Indonesia's Omnibus Law implementing regulations

The Job Creation Law or Omnibus Law brings with it massive reforms aimed at boosting economic recovery and opening up job opportunities for the growing population in Indonesia. It also aims to benefit investors looking to do business in Indonesia by making it easier to acquire land, reducing restrictions on foreign investments, and providing more incentives to free-trade zones.

In this newsletter we will focus on 10 reforms, that we feel might be of interest to you.

Antitrust and Competition - Indonesia adopts illegal profit (or) total turnover approach in sanctioning antitrust infringement

Although the amendment of the Competition Law (Law No. 5 of 1999) seemed to be drifting away, the government of Indonesia is trying to address the uncertainty of its enforcement by issuing Government Regulation No. 44 of 2021 on implementation of prohibition of monopolistic and unfair business practices (GR 44/2021) as an implementing regulation of the Job Creation Law (Law No. 11 of 2020) that have partially amended the 20+ years old competition law.

Two new things are now set under the GR 44/2021 that was promulgated on and effective as of 2 February 2021: (i) a sanctioning guideline for antitrust infringement; and (ii) an appeal procedure against the competition authority's decision.

Sanctioning guidelines

Komisi Pengawas Persaingan Usaha (KPPU) – (the competition authority in Indonesia) – can impose sanctions if they find violations of the competition law, including fines starting from IDR1 billion (approx. USD71,000). The job creation law removed the upper limit of the fine that used to be regulated under the 22-year old competition law, and GR 44/2021 kicks in for a clearer sanctioning guideline.

Maximum fine

The maximum fine that KPPU may impose is one of the following options:

• 50 percent from the net profit. The net profit is the profit after tax and other statutory fees that is obtained from the illegal conduct.
• 10 percent from the total turnover.  The total turnover is the sales value before tax and other statutory fees that is directly related to the relevant market and the infringement.

KPPU should take the period of infringement into consideration in which infringement of up to six months will be considered as half-year and more than six months as full year, and the KPPU may set up a formula in calculating the fine.

Aggravating and mitigating factors

In imposing fines, KPPU may also take several aggravating and mitigating factors into consideration, including:

• For mitigating factors: adequate internal procedure for antitrust compliance, immediate termination, first offence, negligence, limited participation, and/or impact in the market.
• For aggravating factors: recidivism (in less than eight years) and active role in the offence.

Comprehensive consideration

Several other interesting progressions in the GR 44/2021 are:

Reasonableness

In calculating the amount of fines it can impose against an undertaking, KPPU must take various factors into considerations, including to balance the competition mapping. This means, if the existence of the relevant undertaking is relevant to maintain a healthy business competition in the relevant market, then the fine should not be too high that it would push the undertaking to cease operation and make the market even more concentrated.

Instalments

Fines imposed by the KPPU may also be paid in instalments, as long as the relevant undertaking can provide valid and acceptable reasons, including their financial ability.

Appeals

Warranty

Undertaking considering to appeal against KPPU decision must now allocate a warranty of up to 20 percent of the fine imposed, which is payable within 14 business days from the official receipt of the KPPU decision.

De novo examination

The commercial court will examine the appeal as a de novo case and look into the formality and substantive matters of the facts that the KPPU is referring to as the basis of its decision. Due to the complexity and nature of a competition case, which often includes economic dimension and not only legal dimension, the commercial court is allowed to examine the case for up to 12 months.

On the horizon

GR 44/2021 is already effective and in force, this means:

• Cases that are currently being examined will be allowed to immediately apply the provisions of GR 44/2021.
• KPPU must update its regulation on procedural law.
• It makes part of the supreme court circular No. 1 of 2021 which refers to supreme court circular No. 3 of 2019 on appeal procedure against KPPU decision, irrelevant, particularly that now case must be examined de novo.

We should expect a few more regulations would be issued by the relevant authorities to bring them all up to speed with the reform brought by GR 44/2021.

Changing legal landscape is inevitable in a rapidly developing and evolving jurisdiction like Indonesia, we believe that regulation is neither a force to be feared nor an obstacle to be overcome. It is simply a reality of doing business today, and the organizations that understand it holistically and navigate it well are the ones that will succeed

Business - Welcoming a brand-new business licencing regime

In an attempt to simplify business licencing requirements, the Government of Indonesia enacted the Government Regulation No.5 of 2021 regarding Risk-Based Business Licencing (GR 5/2021) on 2 February 2021. GR 5/2021 introduces a brand-new business licencing regime, under which business licences shall be issued based on  risk profiles associated with the relevant business.

GR 5/2021 provides that a risk-based licencing system shall apply for the following sectors:

• Maritime and fishery.
• Agriculture.
• Environment and forestry.
• Energy and mineral resources.
• Nuclear energy.
• Industry.
• Trade.
• General construction and public housing.
• Transportation.
• Health, food, and drugs.
• Education and culture.
• Tourism.
• Religious activity.
• Postal service, telecommunication, broadcasting, and electronic system transaction.
• Defence and security.
• Manpower

GR 5/2021 revokes Government Regulation No.24 of 2018 on Integrated Electronic Business Licencing Service, and it provides a four months grace period (from the date of enactment) for the Online Single  Submission (OSS) system to implement the risk-based licencing system.

Classification of risk-based business

In general, businesses are classified into the following risk-based category:

• Low risk business.
• Middle-low risk business.
• Middle-high risk business.
• High risk business.

