Professional Documents
Culture Documents
energy
infrastructure, Mining and commodities
Transport
technology and innovation
Pharmaceuticals and life sciences
The whole or extracts thereof may not be copied or reproduced without the publisher’s prior written permission.
This publication is written as a general guide only. It does not contain definitive legal advice and should not be regarded
as a comprehensive statement of the law and practice relating to this area. Up-to-date specific advice should be sought
in relation to any particular matter. For more information on the issues reported here, please get in touch with us.
The purpose of this publication is to provide information as to developments in the law. It does not contain a full analysis of the law
nor does it constitute an opinion of Susandarini and Partners on the points of law discussed.
No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton
Rose Group (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any
person in respect of this publication. Any reference to a partner or director is to a member, employee or consultant with equivalent
standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose Canada LLP or Norton
Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their respective affiliates.
Doing business in Indonesia
Indonesia
Visas and work permits
Business entities
Business environment
Foreign investment policy
Government initiatives and incentives
Taxation
Workplace relations
Dispute resolution
Indonesia offers many opportunities to foreign business visitors are not able to conclude any
investors. The Indonesian government has business transactions, engage in local employment
recognised the significant role foreign investors can or perform professional or technical services and
play in the growth and development of the business are limited to “business investigation”.
sector and the national economy. Continuing
deregulation and reduction in bureaucracy is The longest temporary resident permit is a limited
creating a wider range of investment activities for stay permit card (Kartu Ijin Tinggal Terbatas
foreign investors. In addition, Indonesia’s rich or KITAS), which allows foreigners to stay in
natural resources, large human resource pool Indonesia for a period of 12 months (renewable
and strategic geographical position offer further annually). To obtain a KITAS, a foreigner will require
investment incentives. the sponsorship of an Indonesian company or
representative office.
Recent legal initiatives that allow for more
streamlined investment procedures are evidence Foreign investors are authorised to appoint their
of Indonesian policy objectives to address some own management but must use local personnel for
investor concerns. Further progressive measures other positions, unless qualified Indonesians are
taken to attract foreign investment include unavailable. Work permits must be obtained for
tax concessions, regional incentives, industry expatriate employment. Expatriate employment is
incentives and free trade areas. permitted on the basis that an Indonesian national
will eventually assume the expatriate position
and that regular training will be provided to local
Visas and work permits personnel to ensure this.
The Ministry of Law and Human Rights (Kementrian Employers are required to obtain a Permit to Employ
Hukum dan Hak Asasi Manusia or MOLHR) through Foreign Manpower (Ijin Mempekerjakan Tenaga
the Immigration Office (Direktorat Jenderal Imigrasi) Kerja Asing or IMTA) for foreign employees.
regulates visa and immigration matters. Visa
applications should be made at an Indonesian
diplomatic mission outside Indonesia and work Types of business entities
permit applications at an office of the MOLHR in any
capital city within Indonesia. Numerous Indonesian General
migration agencies provide visa and work permit The foreign investment company (Penanaman
services. Modal Asing or PMA) is the most common vehicle
for foreign investment (see below). Other vehicles
Business visas are valid for 60 days and multiple used by foreign investors in Indonesia include:
visit business visas are available for longer stays
of up to two months for each visit and valid for • branch of a foreign company
one year from the date of the first arrival. However, • representative office
• regional representative office.
Foreign investment company interests within 15 years (as a rule of thumb, 5 per
Indonesian law recognises three forms of cent was considered acceptable). While Foreign
companies: Investment Law No. 25 of 2007 (Undang Undang
Penanaman Modal Asing) abolished the divestment
General Indonesian companies (Perseroan Terbatas requirement, it has still not been settled whether
Biasa) this rule change applies only to newly incorporated
These are: companies or extends to companies incorporated
under the previous regime.
• 100 per cent Indonesian-owned
PMA companies are permitted to establish
• s ubject to the MOLHR company regulatory subsidiaries. However, the parent PMA company
regime. cannot merely act as a “holding company” and
must conduct a business in its own name.
