Implementation of Sharia Principles in Capital Markets

In November 2015, the Financial Authority Services (Otoritas Jasa Keuangan – “OJK”) issued Regulation No. 15/POJK.04/2015 on Implementation of Sharia Principles in Capital Markets (“POJK 15”), replacing Bapepam-LK Regulation No. IX.A.13 concerning Issuance of Sharia Securities (“Bapepam Reg. IX.A.13”).

Compared with Bapepam Reg. IX.A.13, POJK 15 provides more detailed qualifications on the types of capital market transactions that are considered to contravene sharia principles, and elaborates more detailed provisions on sharia principles such as (i) requirements for sharia securities, (ii) types of sharia parties, (iii) Sharia Monitoring Board (Badan Pengawas Syariah – “BPS”), and (iv) reporting obligations, as will be explained further below.

Capital market sharia activities consist of (i) offering of sharia securities, (ii) trading of sharia securities, (iii) management of sharia investments in capital markets, (iv) activities of issuers and public companies in relation to sharia securities issued by them, (v) activities of securities companies conducted under sharia principles, and (vi) the entities and professions relating to sharia securities.

♦  Activities and Transactions that Contravene Sharia Principles

Business activities that contravene sharia principles

  • betting and games that are categorized as gambling;
  • financial services that constitute usury (riba);
  • sale and purchase of risks that consist of uncertainty (ghahar) or gamble (maisir); and
  • production, distribution, trading, or procurement of (i) goods/services forbidden based on substance (haram li-dzatihi), (ii) goods/services forbidden not based on substance (haram li-gharihi) as stipulated by the National Sharia Board (Dewan Syariah Nasional – “DSN”) – Indonesian Ulama Council (Majelis Ulama Indonesia - “MUI”), and/or (iii) goods/services that are morally corrupt and mudharat

The qualifications are basically the same as under Bapepam Reg. IX.A.13, however POJK 15 deletes the restriction on acquisition of a company that at the time of acquisition has loans from usury financial entities (lembaga keuangan ribawi) that are greater than its equity.

Transactions that contravene sharia principles

  • trading/transaction with fake offering or demand;
  • trading/transaction with no delivery of goods or services;
  • trading of goods that are not owned;
  • insider trading;
  • marginal transaction of sharia securities that includes interest (riba);
  • trading/transaction with purpose of hoarding (ihtikar);
  • trading/transaction that includes the substance of bribery (risywah); and
  • other transactions that include speculation (gharar) or fraud (tadiis), including the conceal of defect (ghisysy) and the effort to influence another party that is deceitful (taghrir).

♦  Requirements for Sharia Securities

POJK 15 defines the types of securities that can be deemed Sharia Securities, among others, sukuk, mutual funds, asset backed securities, and any other securities stipulated by OJK.

The securities should be in accordance with the schemes of contract (akad) stipulated under Bapepam-LK Regulation No. IX.A.14 concerning Contracts Used in the Issuance of Sharia Securities in Capital Markets or any other contract (akad) that does not contravene sharia principles, such as:

  • Ijarah, the lease of goods or services for a certain period of time, with payment during the lease period;
  • Istishna, an arrangement for the seller to sell certain products (istishna objects) to the buyer;
  • Kafalah, a guarantee between a borrower and a guarantor to guarantee the liabilities of the borrower;
  • Mudharabah (qiradh), cooperation of fund management in a specific business between the fund owner and the fund manager;
  • Musyarakah, an agreement between parties to participate in capital either in the form of money or other form, to conduct a business; and
  • Wakalah, an agreement between a principal and a proxy for the proxy to conduct certain actions.

♦  Sharia Parties

Three types of parties may conduct sharia activities:

  • AOA sharia party: a party that states sharia activities in its Articles of Association;
  • Sharia services provider: a party that does not state sharia activities in its AOA, but

- has a sharia business unit;

- is a sharia investment manager;

- is custodian of a sharia investment;

- part of its business activities are conducted in accordance with sharia principles in the capital market; or

- provides other sharia services; and

  • Sharia issuer: a party that that is neither of the above, but issues Sharia Securities and/or has the role to support the issuance of Sharia Securities in the capital market.

♦  Sharia Monitoring Board (Badan Pengawas Syariah – “BPS”)

Before the enactment of POJK 15, only AOA sharia parties and sharia investment managers were obliged to form a BPS. After the enactment of POJK 15, sharia services providers must appoint a BPS, director, or person in charge to supervise and monitor the implementation of sharia principles in the company. Sharia issuers are not obliged to form a BPS.

