BI Regulates Foreign Exchange Export Proceeds and Loans
Bank Indonesia (“BI”) has updated Bank Indonesia Regulation No. 14/25/PBI/2012 regarding Receipt of Foreign Exchange Export Proceeds and Withdrawal of Foreign Exchange External Loans with the issuance of PBI No. 16/10/PBI/2014 dated May 14, 2014 (the “PBI”).
The PBI governs the supervision of export proceeds in the form of foreign exchange and the withdrawal of foreign exchange loans through Indonesian banks. Aspects of the PBI are further specified in BI Circular Letter No. 16/9Dsta, dated May 26, 2014, regarding Receipt of Foreign Exchange Export Proceeds (the “SEBI”), which replaced BI Circular Letter No. 15/9/DSM.
♦ Obligation to Receive Foreign Exchange Export Proceeds through Foreign Exchange Banks
The PBI requires that all foreign exchange export proceeds must be received by a foreign exchange bank no later than the end of the third month after Notification of Exported Goods (Pemberitahuan Ekspor Barang - “PEB”) is registered. This obligation does not apply to government foreign exchange export proceeds paid in cash in Indonesia and received through BI.
For payment made through letter of credit, consignment, open accounts or collection of which the due date exceeds or is equal to three months after PEB registration, the time limit is 14 days after the payment due date.
Neither the PBI nor the SEBI specify any period of time that the foreign exchange export proceeds must be kept in the foreign exchange bank. The PBI and SEBI also allow the foreign exchange export proceeds to be received in foreign currency, meaning that they do not have to be converted to Rupiah first.
This is in line with Law No. 7 of 2011 regarding Currency, which prohibits the use of physical bills of foreign currency for domestic transactions but does not prohibit the use of foreign currency for other transactions (such as bank transfer).
♦ Obligation to Report
Exporters must submit their PEB to the foreign exchange bank by the fifth day of the followingmonth. If payment is received in cash in Indonesia, exporters must submit supporting documents directly to BI on the fifth day of the month following PEB registration. The obligation to submit information and documents to BI only applies to export transactions valued greater than USD 10,000 or its equivalent.
Moreover, exporters that receive payment through letter of credit, consignment, open account or collection must provide supporting documents for the transaction to the foreign exchange bank to be forwarded to BI by the fifth day of the month following PEB registration.
♦ Discrepancies between Proceeds and PEB
Under the PBI, the actual amount of export proceeds must fit the amount stated in the PEB. The value of export proceeds is considered appropriate, and exporters do not have to submit supporting documents, if it is less than the PEB with discrepancy less than IDR 50 million.
If the discrepancy exceeds IDR 50 million, the exporter shall submit a written clarification explaining the reasons for the discrepancy, which may result from:
- exchange rate discrepancy, discounts/rebates, administration fees, and/or other related international trade fees, in which case the discrepancy between foreign exchange exportproceeds value and PEB value can be maximum 10% of the PEB value; and/ or
- toll manufacturing, repair services, operational or financial leasing, price fluctuations, as well as composition, quantity and quality differences in goods.
Specifically for mining products (oil and gas, minerals and coal), a written clarification does not need to be submitted for discrepancies up to 10% of the PEB value. The provision on export of mining products was not regulated in the previous versions of the PBI and the SEBI.
♦ Courier Service Companies and Oil and Gas Exports
If export is conducted through a courier, the obligations relating to receipt of foreign exchange export proceeds adhere to the owner of the goods. The courier company must provide PEB information to the owner of the goods.
For exports of oil and gas, the obligation to report receipt of foreign exchange export proceeds adheres to the exporter and/or the parties in the oil and gas contract.
♦ Obligation to Withdraw Foreign Exchange Offshore Loans
Debtors are obliged to withdraw offshore foreign exchange loans through a foreign exchange bank. The obligation applies to all cash loans that derive from non-revolving loan agreements that are not used for refinancing, facility margin between refinancing and previous offshore loans and debt securities in the form of bonds, medium term notes, floating rate notes, promissory notes and commercial paper.
The withdrawal of offshore foreign exchange loans shall be reported to BI along with supporting documents no later than the 15th day of the following month.