Domestic capital investment companies (Penanaman
Modal Dalam Negeri or PMDN) PMA and PMDN companies are subject to regulation
These are: by both the MOLHR and the BKPM and industry-
specific company regulatory regimes. As such, the
• 100 per cent Indonesian-owned PMA company, as distinct from general Indonesian
companies, is subject to different obligations and
• able to take advantage of taxation facilities enjoys different incentives, although the stated
policy of the government is to eventually have
• s ubject to the MOLHR and the Capital Investment one regulatory regime for all companies. The PMA
Coordinating Board (Badan Koordinasi company:
Penanaman Modal or BKPM) company regulatory
regimes. • may take advantage of taxation facilities offered
to PMDN and PMA companies (this relates
PMA companies mainly to exemptions from duties on import
These: of equipment, referred to as “Master List”
equipment)
• m
ay have any amount of shares held by foreign
companies/individuals, subject to industry- • must submit a report on its business activities
specific restrictions (Laporan Kegiatan Penanaman Modal or LKPM) to
BKPM semi-annually.
• m
ay be established as a joint venture and partly
owned by foreigners and Indonesians. A former The Foreign Investment Law contemplates that
limitation of 30 years on business licences certain tax benefits conferred upon PMA and PMDN
for PMA companies has been abolished and a companies will be extended to general Indonesian
business licence is generally perpetual, subject companies.
to the PMA company continuing to operate its
business In December 2009, BKPM issued a regulation which
is intended to make BKPM a “one-stop shop” with
• are able to take advantage of taxation facilities respect to licensing of PMA companies. In other
words, BKPM will be able to issue both general and
• a
re subject to the MOLHR and BKPM company industry-specific business licences, rather than the
regulatory regimes. PMA company being required to approach industry-
specific ministries for additional licences. To
BKPM must approve most foreign investments in implement the one-stop shop system, BKPM issued
Indonesian companies. Where the PMA company further regulations in July 2011, although industry-
is 100 per cent foreign-owned, previous foreign specific licenses were still required in practice at
investment rules required divestment of an the time of writing.
unspecified percentage of shares to Indonesian
cartels. Companies are not allowed to divide In 2008, 2009, 2010 and 2011, KPPU issued a
geographical markets among themselves, expand to number of guidelines aimed at clarifying certain
achieve vertical integration that “could” result in a points that are unclear under the Anti-Monopoly
monopolistic practice detrimental to society, or be and Unfair Competition Law.
involved in boycotts. Collusion is also prohibited,
as is the formation of anti-competitive corporate Consumer protection
groups where a small number of buyers influence Indonesia’s first Consumer Protection Law No. 8
the market with respect to price and the costs that of 1999 (Undang Undang Tentang Perlindungan
competitors must pay. Konsumen) came into force in April 2000.
A Business Competition Supervisory Commission The Consumer Protection Law sets out basic
(Komite Pengawas Persaingan Usaha or KPPU) was rights of consumers (including the right to bring
established in 2000 to enforce the Anti-Monopoly class actions) and the obligations of business
and Unfair Competition Law. The Commission entities (manufacturers, distributors, retailers and
may require termination of agreements, mergers, importers) with respect to the sale of their products
acquisitions and business practices that violate and services in Indonesia. The Consumer Protection
the Anti-Monopoly and Unfair Competition Law. The Law provides that business entities must:
Commission can also fine violating companies up
to Rp.25 billion and can demand that compensation • include an expiry date or “best before” date on
be paid to affected parties. Failure to pay a fine may their products
result in a prison sentence of up to six months for
the directors and/or commissioners of an offending • f ollow “halal” production processes (that is,
company. processes in accordance with or permitted under
Islamic Shari’a law) for products with “halal”
A voluntary pre-notification process has been labels
established under Regulation No. 1 of 2009 on
Pre-notification of Mergers, Consolidations and • i nclude labels on their products stating the
Takeovers. Parties may pre-notify the KPPU and name of the product, its size, weight, volume
seek approval for transactions that may result in: (gross or net) and composition, directions for
use, production date, details of any side effects,
• c ombined assets greater than Rp.2.5 trillion name and address of the “business entity” (it is
(Rp.10 trillion for the financial services sector) not clear whether this refers to the manufacturer,
the distributor or some other entity) and other
• c ombined sales greater than Rp.5 trillion (Rp.15 information required to be included on the label
trillion for the financial services sector) by law
• a
n increase in the degree of market share to 50 • provide information in the Indonesian language
per cent of the relevant market relating to the use of the products
• t he acquisition of shares with at least 25 per cent • ensure that their products comply with the
of the voting rights of the target company information contained on the product labels and
any required standards under the general law.
