Amendments to the Regulation on Importer's Licenses (MOT Reg 59-2012)
This Newsflash summarizes the provisions of the Minister of Trade (the “MOT”) Regulation No. 59/M-DAG/PER/9/2012 dated September 21, 2012 (“Reg. 59”) regarding Amendments to MOT Regulation No. 27/M-DAG/PER/5/2012 (“Reg. 27”) regarding Provisions on Importers’ Identification Numbers (Angka Pengenal Importir - API).
Reg. 59 was issued to address some concerns arising under Reg. 27 as well as to make corresponding adjustments due to the issuance of another Minister of Finance regulation regarding the exemption of duty on the import of machinery and goods and materials for the industrial development in framework of capital investment.
The summary of the pertinent provisions of Reg. 59 is set out below:
1. Definition of Special Relationship. Reg. 59 redefines “special relationship” by removing the words “taking financial and operational decisions.” Please refer to our Newsflash dated July 20, 2012 regarding Reg. 27 for comparison (posted on our website as well). The consequence of the removal of these words is that the definition of special relationship is broader and more general.
2. API-U Holders Now Can Import Goods in More than One Section in Goods Classification System. Reg. 59 now lets an API-U holders (i.e., APIs granted to trading companies) to import goods in more than one section in the Goods Classification System provided:
a. the API-U holder must import the goods from an offshore company that has special relationship with the API-U holder; or
b. the API-U holder is a business entity which are wholly or majority-owned by the State.
The special relationship may be justified based on: (i) a contractual arrangement in sharing control over an economic activity; (ii) share ownership; (iii) articles of association; (iv) agency/distribution agreements; (v) loan agreements; or (vi) supplier agreements.
In order to be able to import goods in more than one classification, in its application for the API-U the holder must also attach: (a) a statement letter from the API-U holder stating the special relationship; and (b) proof of the special relationship legalized by the foreign trade Attaché or diplomatic/consular/representative of the Republic of Indonesia in the country of the company with the special relationship. M-00199 2
3. Import of Complementary Goods by API-P Holders. Reg. 59 relaxes the requirements for an API-P holder to import complementary goods. Now an API-P
holder may import complementary goods if the import is consistent with the API-P holder’s license and the complementary goods originates from an offshore company which has a special relationship with the API-P holder. Under Reg. 27, the complementary goods would need to be produced by the offshore entity. The description of special relationships for API-U holders also apply to API-P holders.
4. Transfer of Certain Imported Goods by API-P Holders. Reg. 59 now allows API-P holders to transfer only certain goods that are imported with duty exemption for their production processes to a third party after at least two years of own use by the API-P holders from the import date.
5. Certain Imports without APIs. Reg. 59 removes the requirement to obtain an approval from the Import Directorate of the Ministry of Trade for the import of certain goods under Reg. 27 without API.
Summary of New Regulation on Importer’s Licenses
This Newsflash sets out the summary of the Minister of Trade (the “MOT”) Regulation No. 27/M-DAG/PER/5/2012 regarding Provisions on Importers’ Identification Numbers (API) dated May 1, 2012 (“Regulation 27”). Regulation 27 replaces (i) the Minister of Industry and Trade (i.e., the predecessor of the MOT) Decree No. 134/MPP/Kep/6/1996 regarding Import and Domestic Trade Activities of Complementary Goods by Foreign Companies in the Manufacturing Sector and (ii) the MOT Regulation No. 45/M DAG/PER/9/2009 regarding Importers’ Identification Numbers (API) as amended lastly by the MOT Regulation No. 20/MDAG/PER/7/2011 (collectively, “Regulation 45”).
The summary of the pertinent provisions of Regulation 27 is set out below.
1. Imports by API Holders Only. Regulation 27 expressly provides that any import of goods may be carried out only by an importer that possesses an importer’s identification number (or in Indonesian known as an Angka Pengenal Importir or an API in short).