♦ Sanctions
♦ Transitional Provisions
Foreign exchange export proceeds resulting from PEB issued until the end of May 2014 are still governed by PBI No. 14/25/PBI/2012 and SEBI No. 15/9/DSM.
Withdrawal of offshore loans signed prior to January 2, 2012, may be conducted other than through a foreign exchange bank.
October 15, 2014
Constitutional Court Decides Employee Wages Get Priority over Secured Creditors in Bankruptcy / Liquidation
Continuing the ongoing series of judicial reviews against the Labor Law,¹ the Constitutional Court rendered Decision No. 67/PUU-XI/2013 on September 11, 2014, with the result that payment of wages now receives top priority during bankruptcy or liquidation of an employer—even over satisfaction of secured creditors.
The Decision revises Labor Law provisions that initially stipulated that wages and other employee rights are “prioritized” over “other payables” when a company is bankrupted or liquidated. The applicants for judicial review argued that Article 95(4) of the Labor Law failed to provide sufficient detail about what “other payables” are preceded by payment of wages and other employee rights. In its Decision, the Constitutional Court declared that Article 95(4) shall now be read as follows:
The payment of outstanding wages of workers/laborers shall take precedence over all other types of creditors, including secured creditors’ claims and claims of states’ rights, auction houses and public institutions established by the Government, whereas the payment of other rights of workers/laborers shall take precedence over all claims, including claims of states’ rights, auction house, and public institutions established by the Government, except for claims by secured creditors.
In amending the provision, the Constitutional Court reasoned that employee wages and rights are part of the rights to life and livelihood, as contained in Article 28A of the 1945 Constitution, which cannot be reduced under any circumstance. Despite the constitutional basis for protecting employees’ livelihoods, the Decision poses serious implications for secured creditors.
♦ Types of Creditors
Ordered based on priority, there are three types of creditors:
1. Secured creditors (kreditur separatis);
2. Preferential creditors (kreditur preferen); and
3. Concurrent creditors (kreditur konkuren).
Secured Creditors
Secured creditors are those holding security over movable or immovable assets, such as pledge, hypothec, mortgage, fiducia, and warehouse receipt. In bankruptcy and liquidation, secured creditors may immediately execute the collateral and receive repayment of their loans prior to other creditors.
Preferential Creditors
Preferential creditors are those given the right by law to precede other creditors. Examples of preferential creditors include those with the following receivables:
1. Court fees;
2. Lease payments for immovable property;
3. Unpaid movable property; and
4. Insurance policy holders in the bankruptcy of a general loss or life insurance company.
Concurrent Creditors
Concurrent creditors are those not classified as either secured or preferential creditors. As such, concurrent creditors receive the lowest priority in bankruptcy and liquidation.
♦ Debts to the Government
The rights of the Government in bankruptcy and liquidation are set out under the General Taxation Law, which requires outstanding tax payments of the entity to be paid prior to liquidating the assets and settling with preferential and concurrent creditors. As such, outstanding tax payments are disposed after secured creditors are satisfied, but take precedence over preferential and concurrent creditors.
♦ Implementation Unclear
The most significant issue raised by the Decision is the impact on the status of secured creditors that are now subordinated to employee wage claims, as the source of wage payments may in some cases require the sale of secured assets. Prior to the Decision, wages and other employee rights were classified under preferential creditors, as affirmed under the ICC. As a consequence of the Decision, employee wages are now prioritized over all other creditors, including secured lenders and the Government, whereas other employee rights are positioned after secured creditors.
“Other employee rights” was not defined by the Constitutional Court, but we infer that such rights cover severance, unclaimed annual leave, compensation for housing allowance, medical and health care costs, and other compensation stipulated in the Labor Law, company regulation, collective labor agreement (if applicable) and individual work agreements
Another critical issue is the clash between the new definition provided in the Decision and the provisions of the Bankruptcy Law. As the Decision prioritizes wages over every other debt, will secured creditors be required to wait for the bankrupted company to pay the wages of their employees, or even obtain approval from the court or the receiver, before executing their securities? Under the Bankruptcy Law, secured creditors are given the right to execute their collateral (as though the debtor was never declared bankrupt) during the first 90 days after the bankruptcy decision. Will this right now be sidelined by the obligation to prioritize the wages of employees? The Constitutional Court did not address any of these issues in the Decision.
