Archives News & Events

New Regulation on Employment of Foreign Workers in Indonesia

On March 29, 2018, Presidential Regulation No. 20 of 2018 dated March 29, 2018 on Utilization of Foreign Expatriates (“PR 20/2018”) was issued as an effort to support the national economy, to expand work opportunities through the increase of investment in Indonesia.  PR 20/2018 revokes Presidential Regulation No. 72 of 2014 dated July 11, 2014 on Foreign Worker Utilization and Implementation of Education and Training of Indonesia Workers.

One significant change in PR 20/2018 is that the Government removes the requirement for an employer to have a Foreign Manpower Utilization Permit (Izin Mempekerjakan Tenaga Kerja Asing – an “IMTA”) in order to employ a foreign worker.

We set out below salient provisions introduced in PR 20/2018.

♦  Simplification of Permits for Employment of Foreign Workers

1. RPTKA. The approval of Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing – an “RPTKA”) issued by the Minister of Manpower is now the permit for employers to employ foreign workers. An RPTKA is required, except for government institutions, representative offices of foreign countries, and international organizations. The exemption from obtaining an RPTKA is also given for employers in the following cases: (i) for shareholders appointed directors or commissioners in a company, (ii) for diplomats and consulars working representative office of foreign countries, or (iii) for foreigners working in certain positions required by the government as stipulated by the Minister of Manpower.
2. Submission of foreign workers’ information. After an RPTKA is approved, instead of applying for an IMTA employers are now required to submit the information of their foreign workers to the Minister of Manpower. The Minister of Manpower will then issue a notification receipt for the submission (a “Notification”) which will be given to the employers and copied to the Directorate General of Immigration.
3. VITAS. As required previously, foreign workers are required to obtain a limited stay visa (Visa Tinggal Terbatas – “VITAS”). The application of a VITAS may be made by employers or by the foreigners to the Minister of Law and Human Rights and relevant immigration officials. A VITAS may be applied by submitting (i) the payment evidence of Foreign Manpower Utilization Fund (Dana Kompensasi Penggunaan Tenaga Kerja Asing) and (ii) the Notification.  A VITAS will be the basis of the issuance of a Limited Stay Permit (an “ITAS”).
4. ITAS. An ITAS is a permit that enables foreigners to stay in Indonesia for their work for a certain period of time.  A VITAS and an ITAS may be applied together to the representative of the Republic of Indonesia abroad (i.e., the Indonesian Embassy or the Indonesian Consulate).  An ITAS will be given to the foreigners in the immigration inspection gate (i.e., in airports and ports).  Under PR 20/2018, an ITAS will be initially issued for up to 2 (two) years and may be extended. With the issuance of an ITAS, foreigners are also granted with a multiple re-entry permit to Indonesia which validity is the same as the ITAS.

♦  New Reporting Requirement for Employers

In addition to the requirement to annually report the utilization of foreign workers, PR 20/2018 introduces a new reporting requirement for employers in the event an employment agreement of a foreigner ends or in the event an employer intends to terminate the employment of a foreign worker before its expiry date. Such report must be submitted to the Minister of Manpower and the Head of the Immigration Office in the foreigners’ domicile.

♦  Possibility for Foreign Workers to Hold Same Position in Different Employers Concurrently

Employers in certain business sectors may hire foreign workers who already hold the same position in other companies. The type of position, business sectors, and the procedures to employ foreigners in this regard will be further regulated in a minister regulation.

♦  Requirement to Provide Training and Education for Indonesian Associate

PR 20/2018 reiterates the requirement of employers who hire foreign workers to provide education and training to their Indonesian employees and requires such employers to (i) appoint Indonesian employees as associate for each foreign worker hired, (ii) conduct education and training for Indonesian employees in accordance with the position held by foreign workers, and (iii) facilitating the education and training of Bahasa Indonesia to the foreign workers. Please note that employers who appoint foreign workers as directors and/or commissioners are exempted from appointing Indonesian employees as the associates.

♦  Supervising Authority of Foreign Worker Utilization

Manpower inspectors of the Minister of Manpower and the local manpower services offices as well as the relevant immigration officials are authorized to supervise the utilization of foreign workers in accordance with their respective duties and authorities.

PR 20/2018 will be effectively implemented by June 29, 2018, being 3 (three) months since its issuance. Although PR 72/2014 will be revoked upon the effectiveness of PR 20/2018, implementing regulations issued under PR 72/2014 remain valid as long as they do not contradict provisions of PR 20/2018.

Although PR 20/2018 stipulates easier procedures and requirements in employing foreign workers, we expect the Minister of Manpower to issue an implementing regulation that will further elaborate the process and administrative requirements to obtain the permits (which should just be the RPTKA) to employ foreign workers.