Based on the Company Law (Law No. 40 of 2007), the BPS shall be appointed by the General Meeting of Shareholders (“GMS”), while under POJK 15, the BPS may be appointed by: the GMS, any resolution equal to GMS, or the directors of the company.

The BPS may be an individual or a business entity that has obtained a license as an Expert in Sharia Capital Markets (Ahli Syariah Pasar Modal –”ASPM”) from OJK. An ASPM can be appointed as BPS in up to four companies and can only hold dual-positions as director/commissioner in two other companies engaging in capital markets.

♦  Reporting Obligation

Sharia parties must report their fulfillment of sharia principles to OJK. The reports shall be drafted by the BPS (for AOA sharia parties and sharia investment managers), or a director/person in charge (for sharia services providers, other than sharia investment managers).

The reports shall be submitted to OJK simultaneously with the annual report or annual financial report.

February 12, 2016

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New OJK Regulation on Bank Business Plan

On January 26, 2016, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) issued Rule No. 5/POJK.03/2016 concerning Bank Business Plan (Rencana Bisnis Bank ­– RBB”) (“POJK 5”), which replaces Bank Indonesia (BI) Regulation No. 12/21/PBI/2010 concerning Bank Business Plan (“PBI 12”). After the enactment of POJK 5, the implementing regulations of PBI 12 will still be applicable for as long as they do not contravene POJK 5.

Generally, the provisions under POJK 5 are similar to PBI 12. Below we set out certain key provisions.

♦  Formulation of RBB

Commercial banks must formulate RBBs annually, drafted by the Board of Directors (BOD) and approved by the Board of Commissioners (BOC).

The RBB shall consider the following:

  • external and internal factors that might affect the business continuity of the bank;
  • prudential principles
  • implementation of risk management
  • banking soundness principles

In the event a bank has a sharia business unit, the RBB should also include a specific business plan for the sharia unit, which forms an integral part of the RBB.

♦  Substance of RBB

Under POJK 5, RBB should consist of the following:

  • executive summary
  • management strategy policy
  • application of risk management and bank’s recent performance
  • financial statement forecast and assumptions used
  • ratios forecast and other certain posts
  • funding plan
  • fund investment plan
  • capital participation plan
  • capitalization plan
  • organization improvement and human resources
  • product issuance plan and/or office network changes
  • other information

The requirement for a capital participation plan is new under POJK 5. The capital participation plan shall consist of:

  • business sector
  • forecast of funds that will be injected
  • percentage of ownership including controlling aspects
  • any plan for sharia business unit spin-off

♦  Submission and Reporting Obligations

Submission of RBB

The bank shall submit the RBB no later than end-November each year. The RBB is subject to comment from OJK.

Under certain conditions that may significantly affect the bank’s performance, a bank may revise/amend the RBB. Such revision/amendment should be submitted to OJK no later than end-June of the current year.

Realization Reporting

The Bank shall submit quarterly RBB realization reports:

  • at the latest 1 month after the quarter ends; or
  • for banks lacking an online office delivery system with more than 100 hundred branches, at the latest 45 calendar days after the quarter

Supervision Reporting

The bank shall submit RBB supervision reports once per semester at the latest 2 months after the semester ends.

♦  Sanctions

Sanctions for Noncompliance with Reporting Obligations

If the bank is late in submitting the RBB, RBB realization report, or RBB supervision report, it shall be imposed with penalty of IDR 1 million per working day.

In the event the bank fails to submit the report(s) within a month after the end of the reporting period, the bank will be deemed not submitting and will be imposed with additional penalty of IDR 50 million.

Sanctions for Violation of POJK 5

For any violation of other provisions of POJK 5, the bank may be imposed with administrative sanctions:­ (i) warning letter, (ii) downgrading of bank’s soundness level, (iii) freezing of certain business activity, (iv) inclusion of bank’s management and/or shareholders on the list of parties who are automatically disqualified for the fit and proper test.

January 29, 2016

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New Regulation Allows Port Concessions through Appointment and Regulates Mandatory Transfer of Facilities

On August 19, 2015, the President enacted Government Regulation No. 64 of 2015 amending Government Regulation No. 61 of 2009 on Ports (the “New Port Regulation”) in order to stimulate investment in port infrastructure by allowing Port Administrators to use direct assignment and appointment to grant port concessions. To implement the New Port Regulation, the Minister of Transportation issued Regulation No. 15 of 2015 on Concession and other forms of Cooperation between the Government and Port Business Entities in the field of Ports, which was later amended by Regulation No. 166 of 2015 (“MOT Reg. 15/2015”).