The Ministry of Manpower and Transmigration subsequently issued Circular Letter No. SE.7/MEN/IX/2014, announcing the Decision to the regional governments, but the letter offered no guidance on how to interpret or implement the Decision.
We will continue to seek confirmation regarding the implementation of the Decision. If there are inquiries regarding the impact of the Decision on a particular legal matter, we will gladly facilitate and discuss them with you.
Legal Basis
The legal bases used in this article are as follows:
1. Indonesian Civil Code (“ICC”)
2. Indonesian Trade Code (“ITC”)
3. Law No. 6 of 1983 on General Tax Provisions and Procedures, as lastly amended by Law No. 16 of 2009 (“General Taxation Law”)
4. Law No. 2 of 1992 on Insurance Companies (“Insurance Law”)
5. Law No. 4 of 1996 on Mortgage on Land and Property Affixed on Land (“Mortgage Law”)
6. Law No. 42 of 1999 on Fiducia Security (“Fiducia Law”)
7. Law No. 13 of 2003 on Labor Affairs (“Labor Law”), as amended
8. Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payments (“Bankruptcy Law”)
9. Law No. 9 of 2006 on Warehouse Receipt Systems, as amended by Law No. 9 of 2011 (“Warehouse Receipt Law”)
10. Law No. 17 of 2008 on Shipping (“Shipping Law”)
11. Law No. 1 of 2009 on Aviation (“Aviation Law”)
Jakarta, October 13, 2014
1 Previous judicial reviews of the Labor Law include: 1) Constitutional Court Decision No. 27/PUU -IX/2011, dated January 17, 2012, 2) Constitutional Court Decision No. 100/PUU -X/2012, dated September 19, 2013, 3) Constitutional Court Decision No. 115/PUU-VII/2009, dated November 10, 2010, 4) Constitutional Court Decision No. 37/PUU-IX/2011, dated September 19, 2011, 4) Constitutional Court Decision No. 012/PUU -I/2003, dated October 28, 2004, 5) Constitutional Court Decision No. 19/PUU-IX/2011, dated June 20, 2012, and 6) Constitutional Court Decision No. 58/PUU-IX/2011, dated July 16, 2012.
New Plantation Law – No Foreign Shareholding Limit, Yet
On the night of Monday, September 29, 2014, the House of Representatives and the Government approved a draft bill on plantations, which will revoke Law No. 18 of 2004 on Plantations when it is signed by the president and given a number (becoming the “New Plantation Law”). In addition to laying a new general legal framework for the sector, the New Plantation Law will serve as the basis for further implementing regulations and policies. As of the date of writing, the bill had not yet been signed and numbered; however, we have the latest copy of the bill, which we believe is the same content that will be ratified as the New Plantation Law.
♦ LIMITATION ON FOREIGN INVESTMENT STILL PENDING
Under the current Negative Investment List, foreigners may hold up to 95% of shares in a plantation company. The controversial draft bill most recently in circulation imposed a 30% foreign shareholding limit, with no grandfathering of existing PMA companies, who would have had only five years to divest their shares to an Indonesian party. (A similar structure was adopted in the 2010 Horticulture Law.) Transfer of shares to a foreign shareholder would have been subject to the approval of the Minister of Agriculture.
In the form passed by the House, however, the New Plantation Law is silent on the percentage of shares that a foreign party may hold. Instead, foreign shareholding limitations can be implemented through a future Government Regulation on the basis of: (i) type of plant, (ii) business scale, and (iii) certain area conditions.
♦ LAND UTILIZATION AND LICENSING
The minimum and maximum areas of land that may be licensed for plantation will also be stipulated in a future Government Regulation. Currently, only the maximum holding of a company or group has been governed, through Minister of Agriculture Regulation No. 98 of 2013, (e.g., maximum of 100,000 hectares for oil palm plantations). It will be fascinating to see whether the area limits will be the same under the forthcoming Government Regulation.
Plantation companies must plant 30% of their estate within three years after receiving the Right to Cultivate (Hak Guna Usaha or “HGU”) and plant all technically plantable areas within six years. The Government has the right to acquire any unutilized (unplanted) estate if a company fails to fulfil the utilization requirements. Companies are prohibited to transfer HGU if it will cause them to fall below the minimum area.
