Newsflash

Introduction to Bonded Storage Areas

In today’s era of seemingly borderless trade, it is important for a country to support the infrastructure sector, so that domestically produced goods can compete with products from other countries. Indonesia is not an exception. The government established the legal framework for Bonded Storage Areas in order to incentivize industrial production and trade across the country.

Bonded Storage Areas, pursuant to Government Regulation No. 32 of 2009, as recently amended by Government Regulation No. 85 of 2015 (“Bonded Storage Regulation”), are areas that fulfill specific requirements which are used to store goods and receive certain facilities.

According to the Bonded Storage Regulation, there are seven types of Bonded Storage Areas:

• Bonded Warehouse (Gudang Berikat).
• Bonded Zone (Kawasan Berikat).
• Bonded Logistics Center (Pusat Logistik Berikat).
• Bonded Exhibition Area (Tempat Penyelenggaraan Pameran Berikat).
• Duty Free Shop (Toko Bebas Bea).
• Bonded Auction Place (Tempat Lelang Berikat).
• Bonded Recycling Zone (Kawasan Daur Ulang Berikat).

This newsflash will discuss the following:

1. Bonded Warehouses, as set out under Minister of Finance Regulation No. 143/PMK.04/2011 regarding Bonded Warehouses (“Bonded Warehouse Regulation”);
2. Bonded Zones, as governed under Minister of Finance Regulation No. 147/PMK.04/2011 regarding Bonded Zones, as lastly amended by Regulation No. 120/PMK.04/2013 (“Bonded Zone Regulation”); and
3. Bonded Logistics Centers, as stipulated under Minister of Finance Regulation No. 272/PMK.04/2015 regarding Bonded Logistics Centers (“Bonded Logistics Regulation”).

♦  DEFINITIONS

Bonded Warehouses, Bonded Zones, and Bonded Logistics Centers have similar purposes: to support industry and to encourage the export of domestically produced goods, as can be seen from their respective definitions.

♦  REQUIREMENTS

Areas that are intended to become a Bonded Warehouse, Bonded Zone, or Bonded Logistics Center must fulfil certain requirements.

♦  FACILITIES AND INCENTIVES

In order to understand the incentives granted to Bonded Warehouses, Bonded Zones, and Bonded Logistics Centers, it is important to elaborate the treatment of taxes and duties on goods when they enter or exit Bonded Storage Areas.

Entering

Upon entering a Bonded Warehouse or Bonded Zone, goods can be provided with one or more of the following:

1. Import duty postponement.
2. Excise waiver.
3. Exemption from Import Taxes (Pajak Dalam Rangka Impor – “PDRI”).

Only certain types of goods can receive these facilities for entering a Bonded Zone:

1. Raw and production auxiliary materials for further processing.
2. Capital goods to be used within the Bonded Zone.
3. Produce of other Bonded Zones to be further processed or used in another Bonded Zone.
4. Goods produced in a Bonded Zone to be processed further or turned into capital goods for production.
5. Goods produced in a Bonded Zone returned from outside the customs area or a Bonded Exhibition Location into a Bonded Zone.
6. Finished goods from outside the customs area to be combined with goods produced in a Bonded Zone specifically for export.
7. Packaging or packaging equipment from outside the customs area and/or another Bonded Zone that will be an integral part of the goods produced in a Bonded Zone.

For Bonded Zones, the following types of goods are granted with exemptions from VAT or Luxury Goods Tax:

1. Goods from other customs areas to be processed further in the Bonded Zone.
2. Goods from another Bonded Zone or other customs area to be processed further under a subcontract arrangement.
3. Machinery and/or moulding returned from another Bonded Zone or other customs area that was loaned from the Bonded Zone.
4. Semi-finished goods from another Bonded Zone or other customs area to be further processed in the Bonded Zone.
5. Goods produced in another Bonded Zone or other customs area that will be combined with goods produced by the Bonded Zone to be exported.
6. Packaging or packaging equipment from other customs areas to be used by the goods produced by the Bonded Zone.

On the other hand, there are various types of facilities for goods entering a Bonded Logistics Center, as elaborated in the following table.

Goods may only enter a Bonded Logistics Center for the following purposes:

1. To support goods from non-customs areas stored in the Bonded Logistics Center
2. Goods needed to carry out certain processes for the goods stored in the Bonded Logistics Center, such as packaging, sorting, standardization, kitting, packing, reassembling/repair, and labelling
3. Goods produced by small and medium scaled industrial companies
4. For export purposes
5. For specific purposes in another customs area

Exiting

Goods produced in a Bonded Warehouse or Bonded Zone to be transported to any other location in Indonesia are imposed with:

1. Import duty that had to be paid when the goods entered the Bonded Warehouse;
2. Excise; and
3. PDRI based on the tariff when the Import Customs Notification for the goods was registered and the value of the goods when the goods were imported into the Bonded Warehouse.

Because of these provisions, the costs are relatively lower when importing goods into a Bonded Warehouse or Bonded Zone and processing them there, as the import duty and taxes imposed are calculated based on when the goods were imported into the Bonded Warehouse or Bonded Zone, not the value of the finished products.

For goods exiting a Bonded Logistics Center, the goods will be granted with a deduction of import duty and PDRI. For goods that were processed in a Bonded Logistics Center, import duty and PDRI will only be imposed on components that were imported from overseas.

Moreover, goods may only exit a Bonded Logistics Center for specific purposes:

1. To support the industrial activities in a Bonded Zone, Special Economic Zone or other economic area determined by the government.
2. To support the industrial activities of a customs area.
3. For other Bonded Logistics Centers.
4. To be exported.
5. To support industrial activities that are granted with Import duty waivers, reductions or refunds.
6. To support industrial activities that have acquired import duty facilities from the government.
7. To support distribution of certain goods domestically.
8. To support small and medium scaled industrial activities in other customs areas.

♦  CONCLUSION

Each type of Bonded Storage Area has its own advantages and disadvantages:

 February 16, 2016

Copyright © 2016 AKSET. All rights reserved.

by Bonar

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

Copyright © 2016 AKSET. All rights reserved.

by Bonar

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

Copyright © 2016 AKSET. All rights reserved.

by Bonar

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

Copyright © 2016 AKSET. All rights reserved.

by Bonar

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

by Bonar

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

by Bonar