Authority to carry out a detailed risk analysis, including to set out standards, rules, and procedures, is vested with the central government.
For ease of reference, Appendix I of GR 5/2021 contains a list of business codes, risk parameters and levels, relevant business licences, validity period, and authority with respect to such licence. For example, cosmetics wholesale trading and freight forwarding businesses are all classified as a middle-high risk business, while outsourced business activity is classified as a low risk business.

Relevant "licence" for each business

Businesses which are classified as "low risk" will only require a business identification number (Nomor Induk Berusaha or NIB) as a business licence. Middle risk businesses generally require an NIB and a standard certificate (Sertifikat Standar) as a business licence. A standard certificate (Sertifikat Standar) for middle-low risk business contains a statement from the company regarding its compliance with the applicable standard of the relevant business, while a standard certificate (Sertifikat Standar) for a middle-high risk business contains standard or minimum requirements determined by the relevant local or central government, which must be satisfied by the company.
Meanwhile, high risk business shall require NIB and permit (Izin) as their business licence. A company is required to obtain a Permit (Izin) from the relevant local or central government prior to conducting its business. Standard certificate of business and product may also applicable for high risk businesses.

Conclusion

GR 5/2021 is likely to streamline the business licencing system, especially for low-risk and middle-low risk businesses.  Now businesses will only require NIB and standard certificate (Sertifikat Standar) –  which should be easy to obtain using the  OSS system.

However, we expect that there will be no significant changes to middle-high and high-risk businesses as they still require administrative filing and compliance with the relevant local or central government to obtain a valid business licence, which could be a complex and protracted process.  
Nevertheless, we still need to wait and see on the implementation of GR 5/2021 in further detail.

Construction - Changes to Indonesian construction law and government regulations: Would this truly help the construction sector growth?

The construction sector is reported to be one of the largest contributors to the Indonesian economy and is expected to continue growing. Under the national medium term development plan (RPJMN - Rencana Pembangunan Jangka Menengah Nasional) 2020-2024, the Government of Indonesia has planned to invest around USD400 billion in the development of transport, industrial energy, and infrastructure projects.

In 2020, the Government of Indonesia enacted the Omnibus Law which partially amended the Construction Law (Law No.2 of 2017). This is aimed to boost growth in investment and job creation in Indonesia. Recently, the Indonesian government has enacted the Government Regulation No.14 of 2021 (GR 14/2021) as the implementing regulation of omnibus law concerning construction services and amendment to the previous GR No.22 of 2020 on the construction services (GR 22/2020).

Key changes and developments concerning construction services include:

Construction services

The categorization of construction service business remains the same under GR 14/2021, namely:
(i) construction consulting services (usaha jasa konsultansi konstruksi);
(ii) construction works (usaha pekerjaan konstruksi); and
(iii) integrated construction works (usaha pekerjaan konstruksi terintegrasi).

However, GR 14/2021 is now restricting construction work entities (perusahaan penyedia pekerjaan konstruksi) in providing integrated construction works (usaha pekerjaan konstruksi terintegrasi), hence the services to be provided will only be limited to the construction works. The existing integrated works by construction work entities continue under the GR 22/2020 until its completion, however, in the long run, construction work entities that intend to provide integrated construction services must apply for the relevant certificates and licenses.

Issuance of business entity certificates (Sertifikat Badan Usaha or SBUs)

GR 14/2021 eliminates the obligation for construction companies to register with the construction services development institution (Lembaga Pengembangan Jasa Konstruksi or LPJK) upon the completion of the certification process. SBUs will now be issued directly by the business entity certification institution (Lembaga Sertifikasi Badan Usaha or LSBU) established by the business entity association who are accredited by LPJK.

Construction Services Development Institution (Lembaga Pengembangan Jasa Konstruksi or LPJK)

LPJK is a non-structural institution which answers to the Minister, it is empowered to execute a portion of central government functions. Among these functions, it has the power to accredit the business entity association and professional association, to do competence equalization of foreign construction worker, to do recordation of construction workers, business entity experience, professional experience of construction worker, Lembaga Sertifikasi Profesi, and LSBU.

The cooperation scheme

GR 14/2021 also sets out provisions that amend several relevant regulations concerning the cooperation scheme, for example the Minister of Public Work and Housing Regulation No.14 of 2020 and LPJK regulations. The provisions regarding cooperation scheme under this GR 14/2021 include, amongst others:

• Cooperation between small scale construction companies for non-construction works (i.e., consultation).
• Cooperation between national constructions companies and representative of foreign construction companies (Perwakilan Badan Usaha Jasa Konstruksi Asing) must be carried out in accordance with principle of equality of major qualifications, equality of sub-classification, and joint responsibility;
• Cooperation agreement shall apply throughout procurement stages up to the completion of works.

The tender process

The tender process for appointing a construction service provider for a project financed by the state budget, is no longer required under construction law. This deletion in our view is made to avoid multiple arrangements for the procurement under the state budget, and in the implementation it must comply with the provisions in the presidential regulation No.26 of 2018 regarding the procurement of goods and services (or its amendment).

Competence Equalization (Penyetaraan Kompetensi) for foreign construction services workers

Requirements for foreign construction services workers to apply for competence equalization (penyetaraan kompetensi) is detailed in the GR 14/2021. It can be by way of (1) mutual recognition arrangement and (2) application to LPJK through Integrated SIJK. The result will be recorded at the Ministry of Public Works and Housing and Penetapan Penyetaraan Kompetensi will be issued following the recordation.

Integrated Information System on Construction Services (Sistem Informasi Jasa Konstruksi terintegrasi or Integrated SIJK).

GR 14/2021 provides more detailed provisions on the Integrated SIJK which will cover among others, the recordation of construction materials and equipment resources, expert appraiser, construction services business entity, construction workers, business entity experience, professional experience of construction worker, Lembaga Sertifikasi Profesi, LSBU, competence equalization, construction competence work certificate, SBUs.

Administrative sanction

There is an additional administrative sanction, namely revocation of SBUs that may be given to the service user and/or service provider who, in providing its approval in any construction services, violates the requirement to satisfy the security, safety, health, and continuity standard.

Digital - The right momentum for digital transformation in Indonesia

One thing we have all come to realise during the COVID-19 pandemic is our need for high speed internet for daily activities such as working, studying and buying and selling goods online through e-commerce platforms.

These activities have all contributed to the rise of the digital economy in Indonesia and it is now enjoying the growth of a middle-affluent class (MAC). According to a report released by the World Bank, the expansion of the MAC will help the Indonesian economy grow rapidly, realising that potential alone, the Government of Indonesia (GoI) previously planned and prepared for the digital transformation in the next 10 to 15 years. However the plan has now accelerated to full speed in 2020, thanks to the Omnibus Law (Law No.11 of 2020) which lays the framework of changes in postal services, telecommunications, and broadcasting sectors. Digital transformation in these sectors is expected to offer ways to boost productivity across sectors and expand participation in the economy to all segments of the population of 268 million people.

Accelerating Indonesia's digital transformation requires a major breakthrough for these sectors to step up to the challenge. In this regard the Omnibus Law has amended several provisions in Law No.38 of 2009 on Post (Post Law); Law No.36 of 1999 on Telecommunications (Telecommunication Law); and Law No.32 of 2002 on Broadcasting (Broadcasting Law) for accelerating digital transformation.

Through the issuance of Government Regulation No.46 of 2021 on Post, Telecommunication, and Broadcasting (GR 46/2021) on 2 February 2021, the GoI is intended to change and harmonize the implementing government regulations for the abovementioned laws so as to ensure the same principles introduced in omnibus law are applied.

Here are the implementing government regulations of the above laws that is being harmonized by GR 46/2021. Note that the similar concept in omnibus law is applied, to the extent not contradictory with the GR 46/2021, the provisions of implementing government regulations below that are not otherwise revoked are still applicable:

 
The key changes in each sector are discussed below:

Postal Service

• Consistent with the provisions of Omnibus Law, GR 46/2021 allows foreign postal service operators to enjoy relaxed regime for conducting business activities in Indonesia. Foreign postal service operators intending to conduct business in Indonesia should now follow only two requirements (instead of five requirements previously regulated under post law), namely (i) it must cooperate with domestic postal service operators through joint-venture schemes; and (ii) area of operation for the cooperation is limited in the capital of the province. Please note that for the purpose of this cooperation the delivery cannot be conducted across cities. Meaning the delivery is limited within a city area only as stipulated in cooperation arrangement.
• There will be further implementing regulation of GR 46/2021 in the form of a regulation of the Minister of Communication and Informatics (MOCI) which will further elaborate postal service

Telecommunications

• GR 46/2021 makes it clear that the GoI through the MOCI, have the authority to stipulate ceiling and floor tariffs for the purpose of operations of telecommunication networks and services. This introduces new matter which was previously not regulated and is expected to promote fairer competition between the telecommunication operators in Indonesia. We can now expect that tariff wars will no longer be the case as this measure is expected to shift the telecommunication operators' focus from tariff wars to enhancing better and affordable service to customers in Indonesia.
• GR 46/2021 also lays out active participation of both central and regional government in facilitating establishment of telecommunication infrastructure. This measure is taken by the GoI to address underdeveloped regions where telecommunication infrastructure is scarce while at the same time addressing telecommunication operators' needs for greater assurance from the local government in the establishment of telecommunication infrastructure.
• In addition GR 46/2021 also obliges telecommunication operators who possess passive telecommunications infrastructures, that can be used for telecommunications, to open up access so that other telecommunications operators can utilize the  passive infrastructure. This is in contrast to the previous telecommunication law where telecommunications operators were only encouraged to share passive infrastructure with other telecommunications operators. Passive infrastructures in this regard includes towers, poles, and other infrastructures utilized for the purpose of providing a telecommunication network. The rationale is to maximize the use of existing passive infrastructure for the purpose of efficiency. Whilst for telecommunication network operators who possess active telecommunication infrastructure (such as radio frequency spectrum), GR 46/2021 provides that such operators may open up access to other telecommunication operators based on cooperation arrangement (by way of rent of network capacity).
• There are also notable provisions regarding over-the-top (OTT) service providers. Under GR 46/2021, OTT service providers (both domestic and foreign owned) that serve customers in Indonesian territory via the internet are encouraged to cooperate with telecommunication network operators and/or telecommunication service providers. The provisions however do not apply to owners/users of social media channel, content platform channel, marketplace, and other types of channel. It is important to note that GR 46/2021 has broadly defined the OTT scope of service. The OTT's scope of services include: (i) substitution of telecommunication services; (i) audio and/or visual content platform; and/or (iii) other services as stipulated by the MOCI.

The OTT in this regard is subject to fulfilling significant presence that is determined based on (i) traffic percentage of domestic traffic that is being used; (ii) daily active users in Indonesia within a certain period of time up until a certain amount; and/or (iii) other criterion as stipulated by the MOCI. The MOCI is authorized to exercise its control and supervision over OTT service providers.