Plantation companies must facilitate the establishment of at least 20% of their estate for local communities within three years after obtaining HGU; however, it is not clear whether such area must be within and/or outside the estate. The community area will be managed by the plantation company.
Plantation companies must obtain a plantation business license and subsequently HGU. Prior to obtaining the license “and/or” HGU, companies cannot conduct any plantation activities. This provision is ambiguous, as it is widely understood that the business license should precede HGU, and HGU should precede plantation activities. The use of “and/or” opens the possibility for land clearing to begin prior to obtaining HGU. The issuance of plantation business licenses must be in line with the spatial layout plan.
♦ TIMEFRAME FOR COMPLIANCE
Domestic plantation companies will have five years to adjust their businesses with the New Plantation Law. Foreign-owned companies, on the other hand, are not required to adjust with the new provisions until after the HGU period expires, meaning, theoretically at least, that even if the Government decides to impose a foreign shareholding restriction, it will not apply to existing PMA companies holding HGU until the expiration of the land rights. It is unclear what is required for foreign-owned companies who have not obtained HGU.
♦ SANCTIONS
Violations can be imposed with administrative sanctions, fines, and/or imprisonment.
October 2, 2014
Entering the New Era of E-Money
In a globalized era, there is nothing more convenient than electronic payment when it comes to choosing among available payment options. A form of electronic payment currently gaining momentum is electronic money, commonly known as e-money.
To facilitate this momentum, Bank Indonesia (“BI”) issued Regulation No. 16/8/PBI/2014 of 2014 (“Amendment”) to amend Regulation No. 11/12/PBI/2009 of 2009 on Electronic Money (“Regulation”). To implement the Amendment, BI recently issued Circular Letter No. 16/11/DKSP of 2014 on Implementation of Electronic Money (“2014 Circular”) to be in accordance with the changes introduced by the Amendment.
♦ What is E-Money?
Article 1 (3) of the Amendment defines e-money with a fixed set of criteria. Firstly, e-money is a payment method (whether card or software based) with a nominal value that is equivalent to the cash deposited in advance by the holder in the issuing institution. The nominal value is then stored electronically in a server or chip to be spent by the holder.
Another criterion of e-money is acceptance by multiple merchants other than the issuer. From this specific element, we can infer that a company issuing gift cards to store nominal value that can only be spent for goods and services provided by their branches will not be considered e-money.
Lastly, if the issuing institution is a bank, the management of e-money must be separated from bank savings as defined under Law No. 7 of 1992 on Banking, as amended (“Banking Law”), which include deposits and deposit certificates, checking accounts, savings and the like.
Types of E-money
The Amendment expands e-money into 2 different types: identified e-money and anonymous e-money. Identified e-money contains information on the identity of its holder, whereas the holder of anonymous emoney is not registered with the issuer.
The types of e-money also differ in terms of the services they provide. Issuers of identified e-money are allowed to provide the following services:
- Top ups of other credit accounts, such as prepaid phone and electricity plans;
- Transactions with merchants accepting the respective e-money;
- Bill payment, which includes electricity, water, telephone and other routine or periodic bills;
- Fund transfers, covering person-to-person transfers, and transfers from and to a bank account;
- Cash withdrawals;
- Government aid programs, such as the Jakarta Smart Card (Kartu Jakarta Pintar); and
- Other services approved by BI.
Issuers of anonymous e-money on the other hand may only provide top ups and transaction and bill payment services. In order to provide other services, the issuer of anonymous e-money must first secure BI approval. The classification of e-money into identified and anonymous e-money was not previously stipulated under the E-Money Regulation.
Parties
There are a total of 7 parties involved in an e-money framework:
- Principal, which is a bank or non-banking institution responsible for managing the system and member network (comprising issuers and acquirers), whereby the cooperation among members is based on a written agreement;
- Issuer, which is a bank or non-banking institution issuing e-money;
- Acquirer, which is a bank or non-banking institution that is in cooperation with merchants to process transactions using e-money issued by parties other than the acquirer;
- Holder, which is an individual or entity that owns or uses e-money;
- Merchant, which is the goods or services provider that receives payment using e-money;
- Clearing house, which is a bank or non-banking institution that calculates the rights and liabilities of each issuer and acquirer involved in an e-money transaction; and
- Financial settlement service provider, which is a bank or non-banking institution that conducts the final settlement after calculation by the clearing house.