A company may only have one API (i.e., API-U or API-P as discussed below). An API is valid for so long as the importer carries out its business subject to re-registrations of the API every five years.
Import of certain goods can be conducted without securing an API (but requires an import approval from the MOT—which procedures unfortunately are not set forth in Regulation 27), including temporary imported goods; promotional goods; goods for research and development of science, shipment goods, goods as grants, gifts and donation for the purpose of religious service, charity, social, culture or natural disaster relief, goods which are medicine and medical equipment using government budgets, samples of goods. Further, imports of the following goods require neither API nor the import approval: goods belonging to foreign missions and their officials; goods belonging to international organizations and their officials; and goods in connection with movement (of a person).
2. Types of APIs. Regulation 27 divides APIs into two types, namely (i) General APIs (API Umum – “API-U”) and (ii) Manufacturer APIs (API Produsen – “API-P”). Each type is discussed below.
3. API-U. An API-U is given to a company that imports certain goods for trading purpose only. A company that holds an API-U is only allowed to import one category of goods stipulated in the Goods Classification System set forth in Appendix I of Regulation 27. One category of goods will include a range of products as provided in the Harmonized Systems. The categories of goods are set out in the appendix of this Newsflash.
4. API-P. In contrast, an API-P allows a company only to import capital goods, raw M-00147 2
materials, supplementary goods and/or goods used to support its production process. Generally, the imported goods must not be traded or transferred to other parties except as
discussed below.
In certain limited circumstances and subject to certain requirements (discussed below), a holder of an API-P may be permitted to import certain industrial goods provided such goods are required for the development of its business or investments. Such imported industrial goods may be traded and/or transferred to any other party subject to the limitations discussed below.
5. Limitations for API-P Holders in Imports for Trade Purposes. The industrial goods imported by an API-P holder discussed in point 3 above must not be used in its production process. Further, these imported industrial goods may only be used (i) for the purpose of market tests, and/or (ii) as complementary goods.
Market tests are defined by Regulation to 27 to mean activities of selling certain imported industrial goods (which the importer is unable to manufacture) with the purpose of assessing the market reaction and to be used as its business development. A complementary goods is defined as an imported goods that originates from and is manufactured by a foreign company that has a special relationship with the importer. A special relationship is defined to mean the ability of a party to control the other party or the presence of a significant impact of a party over the other party in taking financial and operational decisions according to the prevailing accounting standards.
Regulation 27 requires the market tests to meet the following criteria (i) such API-P holder is unable to manufacture the industrial goods and (ii) the industrial goods are
consistent with the manufacturing license (or other business license) of the API-P holder. Furthermore, the time period of the market tests will be limited by the relevant
governmental authority under applicable laws and regulations. Unfortunately, other thanas set out above, Regulation 27 offers no further guidance on what ‘industrial goods’
means.
Consistent with the above discussion, Regulation 27 requires that any import of complementary goods by an API-P holder meet the following requirements: (i) the API-P
holder has not manufactured the imported goods, (ii) the imported goods is consistent with the business license of the API-P holder, and (iii) the imported good is manufactured
by a foreign company that has a special relationship with the API-P holder.
6. Manufacturer Importers. An API-P holder must be determined as a manufacturer importer issued by the MOT or its designee before the API-P holder may importindustrial goods for purposes of trading. In order to get this determination, the API-P holder will require a recommendation from the relevant ministry.
7. Post Audit of Import by MOT. With respect to manufacturer importers, the MOT may conduct certain post audits (which procedures will be set forth in due course) to determine, among others, the veracity of any import of industrial goods for trade by an API-P holder who is determined as a manufacturer importer.
8. Compliance Adjustment under Regulation 27. Any API-U or API-P issued before the enactment of Regulation 27 must be conformed to the provisions of Regulation 27 before December 31, 2012.
