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The government announced a seventh package of economic reform and stimulus programs on 5 December 2015 as part of its efforts to lift the economy out of the doldrums. While the response to the series of packages from local businesses has generally been favourable, the reaction of foreign investors has been somewhat cooler, with many saying that the situation on the ground has changed little. For its part, the government says that the beneficial effects of the reforms will only really start to be felt in the second half of this year.
The key points of the seventh package include tax breaks for selected labour-intensive industries, revision of Government Regulation No. 18/2015 on tax incentives for investment in specific sectors, faster issuance of land-title certificates and the inclusion of five more permits in the three-hour fast-track licensing program by the Investment Coordinating Board (BKPM).
The government says that the success, or otherwise, of the reforms will be seen from next year's World Bank Ease-of-Doing-Business Report. In this year’s report, Indonesia is ranked 109th out of 189 nations, up 11 places from 2014.
The Ministry of Manpower (“MOM”) issued an amendment to MOM Regulation No. 16 of 2015 on the Procedure for the Utilization of Expatriate Manpower. MOM Regulation No. 35 of 2015 (“Reg. 35”), which liberalises rules governing expatriate employees and corporate officeholders, came into operation on 23 October 2015.
The key changes introduced by Reg. 35 are as follows:
- Abolition of the 1:10 ratio requirement for hiring expatriates;
- Eliminating Expatriate Employment Permits (“IMTAs”) for non-resident expatriate directors, commissioners and those holding equivalent positions of Indonesian companies;
- Eliminating IMTAs for expatriates who travel to Indonesia on a short-term basis for the purposes of: (i) providing guidance and training in connection with industrial technology applications or innovations related to improvements in industrial product design and quality, and collaboration as part of efforts to market Indonesian products overseas; (i) delivering lectures; (iii) attending meetings organised by a head office or a representative office in Indonesia; (iv) competency assessment; and (v) one-off jobs.
We issued a client update setting out the other features of Reg 35. To view the Update, click here.
The Ministry of Manpower (“MOM”) recently issued Regulation No. 78 of 2015 (“Reg. 78”) which governs the calculation of provincial minimum wages and establishes a requirement that all employees in Indonesia be paid in rupiah.
Reg 78 provides for a new formula to calculate provincial minimum wages, starting in 2016. The formula is:
New minimum wage = current minimum wages + (current minimum wage x inflation + % GDP annual increase during the year)
The new formula should bring certainty to the calculation of minimum wages in the provinces and help create a more stable business climate.
Another key feature of Reg. 78 is found in Article 21 which mandates employers to pay the wages of their employees in Indonesian rupiah. This does not differentiate between foreign and local employees. Reg. 78 does not provide for a transitional provision for the application of Article 21. Although the effective date of Reg. 78 is 23 October 2015, it remains to be seen whether this requirement will be applied in practice.
This regulation sets the Jakarta 2016 provincial minimum wage at IDR 3.1 million per month, effective as of 1 January 2016. The new minimum wage also applies to workers who have worked for less than a year. Employers are prohibited from paying their employees less than the set minimum wage, save in certain circumstances having regard to their circumstances, financial situation, capacity, and so forth.
The Minister of Finance issued a new regulation, MOF Regulation No. 200/PMK.03/2015 (the “New Regulation”) that formally recognises, defines and affords favourable tax treatment for the first time to collective investment contracts (Kontrak Investasi Kolektif / “KIK”) focused on real estate (the Indonesian equivalent of the real estate investment trust or REIT).
The New Regulation came into operation on 10 November 2015.
We issued a client update summarising the key features of the New Regulation. To view the Update, click here.
This Regulation, dated 24 August 2015, requires commercial banks to implement prudential principles to stimulate economic growth. The prudential principles addressed by the Regulation are carried out for: (i) the calculation of risk-based assets for credit risks using standard approached; (ii) asset quality assessment and stipulation; and (iii) capital participation for commercial banks. The Regulation came into operation on the date of its promulgation and will take effect for two years.
Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only
intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice.
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Assegaf Hamzah & Partners
Jakarta Office
Level 36 & 37, Capital Place
Jalan Jenderal Gatot Subroto Kav 18
Jakarta 12710, Indonesia
Surabaya Office
Pakuwon Center, Superblok Tunjungan City
Lantai 11, Unit 08
Jalan Embong Malang No. 1, 3, 5,
Surabaya 60261, Indonesia
http://id.rajahtannasia.com
Contacts: Ahmad Fikri AssegafSenior Partner/Co-FounderD +62 21 2555 7800 F +62 21 2555 7899 ahmad.assegaf@ahp.co.idBono Daru AdjiManaging PartnerD +62 21 2555 7800 F +62 21 2555 7899 bono.adji@ahp.co.idChandra M HamzahPartnerD +62 21 2555 7800 F +62 21 2555 7899 chandra.hamzah@ahp.co.idEri HertiawanPartnerD +62 21 2555 7800 F +62 21 2555 7899 eri.hertiawan@ahp.co.idIbrahim Sjarief AssegafPartnerD +62 21 2555 7800 F +62 21 2555 7899 ibrahim.assegaf@ahp.co.id
Rajah & Tann Singapore LLPContacts: Hamidul HaqPartnerD +65 62320398hamidul.haq@rajahtann.comPaul NgPartnerD +65 62320429paul.ng@rajahtann.com| Rajah & Tann Asia is a network of legal practices based in Asia. |
Member firms are independently constituted and regulated in accordance with relevant local legal requirements. Services provided by a member firm are governed by the terms of engagement between the member firm and the client. |
This update is solely intended to provide general information and does not provide any advice or create any relationship, whether legally binding or otherwise. Rajah & Tann Asia and its member firms do not accept, and fully disclaim, responsibility for any loss or damage which may result from accessing or relying on this update. |
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