♦  Assignment and Appointment

As opposed to Government Regulation No. 61 of 2009 (the “Old Port Regulation”), which authorized concessions solely by way of public tender, the New Port Regulation allows Port Business Entities (Badan Usaha Pelabuhan - “BUPs”) to receive concessions by way of assignment or appointment in cases where the land is already owned or controlled by the BUP and the investment is fully covered by the BUP (i.e., does not utilize funds from the State/Regional Budget).

To obtain a concession by assignment or appointment, the BUP applies to the Port Administrator, who forwards the application and preliminary feasibility studies to the Directorate General of Sea Transportation. If the application and feasibility studies are deemed sufficient, the BUP and the Port Administrator can execute a concession agreement. MOT Reg. 15/2015 provides some minimum requirements for concession agreements, such as concession fee, ownership and use of infrastructure, and a clause covering transfer of port facilities to the Port Administrator at the end of the concession period.

The concession fee must be at least 2.5% of the total gross profit during the concession period.

MOT Reg. 15/2015 further provides that concessions for ports that were built, developed and/or operated prior to the enactment of Law No. 17 of 2008 on Shipping shall now be granted by way of assignment/appointment and may be extended in accordance with prevailing laws and regulations. This includes development of facilities that were built or developed by: i) the Government and stipulated as State Capital Participation in Port State-Owned Enterprises (BUMN Kepelabuhanan), ii) BUMN BUPs, and iii) Non-BUMN BUPs.

♦  Post-Concession Transfer of Land and Facilities

Concession land and facilities must be transferred to the Port Administrator by the end of the concession agreement as documented by a Minutes of Transfer (Berita Acara Serah Terima Fasilitas Pelabuhan dan Lahan) and a Handover Document (Dokumen Serah Terima) covering i) condition of the land and facilities being transferred, ii) procedure for transfer, iii) statement that the land and facilities are free from encumbrance, and iv) the BUP’s indemnification of the Government against any third party claims arising prior to the transfer.

♦  Utilization Cooperation

After the land and facilities have been transferred to the Port Administrator, they can again be handed over to a BUP based on a Joint Utilization Cooperation (Kerjasama Pemanfaatan). MOT Reg. 15/2015 provides the minimum contents of a Joint Utilization Cooperation Agreement, including scope of cooperation, initial tariff and adjustment, service standards, use and ownership of assets, and profit sharing scheme.

The New Regulation does not limit the period of the Joint Utilization Cooperation, as opposed to the Old Regulation, which regulated a maximum period of 30 (thirty) years.

January 28, 2016

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Indonesia Boosts Investment Activities Through Special Economic Zones (SEZs)

To accelerate economic development and job growth, the government enacted Law No. 39 of 2009 on Special Economic Zones (“SEZs”).

♦ INCENTIVES AND FACILITIES

SEZs attract investors by offering a number of facilities and incentives, including:

  • Exclusion from restrictions under the Negative Investment List (except for reservations for SMEs and cooperatives)
  • Income tax facilities
  • Land and building tax reductions
  • Import facilities, including: (i) waiver of import duty, excise, VAT, luxury tax and import income tax; (ii) waiver or reduction of regional taxes and levies; (iii) facilities in obtaining land rights; and (iv) facilities in obtaining licenses and immigration documents
  • Facilities in licensing and non-licensing

♦ BUSINESS ACTIVITIES

Each SEZ consists of one or several business zones utilized in accordance with the designation, such as:

  • Export processing
  • Logistics
  • Industry
  • Technology development
  • Tourism
  • Energy
  • Other (i.e., creative industry and sports)

♦ LOCATIONS

To date, there are eight SEZs in Indonesia:

  • Sei Mangkei, North Sumatera (palm oil, rubber, and fertilizer processing; logistics; tourism)
  • Tanjung Api-api, South Sumatera (rubber and oil processing, petrochemicals)
  • Tanjung Lesung, Banten (tourism)
  • Mandalika, West Nusa Tenggara (tourism)
  • Maloy Batuta Trans Kalimantan, East Kalimantan (palm oil, logistics)
  • Palu, Central Sulawesi (manufacturing; cocoa, rubber, seaweed and rattan; nickel, iron, and gold processing; logistics)
  • Bitung, North Sulawesi (fisheries processing, coconut-based industrial and medicinal plants, various industries, logistics)
  • Morotai, North Maluku (tourism, fisheries processing, business, logistics)

♦  GOVERNMENT BODIES

Government administration of SEZs is divided into three tiers: National Committee, Regional Committees, and Administrators. The National Committee generates the SEZ master plan, reviews SEZ establishment proposals, issues recommendations for SEZ establishment, and determines the general policies and strategic measures within the SEZs. Regional Committees are established by province and are tasked with establishing the SEZ Administrators and with monitoring, controlling, evaluating and coordinating SEZ operations. Administrators issue business licenses to entities inside the SEZs. All licenses, approvals and other official documents are now obtained from the one-stop-service office under delegation from the relevant government institutions.