Government Regulation on Mineral and Coal Mining Business Activities
Changes to Government Regulation on Mineral and Coal Mining Business Activities
The President of the Republic of Indonesia issued Government Regulation No. 24 of 2012
dated February 21, 2012 (“GR 24”) to amend certain provisions of Government Regulation
No. 23 of 2010 dated February 1, 2010 regarding Implementation of Mineral and Coal
Mining Business Activities (“GR 23”). GR 24 became effective on February 21, 2012.
This newsflash looks at some of the changes which may be significant for businesses.
1. IUPs for PMA Companies Now Issued by Minister
GR 24 requires that all mining business permits (IUP) for companies with foreign
shareholdings (commonly known as PMA companies) will now be issued by the
Minister of Energy and Mineral Resources (the “Minister”). Before this, these IUPs
would be issued by the Minister, Governor, or Regent depending on the requirements
set out in GR 23. Under GR 24, all IUPs for PMA companies will be issued by the
Minister.
This change removes the authority of Regents and Governors in issuing IUPs to PMA
companies, and complements the new Article 112B (described in point No. 9 below).
We expect that Governors and Regents would object to this change.
2. Restrictions on the Transfer of IUPs
GR 24 reiterates the provisions of Article 93(1) the Mining Law (Law No. 4 of 2009)
regarding the restriction on any transfer of IUPs by the IUP holders. GR 24, in
Article 7A(1), prohibits any transfer of an IUP to any other party.
GR 24 in Article 7A(2) also provides that “any other party” includes any business
entity with 51% or more shares held by the IUP holder. This addition may create
confusion because of the way it is drafted. In this provision, it appears that now an
IUP holder may transfer its IUP to a company as long as the IUP holder holds 51% or
more of the shares in the company.
GR 24 also introduces Article 7B which allows a state-owned enterprise (BUMN) to
transfer a portion of its IUP mining area to another company provided that the BUMN
owns 51% or more shares in such company. Such transfer is subject to approval by
the Minister.
3. Additional Exemption to One IUP Per Company Rule
GR 24 provides an additional exemption to the one IUP per company rule. Under GR
24, a company may be granted multiple IUPs for non-metal minerals and/or for rocks.
4. Surrender of Mining Areas
GR 24 provides that when the IUPs expire, all mining areas have to be surrendered to
the Minister becoming areas which are reserved for the State’s strategic interests. GR
24 expressly provides that this requirement applies to mining areas under contracts of
work (COW) and coal contracts of work (CCOW).
5. Discontinuation of Mining Activities due to Interruptions
Prior to GR 24, one of the reasons for discontinuation of mining activities was due to
an interruption based on any regulation issued by the Minister. GR 24 now provides
that such interruption may be caused by any regulation issued by the Central
Government.
The new elucidation of Article 76 stipulates that the IUP/CCOW/COW validity
period shall not be shortened by temporary suspensions of activities caused by the
issuance of regulations by the Central Government that interrupt activities for a
limited period. For instance, the Presidential Instruction No. 10 of 2011 regarding the
moratorium on the issuance of forestry and relevant regional government permits
within primary forest and peatland areas.
6. Divestment Requirements
GR 24 substantially changes the divestment requirements. Under GR 24 all foreign
shareholders in mining companies must divest their shares in the mining companies in
stages commencing from five years from operation so that at the end of the 10th year
after production, the foreign shareholders shall own not more than 49% shares in the
mining companies.
The divestment stages are as follows:
- in the 6th year, 20% of all shares;
- in the 7th year, 30% all shares;
- in the 8th year, 37% all shares;
- in the 9th year, 44% all shares; and
- in the 10th year, 51% of all shares.
Under GR 23 it was unclear whether the divestment requirements would apply to
existing operating mining companies that have operated for more than five years at
the time GR 23 was issued. GR 24 is silent about this as well.
7. No Dilution of Indonesian Shareholding
Based on the new divestment requirements listed above, GR 24 requires that the
Indonesian shareholding levels noted in point 6 above must be maintained at all times
and the Indonesian shareholdings shall not be diluted.