April 6, 2018

Copyright © 2018 AKSET. All rights reserved.

by Bonar

Ultimate Beneficial Owners

On March 1, 2018 the President signed Presidential Regulation No. 13 of 2018 on the Implementation of Know-Your-Beneficial-Owner Principle by Corporations for the Prevention and Eradication of the Criminal Acts of Money Laundering and Terrorism Funding (the “Presidential Regulation”). The Presidential Regulation became effective as of March 5, 2018.

♦  Definitions

The Presidential Regulation defines a “Beneficial Owner” as an individual who (i) may appoint or dismiss any of a corporation’s board of directors, board of commissioners, administrators, or supervisors of such corporation, (ii) possesses the authority to take control of such corporation, (iii) is entitled to receive, and/or does actually receives, benefits from such corporation, directly or indirectly, (iv) is the true owner of such corporation’s funds or shares, and/or (v) meets certain criteria of a beneficial owner under the Presidential Regulation.

A “Corporation” is defined as an organized association of individuals and/or assets both legal entities and non-legal entities.  A Corporation includes: (i) a limited liability company, (ii) a foundation, (iii) an association (perkumpulan), (iv) a cooperative, (v) a limited partnership, (vi) a partnership, and (vii) any other form of corporation.

♦  Determination of Corporation’s Beneficial Owner

Under the Presidential Regulation, a Corporation must determine at least 1 (one) Beneficial Owner in accordance with a set of criteria provided. The provided criteria for limited liability companies, foundations, and associations are as follows:

Furthermore, any central or regional government institutions having the authority to register, validate, dissolve, or supervise Corporations (the “Authorized Institutions”) may determine other Beneficial Owners in addition to the ones determined by the relevant Corporations.

♦  Implementation of the Know-Your-Beneficial-Owner Principle

The Presidential Regulation requires Corporations to appoint a person in charge who will be responsible for implementing the principle and for providing information in relation to the relevant Corporation and the Beneficial Owner(s) upon the request of any Authorized Institutions and/or law-enforcement agencies.

The implementation of the principle is done through identification and verification stages. The implementation must be done at the time of application for establishment, registration, validation, approval, or business permit of the Corporation, and throughout during the entire period of its operations.

The identification stage is to be carried out through collection of information of the relevant Beneficial Owner(s) (including its supporting documents), which comprise at least the individual’s (i) full name, (ii) identity numbers, as found on a residential card, driving license or passport, (iii) date and place of birth, (iv) nationality, (v) address, as written on the relevant identity card, (vi) address in the relevant country of origin (for foreigners), (vii) taxpayer-identification number, and (viii) relationship with the relevant Corporation.

At the verification stage, Corporations must verify the information collected with the relevant supporting documents.

Corporations are then required to pass on this information to the relevant Authorized Institutions, along with a letter affirming the accuracy of the information which is being submitted. If it is deemed necessary, Authorized Institutions may undertake a further verification of the conformity between the submitted information and the data provided in the supporting documents. Corporations are also required to update any information regarding their beneficial owners on an annual basis.

♦  Sanctions

Corporations not implementing the know-your-beneficial-owner principle may be subject to sanctions in accordance with the provisions of relevant laws and regulations.

♦  Cooperation and exchanges of information

The Presidential Regulation allows Authorized Institutions to cooperate with each other and to exchange information with any domestic or international institution if a Corporation is alleged to have engaged in criminal activity relating to money laundering and/or terrorism funding.

More importantly, information on Beneficial Owners is publicly available from the relevant Authorized Institutions, in accordance with the procedures set out under the relevant Indonesian laws and regulations.

♦  Remarks

Although this Presidential Regulation is aimed for the prevention and eradication of activities relating to money laundering and/or terrorism funding, given the broad coverage of this Presidential Regulation it is conceivable that any Authorized Institution may apply the principles in this Presidential Regulation in other contexts in determining whether or not a person is a Beneficial Owner of a Corporation.

An important aspect of the Presidential Regulation is the notion that the information of a Beneficial Owner is publicly available.  Certain information of a person under the Residence Administration Law (Law No. 23 of 2006) is legally protected.  Depending on the level of information of a Beneficial Owner that will be available publicly, it is unclear how the provisions of that Law may be overturned by the Presidential Regulation.