Broadcasting

GR 46/2021 further elaborates on measures that have to be taken for the migration of terrestrial television broadcasting from analog to digital (known as analogue switch off (ASO)) which is mandated to be performed by 2 November 2022. The omnibus law hopes to speed up this migration, and the government expects greater efficiency of frequency for boosting broadband internet access. If the ASO is completed, the government can reorganize the radio frequency resources from analogue broadcasting and allocate them for other services such as higher speed technology which in turn will ripe dividend for the greater public.

Closing remarks

These three sectors play an important role in digital transformation – a grand theme that the GoI would like to achieve by 2025. If Indonesia embraces digitalization, it can realize an estimated USD150 billion in economic growth by 2025 according to McKinsey report. Exciting times indeed for Indonesia as it further expands its digital penetration with regulations now in place. This should be conducted fairly, non-discriminatory while also maintaining the healthy competition between the players in this sectors.

Environment - The reformation of environmental licensing

By enacting the Government Regulation No.22 of 2021, the Government of Indonesia is trying to simplify and increase the ease of doing business in Indonesia by integrating  environmental licences into  business licences based on risk. The level of risk and business scale rating is determined based on the level of environmental exposure and the occurrence of hazards in health, safety, environment, and utilization of natural resources.

There are four levels of risk categories for business activities namely: (1) low; (2) medium-low; (3) medium-high; and (4) high-risk, each of them requires a different licence. While business sectors that are categorised in the medium and high-risk categories must obtain an environmental feasibility approval; low-risk business sectors only need to obtain a Company Registration Certificate (Nomor Induk Berusaha or NIB). Thus, for licences simplification, the government also eliminates environmental permits in the picture.

The key reformation points include:

Risk based Licencing

Licencing with regard to the environment is mandatory for medium and high-risk business sectors in the form of an environmental feasibility approval. Such environmental feasibility approval is carried out by preparing and applying for an analysis with regard to the environment impact assessment (Analisa Mengenai Dampak Lingkungan Hidup (AMDAL)) or environment management efforts and environment monitoring efforts documents (Upaya Pengelolaan Lingkungan Hidup dan Upaya Pemantauan Lingkungan Hidup (UKL & UPL)).

The environmental feasibility approval will be valid for a period in conjunction with a business licence. In the process of extending the business licence, businesses may use the existing environmental feasibility approvals, provided that the activities remain the same.

AMDAL

In principle, there are no major changes with regard to activities that require AMDAL, i.e., activities that have considerable impact on the environment for example: the conversion of landforms and landscapes, natural resources exploitation, processes and activities that may potentially cause environmental pollution, damage and manipulation, processes and activities that may impact conservation, and protection of cultural heritage, the introduction of plant species, animal and corpses, manufacture and use of biological and non-biological materials, activities that may affect national defence and/or application of any technology that may influence the environment).

In the spirit of ease of doing business, private entities are eligible to receive the exemption for having prepared AMDAL, being those having domicile in industrial areas, free trade, and free port zones, which have been equipped with valid zones AMDAL.

Previously, documents concerning AMDAL have been analysed by a commission established by the ministry, governor, or regent, known as AMDAL assessment commission (Komisi Penilai AMDAL or "KPA") that consists of representatives of the environmental institution, relevant technical institutions, experts for the relevant businesses and environmental aspects, community, and independent organisation. Once the AMDAL has been approved, companies must apply for an environmental permit. Currently under GR 22 of 2021, AMDAL documents will be analysed by a team established by the central government that consists of the element from the central government, regional, and experts for the issuance of an environmental feasibility approval.

Even though the community is no longer a member of the assessment team, the relevant direct impacted community still has to be included in the preparation stages, that requiring businesses to inform the activity plans and carry out a public consultation.

UKL and UPL

High or medium risk businesses must apply for the UKL and UPL, including those that have considerable impact and are exempt from  applying for AMDAL as mentioned above. In applying for a UKL and UPL, businesses must fill in the forms and provide technical approvals that consist of wastewater and emission standard qualities, hazardous and dangerous waste management, and traffic impacts analysis. The ministry of environment will further set out list of businesses sectors that are required to obtain UKL and UPL.

Integration

AMDAL and/or UKL and UPL documents will be integrated to cover all relevant environment activities that businesses may have, including relevant approval regarding the traffic impact, wastewater and emission standard quality, and hazardous and dangerous waste management.

Non-compliant with environment aspects may be subject to the revocation of business licences

The Omnibus Law has eliminated obligation to apply for the environment licence. Consequently, AMDAL or UKL and UPL become the commitment to be fulfilled prior to applying for business licences. 

Any violation of environment requirements may subject to the termination of the environment licence only. Currently, as AMDAL or UKL and UPL is now integrated as a commitment to obtain the business licence, the violation of such environment aspect may be subject to the termination of the business licence (bear in mind other penalties would be imposed if the business activities cause pollution).

Employment - The Omnibus Law and the Employment sector

There are four implementing regulations issued relating to employment in the Omnibus Law, these are:

1. Government Regulation No. 34 of 2021 on the Foreign Workers Utilisation (“GR 34/2021”),
2. Government Regulation No. 35 of 2021 on the Definite Employment Agreement, Outsourcing, Workhours and Resting Times, and Employment Termination (“GR 35/2021”),
3. Government Regulation No. 36 of 2021 on the Wages (“GR 36/2021”), and;
4. Government Regulation No. 37 of 2021 on the Job Loss Security Programme (“GR 37/2021”).