• t he acquisition of less than 25 per cent of the
voting rights in the target company, but where the Business entities are prohibited from offering,
transaction results in a “change in control” of the promoting or advertising particular products or
target company or where the acquisition of assets services involving the provision of misleading or
will lead to a change in control of the target false information to consumers. When advertising,
company. promoting or offering their products or services
for sale, business entities are also prohibited
from directly or indirectly disparaging other goods rights is, at present, difficult, it is hoped that over
and/or services. In addition, business entities are time Indonesia will create a comprehensive and
prohibited from using descriptions such as “safe”, structurally sound intellectual property rights
“not harmful”, “not risky” or “no side effects” protection regime. Indonesia also has substantial
without including a detailed explanation of these interest in providing protection for indigenous
warranties. Pursuant to the Consumer Protection intellectual property and, to a lesser extent,
Law, advertisers may be liable for all consequences geographical indicators. The government has
arising from any false or misleading advertising indicated that it intends to enhance regulations
carried out by them. with respect to enforcement, although it is not yet
clear when this will take place.
Under the Consumer Protection Law, a local
importer (other than an agent or foreign The Directorate General of Intellectual Property
representative of the foreign manufacturer) will be Rights (Direktorat Jenderal Hak Atas Kekayaan
treated the same as a manufacturer. In practice, this Intelektual) under the MOLHR administers the
means that a consumer who suffers damage arising enforcement of intellectual property rights in
from the purchase of a defective product can make Indonesia. Registration is the basis upon which
a claim against the importer, which will be liable to intellectual property rights in Indonesia are claimed.
the consumer for any such damage. While Indonesia is party to various international
treaties with respect to, among others, trade marks
A violation of the Consumer Protection Law may and copyright, in practice a local registration is
result in a fine of up to Rp2 billion or imprisonment required for optimum enforcement. In theory, a new
of a violating company’s management for up to five streamlined procedure should result in significant
years. In light of the harsh sanctions that may be reductions in registration times, but that has not yet
imposed under the Consumer Protection Law, it is happened in practice.
important for foreign companies to be fully aware
of their obligations and the restrictions that now Enforcement of intellectual property rights is
apply concerning the sale of products and services now provided through the Commercial Court. The
in Indonesia. Commercial Court was initially established for
bankruptcy proceedings, and the perception of
Intellectual property rights the court is of speedy and effective, if not more
Indonesia is a signatory to the Trade Related expensive, legal proceedings. However, in practice,
Aspects of Intellectual Property Rights Agreement intellectual property rights are usually enforced
(TRIPS), an agreement scheduled to the General through more practical remedies. Infringements
Agreement on Tariffs and Trade (GATT) Agreement can sometimes be remedied by a “cease and
of the World Trade Organization. As such, Indonesia desist” letter and/or by following up with a
enacted a raft of new legislation from 1997 onwards notice published in newspapers concerning the
in order to enhance Indonesia’s compliance with intellectual property owner’s intention to take
the TRIPS requirements. further enforcement action.
is 50 years, and 25 years for a broadcasting id, or.id and web.id. The applicant must hold an
institution. Different civil and criminal penalties Indonesian taxpayer registration number and
apply to infringements. trading licence number in order to obtain a “co.
id” domain name. In contrast, the documentation
Matters covered by the Copyright Law include: for obtaining a “web.id” domain name does not
rely upon the applicant having a local presence
• protection of databases in Indonesia, and a foreign company can register
a “web.id” domain name provided it has a “local
• u
sage of wire or wireless devices, including the administrative contact address.”
Internet, to operate optical disc products through
audio, audio-visual and other telecommunication Patents
devices The Patent Law No. 14 of 2001 provides, amongst
other things, that petty patents are limited to
• court injunctions tangible items only, while a patent for a process
must be a full patent. Patents are valid for 20 years
• a
time limit for settling copyright disputes in the and are not renewable. Simple patents are valid for
Commercial Court and on appeal to the Supreme ten years and are also not renewable.
