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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

BANK INDONESIA ISSUES REGULATIONS ON THE IMPLEMENTATION OF FINANCIAL TECHNOLOGY

On November 30, 2017, the Central Bank of Indonesia (Bank Indonesia - “BI”) issued BI Regulation No. 19/12/PBI/2017 on the Implementation of Financial Technology (the “BI Regulation”) in order to promote innovation in the financial sector; implement consumer protection, risk management and prudential principles; and maintain monetary and financial system stability and an efficient and safe payment system. The BI Regulation was further implemented through BI Board of Governors’ Regulation No. 19/14/PADG/2017 on Financial Technology Regulatory Sandbox and BI Board of Governors’ Regulation No. 19/15/PADG/2017 on Procedures for Registration, Delivery of Information and Supervision of Financial Technology Organizers.

♦  Scope of Financial Technology

Financial Technology under the BI Regulation is classified into the following:

1. payment systems;
2. market support;
3. investment management and risk management;
4. lending, financing, and capital raising; and
5. other financial services.

A Financial Technology Operator (an “FTO”) shall be subject to the BI Regulation if it provides Financial Technology with the following criteria: innovative; may impact existing products, services, technology and/or financial business models; provides benefit to society; is widely used; and other criteria which may be stipulated by Bank Indonesia (a “Qualified FTO”).

♦  Registration Requirement

A Qualified FTO that has or will be carrying out activities under the BI Regulation shall be in the form of a business entity and must register itself with BI. FTOs providing Payment System Services shall be in the form of an Indonesian legal entity.

Payment System Service Organizers that have obtained a license from BI are excluded from the registration requirement, but are still obligated to inform BI of any new products, services, technology, and/or business models fulfilling the criteria of Financial Technology. An FTO that is under the authority of another institution is also excluded from the registration requirement; however if the FTO conducts Financial Technology in the payment system sector, it must register with BI.

♦  Obligations and Restrictions

In the spirit of protecting the interests of key stakeholders, FTOs are expected to observe consumer protection principles, maintain the confidentiality of consumer and transaction data, and implement risk management and prudential principles, including anti-money laundering and prevention of terrorism funding.

The BI Regulation also obliges FTOs to use Rupiah in every transaction within the Republic of Indonesia and prohibits any payment system activities using virtual currency.

In addition, the BI Regulation requires prior approval from BI for any cooperation between Payment System Service Providers and registered FTOs. Payment System Service Providers are prohibited from cooperating with FTOs that are not registered and/or licensed with BI.

♦  Regulatory Sandbox

BI has created the Regulatory Sandbox to provide FTOs the opportunity to ensure that their products, services, technologies, and business models fulfill the criteria stipulated under the BI Regulation. Registered FTOs will use the Sandbox to present their business models and risk management plans, required documents and trial scenarios for their products, services, technologies and business models.

The Regulatory Sandbox trial program will run for six months, which may be extended once upon written request from the relevant FTO. After such period, BI will determine the success of the trial.

Specifically for FTOs conducting payment system services, if the Regulatory Sandbox trial is successful, the relevant FTO shall first apply for a license as a Payment System Service Organizer before being able to carry out their business operations. For FTOS in categories other than payment system services, Bank Indonesia may convey the result of the Regulatory Sandbox trial to the relevant institutions.

♦  Non Payment Systems FTOs

The scope of financial technology under the BI Regulation also covers non payment systems FTOs. This means that FTOs (other than ones who are involved in the payment systems services) fulfilling the criterias as set out in the regulation  may also register with BI, although not all of them will be selected by BI to join this regulatory sandbox program.

Based on the foregoing, for FTOs that may not fall under the straightforward payment systems or lending services that are currently regulated under the prevailing laws and regulations, this BI Regulation could be an opportunity for them to be recognized by BI to carry out their operation.