8. Areas Not Covered in IUP Extensions for COW and CCOW
GR 24 provides that any mining area that is not covered by an IUP which is an
extension of an existing COW or CCOW, shall be determined a state reserve area.
9. Requirements for IUP Extensions for COWs and CCOWs
GR 24 details the requirements for the extension of a COW or CCOW. The IUP
Extension shall be issued by the Minister.
A holder of COW or CCOW must apply for the extension by at least six months
before it expires, together with all the administrative, technical, environmental, and
financial requirements set out in GR 24. The Minister will then evaluate the
application and may approve or reject the application. If the Minister rejects the
application, such rejection must be made before the expiry of the relevant COW or
CCOW.
This change provides legal certainty for any COW/CCOW companies which are PMA
or PMDN (domestic capital investment companies) wanting to obtain an extension on
the validity period of their COWs/CCOWs in the form of an IUP. The COW/CCOW
company must file an application directly with the Minister—not the local
government with jurisdiction over the mining area. The Minister will then evaluate
the company’s compliance with the administrative, financial, and technical
requirements, and shall take into account the potential of the minerals or coal reserves
to deliver benefits to Indonesian people.
Employees’ Right to Register with Jamsostek and/or Social Security Organizer Agency (BPJS)
The Constitutional Court issued its Judgment No. 70/PUU-IX/2011 dated August 2, 2012 which now
allows employees register themselves with PT Jamsostek (Persero) as the organizer of the existing
employment social security (or “Jamsostek” in short in Bahasa Indonesia) under Law No. 3 of 1992
(the “Jamsostek Law”) and/or with the Social Security Organizer Agency (Badan Penyelenggara
Jaminan Sosial or “BPJS”) under Law No. 40 of 2004 (the “SJSN Law”).
The Court takes the view that the provisions of the Jamsostek Law and the SJSN Law which require
employers to register their employees with PT Jamsostek and BPJS respectively are insufficient to
secure the basic right of employees to the coverage under the Jamsostek program under the Jamsostek
Law or the national social security under the SJSN Law. The Court views that employees must have
the right to register themselves with PT Jamsostek and BPJS if their employers fail to register
themselves with PT Jamsostek or BPJS. Once the employees have registered themselves, their
employers must pay all the required contributions under the Jamsostek Law and/or the SJSN Law as
applicable.
Another Constitutional Court Decision in Favor of Employees
In Decision No. 37/PUU-IX/2011 dated September 19, 2011, the Constitutional Court has again delivered a decision that favors employees in the case of a termination dispute.
This Decision holds that in a dispute between an employer and an employee, both parties have to continue to perform their respective rights and obligations while the court deliberates.
This means that the employee must continue working, and the employer must continue paying the salary and benefits. If the employer suspends the employee, the employer’s obligation to pay salary and benefits continues until the decision is made final and binding.
In employment termination disputes, a Labor Court hears and decides the disputes in the first instance. Decisions of Labor Courts in employment termination may be appealed to the Supreme Court. If no appeal is made within 14 working days, Labor Court decisions become final and binding. The decision of the Supreme Court is final and binding.
Under the applicable laws, the entire proceedings in an employment dispute (including the Supreme Court decision) shall conclude within 140 working days. But in reality, proceedings always exceed the 140-working day period.
The Constitutional Court Decision is obviously a major concern for an employer in an employment termination dispute as the employer must continue paying salary and benefits to the employee during the proceedings until the Supreme Court decides the appeal. The entire proceeding may take more than 1 year.
In addition, the employer has to pay termination benefits to the employee at the end of the proceeding.
In Decision No. 37, the Constitutional Court has failed to consider certain circumstances that may be relevant in an employment termination dispute. For instance, in a termination which is caused by a serious misconduct of an employee, the Constitutional Court’s decision will require the employer to continue paying salary and benefits to the employee (although the employee is suspended). This certainly will not act as a deterrent to employees from committing any serious misconduct.