Court
Holders of a patent have the right to grant licences
• e
lectronic information management and to other parties based on a licence agreement.
technological control device rights A licence agreement must be registered and
announced in the Official Gazette of Patents.
• protection for hi-tech products
Trademarks
• penalties for violation of related rights The Trademark Law No. 15 of 2001 addressed a
primary concern of foreign investors as it provided
• a
penalty for the reproduction of computer for further legislative measures to be taken to stop
programs for illegal and unlawful commercial use of a brand name where the name is registered
purposes. as a trademark in another country. The Trademark
Law prevents the registration in Indonesia of
Indonesia ratified the World Intellectual Property trademarks that are registered and “well-known”
Organisation Phonograms and Performance Treaty, overseas, in cases where the applicant is acting in
which came into effect in 2002. This treaty prohibits bad faith.
the unauthorised exploitation of recorded or live
performances on the World Wide Web. Trademark registrations are valid for ten-year
periods and are renewable. Assignment of a
Domain names trademark must be in writing, confirming that the
In April 2008 Indonesia introduced its first trademark to be assigned will be used for the trade
electronic information and transactions law dealing of goods and services. Goodwill, reputation or
with electronic commerce, domain names and other related aspects of the trademark may also be
related intellectual property rights. assigned.
Currently, domain name registration is available at The Trademark Office accepts applications for
the Indonesian Internet Domain Name Management trademarks with “priority rights” where the
Organisation (PANDI), which has the authority to trademark has been registered in another country
assign, check and reject domain name registration under the 1883 Paris Convention for the Protection
in Indonesia. of Industrial Property and the 1994 GATT. A priority
application must be submitted within six months of
Indonesia has several domain name registrations, the filing date of the application for registration of
including: ac.id, sch.id, co.id, net.id, go.id, mil. the trademark in the other country.
The Trademark Law requires trademark licences to distributing goods using the industrial design
be registered. However, at the time of writing, no right in question without their approval. Transfers
system had been established within the Trademark and licences of industrial design rights must be
Office for such registration. registered and recorded in the Official Gazette of
Industrial Designs and registered at the office of the
The registered owner of a trademark may submit a Directorate General of Intellectual Property Rights.
claim for damages against an infringer and apply
for interlocutory injunctions. The Trademark Law Technical assistance agreements
also provides for alternative dispute resolution, Technical assistance agreements are entered
including arbitration. into in order to transfer expertise and valuable
information on the making and marketing of various
Trade secrets manufactured goods. The owner of certain patent
Indonesia’s first law on trade secrets came into or trademark rights relating to particular licensed
effect in December 2000. Trade secrets refer products may provide a licence to a subsidiary
to information not identifiable by the public body or franchise partner. Information generally
in technology and/or business fields that has shared is the technically and commercially useful
economic value (i.e., has commercial or profit- information necessary for the manufacture and sale
making value). The information must be “secret”, of a particular licensed product. Information usually
in that it is only identifiable by certain parties, and includes technical information, know-how, plant
must have been disclosed in circumstances where layout, drawings, specifications and treatment of
confidentiality was intended to be protected. materials relating to the manufacture and sale of a
particular licensed product.
Trade secret holders have the sole right to use, to
license and to prohibit other parties from using Technical assistance may also take the form of
or revealing the trade secret. Ownership of trade coordination and liaison services between the
secrets may change by inheritance, grant, written parties, visits of technical officers and other
agreement or assignment. Under the Trade Secrets communications.