March 13, 2018

Copyright © 2018 AKSET. All rights reserved.

by Bonar

New Capital Investment Regulation on Licensing and Facilities

The Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) recently issued Chairman of BKPM Regulation No. 13 dated December 11, 2017, on Guidelines and Procedures for Capital Investment Licensing and Facilities (“BKPM Reg. 13/2017”). BKPM Reg. 13/2017 will be effective at the central Integrated One Stop Service Office (Pelayanan Terpadu Satu Pintu or “PTSP”) at BKPM as of January 2, 2018, and at the lower level PTSPs (provinces, cities/regencies, free trade and free port zones, and special economic zones) not later than July 2, 2018. Upon taking effect, BKPM Reg. 13/2017 will revoke and replace the following BKPM regulations:

1. Chairman of BKPM Regulation No. 8 of 2015 dated May 5, 2015, on Procedures for Application for Income Tax Facilities for Capital Investment in Certain Business Lines and/or Certain Regions, as amended by Chairman of BKPM Regulation No. 18 of 2015 dated October 8, 2015;
2. Chairman of BKPM Regulation No. 13 of 2015 dated September 7, 2015, on Procedures for Applications for Corporate Income Tax Reduction Facilities, as amended by Chairman of BKPM Regulation No. 19 of 2015 dated October 8, 2015;
3. Chairman of BKPM Regulation No. 14 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Principle License, as lastly amended by Chairman of BKPM Regulation No. 8 of 2016 dated October 28, 2016;
4. Chairman of BKPM Regulation No. 15 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Licensing and Non-licensing; and
5. Chairman of BKPM Regulation No. 16 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Facilities.

Because this regulation covers a broad range of topics that were previously subject to separate, more specific regulations, there may be considerable uncertainty as to how certain provisions will be implemented and enforced. We expect BKPM to provide extensive socialization of the new requirements in the near future and will update you accordingly. In the meantime, please see below for a brief overview of the key changes in BKPM Reg. 13/2017.

♦  INTRODUCTION OF CAPITAL INVESTMENT REGISTRATION AND DIRECT GRANTING OF BUSINESS LICENSES

BKPM Reg. 13/2017 is issued as a follow-up to Presidential Regulation No. 91 of 2017 on Acceleration of Doing Business, which is an effort by the Government to improve the ease of doing business in Indonesia. BKPM Reg. 13/2017 no longer recognizes the Principle License as the license required to start a new business. Instead, it introduces a Capital Investment Registration, which is only applicable for businesses with the following criteria:

1. businesses that need time for construction activities;
2. businesses that are entitled to capital investment facilities;
3. businesses that have medium to high level of environmental pollution potential;
4. businesses related to national defense, management of natural resources, energy, and infrastructure; or
5. other businesses in accordance with the relevant laws and regulations in certain fields.

BKPM may directly grant a Business License to businesses other than those mentioned above, provided that the company is duly established, holds a Taxpayer Identification Number, and has secured a location for the business. A Business License will be valid as long as the company still carries out business. Within one year of receiving a Business License, the company must conduct the activities stipulated in the license; otherwise the Business License may be revoked by BKPM or the relevant regional PTSP.

The validity period of the Business License does not apply for foreign capital investment (penanaman modal asing or “PMA”) companies that have not fulfilled the qualifications as a large business. If a PMA company has not fulfilled the qualifications as a large business when applying for the Business License, the BKPM will grant a Business License for one year, which can be extended for another year. The company must then apply for a “permanent” Business License after fulfilling the qualifications as a large business.

♦  MINIMUM INVESTMENT AND ISSUED AND PAID UP CAPITAL

The minimum investment and issued and paid up capital requirements in BKPM Reg. 13/2017 remain the same as under the previous regulations, but the provisions of BKPM Regulation No. 14/2015 that required a minimum investment for each location where a business operates have been revoked.

As has been the case for some time, PMA companies must have a minimum investment of more than Rp10 billion other than land and buildings, an issued and paid up capital of minimum Rp2.5 billion, and a minimum shareholding of Rp10 million per shareholder.

BKPM Reg. 13/2017 further stipulates that PMA companies shall fulfill the qualifications for a large business, i.e., having net assets of more than Rp10 billion other than land and buildings, or having an annual sale revenue of more than Rp50 billion.

Property development and management businesses are subject to special provisions on minimum investment value. If the property is in the form of whole buildings or integrated housing complex, the minimum investment is more than Rp10 billion, including land and buildings. On the other hand, if the property units are not located in one whole building or one integrated housing complex, the minimum investment is more than Rp10 billion other than land and buildings, with a debt to equity ratio of 4:1.

As was the case before, BKPM Reg. 13/2017 states that businesses in capital-intensive industries and highly regulated businesses, such as mining and financial sector, will be subject to higher minimum investment requirements according to the relevant laws and regulations.

♦  MULTIPLE BUSINESS LINES

For companies having multiple business lines listed in their Capital Investment Registration, Principle License, or Investment License, the application for a Business License must cover all of the applicable business lines at the same time. If a company does not include a particular line of business in its Business License application because it is not yet ready to commence operations, that line of business will be cancelled, and a new Capital Investment Registration or Business License will have to be obtained in the future. Please see the section below on Expansion for more information.