Please also see our Newsflash on “Introduction to Bonded Storage Areas”.

January 21, 2016

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OJK Re-regulates Venture Capital Business

On December 28, 2015, the Financial Services Authority (Otoritas Jasa Keuangan – OJK”) issued new regulations governing venture capital business, which was previously regulated by the Ministry of Finance (“MOF”). The new regulations cover:

  1. Arrangement of Venture Capital Company Business (Reg. No. 35/POJK.05/2015)
  2. Licensing and Organization of Venture Capital Companies (Reg. No. 34/POJK.05/2015)
  3. Good Corporate Governance for Venture Capital Companies (Reg. 36/POJK.05/2015)
  4. Direct Inspection of Venture Capital Companies (Reg. 37/POJK.05/2015)

(collectively, the “New Regulations”) and include provisions on traditional and Sharia venture capital business.

The venture capital sector was previously regulated under MOF Regulation No. 18/PMK.010/2012 on Venture Capital Companies (“Old Regulation”). The New Regulations are intended to revitalize the venture capital sector and elaborate more detailed requirements in response to the rapid increase of venture capital activities in recent years.

♦  ARRANGEMENT OF VENTURE CAPITAL BUSINESS

The New Regulations expand the types business activities that can be carried out by Venture Capital Companies (“VC Companies”). Unlike the Old Regulation, which limited venture capital activities to equity participation, quasi equity participation (convertible securities) and financing based on profit/revenue sharing, the New Regulations expand the activities of VC Companies as follows:

  • equity participation;
  • quasi equity participation (convertible securities);
  • financing through purchase of debt securities issued by venture partner (pasangan usaha) in the stages of start-up and/or business development; and
  • financing of productive business (including financing based on profit/revenue sharing),

(collectively, “VC Business Activities”).

In carrying out VC Business Activities, a VC Company may manage Venture Funds (i.e., joint investment contract between the VC Company /Sharia VC Company and custodian bank, whereby the VC Company/Sharia VC Company is authorized to manage investor funds that will be used for VC Business Activities) and provide mentoring assistance (pendampingan) to the venture partner and/or debtor. The New Regulations also allow VC Companies to provide fee-based services and other business activities subject to OJK approval.

Similar with the Old Regulation, in financing productive business, a VC Company may cooperate with other parties in the form of channeling or joint financing activities. Note, however, that the New Regulations require the VC Company to carry out risk mitigation in this regard.

In addition, several general requirements under the New Regulation must be considered, e.g.

  • minimum of 15% of VC Company’s portfolios to be equity or quasi equity participation within 3 years of receiving a business license;
  • maintaining an Investment and Financing to Assets Ratio (IFAR) of at least 40% within 3 years of receiving a business license;
  • minimum equity of a VC Company in the form of limited liability company (PT) is Rp50 billion, and in the form of cooperative (koperasi) or limited partnership (perseroan komanditer/CV) is Rp25 billion;
  • maintaining equity to paid-up capital ratio of at least 30%.

♦  LICENSING AND ORGANIZATION

Cooperatives and limited partnerships are limited to Indonesian investment, while VC Companies formed as PT can be owned by (i) Indonesian citizens; (ii) Indonesian legal entities; (iii) foreign entities or institutions (iv) Indonesian state government; and/or (v) regional government. The maximum foreign shareholding (either direct or indirect) is 85%, and a VC Company may only trade 85% of its shares on the stock exchange.

In order to commence operations, a VC Company must apply for a business license from OJK (“OJK License”). The application review period is now 30 working days (30 calendar days under the Old Regulation), and the deadline to commence operation after issuance of the OJK License has been extended from 2 months  to 6 months. OJK has also increased the paid up capital requirement at the time of establishment to Rp50 billion for a PT and Rp25 billion for cooperatives and limited partnerships.

A VC Company’s organizational structure must have the following functions: (i) administration and bookkeeping; (ii) feasibility analysis; (iii) risk management, including internal control; (iv) financing management, including investment portfolio management; and (v) anti-money laundering program and terrorism funding prevention.

The use of foreign manpower is also regulated under the New Regulations.

♦  GOOD CORPORATE GOVERNANCE

The New Regulations provide greater details on Good Corporate Governance (“GCG”), which require a VC Company to integrate GCG principles in carrying out their activities, including transparency, accountability, responsibility, independence, and fairness. The aim is to optimize the value of the VC Company, increase development of the VC Company, and increase their contribution to the national economy. Guidelines must be made to implement these principles. Self-assessment of GCG implementation must be conducted and a report submitted to OJK periodically.

In addition, a VC Company must have at least two members of the Board of Directors (“BOD”). The entire BOD of VC Companies that are 100% Indonesian owned  must be Indonesian citizens, while PMA VC Companies must have at least one Director who is an Indonesian Citizen. All BOD members must be domiciled in Indonesia. BOD obligations and prohibitions are provided under the New Regulations.

For Board of Commissioners (“BOC”) requirements, a VC Company having assets of more than Rp500 billion must have at least (i) two members of the BOC, at least one of whom must be domiciled in Indonesia; and (ii) one Independent Commissioner. The BOC’s obligations and prohibitions are also provided under the New Regulations.

♦  DIRECT INSPECTION

One of the substantial changes under the New Regulations is a separate regulation on direct inspection of VC Companies by OJK. OJK may appoint third party inspectors. Direct inspection is intended to ensure that the annual reporting to OJK is in accordance with the actual situation of the VC Company and to assess the company’s compliance with relevant regulations.

Direct inspection may be carried out once every three years, or any time as necessary. Inspection includes examination of books, records and relevant documents, verbal confirmation with company staff and officers, physical inspection of documents, money or goods, and information from third parties that bears any relation to the VC Company.

Copyright © 2016 AKSET. All rights reserved.

January 20, 2016



Importer Identification Numbers Reregulated

As a part of the Economic Policy Packages launched by President Joko Widodo, the Minister of Trade issued the Minister of Trade Regulation No. 70/M-DAG/PER/9/2015 on Importer Identification Numbers (the “New Regulation”) on September 28, 2015. This regulation replaces the previous Minister of Trade Regulation No. 27/M-DAG/PER/5/2012 on Provisions on Importer Identification Numbers as lastly amended by Minister of Trade Regulation No. 84/M-DAG/PER/12/2012 (collectively, the “Previous Regulation”). The issuance of the New Regulation is aimed for ease of trade and logistics. The New Regulation will be in force as of January 1, 2016.

Same as the provision under the Previous Regulation, under the New Regulation, a company may only hold one of the two types of the Importer Identification Number (Angka Pengenal Importir – “API”), which are:

  1. General Importer Identification Number (Angka Pengenal Importir Umum – “API-U”), which may only be granted to a company that imports goods to be traded; and
  2. Producer Importer Identification Number (Angka Pengenal Importir Produsen – “API-P”), which may only be granted to a company that imports goods to be used in its production process.

♦  No limitation on goods that may be imported by API-U holders

Previously, goods that may be imported by an API-U holder were limited to goods that are classified under one section in the Goods Classification System under the relevant laws and regulations or as commonly known as the Harmonized System (“HS”) Code. There was an exception to this limitation under the Previous Regulation, which was if the API-U holder is importing goods from overseas companies that have special relationship with the API-U holder or if the API-U holder is a state-owned company. Under the New Regulation, there is no limitation on the types of goods that may be imported by an API-U holder and there is no requirement to have special relationship with the overseas companies if an API-U holder wishes to import goods that are classified under more than one sections in the HS Code.

♦  API-P holders can no longer import certain industrial goods to be traded

Under the Previous Regulation, it is possible for an API-P holder, after being determined as an Importer Producer (Produsen Importir) to import certain industrial goods to be traded or transferred to other parties, provided that the goods are imported for the purpose of market test and/or complementary goods, not to be used in the production process of the importer. This provision no longer exists under the New Regulation. Therefore, under the New Regulation, API-P holders are only permitted to import goods to be used in their production process.

♦  Delegation of authority

Under the New Regulation, the Minister of Trade delegates the authority to issue the API to:

  1. the Chairman of the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”), for capital investment companies which licensing is under the authority of the central government (e.g., Foreign Capital Investment (Penanaman Modal Asing – “PMA”) companies);
  2. the Director General of Foreign Trade of the Ministry of Trade, for business entities or contractors in the energy, oil and gas, mineral and other natural resources sectors, which business is based on cooperation contracts with the Government of the Republic of Indonesia;
  3. the Heads of Free Trade and Free Port Zone Authorities, for companies that are established and domiciled in the free trade and free port zones; and
  4. the Chairman of Provincial Trade Department, for companies other than referred to in points a to c above.