Law, changes in ownership of trade secrets licences
must be registered and announced in the official E-commerce
Gazette of Trade Secrets. However, at the time In April 2008, Law No. 11/2008 Regarding
of writing, the registration and announcement Electronic Information and Transactions
procedures had not been established. (E-Commerce Law) was enacted to regulate matters
relating to information and electronic transactions
Industrial designs in all electronic forms. The E-Commerce Law is
The Indonesian Law on Industrial Designs, Law the first piece of legislation to regulate electronic
No. 31 of 2000, refers to the creation of forms, transactions in Indonesia.
configurations or compositions of lines or colours,
or combinations thereof in a two- or three- The E-Commerce Law sets out the legal basis for
dimensional form. Industrial designs may only electronic transactions, including defining terms
be registered where there has been no previous such as information technology, computers,
disclosure of the design in exhibitions in Indonesia, electronic information, electronic contracts,
the design has not been publicly exhibited, and is electronic signatures, and electronic certificates.
not already being used in Indonesia by designers The E-Commerce Law prescribes a method for
in the framework of trial assets for educational, determining when electronic information is deemed
research or development purposes. to have been transmitted and received. It also
provides for the creation of a certification body that
Industrial design rights are granted for ten- can audit and issue certificates on the reliability
year periods. The industrial design right holder of parties engaged in, and products the subject of,
has exclusive rights to prohibit other parties electronic trading.
from making, selling, exporting, importing and
The E-Commerce Law applies to all electronic of corporate social responsibility (CSR). While the
transactions and all persons or institutions involved extent of these CSR obligations is not yet clear,
in electronic transactions (that is, local and foreign since the Company Law contemplates that further
subjects), and ensures those transactions are regulations will be issued to allow implementation
legally protected. For the first time, electronic of the CSR obligation, it is clear there will be
evidence can be used in court. The E-Commerce sanctions for non-compliance. It is expected that
Law also covers registration and use/misuse of companies engaged in environmentally sensitive
domain names, the protection of certain electronic industries (such as mining) will be required to
information as intellectual property, and the use contribute to a government-sponsored fund in order
by electronic media of information that affects to back their CSR obligation.
an individual’s right to privacy. It also prohibits
dissemination of material relating to pornography, Additionally, waste management has become a
gambling or violence by means of computer or significant issue in Indonesia and is subject
electronic systems.
to increased public scrutiny due to several
Environment recent waste-related incidents in Indonesia. To
The Ministry of State for the Environment regulates address this, the government passed the Waste
the control of pollution and works closely in Management Law No. 18 of 2008 on 9 April 2008
cooperation with the Ministry of Trade. The Ministry (Waste Law).
of Trade requires all companies to exercise
control over the impact of their activities on the The government will be primarily responsible for
environment. An environmental impact analysis administering the Waste Law and achieving the
must be undertaken for all activities, the extent of objectives it has set. However, individuals will
which depends on the potential level of damage. also have the ability to enforce obligations under
Activities are divided into categories in order to the Waste Law, including the right to bring a
determine the level of environmental assessment class action against the government and regional
that must be undertaken. administrations over improper waste management.
The government will have the power to impose fines
A 2009 law requires all companies with activities and custodial sentences on those in contravention
that affect the environment to obtain an of the Waste Law.
Environmental License (Izin Lingkungan). This is in
addition to the requirement imposed upon certain
companies to obtain approval of an environmental Foreign investment policy
impact analysis.
General
A company that has failed to comply with its Foreign investment is encouraged as an important
environmental reporting requirements will receive step towards the revitalisation of the Indonesian
a 30-day warning and, if the company still fails to economy and continued development of the country
submit the required report, the company’s business in general. Foreign and domestic investment is
licence may be revoked. Indonesia maintains a administered by the BKPM. The BKPM Chairperson
strict liability principle of “polluter pays,” whereby is also the Minister of State for Mobilising
liability for contamination always remains with the Investment Funds and a member of the Cabinet.
party that caused it.
The MOLHR is the primary board that regulates
The Company Law No. 40 of 2007 (Undang Undang the Company Law and the Foreign Investment
Perseroan Terbatas) came into effect on 16 August Law. These two pieces of legislation are of primary
2007. The new law replaces the antiquated Limited importance to foreign investors. The BKPM
Liability Companies Law No. 1 of 1995 and provides must approve most new foreign investment and
that all companies engaged in environmentally expansion of existing projects. Foreign investment
sensitive industries must implement a programme and expansion of existing projects in the industries
of oil and mining, banking and non-bank financial and the Right to Build (Hak Guna Bangunan) for
institutions need the approval of industry-specific up to 80 years (previously 50 years)
regulating bodies.
• prohibition against nominees holding shares on
Foreign Investment Law behalf of other parties
Indonesia’s previous Foreign Investment Law No. 1
of 1967 established the BKPM (and later its regional • r emoval of the requirement for foreign investors
offices) to approve foreign and direct investment to divest a portion of their shareholdings in
for all industries except (among others) the Indonesian companies after 15 years
banking, insurance, mining, oil and gas industries
where investment approval must be sought from • e
asier immigration procedures for obtaining
other relevant government ministries. The BKPM residence permits and multiple entry visas
and its regional offices liaise with MOLHR, the
Ministry of Finance and the Ministry of Manpower • a
n enhanced role for BKPM which it is proposed
and Transmigration (Kementrian Tenaga Kerja will now serve as a one-stop licensing and service
dan Transmigrasi) as well as regional and local centre for all investors
authorities in respect of investment by foreigners
and locals. • t he introduction of special economic zones
(Kawasan Ekonomi Khusus) to accelerate
The new Foreign Investment Law came into effect in economic development in certain regions.
April 2007. Some of the key features of the new law
are: Restrictions on investment
The Indonesian government determines which
• a
one-stop shop for foreign investment, as industries are closed to foreign investment through
mentioned above the Negative Investment List (Daftar Negatif
Investasi), which in theory is issued every three
• t ax incentives and improved property rights years unless revised before then. The previous
for Indonesian investment companies, both Negative List (Presidential Regulation Number 77
domestic and foreign-owned of 2007 Regarding List of Business Fields Closed
and Open to Investment under Certain Conditions,
• e
qual treatment of foreigners and locals, as amended by Presidential Regulation Number
providing for compensation at market value in the 111 /2007) was replaced by a new Negative List
event of nationalisation of assets, and granting on 25 May 2010 (Presidential Regulation No.
rights to transfer and repatriate profits 36/2010). This Presidential Regulation specifies
which business lines are closed absolutely to all
• a
host of government incentives (if certain criteria private investment, closed absolutely to foreign
are met) such as reductions in corporate tax, investment, and open to foreign investment subject
exemptions and reductions in import duties, to restrictions. The new Negative List opens up
and reductions in property tax for various certain industries to greater foreign investment
qualifying investments such as projects in labour- whilst reducing or closing foreign investment in
intensive industries, infrastructure, promotion other sectors. The structure of the new Negative
of technology transfer, and involving scientific List has also changed. Under the new Negative
research and innovation List, prohibited or restricted activities are now
categorised by reference to “sectors” as opposed
• g
ranting stronger property rights to foreign to “business lines” under the old Negative List.
investors; for example, subject to satisfaction of Subject to the transitional provisions discussed
certain specified requirements, longer land title below, the New Negative List applies to all
periods such as the Right to Cultivate (Hak Guna investment in Indonesia on and from 25 May 2010.
Usaha) for up to 95 years (previously 35 years);
The objectives of the franchise law are to establish Under the franchise regulations, the franchisors are
certainty and protection for Indonesian franchisees required to give priority to small and medium-scale
and, where possible, to foster local business enterprises as franchisees and sub-franchisees
development. While the franchise regulations and/or suppliers. Franchises are only permitted
require a franchise agreement to be executed in the in provincial capitals and other particular cities or
Indonesian language, to be governed by Indonesian places in second-level regions that the Minister of
law, and to include specific matters, ultimately Trade and Industry may stipulate from time to time,
the commercial arrangements remain a matter for in an effort to promote small-scale industry.
negotiation between the parties. The elucidation
to the franchise regulations provides that the
franchisor is obliged to “nurture, guide and train” Government initiatives and incentives
the franchisee. Assistance and facilities offered to
the franchisee by the franchisor include financial A broad range of deregulatory and
assistance, marketing assistance, book-keeping de-bureaucratisation measures have been taken
assistance and work guidelines. by the Indonesian government to enhance the
investment climate. Licensing requirements have
Foreign franchisors are now required to register been streamlined and a new raft of legislation
a prospectus with respect to the franchise at the has addressed various long-standing concerns of
Ministry of Trade before execution of the franchise the business community and provides new legal
agreement (which replaces a former disclosure certainty in areas such as franchising, intellectual
statement requirement). Information about the property and bankruptcy. Furthermore, the Negative
franchisor and its business – including its profit List has been amended, increasing the number
and loss statement for the last two years, “track- of sectors open to foreign investment. Import and
record” in terms of experience, and details of export sectors now enjoy reduced tariffs and duty
past and current franchise arrangements – must exemptions in certain circumstances. There is no
be disclosed, along with details of the proposed formal minimum capital requirement for company
technical assistance and intellectual property incorporation in Indonesia, although BKPM has
rights. Evidence must also be provided on the recently indicated a minimum investment of IDR10
identity of the corporate franchisors, which must be billion will be required for new PMA Companies.
obtained from authorities in the franchisor’s country
of incorporation. The disclosure requirement is Despite rumours to the contrary, transfer of foreign
intended to provide particular protection to the capital is unrestricted and, as discussed above,
franchisee, as opposed to the franchisor. 100 per cent foreign-owned companies are now
permitted for certain business activities.
The Ministry of Trade will issue a Certificate
of Franchised Business Registration once all A number of governments provide investment
disclosure and documentary requirements have guarantees to foreign investors in their countries. In
been fulfilled. While the Ministry now has ultimate most cases, these guarantees cover compensation
authority in relation to the registration and in case of nationalisation or expropriation, damages
deregistration of franchises, in practice multiple or losses caused by incidents of war, revolution
licences must still be obtained by franchisees from or insurrection, and payments for any approved
various government ministries with jurisdiction remittance pursuant to the investment in case of
in the area of the franchisee’s business. On non-convertibility of currency of the host country.
termination of a franchise arrangement, the Ministry
will not deregister a franchise until it has received To provide security for foreign investment, the
a written statement signed by the franchisor and government of Indonesia concluded an Asean
franchisee confirming that all obligations between Comprehensive Investment Agreement dated 26
the parties have been settled. June 2009 that was ratified by the government of
Indonesia on 8 August 2011 through Presidential • national taxes: including income tax, value-
Regulation Number 49 of 2011. In addition, added tax, sales tax on luxury goods, stamp tax,
Indonesia has signed bilateral investment property tax (on land and buildings), and fiscal
promotion and protection agreements with more departure tax
than 60 countries, namely: Argentina, Algeria,
Australia, Bangladesh, Belgium, Luxembourg, • r egional taxes: including development tax,
Bulgaria, Cambodia, Chile, People’s Republic of motor vehicle tax, other minor taxes (household,
China, Croatia, Cuba, Czech Republic, Denmark, entertainment, road, advertisement, radio and
Egypt, Finland, France, Germany, Hungary, television taxes)
India, Iran, Italy, Jamaica, Jordan, Kyrgyzstan,
Laos, Malaysia, Morocco, Mauritius, Mongolia, • customs and excise taxes: including export duty,
Mozambique, the Netherlands, North Korea, import duty, tobacco, sugar, beer and alcohol,
Norway, Pakistan, the Philippines, Poland, Qatar, and gasoline taxes.
Romania, Russia, Singapore, Slovak Republic,
South Korea, Spain, Sri Lanka, Sudan, Suriname, The Ministry of Finance and the Director General
Sweden, Switzerland, Syria, Tajikistan, Thailand, of Taxation regulate compliance with the main
Tunisia, Turkmenistan, Turkey, Ukraine, United taxation rules. Unfortunately, the Tax Court, which
Kingdom, Uzbekistan, Venezuela, Vietnam, Yemen is the court of appeal on tax matters, does not
and Zimbabwe. make its decisions readily available. The Tax Court
is a judicial institution with jurisdictional authority
To create a favourable international investment for taxpayers or tax guarantors seeking settlement
climate, Indonesia has also signed multilateral of tax disputes. A request for re-examination of
agreements to promote foreign direct investment a decision of the Tax Court by the Supreme Court
in Indonesia. Indonesia is now a member of the will only be granted where certain conditions are
Multilateral Investment Guarantee Agency, which fulfilled.
will protect investment against various political
risks. To deal with foreign investment disputes, A Large Taxpayer Tax Service Office was established
Indonesia has become a signatory member of the in Jakarta in July 2002 and took over responsibility
International Centre for Settlement of Investment for “large” taxpayers. It is common practice for the
Disputes and is a party to the New York Convention financial year of companies to follow the calendar
on Recognition and Enforcement of Foreign Arbitral year.
Awards.
In September 2008, Parliament passed a new
In 2011, Indonesia signed an agreement with income tax law which reduced the number of
Norway aimed at reducing deforestation in income tax brackets from five to four, and lowered
Indonesia. To implement this agreement, the the maximum rate of income tax from 35 per cent
Indonesian President has announced a moratorium to 30 per cent (for salaries of Rp.500 million or
on the issuance of licenses to conduct activities in greater). In addition, the then current corporate tax
peat and natural forests. rates of 10 per cent, 15 per cent, and 30 per cent
disappeared in 2009 in favour of a single corporate
tax rate of 28 per cent. In 2010, this corporate tax
Taxation rate fell to a flat 25 per cent.
compensate above the set minimum wage level. The Safety Act requires the employer to maintain
It is commonplace for employers and employees facilities to ensure the health and safety of
to negotiate individual and/or collective labour employees and specifically to prevent industrial
agreements. accidents and provide protection against fires and
defective building structures.
The Labour Law provides for a six-day week with
a total of 40 hours. The Ministry of Manpower and Leave entitlements
Transmigration can permit, upon request, a 40-hour, Maternity leave with full pay is provided for female
five-day week and can also provide permits for employees for a period of up to three months, which
overtime. may be taken before or after birth.
Contributions to Jamsostek are made by the The categories of employment termination include:
employee and by the employer. They consist of
accident insurance, retirement, death insurance and • voluntary resignation of an employee
medical care insurance. The latter may, however, be
taken out by the company with another insurance • t ermination of employment by an employee due
company. Foreign employees are not required to be to employer’s fault
included under the Jamsostek programme.
• t ermination of employment due to employee’s
Employers in various high-risk industries, including fault.
mining, construction, fisheries and plantations
are required to set up compensation schemes for The law provides for three categories of
payments to employees or their families to cover compensation to employees on termination of
employee injuries incurred during the course of payment: service payments, severance payments
their duties. and “other” compensation. “Other” compensation
will be paid if the employer has provided any • the laws of Indonesia govern the agreement
housing, medical or relocation benefits or if there
are any outstanding entitlements for unused annual • d
isputes are to be referred exclusively to foreign
leave or unused long service leave during the arbitration and may not be referred to Indonesian
employee’s term of employment. courts for resolution (see below).
The formal procedure for termination of the If an agreement is governed by Indonesian law,
employment of an employee starts with initial certain standard provisions need to be included (for
negotiation between the employer and employee or example, an express waiver of certain provisions of
union. If agreement is reached, it is not necessary the Civil Code 1847 would be required to prevent
for the Ministry of Manpower and Transmigration the need for a court order to allow early termination
and/or the Industrial Relations Court to become of an agreement).
involved. If agreement is not reached, the
termination must be consented to by the Ministry The Indonesian Parliament issued a law in 2009
of Manpower, which consent may be appealed to requiring all agreements to which Indonesian
the Industrial Relations Court (formerly a system nationals or Indonesian entities are parties to be
of dispute settlement tribunals). The Industrial executed in the Indonesian language, regardless
Relations Court was established in January 2006 of the governing law. This has resulted in the
with the aim of reducing the costs of and speeding common practice of agreements being executed
up the old tribunal system. However, concerns in a dual-language format. At the time of writing,
have been expressed that the forum for industrial implementing regulations for the 2009 law were
dispute resolution has moved from the control of still pending, and the consequences of failure to
government-appointed mediators to the judiciary. execute an agreement in the Indonesian language
are as yet unclear.
Contributors
Susandarini & Partners
Rick Beckmann
Senior Foreign Legal Counsel
Tel +62 21 2924 5008
rick.beckmann@nortonrose.com
Susandarini
Managing Partner
Tel +62 21 2924 5001
susandarini@nortonrose.com
We have more than 2900 lawyers operating from offices in Abu Dhabi, Almaty,
Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels,
Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt,
Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal,
Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome,
Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate
offices in Ho Chi Minh City and Jakarta.
Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton
Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc),
and their respective affiliates.