These are currently in force, save for the GR 34/2021 which will be in force on 1 April 2021. 

Below are a number of frequently asked questions that we have received from clients that we would like to share.

Can expatriates hold dual-positions of employment under GR 34/2021? 

Yes, employers can hire expatriates who are already employed in Indonesia. However, the positions are limited to Board of Directors (BOD) or Board of  Commissioners (BOC) members as well as employees in the vocational education, vocational training, digital economy, and the oil and gas sector.

Are there any exceptions for the use of foreign workers in Indonesia? 

The foreign workers utilisation plan is no longer required for expatriates who are working as (i) a member of BOD or BOC with certain shareholding composition, (ii) diplomatic or consular staff of a foreign representative country, or (iii) expatriates that are required for types of productions activities halted by emergency status, vocational, technology-based start-up companies, business trip, and research for a certain period.

Is it true that the amended Manpower Law has removed the term of definite employment agreement?

If you are referring to the previous term of 2+1+2 or (the first two years employment agreement that can be extended for another year and also can be renewed for a maximum of two years), the answer is yes, such term has been removed.  However, the GR 35/2021 introduced a new term of a maximum 5 years.  It is worth noting that the employment agreement can be extended provided that its initial and extended term does not exceeded 5 years in total.
Please note that the obligation to register the definite employment agreement can now be done electronically.

For cost-efficiency, how should we structure the term of a definite employment agreement?

There is no fixed answer to this as businesses have different commercial needs and considerations.  However, please note that if a definite employment agreement has expired or the company wishes to extend the employment term, compensation shall be provided to the respective employee.

Is there any additional compensation other than the post-termination entitlements for employment termination?

Post-termination entitlements which comprise of (i) severance payment, (ii) rights compensation payment, and (iii) service payment only applies for permanent employees.  However GR 35/2021 introduced a new obligation for the employer to provide compensation to fixed or non-permanent employees,  based on their term of service at the expiration date or prior to extending the definite employment agreement.

Any change on the multiplier of severance payment for certain termination grounds?

GR 35/2021 governs the fixed multiplier of severance payment for employment termination, to summarise we prepared a table for the post-termination entitlements formula below:

** Only entitled for a separation payment as determined under the employment agreement, company regulation, or collective labour agreement.

Are  non-permanent employees eligible for the abovementioned post-termination entitlements formula?

No.  The aforementioned formula only applies to permanent employees.  Non-permanent employees are only eligible for the compensation referred to above.  It is worth noting that expatriates are not eligible for compensation or post-termination entitlements.

Any updates on the employment termination procedures?

Yes. Written notification outlining the grounds for termination will be served on the employee by the employer 14 days prior to their termination.  If the respective employee is still on the probationary period, such notification shall be served at the latest by 7 days prior to the termination.
If the employee agrees with the termination, the employer shall notify the manpower office of the termination. I the employee does not accept the termination, they can draft a letter in response outlining why they do not accept the grounds for termination.

What is the current minimum wage policy in Indonesia?

The minimum wage requirement applies to employees with an employment term of less than a year.  The government encourages employers to pay their employees who have worked for more than a year above the minimum wage formula.

Have salary reductions been regulated under the current laws?

Salary reductions with a maximum of 50% of the total employee’s wages can only be implemented in certain circumstances, such as for the payments of (i) fines, (ii) damages, (iii) advance wages, (iv) house and/or employer’s properties lease, (v) instalment of employee’s debt, and/or (vi) wages overpayment.  The law is silent on whether salary reductions could be implemented in  circumstances that differ from  above.
Please note that the GR 36/2021 require express written consent from the respective employee, save for the reductions for wages overpayment.

How about the salary payments following the declaration of an employer’s bankruptcy status or an employer being liquidated?

The GR 36/2021 states that the payment of employees’ salaries following the declaration of an employer’s bankruptcy status or an employer being liquidated shall be prioritised and paid after the preferred creditors have obtained their debt repayments.

Is there any additional social security program that requires an employer to register its employees?

In addition to the Manpower and Health Social Security program, an employer is now required to register its employees in a job loss security program initiated by the Manpower Social Security Body and the Indonesian Government. 

Employees that are eligible to participate in the job loss security program are limited to Indonesian citizens, who have not reached the age of 54 years old and have an employment relationship with the employer.  Terminated employees who are also participants of the job loss security program will obtain benefits in the form of cash monies, access to job market information as well as job training.
Failure to register its employees who are qualified to be registered with the job loss social security program will be subject to certain administrative sanctions such as a written warning and the employer will not get an access to certain public services.

Investments - The Positive List for Investment

The ways in which the Omnibus Law regulations will enhance Indonesian foreign direct investment are listed under Presidential Regulation No.10 of 2021 (PR 10/2021). The issuance of PR 10/2021 is not only in line with the investment regime, it revokes the current "negative list of investment" under Presidential Regulation No.44 of 2016 (PR 44/2016).

The Positive List

Business activities in the Positive List fall into  four following categories:

1. Prioritised sectors

The prioritised sectors cover national strategic projects, labour intensive businesses, capital intensive businesses, hi-tech businesses, pioneer industries, export-oriented businesses and research and innovation- oriented businesses.

The prioritized business sectors would receive fiscal incentives such as tax allowance, investment allowance and tax holiday, as well as non-fiscal incentives such as the easing of business licencing and provision of supporting infrastructure. All prioritized businesses are open for 100 percent foreign ownership unless for traditional products (medicine, boats, and batik). Agriculture, mining, Pharmaceutical and tourism. are some of the industries included in the prioritized sectors.