♦  CONVERSION OF SUBSIDIARIES

By law, once a company is converted into a PMA company, all of its subsidiaries must also be converted into PMA companies. BKPM has previously invoked, and then revoked, specific requirements for parent companies to convert their subsidiaries. BKPM Reg. 13/2017 does not set out a specific deadline for this conversion, but now requires the subsidiaries to be converted into PMA companies when the subsidiaries conduct corporate action. Examples of corporate action include change of shareholding and change of capitalization, but it is questionable how BKPM plans to enforce this requirement, except in cases where the subsidiary would already need BKPM approval in order to conduct the proposed corporate action.

♦  DIVESTMENT OBLIGATIONS

Foreign-wholly owned PMA companies whose licenses had been issued prior to 2007 have long been subject to a general obligation to divest foreign-owned shares to Indonesian shareholders within a certain period of time. This obligation is commonly memorialized in the Notes section of the investment registrations or the Business Licenses. In some cases, the obligations have been met, but the Notes remain in the Business Licenses; in other cases, the obligations have not been met, due to a number of reasons ranging from lack of enforcement to insufficient local shareholder interest.

BKPM Reg. 13/2017 requires all PMA companies that are subject to divestment obligations to fulfill such obligations within the time frame stipulated in the investment registration/Business License. However, the obligations may be waived if approved by a resolution of a General Meeting of Shareholders (“GMS”). For PMA companies owned in joint venture between Indonesian and foreign shareholders, the Indonesian shareholders should expressly state in the GMS resolution that they do not wish for or demand increased share ownership in accordance with the divestment obligation. The company may then apply for cancellation of the divestment obligation by enclosing the GMS resolution. The same holds true for 100% foreign-owned companies, where the foreign shareholders shall state in the GMS resolution that they do not have a commitment or agreement with any Indonesian party to dispose of their shares (e.g., no agreement on price or other terms). However, the obligation for 100% foreign-owned companies can be reinstated in the future by the demand of an Indonesian party. This last provision is highly problematic, as the regulation states no further time limits, criteria, or procedures for such a demand.

The provisions allowing companies to waive their divestment obligations by means of GMS resolution do not apply to companies that have other statutory obligations to divest shares, such as in the mining sector.

♦  BUSINESS EXPANSION

The previous BKPM regulations covering business expansion required all companies seeking to increase capacity or add new lines of business to obtain an Expansion Principle License. BKPM Reg. 13/2017 abolishes the Expansion Principle License and redefines the requirements to an extent.

Now, only industrial businesses are required to obtain an Expansion License (Izin Perluasan). Business expansion for industry is defined as the increase of production capacity under the same five-digit Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”) code, regardless of the amount of increase. Previously, increased production capacity was only deemed expansion if it exceeded 30% of the existing capacity.

Under the previous regulations, an addition of a new business line in non-industrial companies was also considered “expansion”; there is no such provision in BKPM Reg. 13/2017. An addition of new business lines now requires obtaining a new Business License or Capital Investment Registration, subject to the requirements for the particular line of business, including increasing the amount of investment for each new line of business by more than Rp10 billion.

It is not yet clear whether the new Business License will cover only the new line of business, or whether BKPM will issue a single new license that covers cumulatively all of the company’s business activities.

PMA companies that currently hold an Expansion Principle License with investment value of less than Rp10 billion must increase that amount to more than Rp10 billion, outside of land and buildings.

♦  REPRESENTATIVE AND BRANCH OFFICES

BKPM Reg. 13/2017 regulates licensing for Foreign Company Representative Offices, Foreign Trade Company Representative Offices, Foreign Construction Services Business Entity Representative Offices and Foreign Oil and Gas Company Representative Offices, as well as licensing for branch offices of Indonesian companies.

Companies that will open branch offices shall apply for a Branch Office Opening License from BKPM or the provincial PTSP.

♦  TRANSITIONAL PROVISIONS

Companies that have obtained Capital Investment Registrations that were issued pursuant to Chairman of BKPM Regulation No. 12 of 2009 on Guidelines and Procedures for Capital Investment Licensing shall apply for a Business License within six months as of the effective date of BKPM Reg. 13/2017. If the companies fail to apply for a Business License, BKPM or the regional PTSP has the authority to revoke their Capital Investment Registrations.

Principle Licenses that were issued prior to the effective date of BKPM Reg. 13/2017 shall be valid until the expiration of the project completion date thereunder. New applications for Principle Licenses will be processed in accordance with BKPM Reg. 13/2017.

Lastly, all PMA companies that have obtained Business Licenses but have not fulfilled the qualifications for large companies shall apply for new Capital Investment Registrations and fulfill the qualifications.

December 26, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar