The Indonesian Government has issued Regulation No. 12 of 2023 on Business Licensing, Ease of Doing Business, Investment Facilities for Business Players in the State Capital ("Regulation"), which provides incentives to encourage domestic and foreign investment in the country's new capital city, Nusantara, currently being developed in Kalimantan. The Regulation establishes a simplified process for obtaining land titles for non-governmental activities and grants guaranteed land tenure for one cycle, including initial tenure, extended tenure, and renewed tenure, for investors in Nusantara. Moreover, the tenure for these land titles is significantly longer than the tenure for such land titles outside Nusantara under the 1960 Agrarian Law.
In terms of living in Nusantara, the Government allows Indonesian citizens to own freehold land in Nusantara, while foreign citizens can own landed housing by obtaining a right to use on a land title. However, they cannot buy, own, and/or possess government aid housing in Nusantara. It remains unclear whether a transfer of land title involving a land previously classified as an asset controlled by OIKN (aset dalam penguasaan otorita ibu kota negara or "ADP") (ex-ADP land) still requires the State Capital Authority's approval. The move of the capital aims to attract investors to Nusantara and to relieve the overpopulation, traffic congestion, and environmental degradation faced in Jakarta.
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The Indonesian Government has introduced the Omnibus Law for the financial sector, or Law No. 4 of 2023 on Financial Sector Development and Reinforcement ("PPSK Law"), to revamp the country's financial sector by amending 16 laws and revoking one law. Under the PPSK Law, there will be an introduction of financial instrument managers, such as a special purpose vehicle (SPV) or a trust fund manager (Trustee), which will carry out securitisation activities and manage a trust fund. It also expands the definition of securities to adapt to technological innovation, including securities-related derivatives and digital financial assets like crypto assets, and is regulated by the Financial Services Authority ("OJK").
The PPSK Law also extends the responsibility of parties that have obtained a licence, approval, or effective statement from OJK to cover their directors, commissioners, principal shareholder, controller, employees, and other parties working for them. Any director, commissioner, shareholder, and/or affiliate of the party is personally liable, whether jointly or severally, for losses suffered by the party, its customers, and/or its investors. Additionally, it mandates that there will be a single presence policy for securities companies, which will be regulated under a government regulation enacted within six months from the PPSK Law's enactment date.
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Indonesia's Minister of Finance issued a new regulation, Minister of Finance Regulation No. 177/PMK.03/2022 ("Regulation"), which provides taxpayers with more certainty during pre-investigation tax audit procedures. The Regulation includes several new provisions, such as a shorter timeline for completing the audit and a mandatory request for clarification from taxpayers on potential state loss due to a tax crime. Additionally, tax auditors must notify taxpayers of the audit results, which can either escalate the process into an investigation or close the case if no evidence of a tax crime is found.
Taxpayers should cooperate with the tax authority during a pre-investigation audit and admit to any mistakes and pay the underpaid tax plus a 100% penalty to prevent the escalation of the case to an investigation. If a mistake is not admitted and the case is escalated to an investigation, any admission by the taxpayer will be subject to a penalty of up to 400% of the underpaid tax.
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On 16 March 2023, it was announced that Singapore and Indonesia will work more closely in the areas of renewable energy and digital economy and both countries have entered Memoranda of Understandings ("MOUs") in this regard.
Renewable Energy
Both countries signed an MOU on Renewable Energy Cooperation, under which both countries will develop a cooperative institutional framework to facilitate investments in the development of renewable energy manufacturing industries in Indonesia and cross-border electricity trading projects between Indonesia and Singapore, including:
- Facilitating investments to develop upstream and downstream renewable energy manufacturing industries and capabilities in Indonesia, building on investments for electricity export projects to Singapore;
- Supporting the development of solar farms and Battery Energy Storage Systems (BESS) to supply renewable energy into Indonesia and for energy export;
- Promoting investments to attract industries using renewable energy into Green Corridors in Indonesia; and
- Facilitating commercial arrangements and creating frameworks and transmission infrastructure for cross-border electricity trading between both countries, which would create capital inflows into Indonesia.
This MOU builds on the Energy Cooperation between Indonesia and Singapore that was signed last year, and the MOU on Climate Change and Sustainability signed in March 2022.
Digital Economy
Singapore and Indonesia also signed an MOU on Singapore-Indonesia Tech:X Programme, which establishes the Tech: X Programme. This Programme is aimed at, among others, growing young tech talent and developing the tech ecosystems in both countries. More details on the Tech:X Programme will be released in due course. Various partnership documents relating to the digital economy, including healthtech and edtech, were also signed between Singapore and Indonesia companies.
The MOUs represent the strong belief that Indonesia and Singapore have in the deep synergies and strategic and economic value of renewable energy and digital economy initiatives between the two countries.
The Financial Services Authority ("OJK") has issued Circular Letter No. 33/SEOJK.04/2022 on Guidelines for Implementing Securities Offerings Classified as a Non-Public Offering ("Circular Letter"). The Circular Letter is a follow-up to the OJK Regulation No. 29/POJK.04/2021, which increased the value threshold of a non-public offering to IDR5 billion and stipulated that the offering must be conducted within 12 months to be classified as a non-public offering. The Circular Letter provides guidance on the procedure for a higher value non-public securities offering, and it reiterates that such an offering must be conducted within a maximum of 12 months after (i) the issuance of OJK's decision and in the territory of the Republic of Indonesia or to Indonesian citizens using mass media; or (ii) offered to more than 100 parties or sold to more than 50 parties. The procedures in the Circular Letter apply to various parties offering securities, including Indonesian public companies with a share ownership programme, foreign companies listed in any stock exchange with a share ownership programme, supranational agencies, parties offering securities for market penetration, and parties offering securities to support a government's policy.
The Circular Letter's requirements for parties conducting a non-public offering, notably the preparation of an information memorandum, can be onerous. For example, a public company with a share ownership programme that previously only needed approval from independent shareholders to offer shares to employees must now prepare an information memorandum containing information similar to that required for an initial public offering. Parties conducting a non-public offering must review the Circular Letter's requirements carefully and maintain an open line of communication with OJK to ensure a successful closing.
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The Indonesian Government has introduced new measures under Government Regulation No. 55 of 2022 on Rules Adjustments in Income Tax ("Regulation") to combat tax avoidance practices. The measures include formalising the "substance-over-form" principle into a written provision that allows the tax authority to impose adjustments based on the principle as an anti-avoidance measure if other anti-avoidance measures are ineffective. Furthermore, the Regulation allows the tax authority to recalculate tax payable based on a comparison of a taxpayer's financial performance against comparable companies in related-party transactions and deny deductibility of payments made to non-residents if they create double non-taxation benefits or double deductions.
These new measures demonstrate Indonesia's commitment to fully implement the Base Erosion and Profit Shifting (BEPS) Action Plan No. 2, and taxpayers must comply with the tax legislation. Corporate taxpayers planning to restructure must ensure that their proposed restructuring scheme follows the current tax framework, including the Regulation. The formalisation of the substance-over-form principle gives significant power to the tax authority, and the detailed procedural rules governing its implementation will be crucial to ensure that the tax authority does not abuse its authority and that the taxpayer is treated fairly.
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A new regulation in Indonesia requires importers of intangible goods (such as software or other digital goods via electronic transmission) to fulfil customs obligations, including submitting a customs declaration and paying relevant import taxes and customs duties. The Minister of Finance has enacted Minister of Finance Regulation No. 190/PMK.04/2022 on Release of Imported Goods for Use ("Regulation"), which sets out the relevant procedural rules. The customs duty rate for such goods is 0% if they are not classified as hardware but can reach up to 20% if they are classified as hardware, depending on the classification of the hardware.
However, there are outstanding issues relating to the Regulation that require further analysis, including the applicability of the reverse charge VAT mechanism for parties that buy software or other digital goods from offshore to be used in Indonesia, and whether offshore sellers of digital goods should collect the VAT or buyers should self-pay the VAT via a customs declaration. Companies involved in the technology industry would be the focus of the customs authority, particularly if they have an import identity number and import hardware into Indonesia, and must be aware of the Regulation.
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