2. Businesses which are subject to partnership requirement with small-medium enterprise (SMEs) or cooperative (Koperasi)

Similar to the previous investment regime, the government still aims to protect the growth and business continuity of the SMEs and Koperasi. The protection is given by classified businesses that are intended for and require compulsory cooperation  with SMEs and with Koperasi.

The types of businesses that fall into this category include:

• Businesses that do not require technology or which use simple technology;
• Labour intensive business having a particular process and cultural heritage; and/or
• Businesses with capital not exceeding IDR10 billion, excluding land and buildings.

Businesses that require compulsory partnerships are usually those intending to scale-up to enter supply chains for example, electricity installation, building construction using simple and medium technology and certain types of retail trading (e.g. medicines in drug store, non-supermarket retail, minimarket, non-department store retail, laundry service, beauty salon, barber shop).

3. Business activities with specific requirements

These are business activities with specific requirements applicable for both local (i.e., full local ownership) and foreign investors in the form of ownership limitation.
Foreign ownership limitation does not apply to the following business/investments:

• Indirect/ Portfolio investments through the capital market.
• Business located in a Special Economic Zone (Kawasan Ekonomi Khusus).
• Business which has been undertaken prior to the enactment of PR 10/2021 unless the foreign ownership limitation under PR 10/2021 is more favourable to the investors (Grandfathering)
• Investments subject to more favourable treatment in a treaty between Indonesia and the investor’s country of origin.

Several business activities maintained their maximum foreign ownership as previously regulated under PR 44/2016 such as postal courier service (49 percent), airline business (49 percent), and horticulture farming (30 percent).

However, we note that there are new business sectors which have been included, such as coffee processing business, which have obtained geographical indication (reserved for local investors), rendang industry (reserved for local investors), traditional cosmetics industry (reserved for local investors), and Muslim pilgrimage travel business (reserved for local investors and for Muslim only).

4. Other business activity 

This includes all business activities which are not categorized  above as business, which are  fully open for all investors both local and foreigners.

Several businesses which have been excluded from negative list and are  now open 100 percent to foreign ownership include, freight forwarding businesses (previously 67 percent), commission agents (previously limited for local investor only), distributorships which are not affiliated with manufacturer in Indonesia (previously 67 percent), commercial web platform operations (e.g., e-commerce platform) – (previously 49 percent with paid up capital of less than IDR100 billion), electricity generators for all capacities (previously 49 percent for one - 10 megawatt (MW) capacity, 95 percent for more than 10 MW, and limited for local investor for below one MW capacity) etc.

Projects - Boosting the economy by easing National Strategic Projects

A National strategic project (Proyek Strategis Nasional or PSN) is an Indonesian infrastructure project or program which, back in 2016 in the era of President Joko Widodo, was considered to be strategic to increase growth and equitable development in order to promote job creation and improving public welfare. During the implementation of the PSN there were several reported challenges namely the land acquisition and land procurement for the projects, planning, and preparation of the projects, funding, licenses/approvals for the projects, and project constructions.

To overcome these challenges the PSN realised that a regulation to ease these challenges in each stages of a PSN was inevitably required. As mandated by Law no. 11 of 2020 on job creation and to answer the challenges for realization of the PSN, the government of Indonesia (GOI) has recently issued Government Regulation No. 42 of 2021 regarding ease for national strategic project (PP 42/2021), which is meant to serve as the legal basis for the concerned parties to accelerate and ease the relevant challenges in doing the PSN.

By issuance of PP 42/2021 it is hoped that this regulation can provide certainty in ensuring the continuity in the completion of PSN as to allow the investors to accurately forecast the project completion period as well as return on their investment. In addition, PP 42/2021 also highlighting numerous ease related to the financing aspect of the PSN which is meant to provide facilities, such as a government guarantee for the relevant PSN, for the project company to obtain financing by making the PSN more balance in the risk allocation and hence make the project bankable.

Scope of PP 42/2021

In order to accelerate the PSN, PP 42/2021 is intended to provide ease in doing the PSN (ease-of-doing) in each of the following stages:

• Planning.
• Preparation.
• Transaction.
• Construction.
• Operation and maintenance.

In addition to the above, the ministries/institutions and local government are receiving facility in the procurement process.

Ease-of-doing in planning stage

Under the PP 42/2021 the planning stage covers the ease-of-doing related to, among others, obtaining relevant permits, procurement of land, and plan for financing. One new introduced concept under this PP 42/2021 is now for a PSN that is financed by other legal means of financing such PSN may obtain the government guarantee (as defined in PP 42/2021), which covers credit or sharia financing, feasibility, cooperation between government, and legal entity and/or political risks. In granting the government guarantee, the relevant minister will (a) set up the maximum limit of the guarantee gradually as the benchmark in granting the government guarantee and/or (b) allocating government's liability budget on government guarantee in accordance with the prevailing regulations.

The government guarantee can be granted to a PSN that meets the following criteria:

• Financially and technically feasible.
• As the responsible party of the cooperation project (PJPK) possessing identification document and sufficient risk mitigation plan.

Scope of PP 42/2021

At this stage, the relevant minister/institution head, governor, and mayor will be preparing, amongst others, feasibilities study, suitability of the spatial plans and/or marine spatial planning, determination of the location for land procurement, environmental documents, and financing sources. Furthermore, for a PSN that is financed by other legal means of financing the form and substance of the cooperation agreement must meet the minimum requirement as set out in the PP 42/2021.