The New Regulation also stipulates that the issuance of the API by the Chairman of BKPM is further regulated by the Chairman of BKPM. The procedures for the issuance of the API by the Chairman of BKPM is further regulated in the Chairman of BKPM Regulation No. 15 of 2015 on Guidelines and Procedures for Capital Investment Licensing and Non-licensing. The procedures including the requirement to attach a copy of Foreign Manpower Utilization License (Izin Mempekerjakan Tenaga Asing/IMTA), Limited Stay Permit (Kartu Izin Tinggal Terbatas/KITAS), Taxpayer Identification Number (Nomor Pokok Wajib Pajak/NPWP) and passport along with the application if the signatory of the API is a foreign citizen.

♦  Adjustment of API

After the entry into force of the New Regulation on January 1, 2016, the API-U and API-P that were issued pursuant to the Previous Regulation remain valid but have to be adjusted with the New Regulation by no later than June 30, 2016. The adjustment of the API shall be processed with the relevant institution in accordance with the delegation of authority from the Minister of Trade as explained above.

Copyright © 2015 AKSET. All rights reserved.

November 9, 2015



Minister of Manpower Regulation No. 16 of 2015 Amended

On October 23, 2015, the Minister of Manpower issued Regulation No. 35 of 2015 (“Regulation 35”) to amend certain provisions of the Minister of Manpower Regulation No. 16 of 2015 (“Regulation 16”). The amendment is made due to certain concerns raised by stakeholders.

The key amendments are as follows.

♦ The 1:10 Ratio

The ratio of 1 expatriate to 10 Indonesian employees is now removed.  The 1:10 ratio was in Article 3 of Regulation 16.

♦Expatriates as a BOC Member in PMDN Company

Regulation 35 now restricts a Domestic Capital Investment Company (a “PMDN Company”) to have an expatriate commissioner.

♦ Temporary RPTKA and Temporary IMTA

A Temporary RPTKA (the Plan of Utilization of Foreign Manpower) and a Temporary IMTA (the permit to employ an expatriate) are now only required only for: (i) participating in a production of commercial movie, (ii) conducting audit, production control, or inspection to branch office in Indonesia for more than 1 (one) month, and (iii) performing work related to installation of machinery, electricity, after sales, or products during business observation phase.

Expatriates who attend meetings or speaking in seminars no longer require a Temporary RPTKA and a Temporary IMTA.

Temporary IMTAs will only be valid for the maximum of 6 (six) months and may not be extended.

♦ IMTA for Non-Resident BOD and BOC Members

Directors and commissioners who are not residing in Indonesia no longer require IMTAs.  Consequently, they are not required to obtain Indonesia tax registration numbers (known locally as NPWP).

♦ DKP-TKA payment in US Dollars

The requirement to convert the DKP-TKA fee from US Dollars to Rupiah has been revoked, and the DKP-TKA will be paid in US Dollars.

♦ Transitional Provisions

For companies who have paid the DKP-TKA fee for their non-resident BOD and BOC members as well as for the Temporary IMTA applications prior to the issuance of Regulation 35, such DKP-TKA fee is not refundable.

Copyright © 2015 AKSET. All rights reserved.

October 29, 2015



Debt-to-Equity Ratio Determined by Government

Debt-to-Equity Ratio Determined by Government

After more than 30 years, the Minister of Finance finally issued a regulation to determine the debt-to-equity ratio (the “DER”) for certain corporate taxpayers for the purpose of calculating the payable income tax of the corporate taxpayers. Article 18(1) of Law No. 7 of 1983 regarding Income Tax, dated December 31, 1983, as lastly amended by Law No. 36 of 2008, dated September 23, 2008 (the “Income Tax Law”) authorizes the Minister of Finance to determine the DER for certain corporate taxpayers.

This authority was implemented more than 30 years ago under the Minister of Finance Decree No. 1002/KMK.04/1984 dated October 8, 1984 regarding Stipulation of Debt-to-Equity Ratio for Purposes of Imposing Income Tax.  But in March 1985, the Minister of Finance issued Decree No. 254/KMK.01/1985 dated March 8, 1985 to suspend the application of the DER under the 1984 Decree.

Now the Minister of Finance has issued Regulation No. 169/PMK.010/2015 dated September 9, 2015 regarding Stipulation of Ratio between Debt and Equity for Companies for Purpose of Income Tax Calculation, (“Regulation 169”). Regulation 169 revokes both the 1984 Decree and the 1985 Decree. Regulation 169 is to be issued by the DGT to further regulate this matter.  Summary of pertinent provisions follows.

♦ Debt-to-Equity Ratio

Under Regulation 169, the maximum DER for corporate taxpayers (established or carrying out activities in Indonesia) is one to four, i.e., one for equity and four for debt.  The DER is solely for the purpose of calculating the income tax of the corporate taxpayers, rather than for other purposes such as the debt-to-equity ratio required by the Capital Investment Coordinating Board (in Indonesian in short, BKPM) for foreign capital (PMA) companies.