The requirements, necessary documents, and procedure for issuers to secure a license from BI are provided under the 2014 Circular. Note that the licensing procedure for issuers also applies to principals, acquirers, clearing houses and financial settlement service providers. The requirements and necessary documents for these parties to secure a license from BI are provided under the Annex to the 2014 Circular.
♦ Licensing Issues
As a consequence of the fixed criteria of e-money as elaborated above, there may be issues regarding certain service providers that are essentially carrying out e-money services but do not fulfill all the elements prescribed by the Amendment.
According to BI’s website, operators of electronic payment systems that do not fulfill all the criteria of emoney stipulated under the Amendment are nevertheless required to submit a report detailing information on their products, business processes, cooperation with third parties, and transaction reports. The response to the report provided by BI will provide greater clarity on what must be observed by the operators that do not satisfy all the elements prescribed by the Amendment.
September 30, 2014
MERGERS & ACQUISITIONS TRAINING
Mohamad Kadri will lead a Mergers & Acquisitions Training, organized by Lex Mundus. The two-day training will be held on September 29 to 30, 2014 at Mercantile Athletic Club, Jakarta, Indonesia.
MOT and MEMR Regulate Coal Export
On July 15, 2014, the Minister of Trade (“MOT”) issued Regulation Number 39/M-DAG/PER/7/2014 on Provisions on Export of Coal and Coal Products (“MOT Regulation”), which comes into force on October 1, 2014.1 One of the purposes of this regulation is to prevent overexploitation and ensure the domestic supply of coal and coal products, including anthracite, bituminous, subbituminous, lignite, coking coal, coal gas and other derivative products. To enable implementation of the MOT Regulation, the Directorate General of Minerals and Coal (“DGMC”) of the Ministry of Energy and Mineral Resources (“MEMR”) issued Regulation Number 714.K/30/DJB/2014 on Procedures and Requirements for Granting Recommendations for Registered Exporter of Coal.
The regulations require coal companies to obtain a recommendation from the MEMR and recognition as a Registered Exporter of Coal (Eksportir Terdaftar Batubara – “ET-Coal”) from the MOT’s Directorate General of Foreign Trade (“DGFT”) in order to be permitted to export coal or coal products. The new requirements yielded considerable criticism from coal companies due to the narrowness of the September 1, 2014, deadline, so the MEMR extended the deadline to October 1.
♦ Registered Exporter Status to Export Coal and Coal Products
Coal companies who intend to export coal or coal products must apply to the DGFT for recognition as ET-Coal by submitting (i) a copy of the mining license (IUP or IUPK)2 or Coal Contract of Work (“CCOW”), (ii) basic corporate documents,3 and (iii) a recommendation from DGMC., The recognition as ET-Coal is valid for 3 years.
To obtain an ET-Coal recommendation from the DGMC, the applicant must submit (i) copies of clear and clean certificate and coal mining license, special mining license or MEMR Decree concerning stages of production operation for CCOW holders, (ii) approval letter of the current year work plan and budget (RKAB), (iii) proof of payment of non-tax state revenue (PNBP), and (iv) certification that the company will pay production fees (DHPB) at the point of sale FOB before the shipment is transported across the regency/city/province/country. The recommendation will be issued within 5 working days and is valid for 3 years.
♦ Verification and Technical Examination
The MOT Regulation reiterates that every export of coal or coal products must be administratively verified and technically examined by a licensed surveyor appointed by the MOT. Verification and technical examination considers:
- region of origin of coal/coal products
- quantity, type, and tariff (Pos Tarif/HS Code) of coal/coal products
- calorific value of coal
- shipping time
- port of loading
- country and port of destination
- proof of payment of production fee/royalties
The costs incurred for verification and technical examination are to be paid from public funds, but the government reserves the right to shift the costs to the exporter if public funds are not available.
♦ Reporting and Sanctions
The results of verification and technical examination are compiled in a Surveyor Report (laporan surveyor -“LS”), and surveyors must report monthly recapitulations to the MOT. Evidence of ET-Batubara and LS are used as supporting documents for Export Declarations (Pemberitahuan Ekspor Barang – PEB). Companies holding ET-Coal are required to report export activity monthly to the DGFT, with copies to DGMC, by the 15th of the following month. Export activity reports must also be submitted online through http://inatrade.kemendag.go.id.