Ease-of-doing in transaction stage

This stage, the PJPK shall hold a procurement process for appointing the business entity that will conduct the project development. If a business entity initiates the project, such business entity is given with the right-to-match as to allow it to enhance and amend its proposal for the project.

It is determined that the financial close must be achieved within nine months after the signing of the relevant agreement and it can be extended if the failure to obtain the financing is not caused by the relevant business entity in accordance with the criteria set out in the PP 42/2021.

Ease-of-doing in construction stage

At this stage, the ease-of-doing is related to the application of construction feasibility test that must be submitted within 30 days prior to the provisional hand over.

Ease-of-doing in operation and maintenance

Ease-of-doing at this stage is related to a PSN that is financed by state budget or local regional budget whereby the PJPK is obliged to compose the operation plan and maintenance of the PSN.

Ease-of-doing in procurement stage

Aside from the foregoing ease-of-doing, PP 42/2021 also provide the ease-of-doing in the procurement process relating to PSN. In the context of PP 42/2021 the procurement process could be conducted by way of : 

• Direct appointment for any procurement of consultancy service provider in the maximum amount of IDR500 million.
• Direct appointment may be conducted to an international financial institution having a cooperation with relevant government institution/ministry or local government, in preparing the PSN.
• The appointed consultancy service provider may be reappointed by way of direct appointment for the maximum of two times provided that such consultancy service provider has a good performance.
• The appointed other service provider or supplier may be reappointed by way of direct appointment for the maximum of two times provided that such other service provider or supplier has a good performance.

Conclusion

At a glance PP 42/2021 seems to provide a great deal of ease for the PSN in each stages of the project, however we do see that the implementation of which would require a great amount of coordination especially at the level of the relevant government, acting as PJPK that are responsible in each stages of the PSN, including how to establish the synergy between central and local government in implementing this PP 42/2021 and the PSN.

Special Economic Zones - Omnibus Law to offer more perks and facilities for businesses in Special Economic Zones (SEZ)

Amidst the seemingly never-ending pandemic, Indonesia managed to pull off a massive structural legal reform through the colossal Omnibus Law, which – amongst others – aims to create an investor-friendly jurisdiction. Now that  Government Regulation No. 40 of 2021 of the omnibus law for special economic zones (SEZ GR) has been passed, there are more perks and facilities available to businesses in the SEZ. Although there are no significant changes to the general business activity in the SEZ, the fact that the government has now expanded the business sectors and scope of industry that may operate in these zones, shows the government’s intention to promote investment. With the proposed incentives and government support, it is expected that more business will be conducted in the SEZ.

Things to know about Special Economic Zones (SEZ):

What is a Special Economic Zone (SEZ)?

It is an area designated for specific economic purpose and its designed with specific objectives in mind such as, accelerating economic growth, and optimising industry, export, import, and other economic activities. These in turn will eventually enable and empower the surrounding community with employment and entrepreneurship opportunities.

Where are the  SEZ(s)?

Currently, there are 15 SEZs in Indonesia, these are:

• Arun Lhokseumawe SEZ in Aceh – Which focuses on energy, petrochemicals, palm industry, wood industry, and logistics.
• Sei Mangkei SEZ in North Sumatera – Which focuses on palm industry, rubber industry, tourism, and logistics.
• Galang Batang SEZ in Riau Islands – Which focuses on bauxite industry and logistics.
• Tanjung Api-Api SEZ in South Sumatera – Which focuses on palm industry, rubber industry, petrochemicals, and logistics.
• Tanjung Kelayang SEZ in Bangka Belitung – Which focuses on tourism.
• Tanjung Lesung SEZ in Banten – Which focuses on tourism.
• Kendal SEZ in Central Java – Which focuses on textile industry, furniture, food and beverage, automotive, electronics, and logistics.
• Singhasari SEZ in East Java – Which focuses on tourism and technology development.
• Mandalika SEZ in Nusa Tenggara Barat – Which focuses on tourism.
• Maloy Batuta Trans Kalimantan SEZ in East Kalimantan – Which focuses on palm industry, wood industry, and energy and logistics.
• Palu SEZ in Central Sulawesi – Which focuses on nickel and iron ore industry, cocoa industry, seaweed industry, rattan industry, and logistics.
• Likupang SEZ in North Sulawesi – Which focuses on tourism.
• Bitung SEZ in North Sulawesi – Which focuses on coconut industry, fishery, pharmaceutical industry, and logistics.
• Morotai SEZ in North Maluku –Which focuses on fishery and  tourism and logistics.
• Sorong SEZ in West Papua – Which focuses on nickel industry, palm industry, forestry and plantation (sago), and logistics.

Two additional SEZs are being proposed and these are Nongsa Digital Park and MRO Batam Aero Technic – both located in Batam, Riau Islands.

Nongsa Digital Park SEZ will have an area of 166.45 hectare (Ha) and total investment value of IDR16 trillion. This SEZ, proposed by PT Taman Resor Internet, is aimed to focus on developing business in tourism, creative industry, information technology (IT), and industrial area. The government expects Nongsa Digital Park SEZ will serve as entry point for international IT company for their investment in Indonesia and to employ around 16,500 people.

Meanwhile, MRO Batam Aero Technic SEZ will focus on airplane MRO (maintenance, repair, and overhaul) industry. With the total investment value of IDR6.2 trillion and an area of 30 Ha, MRO Batam Aero Technic SEZ – proposed by PT Batam Teknik – is aimed to employ 9,976 people by 2030.