This limitation starts to apply for the 2016 tax year. As comparison, the 1984 Decree determined the maximum DER of one to three.

♦ What is Debt?

Under Regulation 169, ‘debt’ means long-term and short-term debts as well as interest-bearing trade debts. The amount of the debt is determined for one tax year or any part thereof based on the average amount of debt as at the end of each month within one tax year or any part of the tax year.

♦ What is Equity?

Under Regulation 169, ‘equity’ means equity/capital determined by the applicable financial accounting standards and non interest-bearing loans from parties that have special relationships with the corporate taxpayers.  The amount of equity is also determined for one tax year or any part thereof based on the average amount of equity as at the end of each month within one tax year or any part of the tax year.

♦ Deductions for Income Tax Calculation

If a debt-to-equity ratio of a corporate taxpayer exceeds 1:4, the corporate taxpayer in calculating its income tax may only deduct debt costs up to the 1:4 ratio set out in Regulation 169.

The debt costs are costs incurred by the corporate taxpayer in relation to the debts which include the following:

  1. Loan interests;
  2. Discounts and premia in relation to loans;
  3. Additional costs incurred in arrangement of borrowings;
  4. Financial costs in lease finance;
  5. Fees for guarantee for payment of loan; and
  6. Foreign exchange losses arising from non-Rupiah borrowings to the extent the losses are the result of an adjustment to the interest cost and the specific costs noted in 1 to 5 above.

♦ Exclusions of Maximum DER

The maximum DER under Regulation 169 does not apply to:

  1. Banks;
  2. Finance companies;
  3. Insurance and reinsurance companies;
  4. Corporations engaging in the oil and gas sector, general mining, or in other types of mining bound by production sharing contracts (kontrak bagi hasil), contracts of work (kontrak karya) or mining cooperation agreements (perjanjian kerjasama pengusahaan pertambangan) that specify their respective DER;[1]
  5. Corporations that have secured final income tax calculations; and
  6. Corporations in the infrastructure sector.

♦ Foreign Loan Reporting Obligation

In addition to the DER threshold, Regulation 169 requires corporate taxpayers regarding their foreign loans to the Director General of Tax (the “DGT”). Failure to report the offshore loans prevents the taxpayers from deducting the costs of its foreign loans in its income tax calculation.  The procedures for the loan reporting will be contained in a DGT regulation.

Copyright © 2015 AKSET. All rights reserved.

September 25, 2015



New Procedures on Expatriate Utilization Permits

Less than 2 years from the previous rules on expatriate utilization (Minister of Manpower and Transmigration Regulation No. 12 of 2013), the Minister of Manpower recently enacted the new procedures of expatriate utilization under Minister of Manpower Regulation No. 16 of 2015 on Expatriate Usage Procedures (the “New Regulation”).

We describe certain new requirements in the New Regulation below.  We note that some of the new requirements may present difficulty or be more burdensome (if not impractical) for a client’s operations or management.

  1. 1:10 Ratio. There is now a ratio of 1:10 for each expatriate hired. In other words, an employer is required to recruit 10 Indonesians workers for each expatriate it hires. Previously, this ratio only applied to trade representative offices that had a 1:3 ratio.
  1. Online Submission and Processing. All applications are now submitted online.
  1. More Elaborate RPTKAs. There are several types of the plan of expatriate utilization (known in short as “RPTKA”), including RPTKA for urgent and emergency work, RPTKA for temporary work, RPTKA for special economic zones, RPTKA for maritime purposes, RPTKA for the entertainment industry, and RPTKA for karaoke workers.
  1. Mandatory NPWP. An expatriate who works for more than 6 months must now obtain a tax registration number (known in short as “NPWP”). This may be an issue for expatriates because the Income Tax Law (Law No. 7 of 1983 and its amendments) contemplate the tax on worldwide income.
  1. Mandatory Local Insurance Policy. Every expatriate in Indonesia, including directors and commissioners, must have insurance policy from an Indonesian insurance company.
  1. Mandatory JSN. An expatriate who works for more than 6 months must participate with the National Social Security coverage, i.e., BPJS Kesehatan (Health coverage) and BPJS Ketenagakerjaan (Employment coverage).
  1. Work Permit for Non-Residing Directors and Commissioners. Non-residing directors and commissioners of a company are now expressly required to have work permits.  This requirement clarifies the previously unwritten policy of the authority in this regard.This appears to also suggest that these non-residing directors and commissioners to have NPWPs and to participate in the National Security Coverage, if they are appointed for more than 6 months. 
  1. Expanded Coverage Temporary Work Permit. Temporary work permits are now required for expatriates who are in Indonesia for the following reasons:
  • To provide guidance, supervision, and training to the implementation of technology industry;
  • To participate in the production of a commercial movie;
  • To speak at a seminar;
  • To attend any meeting in a head office or a representative office in Indonesia;
  • To carry out an audit, production quality control or inspection to the branch office in Indonesia;
  • To carry out a trial work;
  • To complete a one-off work;
  • To perform work related to installation of machinery, electricity, after sales, or products in observation.

