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Compilation of Positions Available to Expatriates

The Minister of Manpower (the “Minister”) recently enacted the Minister of Manpower Decree No. 228 of 2019 dated August 27, 2019 on Certain Positions Available to Expatriates (“Decree 228”).  Decree 228 lists 2,196 positions available for expatriates. The positions are divided into 18 business sectors, namely, among others, construction, real estate, education, processing industries, transportation and warehousing, financial and insurance activities, mining and extraction, and large and retail trading.

Decree 228 implements Article 42(5) of Law No. 13 of 2003 dated March 25, 2003 on Manpower (the “Manpower Law”) which states that expatriates may only be employed for certain positions and specified term, and that such position shall be stipulated under a separate decree.

Decree 228 compiles, and replaces, previous 19 specific Minister decrees that listed of positions available to expatriates based on business sectors (e.g., construction, education services, trading, industry, etc.).  Decree 228 also revokes all other decrees of the Minister that set out positions that are available to expatriates. So, Decree 228 is now the single decree to review to determine positions available to expatriates.

Note that Decree 228 does not deal with positions that are closed to expatriates under Article 46(2) of the Manpower Law. So, the Minister of Manpower Decree No. 40 of 2012 dated February 29, 2012 on Certain Positions Closed to Expatriates continue to be in effect.

The key issues of Decree 228 are set out below.

♦  Categories of Positions

Decree 228 lists the positions available for expatriates based on the International Standard Classifications of Occupations (ISCO) Code and the Indonesian Standard Occupation Classifications (KBJI). Further information on ISCO may be found in the following link: https://www.ilo.org/public/english/bureau/stat/isco/.

Decree 228 allows expatriates to be members of a Board of Commissioners and a Board of Directors as long as they do not deal with personnel-related matters.

♦  Unlisted Positions

Decree 228 also allows the Minister or any other authorized official to approve a position for expatriates that is not listed in Decree 228.  It remains to be seen how this provision will be implemented in practice.  We believe that the Minister and the relevant officials will not be too flexible in allowing other positions for expatriates.

♦  Periodic Evaluations

Decree 228 states that the lists will be reviewed every 2 (two) years or at any time deemed necessary by the Minister.

September 17, 2019

by Bonar

Permanent Establishments Clarified

On April 1, 2019, the Minister of Finance issued Regulation No. 35/PMK.03/2019 of 2019 on Determination of Permanent Establishments (the “Regulation”). Previously, permanent establishments were dealt with only in the Income Tax Law (Law No. 7 of 1983, as amended) and a Circular Letter issued of the Directorate General of Taxation. The Regulation was issued taking into account the significant growth of foreign tax subjects conducting businesses and activities in Indonesia through a permanent establishment (a “PE”).

♦  General Provisions

Under the Regulation, a PE is as follows:

1. A foreign individual who does not reside in Indonesia or residing in Indonesia for less than 183 (one hundred eighty three) days within a period of 12 months; or
2. A foreign entity established and domiciled outside of Indonesia.

A PE must obtain a Taxpayer Identification Number (Nomor Pokok Wajib Pajak or an “NPWP”) by no later than 1 (one) month after the commencement of a PE’s business or activity in Indonesia. If a PE does not do so, the relevant Tax Office has in its discretion the right to issue an NPWP to the PE.

Under applicable tax laws and regulations, once a PE has an NPWP, the PE is required to submit monthly and annual tax returns to the Indonesian tax authorities. Generally speaking, a holder of an NPWP must disclose all of its income (including income received outside Indonesia).

♦  VAT Registration

In addition to an NPWP, if a PE delivers goods or services that are taxable under the Value Added Tax (“VAT”) Law (Law No. 8 of 1983, as amended) then the PE must register as a VAT entrepreneur and collect VAT and pay the collected VAT to the State Treasury.

♦  Criteria of PEs

The Regulation sets out the criteria for a foreign tax subject to become a PE as follows:

1. Having a place of business in Indonesia;
2. The place of business is permanent; and
3. The place of business is used by a PE to conduct its businesses or activities.

In addition, the Regulation sets 4 (four) other types of activities that create a PE regardless if the place of business requirements above are not met:

1. Construction, installation, or assembling projects;
2. Provision of services in any form by an employee or any other person for more than 60 (sixty) days within a period of 12 (twelve) months;
3. Any individual or entity acting as an exclusive agent; and
4. Any agent or an employee of an insurance company, established and domiciled outside Indonesia, but generating insurance premium or covering risks in Indonesia.

♦  Forms of Business Place

Under the Regulation, the following list forms a place of business:

• A place of management;
• A branch of a company;
• A representative office;
• An office building;
• A factory;
• A workshop;
• A warehouse;
• Space for promotion and sales;
• Mining and excavation of natural resources;
• A working area of oil and gas mining;
• Fishery, farm, agriculture, plantation, or forestry; and
• Any computer, electronic agent, or automatic equipment owned, leased, or used by a PE to conduct its business through the internet.

As seen above, the Regulation attempts to broaden the definition of a business place beyond physical space. In particular, point l above states that any use of computer, an electronic agent, or automatic equipment constitutes a PE.

For business places, the Regulation expressly provides that the determination of a business place does not regard whether a business place is owned or leased by a foreign tax subject.

♦  Exemptions from PEs

 Activities of preparatory or auxiliary in nature are exempted from the definition of a PE.

♦  What does this mean to a foreign tax subject?

Given the requirements to have an NPWP and a VAT collector number above and, more importantly the possible requirement to disclose income outside Indonesia, a foreign tax subject (the “Foreign Subject”) should consider creating presence in Indonesia separate from the foreign legal entity. This may be achieved by establishing a limited liability company under Indonesian laws (a “PMA Company”).  So then, the PMA Company (and not the Foreign Subject) will carry out business in Indonesia and be subject to Indonesian tax laws and regulations.  Obviously, this needs to be considered taking into account all factors for  a Foreign Subject.

Equally important, foreign companies and individuals must not regard the Regulation as a license to do business in Indonesia. The Income Tax Law and the Regulation focus on the imposition of tax laws and regulations on foreign companies and individuals who do business in Indonesia.  There are specific laws and regulations regarding trading and doing businesses in Indonesia that foreign companies and individuals must comply with.

by Bonar