Failure to meet reporting obligations can lead to revocation of ET-Coal or appointment as a Surveyor. Other sanctions can be imposed in accordance with applicable laws and regulations. In addition, the DGMC can evaluate the ET-Coal recommendation annually and can propose revocation of ET-Coal if it detects violations.
1 MOT Reg. No. 49/2014 amended Art. 21 of the MOT Regulation to extend the effective date to Oct. 1, 2014.
2 Production Operation IUP, Production Operation IUPK, Production Operation IUP specifically for transportation and sale, or Production Operation IUP specifically for processing and refining.
3 Taxpayer registration number (NPWP) and company registry (TDP).
New Presidential Regulation on Utilization of Foreign Workers and Training for Indonesian Workers
For almost 20 years, Presidential Decree No. 75 of 1995 on Foreign Worker Utilization (“PD 75/1995”) governed the status and procedures for employing foreign workers in Indonesia. In July 2014, Presidential Regulation No. 72 of 2014 on Foreign Worker Utilization and Implementation of Education and Training of Indonesian Workers as Associates for Foreign Workers (“PR 72/2014”) was issued to better align government practice with the requirements under the Labor Law (Law No. 13 of 2003 on Labor) and the latest Minister of Manpower and Transmigration (“MOMT”) Regulation No. 12 of 2013 on Procedures for Foreign Worker Utilization (“MOMT Reg. 12/2013”).
One significant change in PR 72/2014 is that purely domestic companies may now freely employ foreigners as Directors and Commissioners, except for in human resources and certain other positions that are generally restricted to foreigners under MOMT Reg. 12/201 3 and other MOMT regulations. Previously, foreign Commissioners could only be employed by foreign capital investment (PMA) companies.
Also in July 2014, the Government issued Government Regulation No. 57 of 2014 on Development, Management, and Protection of Language and Arts, as well as Enhancement of the Function of Indonesian Language (“GR 57/2014”), which augments the foreign worker language requirements in MOMT Reg. 12/2013. MOMT Reg. 12//2013 states that foreign workers recruited to work in Indonesia must be able to communicate in the Indonesian language. GR 57/2014 stipulates that the ability to communicate in Indonesian shall be in accordance with the skills required for the relevant position, and that if the foreign worker is unable to meet the required standards, he/she shall be required to participate in language training.
In conjunction with the Labor Law and MOMT Reg. 12/2013, PR 72/2014 also requires a company that recruits foreign workers in Indonesia to have an Expatriate Manpower Utilization Plan (RPTKA) and the relevant Expatriate Work Permit (IMTA). Other than for Directors and Commissioners, PR 72/2014 requires employers to appoint an Indonesian worker as an “associate” (pendamping) to each foreign worker for education and training in the interest of technology transfer and enhancing expertise. Foreign worker utilization and education and training of companion workers must be reported to the manpower office every six months.
PR 72/2014 contains no sanctions for violation of its provisions; however, sanctions regulated in the Labor Law, such as administrative sanction, revocation of business license, and criminal sanction, may be imposed for employing foreign workers without a proper working permit and failing to report implementation of foreign workers and education and training of the companion worker.
INTENSIVE TRAINING: PLANTATION LAW – Batch III
Mohamad Kadri will lead an Intensive Training on Plantation Law, organized by Emli Training. The three-day training will be held on September 23 to 24, 2014 at Grand Mercure Jakarta Harmoni, Jakarta, Indonesia.
LEGAL DUE DILIGENCE PLANTATION TRAINING
Mohamad Kadri will lead a Legal Due Diligence Plantation Training, organized by HukumOnline. The training will be held on September 18, 2014 at Aryaduta Hotel, Jakarta, Indonesia.
INTENSIVE TRAINING: OIL AND GAS – Batch V
Arfidea D. Saraswati will be one of the speakers on Intensive Training of Legal Due Diligence for Oil and Gas, organized by Emli Training. The training will be held on August 28, 2014 at Grand Mercure Jakarta Harmoni, Jakarta, Indonesia.