Obviously, the requirement to have a work permit for any speaking engagement and attendance of meetings will be considered impractical and difficult.

Copyright © 2015 AKSET. All rights reserved.

July 14, 2015



Press Release MEMR on Obligation to Use Rupiah

As mentioned in our recent Newsflash, July 1, 2015, marked the effective date of Bank Indonesia Regulation No. 17/3/PBI/2015 on Mandatory Use of Rupiah within the Territory of the Republic of Indonesia, presenting major implications for a wide range of businesses. To address impacts specific to the mining and energy sector, the Ministry of Energy and Mineral Resources (“MEMR”) and Bank Indonesia have reached an agreement limiting the applicability of the regulation to certain aspects of the sector.

On July 1, 2015, MEMR issued the following press release, which we have translated into English for ease of reference.

For questions concerning the impact of the new obligations on your business, please contact Johannes C. Sahetapy-Engel [jsahetapyengel@aksetlaw.com].

 

PRESS RELEASE

Agreement between the Ministry of Energy and Mineral Resources (MEMR) & Bank of Indonesia (BI) Concerning Regulation on the Obligation to Use Rupiah

WEDNESDAY, JULY 01, 2015 16:33 WIB

MINISTRY OF ENERGY AND MINERAL RESOURCES

OF THE REPUBLIC OF INDONESIA

 

PRESS RELEASE

NUMBER: 40/SJI/2015

DATE: JULY 01, 2015

 

AGREEMENT BETWEEN THE MEMR & BI

CONCERNING REGULATION ON THE OBLIGATION TO USE RUPIAH

 

As it is known that BI, as the Monetary Authority has issued Bank Indonesia Regulation (PBI) No. 17/3/PBI/2015 on the Obligation to Use Rupiah within the Territory of the Unitary State of the Republic of Indonesia, stipulated on March 31, 2015 and shall be valid as of July 1, 2015.

This BI Regulation was enacted with an objective and spirit to enhance the depth of the Rupiah market in the framework of stabilizing exchange rate, which in the end is expected to encourage the national economy’s stability.

In responding to this matter, we, the MEMR, fully support the Implementation of PBI 17/3/2015 on the Obligation to Use Rupiah within the Territory of the Unitary State of the Republic of Indonesia and will actively contribute in order to achieve the maximum objective for the issuance of this policy.

The MEMR has observed and understood that there are plenty of suggestions and considerations from business actors in various sectors, including Oil and Gas, Electricity, Mining, as well as New and Renewable Energy in relation to this policy.

The suggestions have been communicated and coordinated seriously to BI as the monetary authority. The MEMR and BI have reached an agreement that:

  1. They shall cooperate to arrange for implementation steps in order that the implementation of this regulation in the energy sector can function well and achieve the maximum objective, as well as to anticipate issues that may arise.
  2. Understanding the specific characteristics of an Industry in the energy sector will result in the impossibility of the outright implementation of the PBI for aggregate transactions and the necessity to understand profoundly the characteristics of transactions, that may be categorized as follows:
  • Category 1: Transactions which are able to directly implement the provisions of the PBI, for example, lease of offices/houses/vehicles, salary payment for Indonesian employees, various support services;
  • Category 2: transactions which require time to implement the provisions of the PBI, for example: fuel, import transactions through local agents, long term contracts, multi- currency contracts;
  • Category 3: transactions which are fundamentally difficult to fulfill the provisions of the PBI due to various factors, inter alia, the government regulations. For example: salary payment for expatriates, drilling services and lease of ships.
  1. For transactions in Category 1 above, a transition period for the maximum of 6 (six) months shall be given.
  2. For transactions in Category 2 above, transactions in fixed term contracts continued to be executed in foreign currencies shall be surveyed with a possibility of amendment.
  3. For transactions in Category 3, business actors may continue to use foreign currencies.
  4. The MEMR and BI will form a group with duties in relation to the implementation of this regulation which will facilitate and convince that the business realm has no difficulties and business activities will function normally.
  5. The MEMR and BI will issue procedures for the implementation of PBI number 17/3/PBI/2015 in the energy sector.

 

Head of the Public Communications Centre

Dadan Kusdiana