BI Sets July 1 Deadline for Mandatory Use of Rupiah for Transactions in Indonesia
The obligation to use Rupiah in Indonesian transactions has long been established under the Currency Law (Law No. 7 of 2011 on Currency). Recently, however, Bank Indonesia took major steps to accelerate compliance by issuing Regulation No. 17/3/PBI/2015 on Mandatory Use of Rupiah within the Territory of the Republic of Indonesia (“BI Regulation”), which was issued on March 31, 2015, and its accompanying Circular Letter No. 17/11/DKSP, dated June 1, 2015 (“BI Circular”). In summary, Rupiah must be used in all financial transactions in Indonesia, except for certain exemptions, which are described below.
For purposes of immediate implementation, agreements on payment or settlement of obligations in foreign currency that were executed prior to July 1, 2015, will remain valid until expiration, along with any derivative (or subsequent) agreements, such as delivery or purchase orders. After July 1, 2015, all new transactions, as well as any extension or amendment of an existing agreement, will be subject to the new provisions.
♦ Mandatory Use of Rupiah
In order to encourage the use of Rupiah, the BI Regulation obliges businesses to state the price of goods and services only in Rupiah. The BI Circular strengthens this obligation by prohibiting dual quotation in Rupiah and foreign currency. All parties are prohibited from rejecting payment in Rupiah, unless the authenticity of Rupiah banknotes is in doubt or the use of foreign currency has been stipulated in certain limited types of agreements (described below).
The Currency Law and the BI Regulation require that Rupiah must be used (and cannot be refused) in almost all types of transactions, as follows:
- transactions with the purpose of making payment;
- discharge of any obligation with money; and
- any other financial transaction (which is defined as including deposit of cash into a commercial bank).
Strategic infrastructure projects¹ sanctioned by the relevant ministry or agency and approved by Bank Indonesia are exempted from the mandatory use of Rupiah, as is the ongoing sale of goods or services produced by the project, if such has been agreed in advance. For example, we understand this to mean that an Independent Power Producer (IPP) project can stipulate a long term feed-in tariff in currency other than Rupiah.
Other exempted transactions are:
- certain transactions in the framework of the state budget;²
- gifts/grants made to or from overseas;
- international trade transactions;³
- bank savings in foreign currency; and
- international financing transactions, such as offshore loans from banks or private parties.
In addition, the obligation to use Rupiah will not apply to transactions “based on the provisions of laws,” which are:
- foreign currency activity performed by banks based on the Banking Law or the Syariah Banking Law;
- bonds issued by the Government in foreign currency; and
- other transactions based on laws that regulate transactions in foreign currency, such as the laws on Bank Indonesia, capital investment and export financing institution.
♦ Examples of Application of the Policy
- Capital injection
Because there is an exemption for transactions based on investment laws, capital injection for issuance of shares or other securities, such as convertible bonds, can be made in foreign currency.
- Payment of wages
Rupiah must be used for payment of wages. Under Government Regulation No. 8/1981 on Wage Protection, an employment contract may stipulate a salary in foreign currency, but payment shall still be in Rupiah, according to the applicable exchange rate on the day of payment. Under the Currency Law, the BI Regulation, and the BI Circular, this is still the case, and the employee may not refuse payment in Rupiah.
However, according to the BI Circular, expert staff assigned by a foreign home office to work in Indonesia can be paid in foreign currency.
Payment in Indonesia for goods imported from overseas may be in foreign currency, because it is an international trade transaction. However, this requirement presents difficulty to importers who buy goods from overseas to resell in Indonesia, if the price to the overseas supplier must be paid in foreign currency, while the price for the Indonesian customer must be stated and received in Rupiah.
♦ Policy Exceptions Available from Bank Indonesia
Impacted businesses may apply for a policy exception from BI if they face problems relating to using Rupiah for non-cash transactions. BI will assess the request based on the readiness of the business, continuity of business, investment, and growth of the national economy.
The following sanctions are regulated under the Currency Law:
- Violation of the obligation to use Rupiah is subject to imprisonment of up to one year and fine of up to Rp200,000,000.
- Refusal to accept Rupiah is subject to imprisonment of up to one year and fine of up to Rp200,000,000.
- Companies are subject to the same monetary fines, but the maximum amount of the fine is increased by 1/3. In addition, violators may suffer revocation of business licenses. If the company cannot pay the fine, the assets of the company or the management can be seized.
The BI Regulation regulates the following sanctions:
- Failure to use Rupiah for non-cash transactions shall be imposed with administrative sanctions:
- warning letter;
- obligation to pay 1% of the transaction value, up to Rp1,000,000,000; and
- prohibition from participating in payment transactions.
- Failure to state the price of goods or services in Rupiah shall be imposed with administrative sanction in the form of warning letter.
- Bank Indonesia may also recommend revocation of the business license or cessation of business activity to the relevant agency.
- Applicants for a policy exception or strategic infrastructure exception whose applications are denied will be subject to administrative sanctions (as applicable) effective July 1, 2015.
Copyright © 2015 AKSET. All rights reserved.
June 16, 2015
Please contact Johannes C. Sahetapy-Engel [email@example.com] for further information.
The foregoing material is the property of AKSET and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.
- June 16, 2015