; and
  6. manufacture of industrial chemicals and manufacture of ozone-depleting substances.

It is also still unclear whether the remaining business activities that used to be closed for investment under the Negative Investment List, such as production of alcoholic beverages, production of active ingredients for pesticides, will now become open for investment. The elucidation of the Omnibus Law stipulates that capital investment shall be based on national interests, including protection of business activities that are harmful for health. Therefore, it remains to be seen whether there will be any change of restrictive approach towards production of alcoholic beverages, production of pesticides, and other business activities that are no longer listed as closed for investment under the Omnibus Law.

The Omnibus Law also mandates further provisions on investment to be stipulated under a Presidential Regulation. The investment requirements for the priority business activities shall be stipulated in the form of investment priority list under the Presidential Regulation which covers the following:

  1. Priority business activities with fiscal incentives;
  2. Business activities with non-fiscal incentives, among others, in the form of ease of Business Licensing, investment location, infrastructure and energy provision;
  3. Business activities for the Micro, Small, and Medium Enterprises (usaha mikro, kecil, dan menengah or “UMKM”) and partnership requirement between large enterprises and UMKM excluding partnership as a shareholder; and
  4. Business activities that are open with certain requirements.

We expect this Presidential Regulation—which is dubbed as the “Positive Investment List” by the Coordinating Minister for Economic Affairs—to be issued in the near future. However, in order to fully understand the restrictive provision and how it differs with the existing Negative Investment List, we may have to wait for at least three months in order to see the specific provision under the Presidential Regulation governing the Positive Investment List.

  • The Protection of Cooperatives and Micro, Small, and Medium Enterprises

The Omnibus Law also amends Article 13 of the Investment Law. Under this provision, the Central Government or the Regional Governments, in accordance with their authorities, shall provide the convenience, empowerment, and protection to cooperatives and UMKM for their investment in accordance with the standards determined by the Central Government.

In order to protect and empower cooperatives and UMKM, the Omnibus Law provides that foreign capital investment is only allowed for large-scale enterprises and shall establish a partnership with the cooperatives and UMKM. Certain business activities will also be either allocated for cooperatives and UMKM or open for large-scale enterprises with requirement to establish a partnership with cooperatives and UMKM. These protection and empowerment may be in the form of (a) partnership program; (b) human resources training; (c) competitiveness enhancement; (d) innovation and market growth endorsement; (e) accessibility to financing; and (f) widespread dissemination of information.

Further, to support the intention of supporting entrepreneurship in Indonesia the Omnibus Law introduces a specific support provision for partnership arrangement in Indonesia. In this new provision, the Central Government and the Regional Government, in accordance with their authorities, (i) must facilitate the partnership between medium enterprise and large enterprise with cooperatives, micro and small enterprise in the supply chain for increasing competitiveness and business level; (ii) provide incentives and ease of doing business according to the prevailing laws and regulations; and (iii) supervise and evaluate the implementation of partnership between cooperatives, UMKM, and large enterprises. Further provisions will be governed under the Government Regulation.

  • Capital Investment Facilities

Another notable amendment under the Omnibus Law incorporates tourism business development as one of the segments that are eligible to receive investment facilities. The types of investment facilities are no longer listed in this Law and will be subject to laws and regulations on taxation. We note that this change in arrangement is intended to streamline policies relating to tax facilities so that it is governed fully by the Ministry of Finance.

***

November 25, 2020

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DKI Jakarta Extends the Transitional PSBB

The Governor of DKI Jakarta decided to again extend the transitional Large-Scale Social Restrictions Activities (Pembatasan Sosial Berskala Besar or “PSBB”) for 14 (fourteen) days, effective as of November 23, 2020 to December 6, 2020. This extension policy is based on the Governor of DKI Jakarta Decree No. 1100 of 2020 dated November 6, 2020 on the Entry Into Force of the Extension of the Large-Scale Social Restrictions Activities at Transition Period Towards A Healthy, Safe, and Productive Community.

During this transitional PSBB, the Governor of DKI Jakarta reminded Jakarta residents to always comply with the health protocols and report to the relevant agency if they found any violations to the health protocols. He also added that for the last 14 (fourteen) days, Jakarta recorded a substantial increase of the COVID-19 cases, from 8,026 cases on November 7 to 8,444 cases on November 21. Given so, the Governor of DKI Jakarta states that he may implement a stricter PSBB policy if the number of the COVID-19 cases continues to grow significantly.

Under the Governor of DKI Jakarta Regulation No. 79 of 2020 dated August 19, 2020 on the Implementation of Discipline and Law Enforcement of Health Protocols as an Effort to Prevent and Control Corona Virus Disease 2019 (COVID-19), as amended by the Governor of DKI Jakarta Regulation No. 101 of 2020 dated October 9, 2020 (collectively, “Regulation 79/2020”), any violations of the capacity limitation on workplaces, restaurants, and public transportation would be subject to administrative sanctions. The sanctions are as follows:

  1. One time violation may be subject to a fine of Rp50,000,000 (fifty million Rupiah);
  2. Two-time violation may be subject to a fine of Rp100,000,000 (one hundred million Rupiah); and
  3. Three-time violation may be subject to a fine of Ro150,000,000 (one hundred and fifty million Rupiah).

***

November 25, 2020

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Changes to Competition Law under Omnibus Law

As a follow up to the previously issued newsflash dated November 5, 2020 on the general overview of the Job Creation Law or what is publicly known as the Omnibus Law (link here), this newsflash covers further discussion of the notable amendments to Law No. 5 of 1999 dated March 5, 1999 on Prohibitions on Monopolistic Practices and Unfair Business Competition (the “Competition Law”) under the Omnibus Law.

The amendments to the Competition Law may impose several implications and challenges in the antitrust sector.

This newsflash will focus on the following key provisions.

  • Change of Appeal Procedure (the “Objection”) to the Commercial Court

Previously, the Objection procedure for a decision rendered by the Indonesian Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or "KPPU") needed to be submitted to the District Court. The Omnibus Law now requires business actors to submit the Objection to the Commercial Court. Accordingly, the authority of the District Court to examine and decide upon Objection to the KPPU decisions regarding business competition and/or antitrust cases as provided under Article 44 of the amended Competition Law is now transferred to the Commercial Court.

In addition to the change in jurisdiction, the Omnibus Law also repeals the maximum 30-day deadline in issuing a decision at the Objection and cassation stage. As a result, both the Commercial Court and Supreme Court are free to issue a decision without any time limit.

With this change of authority taking place, the Commercial Court now has an absolute competence to examine, adjudicate, and decide the following matters: Bankruptcy and Suspension of Debt Payment Obligations (Penundaan Kewajiban Pembayaran Utang or PKPU), Bank Liquidations by the Indonesian Deposit Insurance Company (Lembaga Penjamin Simpanan or LPS), Intellectual Property, and recently, Business Competition.

The Omnibus Law provides that further procedures for the examination on the Commercial Court and the Supreme Court shall refer to the prevailing laws and regulations. In this case, the Objection procedures in the Commercial Court will still refers to the Supreme Court Regulation No. 3 of 2019 dated August 20, 2019 on Procedure for Appeal against Decisions of the KPPU (“SC Reg. 3/2019”). It is worth noting that SC Reg. 3/2019 stipulates Objection procedures in the District Court. Therefore, this may cause some confusion in the future with regard to the procedures to be implemented in the Commercial Court. We expect that the Supreme Court will issue a circular letter on the Objection procedure in the Commercial Court in the near future.

  • Removal of Maximum Administrative Fines of Rp25 Billion

The most significant change to the Competition Law lies in the removal of the capped fee on fines of Rp25 billion under Article 47 of the amended Competition Law. Following the adjustment under this article, KPPU may now have a power to impose even higher administrative fines for violation of the Competition Law. This provision is subject to a Government Regulation which will set out further provisions on the criteria, type, amount of fine, and procedures of sanction imposition.

  • Limitation of Criminal Sanctions Imposition

The Competition Law previously stipulates criminal sanctions for violating several articles under the Competition Law. In practice, though, criminal sanction has never been exercised in Indonesia towards violation of the Competition Law. The Omnibus Law now stipulates that only a violation of Article 41 of the Competition Law (refusal of providing evidence or hindering the investigation process) may be subject to criminal sanction. The form of criminal sanction for violating this provision is subject to a fine of up to Rp5 billion or substituted with criminal confinement for no longer than 1 (one) year.

Meanwhile, any violation of the other articles previously mentioned in Article 48 of the Competition Law, such as prohibited agreements, prohibited activities, and dominant position are only subject to administrative sanctions provided under the Omnibus Law.

  • Removal of Additional Criminal Sanctions

The Omnibus Law also removes the provision on additional criminal sanctions as previously provided under Article 49 of the Competition Law, such as (i) revocation of business licenses; (ii) prohibition of business actors proven to have violated this law from filling the position of director or commissioner for at least 2 (two) years and no longer than 5 (five) years; or (iii) order to cease certain activities or actions causing losses to other parties. The Omnibus Law now does not recognize additional criminal sanctions for any violation of the Competition Law.

***

November 24, 2020

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Omnibus Law Amends Provisions under Company Law to Empower Micro, Small, and Medium Business

As a follow up to our newsflash on the general update of the Job Creation Law or what is publicly known as the Omnibus Law, which can be access through this link, we will further discuss the key changes in relation to limited liabilities companies under the Omnibus Law.

Law No. 40 of 2007 dated August 16, 2007 on Limited Liability Companies (the “Company Law”) is one of the laws amended by the Omnibus Law. The amended Company Law mainly focuses in allowing micro, small, and medium enterprise to thrive by removing minimum capital required to establish a limited liability company and by recognizing sole shareholder in a limited liability company.

We elaborate the changes under the Omnibus Law below.

  • Removal of Minimum Authorized Capital

The Omnibus Law removes the requirement of minimum authorized capital of limited liability of Rp50 million. The amount of authorized capital is based on the discretion of the founders of the company. The requirement under the Company Law to have at least 25% of the authorized capital to be issued to and paid-up by the shareholders remains unchanged.

Founders’ right to determine the amount of authorized capital is not an entirely new concept as it has also been introduced under Government Regulation No. 29 of 2016 on Change of Authorized Capital of Limited Liability Company effective on July 14, 2016. Nevertheless, its incorporation under the Omnibus Law brings such provision to a higher level in the hierarchy of laws.

The Omnibus Law also removes the provisions that other laws (undang-undang) may stipulate minimum capital for specific businesses. This means that minimum capital requirement may be regulated under any laws and lower regulations. For example, the current BKPM regulations requires foreign investment (PMA) companies to have the issued and paid-up capital of at least Rp2.5 billion. Deletion on the requirement for a law to determine other minimum amount of capital further legitimizes this provision under these BKPM regulations.

  • Sole Shareholder and Simplification of the Establishment of Company for Micro and Small Business

To further clarify and simplify the procedure of company establishment, the Omnibus Law now expands the scope of business entity that may have sole shareholder under Article 7 of the amended Company Law to include:

  1. Regional Owned Enterprise (Badan Usaha Milik Daerah);
  2. Village Owned Enterprise (Badan Usaha Milik Desa); and
  3. Micro and small business.

For companies with micro and small business category, we shall refer to Law No. 20 of 2008 dated July 4, 2008 on Micro, Small, and Medium Enterprises (the “MSME Law”) as amended by the Omnibus Law on the scale of micro and small business. The MSME Law previously provided criteria for each micro, small, and medium business. Under the amended MSME Law, these criteria will be further provided under a Government Regulation.

Particularly for micro and small businesses, the Omnibus Law simplifies the company establishment procedure. In addition to the sole shareholder concept, micro and small businesses are only obligated to submit an establishment statement to the MOLHR, instead of the more extensive notarial deed of establishment. With this provision, micro and small business actors may be institutionalized with more lenient requirements, thus creating a separation of liability between the company and the individual owner. This provision is expected to empower the micro and small business so that they would be more eligible to acquire funding or to market their products.

Further requirements for the establishment of micro and small business companies will be stipulated under government regulations. The Omnibus Law only sets out the general conditions, i.e.:

  1. shareholder(s) of micro and small business companies must be individual(s); and
  2. the founders of micro and small business companies may only establish one micro and small business company in one year.

However, once the micro and small business companies have scaled up past the threshold stipulated under the amended MSME Law (and the corresponding Government Regulation), they should change their status into “regular” companies.

***

November 20, 2020

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The Indonesian President Ratifies Bilateral Investment Treaty between Indonesia and Singapore

On September 25, 2020, the Indonesian President ratified the Agreement dated October 11, 2018 on the Promotion and Protection of Investments between the Government of the Republic of Indonesia and the Government of the Republic of Singapore (or commonly referred to as Indonesia-Singapore Bilateral Investment Treaty or  the “Indonesia-Singapore BIT”) under Presidential Regulation No. 97 of 2020. So the Indonesia-Singapore BIT is effective as of September 29, 2020.

The Indonesian Government and the Singaporean Government acknowledge the importance of having an investor-friendly environment in both countries to foster business activities, specifically in investment. Therefore, the Indonesia-Singapore BIT was created to achieve such purpose. In addition, the Indonesia-Singapore BIT will provide legal protection for Indonesian and Singaporean investors who invest in both countries.

A summary of the key provisions outlined in the Indonesia-Singapore BIT is as follows.

  • National Treatment and Most-Favored-Nation Treatment

Under Articles 4 and 5 of the Indonesia-Singapore BIT,­ both Indonesia and Singapore shall treat each other no less favorable than how it should have, with respect to the management, conduct, operation, and sale or other disposition of investments.

  • Expropriation

The Indonesia-Singapore BIT prohibits both countries from expropriating or nationalizing any investment, except for the following:

  1. for a public purpose;
  2. conducted in a non-discriminatory manner;
  3. with compensation of prompt, adequate, and effective; and
  4. in accordance with the due process of law.
  • Indemnification

In the event an investor suffers losses due to war or any other armed conflicts, civil disturbances, a state of national emergency, revolt, insurrection, riot or other similar situations in a country in which they invest, the other party is required under the Indonesia-Singapore BIT to provide the restitution, compensation, or other settlement to such investor.

  • Dispute Settlement

The Indonesia-Singapore BIT directs any investment disputes to be resolved through consultations and negotiations, which may be in a form of non-binding, third party procedures, such as good offices, conciliations, and mediations. This consultation must be submitted through a written request for consultation from the disputing investor to the disputing party.

If such investment dispute cannot be settled within 1 (one) year since the delivery of the written request for consultation, unless the disputing party agrees otherwise, the disputing investor may submit the dispute to the courts or tribunals of the disputing party, provided that such court or tribunal has jurisdictions over such claim. The disputing investor may also submit the claim for arbitration under the International Center for Settlement of Investment Disputes (“ICSID”) Convention and its Arbitration Rules only if both are parties to the ICSID Convention.

The disputing investor may also submit the dispute to arbitration under the ICSID Additional Facility Rules, for so long as Singapore or Indonesia is a party to the ICSID Convention. Currently, both Indonesia and Singapore are parties to the ICSID Convention.

Alternatively, a dispute claim may be submitted to any other arbitral institutions or under any other arbitration rules based on an agreement of the parties.

  • Better Legal protection and Safeguard for Investors

It is likely that the Indonesia-Singapore BIT would be seen as a major benefit for investors due to the presence of clauses regarding national and most-favored nation treatment, protection from expropriation, as well as access to the Investor-State Dispute Settlement (the “ISDS”) system. Further, in the event that investors suffer losses because either country happens to be politically unstable, the investors have the right to receive compensation. Particularly for the ISDS system, the investors may perceive this as beneficial because the ISDS system would be more neutral compared to the respective national law systems.

According to the Indonesia Investment Coordinating Board, Singapore is the largest contributor to foreign direct investment in Indonesia during the third quarter of 2020, with a total investment of Rp35.9 trillion.

 

***

November 7, 2020

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Changes to Manpower Law under Job Creation Law

On November 2, 2020, the President of the Republic of Indonesia enacted the approved Job Creation Bill (or publicly known as the Omnibus Law) which Bill was passed by the House of Representatives on October 5, 2020. The Job Creation Bill is enacted as Law No. 11 of 2020 dated November 2, 2020 on Job Creation (the “Job Creation Law”).