December 15, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

BI SETS OUT ARRANGEMENT FOR COMMERCIAL PAPER ISSUANCE AND TRANSACTIONS

In order to deepen the financial market and support the issuance of short-term debt securities by Indonesian companies, on July 20, 2017 the central bank of Indonesia (Bank Indonesia - ”BI”) issued BI Regulation No. 19/9/PBI/2017 regarding Commercial Paper Issuance and Transactions in the Financial Market (the "BI Regulation"), replacing Decree Letter of the Board of Directors of Bank Indonesia No. 28/52/KEP/DIR on the Requirements for the Issuance and Trade of Commercial Papers through Commercial Banks in Indonesia. 

♦  Commercial Paper under the BI Regulation

Under the BI Regulation, commercial paper (“CP”) is defined as a marketable financial instrument issued by a non-bank corporation in the form of a promissory note, which shall be registered with BI and have a maturity date of less than one year.

Companies that can issue CP must meet the following criteria:

• Listed Companies – shares listed on the Indonesian Stock Exchange, including companies that have issued bonds and/or sukuk in the 5 years prior to the date of application to issue CP.
• Private Companies – the company must have been operating for at least 3 years, or less than 3 years with a covered guarantee, have at least IDR 50 billion of equity, and generating net income for the last 1 year.

The CP will be issued in electronic form, scriptless, with a discount, in Rupiah or foreign currency denominations. The CP must have a minimum nominal value of IDR 10 billion or its equivalent, with a maturity period of 1 month, 3 months, 6 months, 9 months, or 12 months, and must to be rated by a rating agency registered in BI.

Prior to issuing CP, companies are required to register at, and obtain approval from, BI. Companies also must disclose certain information about the corporation and the CP to be issued (e.g., summary of the structure of the CP, plan for using the funds, and summary of the company’s financial performance). After the issuance, the company is required to disclose any changes in information or material facts that might impact the value of the CP, the ability of the company to pay its obligations under the CP, or investor decision making.

Investors looking to invest in CP must purchase at least IDR 500 million or its equivalent per transaction. CP transactions may be performed directly or through licensed intermediaries registered at BI.

♦  Supporting Institutions

The BI Regulation provides for certain parties to be involved in the issuance and transactions of CP, subject to mandatory registration and approval from BI, namely supporting institutions, with the following classifications:

• Supporting institutions for the issuance of CP comprise commercial banks or securities companies as arrangers of CP issuance, rating institutions, legal consultants, public accountants, notaries, and other institutions as stipulated by BI.
• Supporting institutions for CP transactions comprise securities companies and brokerage companies.
• Supporting institutions for CP administration and transaction settlement comprise custodian banks or securities companies.

BI may revoke the registered status of CP supporting institutions based on regulatory violations or based on information or request from the relevant authority, professional institution, or concerned parties.

♦  Reporting

The BI Regulation requires parties involved in CP issuance and transactions to report to BI, as follows:

• Companies issuing CP are required to submit reports on CP issuance, material information, and material changes.
• Supporting institutions are required to submit reports on competence improvement and data changes related to institutional capacity building.
• CP traders and supporting institutions providing transaction brokering services are required to submit detail reports on CP transactions.

♦  BI supervision

BI has powers of indirect supervision and examination with respect to CP issuance and transactions. The scope of the supervision covers the issuance process, transaction process, settlement process, administration of the CP, and supervision of information disclosure.

♦  Entry into force

The BI Regulation came into force on September 4, 2017, while rules concerning CP registration will come into force on January 2, 2018 and certain mandatory reporting in relation to CP transactions submitted by securities companies, brokerage companies, and commercial banks will come into force on July 1, 2018.

A grace period for enforcement of the new rules will allow time for banks, securities companies, and other eligible supporting institutions and professions to register with BI as CP supporting institutions.

December 1, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

BI SETS OUT ARRANGEMENT FOR NATIONAL PAYMENT GATEWAY (“NPG”)

On June 22, 2017, the central bank of Indonesia (Bank Indonesia - “BI”) issued BI Regulation No. 19/8/PBI/2017 regarding the National Payment Gateway (the “BI Regulation”), which aims to create a secure, efficient, and reliable domestic payment system by facilitating non-cash transactions through the establishment of a National Payment Gateway (“NPG”). The NPG was further regulated on September 20, 2017, by BI Board of Governors’ Regulation No. 19/10/PADG/2017 regarding National Payment Gateway (the “Governors’ Regulation”), which sets out more detailed arrangements for certain aspects of the NPG.