Why is it better to do business in the SEZ?

Investors will be able to obtain fiscal incentives and other benefits such as tax holidays, tax allowance, exemption from import restrictions, and customs allowance, etc.

What kind of business can investors do in the SEZ?

Previously, the SEZs were intended for businesses that manufactured products for export purposes. Under the new SEZ GR, it is now available for all manufacturing activities, (including for local purposes) such as, the creative industry, education, sports, health, distribution, and financial services.

Accordingly, almost all business can be carried out within the SEZ, such as manufacturing and processing business, logistics and distribution, technology research and development, tourism, energy development, education, health facility, sports, financial services, creative industry, construction, and management of the SEZ itself, provision of infrastructure for the SEZ, and any other business as determined by the SEZ National Committee.

How to conduct business in a SEZ

There are no administrative requirements in order to conduct business in a SEZ. As long as your company conducts  business as mentioned above. You should be able to conduct business in the SEZ by filing the relevant location when registering with the OSS system. However, in practice, you would likely be required to enter into an investment realization agreement with the relevant SEZ initiator entity.

What are the advantages of conducting business in  SEZ?

There are several advantages to conducting business in a SEZ, such as:

• Tax holidays in the form of income tax reduction up to 100 percent ranging for a maximum of 20 years for a minimum investment value of IDR1,000,000,000,000. After the expiry of tax holiday period above, further tax income reduction of 50 percent for the period of two years shall be granted.

Alternatively, businesses that are not eligible for  the above tax holiday may obtain tax allowance for a total of 30 percent in six years (five percent each year), accelerated amortization, and depreciation for assets.

• Customs exemption. All goods entering the SEZ shall be exempted from custom duty.

In addition to the tax and customs incentives mentioned above, foreign ownership limitations have also been relaxed  for companies located in the SEZ.

What assistance would investors  receive when  doing business in SEZ?

Other than the customs and tax incentives and exemption from foreign ownership limitation as mentioned above, investors would enjoy government support in the form of infrastructure readiness, security and supportive spatial use in the surrounding area. Specific for manufacturing business located in the SEZ, the requirement to be located in industrial area shall be exempted. Additionally, licences in SEZ are issued by SEZ administrators, which authorised to determine the procedure to issue licence, in accordance with the prevailing laws. Accordingly, investors would unlikely be required to coordinate with various government institution to discuss a business licence.

Can investors set up an SEZ?

Investors are welcome to propose the establishment of a SEZ by submitting a proposal directly to the SEZ National Committee, after obtaining approvals from the relevant regional government. The approval shall contain, among others, compliance by the applicant to the land and spatial zoning regulation and commitment from the regional government to provide necessary support to the applicant.

The proposal needs to be submitted with several supporting documents as follows:

• Deed of establishment of the applicant.
• Approval from the regional government.
• Development area map which separated from residency area.
• SEZ spatial planning which include zoning requirement.
• Financial source and planning.
• Environmental approval.
• Economic and financial feasibility study.
• SEZ operation period and strategic planning to develop the SEZ.
• Evidence of land control by at least 50 percent of the proposed total area of SEZ.

Trade - Unification in the trade sector

The long-awaited implementing regulation of Law No.7 of 2014 on trading – which has been amended by Omnibus Law – was finally issued under the Government Regulation No.29 of 2021 on implementation of trading activity (GR 29/2021). In short, GR 29/2021 unifies several implementing regulations in trading sectors such as goods distribution, import-export activities, and mandatory use of Indonesian language in product label, which previously were governed under different ministry of trade regulations. GR 29/2021 does not provide much changes to the existing regulation, except in export-import and distribution of goods, as explained below.

More measured policy in export-import activity

Previously, export or import approvals were issued by the ministry of trade based on export or import recommendation from the relevant authority (e.g. ministry of industry, ministry of energy, and mineral resources). Currently, GR 29/2021 provides that export and import approvals shall be issued based on the commodity balance (Neraca Komoditas) – which will be determined by the government under a presidential regulation.
The commodity balance (Neraca Komoditas) is data and information which provides, among others, the consumption and production balance of a certain product towards the public and industrial needs within a certain period. With this commodity balance, the government is aiming to have a more measured policy in export and import activity based on the actual information in practice.

Changes in goods distribution activity

Although goods distribution scheme generally remains the same, there are several changes in the GR 29/2021 which may be relevant for your business, as follows:

• Minimum of five years appointment and one-time extension for sole distributorship. Previously, appointment of sole distributor shall be valid for two years only. To this end, you need to fully assess your sole distributor candidates before appointment, as the appointment period will be longer, and their performance may affect your business in the longer term.
• Higher commission and/or bonus for direct seller in direct-selling distribution scheme. GR 29/2021 raise the maximum threshold for commission and/or bonus payable to the direct seller from 40 percent to 60 percent of the company's sales volume. If your company runs a direct-selling business (i.e. single or multi-level marketing business), you may expect your business partner to ask for a raise in their commission and/or bonus.
• Removing the obligation of direct-selling company to provide 10 business days period for the direct seller to resign upon their recruitment as a member.  

Conclusion

With not so many changes in the regulation – except in export-import and goods distribution activities as explained above – we only see the GR 29/2021 as a unification code of the currently scattered regulation in trade sector.  

Authored by Chalid Heyder, Mochamad Kasmali, Dyah Paramita, Randy Rifdaan, Karina Syahril Antonio, Julia Nugroho, Roland Sunardi, Teguh Darmawan, and Maraya Novarazka.