Under the Job Creation Law, certain provisions of Law No. 13 of 2003 dated March 25, 2003 on Manpower (the “Manpower Law”) are amended.

The amendments to the Manpower Law are found in Chapter 4 Article 81 of the Job Creation Law. The highlights of the amendments are as follows.

  • WORK TRAINING

A work training shall be organized and directed to provide, enhance, and develop work competence in order to improve capability, productivity, and welfare of employees. Previously, a work training may only be organized by work training institutions held by the Government and/or private sectors. The Job Creation Law stipulates that a work training now may be organized by in-house or within an employer.

A work training business is open for foreign investment with foreign capital ownership limitation up to 67%.

  • EMPLOYMENT OF EXPATRIATES

As was required under the Manpower Law, under the Job Creation Law an employer that wishes to employ an expatriate must have an approved Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing – an “RPTKA”). Under the Job Creation Law, an RPTKA is not required in the following cases: (i) for directors or commissioners with certain shares ownership or shareholders in accordance with applicable laws, (ii) for diplomats and consulate officials working at representatives of foreign countries, or (iii) for foreigners who are needed for the production activities that are halted due to an emergency, vocational, start-up companies, business visits, and performing research for a certain period.

Unlike the provision under the Manpower Law, employers who do not possess an RPTKA while employing an expatriate are not subject to criminal sanctions under the Job Creation Law. The Job Creation Law provides that employers who do not have an approved RPTKA would only be subject to administrative sanctions which will be set out in an implementing regulation. Further provisions on the allowed positions and period of employment of expatriates, as well as types of the administrative sanctions, will be stipulated in a Government Regulation.

  • FIXED-TERM EMPLOYMENT AGREEMENTS

The Job Creation Law no longer stipulates the maximum period of fixed-term employment agreements. But, the Job Creation Law still states that fixed-term employment agreements shall not be entered into for the work that is permanent in nature. So in our view, it is very unlikely that an employer may use a ‘perpetual’ fixed-term employment agreement given the ephemeral nature of a fixed-term employment agreement in the first place.

Previously, fixed-term employment agreements entered in a foreign language only and not in Roman alphabets would convert into indefinite-term employment agreements. This provision is not stated in the Job Creation Law.

The Job Creation Law introduces new provisions regarding compensation pay payable to fixed-term employees upon completion of the employment period or the completion of the work. The amount of such compensation pay is based on the completed year(s) of service. However, there is no change in the provision regarding the compensation entitlement for termination of fixed-term employment prior to the completion of employment period as stipulated in Article 62 of the Manpower Law.

Further provisions on fixed-term employment agreements and compensation pay for fixed-term employees will be stipulated in a Government Regulation.

  • SUBCONTRACTING AND OUTSOURCING

Subcontracting service (business to business) provisions under the Manpower Law are revoked. This revocation now allows companies to freely subcontract any work to any third party based on commercial terms agreed by the parties.

For outsourcing, the Job Creation Law is now silent on the types of work that may be outsourced to outsourcing companies. The outsourcing arrangement itself remains acknowledged. The Job Creation Law clarifies that the outsourcing company (and not the engaging company) is responsible and liable for the employment of the outsourced employees.

Also, the Job Creation Law requires an outsourcing company to ensure that an outsourced employee will continue to work in the same work if the outsourcing is granted to another outsourcing company. We expect that the Government will issue implementing regulation concerning outsourcing matters.

  • WORK HOURS

Previously, the Manpower Law provided that overtime work is allowed for a maximum of 3 hours per day and 14 hours per week. The Job Creation Law stipulates that overtime work may be performed for a maximum of 4 hours per day and 18 hours per week.  While there is an increase of the overtime hours, the approval of the employees for any overtime is still required.

  • WAGES

Wages are determined based on time units and/or output units. This provision is not new as this is contained under Government Regulation No. 78 of 2015 dated October 23, 2015 on Wages. Article 88C of the Manpower Law provides that Governors must determine the provincial minimum wages and may also determine regency/city minimum wages subject to regional economic growth and inflation. The determination of a Governor on minimum wages shall taking into account the economy and manpower conditions based on data derived from the statistics agency. Note that micro and small businesses are exempt from the minimum wages requirement. We note that further detailed provisions on wages will be stipulated under a Government Regulation.

In addition, the amended Article 95 of the Manpower Law accommodates the previous Constitutional Court Decision against the Manpower Law regarding payment of wages during bankruptcy or liquidation of an employer. When a company is bankrupt or liquidated, the Job Creation Law provides that the payment of employee’s outstanding wages are prioritized over payment to other creditors, including secured creditors’ claims, claims of state’s rights, auction houses, and public institutions established by the Government. Meanwhile the payment of other employees’ rights are paid in advance against all creditors except secured creditors.

  • PAID LEAVE

Under the Job Creation Law, a long leave may be given by certain companies and it shall be governed under an employment agreement, a company regulation, or a collective work agreement.

Other provisions on paid leave regulated under the Manpower Law remain unchanged, including paid menstrual leave and maternity leave.

  • TERMINATION OF EMPLOYMENT AND TERMINATION BENEFITS

Consistent with the Manpower Law, the Job Creation Law does not recognize the concept of termination-at-will. Therefore, employers may not dismiss employees without cause. In the event of employment termination and the employee does not accept the termination, the amended Article 151 of the Manpower Law requires the parties in dispute to go through the dispute settlement procedures (i.e., the bipartite negotiation, the tripartite mediation, and the court proceeding at the Labor Court) as regulated under Law No. 2 of 2004 dated January 14, 2004 on Industrial Relation Dispute Settlements.

Under the Job Creation Law, there are no longer multipliers of the termination benefits arising from termination of employment under specific circumstances (e.g., in the event of efficiency measures, mergers, acquisitions, changes of ownership, consolidations, spin offs, death, retirement, or prolong illnesses). We understand that these changes appear to be the most controversies and objection from the labor workforce, since these entitlements in the event of employment termination are reduced.

The formula to calculate the amount of termination pay and service pay under the Job Creation Law remains the same with that of the Manpower Law. However, we note that the Job Creation Law omits one of the components of the compensation pay which was previously regulated under the Manpower Law, namely the ‘housing, medical, and health care allowance’ which was determined to be 15% of the total amount of the severance and the service pay.

Note that the Job Creation Law now regulates a significant protection for employees in the event of termination of employment, whereby the failure of an employer to pay termination benefits to an employee will result in criminal sanctions (i.e., imprisonment of 1 - 4 years and fines of Rp100 – 400 million).

  • NEW SOCIAL SECURITY PROGRAM DUE TO JOB LOSS

While there are no multipliers of severance pay and service pay like in the Manpower Law, the Job Creation Law introduces a new social security program called the job loss security/coverage. The job loss security/coverage will be organized by the Social Security Administrator Agency for Manpower (BPJS Ketenagakerjaan) and the Government. The program will provide benefits for employees whose employment is terminated in the form of cash (capped at six months’ wages), job training, as well as access to job market information. This additional security/coverage is subject to payment of a premium or contribution to BPJS Ketenagakerjaan. The Job Creation Law states that the Government shall be responsible for the premium or contribution for the job loss security/coverage.

Further provisions on the job loss coverage/security will be stipulated in a Government Regulation. So it remains to be seen how the job loss security/coverage will be implemented and paid to the employees whose employment is terminated.

***

November 5, 2020

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Long-Awaited Omnibus Law Finally Enacted

On November 2, 2020, the Job Creation Law or what is publicly known as the Omnibus Law was officially promulgated as Law No. 11 of 2020 on Job Creation (“Job Creation Law” or “Omnibus Law”). This newsflash is an update to the previously issued newsflash that we issued on October 7, 2020 (link here).

In line with the previous Job Creation Bill that was approved by the House of Representatives and circulated publicly on October 5, 2020 (the “Job Creation Bill”), it seems that there are no major changes to the Job Creation Bill compared to this final version of the enacted Omnibus Law, which amends 78 existing laws.

We will issue a series of newsflashes with an in-depth discussion of the Omnibus Law notable amendments against the previously prevailing laws and other notable changes against the Job Creation Bill (as relevant) within the upcoming weeks.

The Omnibus Law aims to create and increase jobs by providing the protection and empowerment of cooperatives and UMKM as well as providing ease of doing business, particularly for the acceleration of national strategic projects.

The Omnibus Law consists of 15 chapters and 186 articles which includes the following scopes:

  1. improvement of the investment ecosystem and business activities;
  2. manpower;
  3. protection and empowerment of cooperatives and UMKM;
  4. ease of doing business;
  5. research and innovation support;
  6. land procurement;
  7. economic area;
  8. Central Government investment and acceleration of national strategic projects;
  9. implementation of the government administration; and
  10. sanctions

Due to the wide scope of the Omnibus Law, this newsflash will focus on the following key provisions.

  • Improvement of the Investment Ecosystem and Business Activities

Article 6 of the Omnibus Law introduces a new concept on the improvement of the investment ecosystem and business activities, which will be elaborated below.

    • Implementation of Risk-based Business Licensing

The Omnibus Law introduces a new segmentation of business licensing based on risk profiles of the business, namely: low, medium, or high risks.

    • Simplification of the Basic Requirement for Business Licensing

The simplification of the basic requirement of business licensing covers the suitability of spatial layout activities, environmental approvals, and approvals of the buildings and certificate of feasible function.

In order to simplify the basic requirement of business licensing, the Omnibus Law amends, removes, and/or stipulates new provisions to the laws related to spatial layout, management of shorelines and small islands, marine affairs, geospatial information, environmental, buildings, and architects.

    • Simplification of Sectoral Business Licensing

The Omnibus Law is expected to simplify business licensing process in the following sector: marine and fisheries; agriculture; forestry; energy and mineral resources; nuclear affairs; industry affairs; trade affairs, legal verification (metrology), halal products warranty, and standardizations compliance evaluations; public works and housing; transportation; health, medicine, and food; education and culture; tourism; religion affairs; postal, telecommunications, and broadcasting affairs; and defense and security.

    • Simplification of Investment Requirement for Certain Sectoral

In order to implement ease of doing business for public and business actors in certain business sectors, the Omnibus Law amends, removes, or stipulates new provisions to the laws related to capital investment, banking, and sharia banking.

  • Ease of Doing Business

In order to implement ease of doing business for business actors, the Omnibus Law amends, removes, or stipulates new provisions, among others, under the Immigration Affairs Law, the Patent Law, the Trademark Law, the Company Law, the Taxation Laws, and the Anti-Trust Law.

  • Central Government Investment and Ease of National Strategic Projects

The Omnibus Law introduces a new concept of the Central Government Investment. The Central Government investment is carried out by the Minister of Finance as the State Treasurer (“MOF”) and/or an institution granted with special authority (sui generis) to manage the investment, in order to increase the investment and strengthen the economic condition for supporting the strategic policies of job creation.

In carrying out its duties, the MOF has the following authorities: (i) fund placement in the form of monies instrument(s); (ii) management of assets; (iii) cooperation with other party including with trust fund; (iv) determine the investment partner(s); (v) grant and obtain loan; and/or (vi) management of its own assets.

On a separate note, the Central Government or the Local Government in accordance with their authorities is responsible to provide area and business licensing for national strategic projects of the Central Government, Local Government, State-Owned Enterprises or Local-Owned Enterprises.

If the Central Government or the Local Government is not able to conduct a land procurement for any national strategic project, then such land procurement may be carried out by business entities subject to requirements under prevailing laws and regulations.

  • Other Notable Notes

Upon the enactment of the Omnibus Law:

    • Any applicable laws and regulations that contradict the Omnibus Law or any other higher laws and regulations or court decisions need to be harmonized and synchronized. It will be coordinated by the Ministry of Law and Human Rights.
    • Business or sectoral licensing that has been issued shall remain valid up until the expiry of such licensing. Meanwhile, the ongoing application for a business licensing must be adjusted to be in accordance with the Omnibus Law.
    • The relevant Government Regulation(s) and the Presidential Regulation(s) as the implementation of the Omnibus Law shall be enacted within 3 (three) months.

***

November 5, 2020

Copyright © 2020 AKSET. All rights reserved.

 


New Provisions Relating to the Agrarian Sector Introduced in the Omnibus Law

On October 5, 2020, the House of Representatives passed the Job Creation Law (or publicly known as the Omnibus Law) which introduces and/or amends certain provisions under the agrarian sector, namely:

  1. Amendments to the provisions under Law No. 1 of 2011 dated January 12, 2011 on Housings and Residential Areas;
  2. Amendments to the provisions under Law No. 20 of 2011 dated November 10, 2011 on Multi Storey Housings;
  3. Introduction of a “Land Bank” concept;
  4. More detailed provisions on the Right to Manage (Hak Pengelolaan) title;
  5. Multi-storey housing ownership by foreigners;
  6. Granting of land rights on the above and/or below land space.

At the time this newsflash is issued, the Omnibus Law is not effective yet as it  still needs to be signed by the President and promulgated. If the President does not sign the Omnibus Law in 30 days from October 5, 2020, the Omnibus Law becomes effective then by law. Accordingly, the final draft we reviewed may not be promulgated verbatim, and we should expect changes in the latest version of the Omnibus Law that is enacted.

In this newsflash, we will be discussing items (c) to (f) above and you may find our discussion on items (a) and (b) in the upcoming weeks.

  • INTRODUCTION OF THE LAND BANK

The Indonesian Government finally materialized the concept of a land bank under the Omnibus Law. The Indonesian Government was trying to introduce this concept in the past few years under the Land Law Bill, which was intended to complete and elaborate the provisions under Law No. 5 of 1960 dated December 24, 1960 on Basic Agrarian Principles. In accordance with the Omnibus Law, the Government will form a Land Bank that functions as a non-profit special agency that manages state land. This includes planning, acquisition, procurement, management, utilization and distribution of land.

Having considered the nature of the Land Bank as a non-profit agency as well as its duties in managing the state land, it still remains to be seen as to how the Land Bank implements its duties. For instance, how the Land Bank cooperates with private sectors for the development of private business activities or public-private partnerships in Indonesia. Further provisions relating to the formation of Land Bank will be regulated under a Government Regulation.

Under the Omnibus law, the Government ensures that at least there will be a minimum of 30% of state land that will be managed by the Land Bank. In managing the land, the Land Bank will be granted Right to Manage (Hak Pengelolaan) title. Furthermore, land with such Right to Manage(Hak Pengelolaan) title may be granted Right to Cultivate (Hak Guna Usaha), Right to Build (Hak Guna Bangunan) and Right to Use (Hak Pakai) title.

  • RIGHT TO MANAGE (HAK PENGELOLAAN) TITLE STRENGTHENED

The relevant provisions with respect to Right to Manage (Hak Pengelolaan) title have been regulated since 1999 under the State Minister of Agrarian/Head of National Land Agency Regulation No. 9 of 1999 dated October 14, 1999 on Procedure of Granting and Revocation of Right over State Land and Right to Manage. However, it does not provide any provisions on the entitlements and/or authorities that the Right to Manage (Hak Pengelolaan) title holders may have.

Through the enactment of the Omnibus Law, there are certain key additions to the existing provisions of the Right to Manage (Hak Pengelolaan) title, among others:

  1. With the introduction of the Land Bank concept under the Omnibus Law, land with Right to Manage (Hak Pengelolaan) title may be granted to the Land Bank;
  2. Right to Manage (Hak Pengelolaan) title gives the authority for the holder to:
  • (i) form the land designation, usage and utilization of the land in accordance with the spatial layout plan;
  • (ii) use and exploit all or part of the land for its own purposes or to be cooperated with third party(ies) by way of entering into a land utilization agreement (perjanjian pemanfaatan tanah); and
  • (iii) determine tariffs and receive income/compensation and/or annual mandatory payment from third party(es) in accordance with an agreement.
  1. In the event that the utilization of the land with Right to Manage (Hak Pengelolaan) title is conducted by a third party, then such thid party may be granted with Right to Cultivate (Hak Guna Usaha), Right to Build (Hak Guna Bangunan) an/or Right to Use (Hak Pakai) title in accordance with the applicable laws and regulations. In this case, the relevant period of the Right to Build (Hak Guna Bangunan) title may be extended and/or renewed subject that the utilization of such land is in accordance with the purpose of the granting of such Right to Build (Hak Guna Bangunan) title.
  2. In the event that a plot of land with the Right to Manage (Hak Pengelolaan) title is granted with a Right to Own (Hak Milik) title, then such Right to Manage (Hak Pengelolaan) title will automatically cease to exist. Please note that this provision is only applicable for public housings and transmigration purposes.
  • OWNERSHIP OF MULTI STOREY HOUSINGS FOR FOREIGNERS

Prior to the enactment of the Omnibus Law, foreigners with the relevant stay permit in Indonesia may own house or multi-storey housing in Indonesia for residential purposes with a Right to Use (Hak Pakai) over such houses or multi-storey housing. With the enactment of the Omnibus Law, foreigners with the relevant stay permit in Indonesia may have multi-storey housing unit in Indonesia with a Right to Own (Hak Milik) title.

The Omnibus Law also provides that the Right to Own (Hak Milik) title over such multi-storey housing unit may be transferred and secured as a security in the form of mortgage.

In addition to that, the Omnibus Law now prohibits the development of multi-storey housings on the land with Right to Own (Hak Milik) title. Instead, multi-storey housings are now only permitted to be built on the following:

  1. Land with Right to Build (Hak Guna Bangunan) or Right to Use (Hak Pakai) title over state land; or
  2. Land with Right to Build (Hak Guna Bangunan) or Right to Use (Hak Pakai) title over Right to Manage (Hak Pengelolaan) title.

This may be intended to accommodate the fact that multi-storey housings in Indonesia are commonly developed by real estate companies where they are only entitled to own land with Right to Build (Hak Guna Bangunan) title instead of Right to Own (Hak Milik) title.

  • GRANTING OF LAND RIGHTS / RIGHT TO MANAGE (HAK PENGELOLAAN) TITLE ON THE ABOVE LAND SPACE AND THE BELOW LAND SPACE

The Omnibus Law provides that land or space formed on the above and/or below land space and utilized for certain activities may be granted with Right to Build (Hak Guna Bangunan), Right to Use (Hak Pakai), or Right to Manage (Hak Pengelolaan) title.

The introduction of this provision provides further clarity to the agrarian sector in Indonesia. Under the current regime, the applicable laws and regulations in the agrarian sector are silent on the provisions regarding the applicable land title for above and/or below land space. With the recent construction development trend in Indonesia that takes place on the above and/or below land space (e.g. construction of mass rapid transportations, light rapid transportations, flyover roads, tunnel roads), it is expected that this would give legal certainty in terms of the land ownership as well as any rights attached over such above and/or below land space.

Further provisions with respect to this matter will be regulated under a Presidential Regulation.

***

October 26, 2020

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New Regulation on Entry Restrictions for Foreigners During ‘New Normal’

In consideration of the continuous Covid-19 outbreak but with the need to recover the national economy, the Minister of Law and Human Rights (the “Minister”) enacted the Minister Regulation No. 26 of 2020 dated October 1, 2020 on Visas and Stay Permits During New Habits Adaptation or as commonly referred to as the “New Normal” (“Regulation 26”). The government viewed that the previous foreigners entry restrictions were no longer relevant nor needed in order to conform with the New Normal conditions.

The restrictions thereof were previously set out under the Minister Regulation No. 11 of 2020 dated March 31, 2020 on Temporary Restriction for Foreigners in Entering the Territory of the Republic of Indonesia (“Regulation 11”).  Regulation 26 revokes Regulation 11 effective as of October 1, 2020.

A summary of the salient provisions of Regulation 26 is set out below.

  • Comparison of Foreign Entry Restrictions

We set out below the comparison of foreigner entry restrictions under Regulation 26 and Regulation 11.

Regulation 11 Regulation 26
Only foreigners who meet the following specific criteria that are allowed to enter Indonesia:

·        A holder of a Limited Stay Permit (Izin Tinggal Terbatas) and a Permanent Stay Permit (Izin Tinggal Tetap);

·        A holder of a Diplomatic Visa and an Official Visa;

·        A holder of Diplomatic Stay Permit (Izin Tinggal Diplomatik) and an Official Stay Permit (Izin Tinggal Dinas);

·        A humanitarian aid worker;

·        A flight, sea, or land transportation crew member; or

·        An employee in a national strategy project.

Foreigners who meet the following criteria are allowed to enter Indonesia:

·        Official Visa and/or Official Stay Permit holders;

·        Diplomatic Visa and/or Diplomatic Stay Permit holders;

·        Travel Visa holders (which includes humanitarian aid workers);

·        Limited Stay Visa and/or Limited Stay Permit holders;

·        Permanent Stay Permit holders;

·        Transportation crew members;

·        Asia-Pacific Economic Cooperation (APEC) Businessmen Travel Card holders; and

·        Border crossers.

In addition the foregoing criteria, Regulation 26 stipulates that an eligible foreigner must enter through certain Immigration Examination Places. The Immigration Examination Places have been determined respectively in certain locations of (i) sea ports, (ii) airports, (iii) international borders posts, and (iv) traditional borders posts under the Minister Decree No. M.HH-01.GR.03.01 TAHUN 2020 dated October 15, 2020 on Certain Immigration Examination Place as the Entering Places During New Habits Adaptation. These entry places include: the Belawan Sea Port, the Soekarno-Hatta Airport, and the Aruk International Border Cross.

  • Visa and Permit Applications Procedures

Please see below the application procedures in order to apply for Travel Visas and Limited Stay Visas:

  1. The application shall be submitted by a Guarantor (i.e., an Indonesian individual or company) of the relevant foreign applicant to Director General of Immigration.
  2. The application must be submitted along with the following requirements:
  • a health certificate consisting of Covid-19 free statement in English, issued by an authorized institution;
  • a statement letter in English indicating the willingness to be in a self-funded quarantine or health facility in case the PCR test conducted in Indonesia is positive;
  • a statement letter indicating the willingness to be medically supervised during the quarantine; and
  • evidence of health insurance or travel insurance possession which covers health payment and/or statement letter indicating the willingness to self-fund any treatment if contracted with Covid-19 while in Indonesia.
  1. The Guarantor of the relevant Travel Visa applicant must provide evidence of possession of US$10,000 (ten thousand US Dollars) in cash or an equal amount in other currency, issued by a financial institution or bank in Indonesia (excluding foreigners who work as a humanitarian aid and transportation crew member).
  • Validity Extension Requirements for Existing Permits

We set out below brief explanation on the validity extension requirements for foreigners who have obtained certain permits:

  1. A Travel Stay Permit (which refers to (i) visas on arrival, (ii) one trip travel visas, (iii) multiple trips travel visas, and (iv) APEC Businessman Cards) holder who has been granted with an Emergency Stay Permit and who remains in Indonesia may submit an application to the Immigration Office for a validity extension period of maximum 30 (thirty) days. Alternatively, the application may be made for a conversion to Temporary Stay Permit.
  2. A Temporary Stay Permit or Permanent Stay Permit holder who has been granted with an Emergency Stay Permit and who remains in Indonesia may be granted with an extension based on the previous permits and for a Temporary Stay Permit it may be transferred to Permanent Stay Permit.
  3. Any Temporary Stay Permit, Permanent Stay Permit, or Re-Entry Permit from Expired Permanent Stay Permit which holder remains outside Indonesi, shall be deemed expired and the relevant foreigner must re-submit a visa application in order to enter Indonesia.

***

October 21, 2020

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DKI Jakarta Again Implements Transitional PSBB

Due to the declining positive and active cases of COVID-19 in DKI Jakarta, the Governor of DKI Jakarta decided to ease the Large-Scale Social Restrictions Activities (Pembatasan Sosial Berskala Besar or “PSBB”) policy by implementing a second transitional phase of PSBB. On October 9, 2020, the Governor of DKI Jakarta issued the Governor of DKI Jakarta Decree No. 1020 of 2020 dated October 9, 2020 on the Entry Into Force of the Large-Scale Social Restrictions Activities at Transition Period Towards A Healthy, Safe, and Productive Community (the “Decree”). The Decree regulates that the transitional PSBB will be effective for 2 (two) weeks as of October 12 to October 25, 2020, and may be extended if necessary.

The Decree refers to the Governor of DKI Jakarta Regulation No. 80 of 2020 dated August 19, 2020 on the Implementation of the Large-Scale Social Restrictions Activities at Transition Period Towards A Healthy, Safe, and Productive Community, as amended by the Governor of DKI Jakarta Regulation No. 84 of 2020 (collectively, “Regulation 80/2020”) for its implementation. Regulation 80/2020, in essence, stipulates that as an effort to achieve a healthy, safe, and productive community, Jakarta residents would be allowed gradually to carry out activities in certain places/public facilities.

The details on capacity allowed to carry out activities in such places/public facilities are specified in the Governor of DKI Jakarta Regulation No. 79 of 2020 dated August 19, 2020 on the Implementation of Discipline and Law Enforcement of Health Protocols as an Effort to Prevent and Control Corona Virus Disease 2019 (COVID-19), as recently amended by the Governor of DKI Jakarta Regulation No. 101 of 2020 dated October 9, 2020 (collectively, “Regulation 79/2020”).

The key provisions governed in Regulation 79/2020 are as follows:

  • Workplaces

The maximum capacity of a workplace at one time would be the responsibility of each Company. Nevertheless, Regulation 79/2020 requires employees to wear masks at a workplace at all times and has the employees’ body temperature verified prior to entering the workplace.

  • Religious places

Similar to the previous PSBB, maximum attendance in religious places shall be restricted to 50% (fifty percent) from the regular full capacity. Every person attending a religious place shall bring his or her own religious/worship equipment.

  • Restaurants

Dine-in visitors at a restaurant shall be limited to no more than 50% (fifty percent) from the regular full capacity of the restaurant. Further, restaurants are required to list all of the visitors for the purpose of epidemiology investigation in the event there is a confirmed case of COVID-19.

  • People Movement Using Public Transportation

All mass public transportation is limited to the maximum capacity of 50% (fifty percent) of the regular full capacity. For vehicles, the capacity is restricted to 2 (two) persons per row.

In addition to the abovementioned provisions, the DKI Jakarta Government also announced that cinemas (movie theaters) may now reopen and wedding ceremonies may be held at indoor venues with the maximum capacity of 25% (twenty-five percent) from full capacity. Every person shall sit at least 1.5 (one and a half) meters away from each other.

Except for religious places, any violation of the provisions on workplaces, restaurants, and public transportation would be subject to administrative sanctions such as follows:

  1. One time violation may be subject to a fine of Rp50,000,000 (fifty million Rupiah);
  2. Two-time violation may be subject to a fine of Rp100,000,000 (one hundred million Rupiah); and
  3. Three-time violation may be subject to a fine of Rp150,000,000 (one hundred and fifty million Rupiah).

A violation of any provision on religious places may be subject to a written warning from the relevant government agency.

***

October 14, 2020

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