♦ Scope of the NPG

The NPG covers any domestic electronic transaction involving a payment instrument issued by an Indonesian Issuer, namely by regulating:

1. interconnections between switching networks;
2. the interconnection and interoperability of payment channels, such as ATM networks, electronic data capture (EDC), agents, payment gateways, and other payment channels; and
3. the interoperability of payment instruments, such as ATM/debit cards, credit cards, electronic money, and other payment instruments.

♦ Parties

In general, the NPG involves NPG Organizers and NPG Connected Parties. NPG Organizers comprise (i) standards institutions, (ii) switching institutions, and (iii) services institutions. NPG Connected Parties comprise (i) card issuers, (ii) acquirers, (iii) payment gateway organizers, and (iv) other parties as determined by BI.

♦ Implementation

Domestic processing and final settlement in BI

Currently, the vast majority of card-based transactions are processed offshore. In order to ensure that more transactions are processed inside Indonesia, all domestic electronic transactions required to be processed through the NPG, and switching institutions and services institutions will be required to process final settlement using the Bank Indonesia-Real Time Gross Settlement (BI-RTGS) system—a system for electronic transfer of Rupiah among banks, in real time on an individual transaction basis.

National branding and universal acceptance

National branding will be established, which includes national logos to be featured on all payment instruments issued by NPG Connected Parties as of January 1, 2018. NPG Connected Parties must accept all payment instruments that feature the national logo.

Pricing schemes

NPG Organizers must abide by the pricing scheme determined by BI, which is based on several principles, including cost recovery, a reasonable margin, risks, convenience, etc. The pricing scheme for NPG Organizers, switching organizers which that cooperate with other switching institutions, and NPG Connected Parties consists of sharing infrastructure (“SI”), terminal usage fees (“TUF”), and merchant discount rates (“MDR”), each of which are described in detail in the Governors’ Regulation.

♦ Reporting obligation

Every NPG Organizer is required to submit periodic and incidental reports to BI. The periodic reports must be submitted quarterly and annually, while incidental reports are required for reporting (i) change of capital, shareholder composition, or management of standards institutions, (ii) change of data and information in the documents submitted when submitting the application for determination to BI, and (iii) other events as required by BI.

October 26, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

MOCI Announces 2.1 GHz and 2.3 GHz Frequency Band Auction Rules

On September 26, 2017, the Minister of Communications and Informatics (the “MOCI”) issued Regulation No. 26 of 2017 (the “Regulation”), which sets out procedures for 2.1 GHz and 2.3 GHz band spectrum auctions as part of the government’s goal of achieving broadband nationwide and to enable mobile operators to strengthen network capacity in order to enhance services to mobile users across the country.

The MOCI has allocated three blocks of frequency to be auctioned. For the 2.1 GHz band, the spectrums to be sold are 2 x 5 MHz (Frequency Division Duplexing) in the range of 1970 - 1975 MHz paired with 2160 - 2165 MHz (Block 11) and the range of 1975 - 1980 MHz paired with 2165 - 2170 MHz (Block 12). For 2.3 GHz, one block of 1 x 30 MHz (Time Division Duplexing) in the range of 2300 - 2330 MHz will be offered at auction. The Regulation does not specify the eligible technologies (technology neutral), but these spectrums are suitable for mobile operators to provide additional capacity for 3G or 4G services.

Under the Regulation, the MOCI will not impose any restrictions on potential bidders (all existing mobile operators are eligible); however, mobile operators can only win one of the three blocks. This is to promote competition in the mobile market and to ensure that these frequency bands, which are considered scarce resources, are distributed equally among the operators.

The auction is expected will generate minimum revenue for the government of IDR663.4 billion. Each winner will be granted a ten-year frequency band license (Izin Pita Frekuensi Radio).

The MOCI has invited potential bidders to participate in the auction process. The auction documents are available offline and may be collected at the auction committee secretariat as of October 2, 2017.

October 3, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar