Indonesia News

Government Regulations Aim to Add Value to Indonesia’s Mining Industry

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By: Winnindo R&D Team
Editor: Samuel Glickstein

The Indonesian government recently published its fourth revision of Regulation No. 23 2010, which governs the country’s mineral and coal mining sector.

The government also published two decrees for the Ministry of Energy and Mineral Resources to implement the regulation: Ministerial Decree No. 5 and Ministerial Decree No. 6. Ministerial Decree No. 5 concerns the increase of the added value of minerals for domestic processing and purification and Ministerial Decree No. 6 Year involves the export agreement.

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According to Ministerial Decree No. 5, holders of mining production and operation licenses, special mining production and operation licenses, as well as mining production and operation licenses that specialize in processing and purification are obligated to fulfill minimum processing and/or purification requirements. Companies may process and purify minerals individually or through joint ventures.

In addition, this decree stated that low-grade nickel that is less than 1.7 percent and low-grade bauxite that is less than 42 percent must be purified at a minimum of 30 percent of smelter capacity. If the domestic demand for low-grade nickel and low-grade bauxite is met, the unpurified surplus of minerals can be exported.

However, the work contract holder can only sell their purified products to foreign markets after they meet the minimum purification requirement. The government has provided an opportunity for work contract holders as well as holders of different types of mining production and operation licenses to sell their mineral concentrate overseas for the next five years. This period began on the date that the government issued both Ministerial Decrees.

The requirement to change from work contracts to special mining production and operation licenses commits each firm to build a smelter. Firms must also pay a maximum 10 percent in exit customs according to their progress in building smelters. Companies may only export their products after their export application is approved by the Directorate General on behalf of the Minister of Energy and Mineral Resources.

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Ministerial Decree No. 6 states that before acquiring an export permit, the holder of the mining production and operation license must first obtain approval from the Directorate General.

In order to obtain approval, the holder of the production and operation license must submit an export application to the Minister for Energy and Mineral Resources c.q. Directorate General of Mineral and Coal. Although these decrees have only recently been announced, they have the potential to contribute to the development of Indonesia’s mining industry.


About
 Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in Indonesia, China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

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 introduction-to-foreign-investment-in-indonesiaAn Introduction to Foreign Investment in Indonesia
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Selecting the Optimal Location for Indonesian Manufacturing

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By Samuel Glickstein

In recent years Vietnam, Myanmar, and India have attracted a significant amount of media attention as potential manufacturing powerhouses. Although these countries may deserve consideration, Indonesia, the world’s fourth largest country, maintains numerous strengths that beckon to the business community. With over 260 million people and a total median age of 28.6 years, Indonesia possesses both a large workforce and a young population. Furthermore, increasing urbanization eases the cost of doing business for foreign companies that manufacture their goods in Indonesia and intend to sell their products to the country’s rising middle class. The Indonesian government has also realized the importance of developing the country’s manufacturing sector in increasing economic growth, creating employment opportunities, and reducing the archipelago’s reliance on exporting commodities. President Joko “Jokowi” Widodo has released numerous policy packages since September 2015 aimed at easing the cost of doing business in Indonesia, increasing foreign investment to make the economy more competitive, and boosting industrialization.

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Examining Opportunities in Indonesia’s Upstream Palm Oil Sector

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By: Samuel Glickstein

Palm oil and palm oil-based products can be found in supermarkets around the world. Although palm oil can be used as a simple frying tool, this production-efficient oil can be blended and processed to create numerous food, pharmaceutical, and cosmetic products. The rapid growth of the palm oil industry in recent years has benefitted the economy of Indonesia, the world’s leading producer and exporter of the oil. The sector has provided employment to millions of Indonesians, particularly on the islands of Sumatra and Kalimantan, where most palm oil estates are located. According to the Indonesian Palm Oil Producers Association (Gapki) and Indonesia’s Ministry of Agriculture, Indonesia produced 32.5 million tons of crude palm oil (CPO) in 2015 and exported 26.4 million tons.

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A Guide to Indonesia’s Industrial Parks and Special Economic Zones

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By: Dezan Shira & Associates
Editor: Alexander Chipman Koty

Indonesia is composed of over 13,000 islands and home to over a quarter of a billion people. The country’s island-based geography presents rich diversity in ethnic, religious, and linguistic communities, as well as incredible biodiversity and a wide array of natural resources. While these features contribute to Indonesia’s unique advantages, they should also be at the forefront of investor’s minds when considering investment.

Understanding the infrastructure deficit

Amidst a variety of governance-based concerns, which are the subject of intense scrutiny and the target of government reform under the current administration, infrastructure remains a salient variable for investments, with significant profit implications. Pegged by the Asian Development Bank at a massive US$700 billion, infrastructure deficits in Indonesia can restrict the ability of investors to conduct operations in a successful manner. Fortunately, Indonesia has a number of investment options available to mitigate the impact of these challenges. Regardless of the nature of investment chosen, various factors – including tax incentives, infrastructure and logistics, proximity to resources, and labor costs and skill levels – must be taken into consideration when choosing a location for investment in Indonesia.

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Industrial parks

Industrial parks offer a cost effective way to increase access to basic infrastructure and ensure that production can be carried out in an efficient and effective manner. Located throughout the country, these investment options have become more targeted in recent years, often specializing in select industries and providing investors with the resources, utilities, and connections to transport networks required to optimize production chains.

Special economic zones

Special Economic Zones (SEZs) in Indonesia are open to foreign investment and offer investors access to preferential regulatory infrastructure and taxation in an attempt to channel investment into specific locations. Indonesia currently has nine SEZs and plans for a total of 25 to be in place by 2019.

Economic Zones Indonesia

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To facilitate investment in these zones, the Widodo administration has instituted a number of incentives targeting investors setting up within SEZs. Outlined within Package 6 of the administration’s reforms, foreign investors operating in Indonesia’s SEZs stand to gain from several preferential policies if they meet funding requirements. Incentives include income tax reductions from 20-100 percent for up to 25 years, VAT exemptions on the import of raw materials, and VAT exemptions on manufactured goods sold within Indonesia. Additionally, land rights can be obtained for up to 30 years and further extended by 10 additional years.

Despite the generous tax holidays offered by the Indonesian government, it is not always advisable to invest in an SEZ rather than another location. One of the primary goals of SEZs is to develop Indonesia’s rural and less industrialized regions, meaning that infrastructure in these areas may be poor – including unreliable power supplies – and skilled labor difficult to find.

Choosing the optimal location for investment

As mentioned above, a number of factors all play a role in determining the optimal location for manufacturing in Indonesia. Understanding that industrial parks and SEZs are an integral solution to mitigating the costs of lagging infrastructure, the following map above highlights relevant industrial parks and SEZs throughout Indonesia. For more information on opportunities within specific zones, please contact indonesia@dezshira.com


About
 Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in Indonesia, China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 ‍

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An Introduction to Doing Business in ASEAN 2016
An Introduction to Doing Business in ASEAN 2016 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation.We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.

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Choosing if, where, and how to establish foreign manufacturing operations in Indonesia can be a significant challenge. While the archipelago’s vast diversity may initially seem daunting, a number of options are available which will allow entry and operations to be conducted in a seamless manner.In this issue of ASEAN Briefing, we discuss the growing importance of Indonesia as a hub for manufacturing within Southeast Asia, and provide guidance on how to select and establish operations within the country.


Indonesia Has Huge January 2017 Import-Export Surge 

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By: Dezan Shira & Associates

Indonesia’s trade had a huge boost in January this year as it soared to a US$1.4 billion surplus, way up from US$10 million in January 2016. Also encouraging was the increase in the non-oil and gas exports, up 29.2 percent Y0Y to US$9.4 billion, while imports in the non-oil and gas sector also rose to 14.5 percent at just under USD12 billion.

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Understanding Tax Treatment of Representative Offices in Indonesia

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By: Winnindo Business Consult
Editor: Dustin Daugherty

Recent years have seen numerous high-profile cases by the Indonesia tax authority against prominent foreign tech firms. Most notable of these cases is that of Google, which allegedly used an Indonesian RO to carry out its in-country business activities, but shifted all taxable profit to an offshore entity in Singapore. However, Google’s case is not uncommon. In fact, many investors also do the same thing and invoice clients from offshore entities, presenting themselves and their businesses to legal issues.

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Although previously this tax avoidance strategy may have been low-risk, the recent crackdown by the tax authorities demonstrates how essential it is that investors, even those using ROs in the country, take measures to ensure full tax compliance. Thus, to avoid the fate of Google and others, it is essential for companies operating ROs in Indonesia to have a strong grasp of tax regulations. Further, given the complexity of such regulations, investors are encouraged to seek the assistance of professional services experts of tax officials to avoid costly oversights.

Tax Treatment of Representative Offices

As ROs may not engage directly in profit generation, many investors assume the only tax they must be concerned with are withholdings on employee salaries. However, Indonesia’s Tax Authority has in fact put into place specific regulations for the tax treatment of ROs, stipulating that if ROs carry out activities to generate profit in Indonesia, even if the revenues are paid directly to an offshore parent, then such activities will be found to be liable for corporate taxation.

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ROs are categorized as a special class of taxpayers that have to use specified tax calculations to inform its CIT liability, even if the ROs are not directly booking revenue. The current tax rate under this special category is 0.44 percent of Gross Export Values (GEVs). GEVs are overall replacement values for revenues of a foreign company that operates an RO in Indonesia. These revenues come from goods or services delivered to persons or corporate entities located in Indonesia by the RO. Additionally, if the RO of foreign entities are de-facto found to be engaging in profit making activity on behalf of the parent company, then the parent company will be liable for the Branch Profits Tax specified in a tax treaty between Indonesia and the parent’s home country.


About
 Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in Indonesia, China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 ‍

Related Reading

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

An Introduction to Doing Business in ASEAN 2016
An Introduction to Doing Business in ASEAN 2016 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation.We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.

 introduction-to-foreign-investment-in-indonesiaAn Introduction to Foreign Investment in Indonesia
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The Guide to Manufacturing in Indonesia magazineThe Guide to Manufacturing in Indonesia
Choosing if, where, and how to establish foreign manufacturing operations in Indonesia can be a significant challenge. While the archipelago’s vast diversity may initially seem daunting, a number of options are available which will allow entry and operations to be conducted in a seamless manner.In this issue of ASEAN Briefing, we discuss the growing importance of Indonesia as a hub for manufacturing within Southeast Asia, and provide guidance on how to select and establish operations within the country.


Establishing a Representative Office in Indonesia

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By: Winnindo Business Consult
Editor: Dustin Daugherty

As a country with a population exceeding a quarter billion – by far the largest in ASEAN – Indonesia is an alluring market for foreign companies to promote and sell their products and services w. With a young population (the median age is 29 years, which is low by regional standards) and a large and growing middle class, many foreign businesses have established Indonesian subsidiaries to tap into the large market.

However, in many cases – especially for small and medium-sized enterprises (SMEs) or other investors lacking the resources of multinational corporations – it is prudent to ease into the market slowly with a less expensive and lighter footprint to explore opportunities and gain market insights before committing to larger investments. For companies looking to conduct market research, identify potential partners, provide post-sales service or other support services, or even oversee the execution of commercial agreements with local partners, a Representative Office (RO) offers a low risk and low cost local presence. An RO can be an ideal structuring option to take advantage of Indonesia’s vast potential without committing substantial investment capital for patient investors initially content to conduct more limited activities and without a need to generate revenue locally.

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Indonesia Booming As Foreign Investors Seek China Alternatives 

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By: Dezan Shira & Associates

The Indonesian economy is becoming the darling of Asia as economic growth hits 5.0 percent and the stock markets booms as foreign investors pour money into the country. The 2016 GDP growth rate, released by the Indonesian Central Statistics Agency last week, exceeds growth figures of 4.8 percent seen in 2015. Of this growth, part came from a healthy 5 percent increase in domestic consumption, while Indonesian imports and exports also increased, as did investment.

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Intellectual Property Rights and Trademarks in Indonesia

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By: Dezan Shira & Associates
Editor: Samuel Glickstein

Foreign firms in Indonesia can protect their investments by familiarizing themselves with the country’s intellectual property rights (IPR) landscape. Indonesia possesses a strong legal IPR framework that generally meets international standards.  The country is a member of the World Trade Organization (WTO) and has acceded to the Agreement on Trade-related Aspects of Intellectual Property (TRIPs Agreement). Furthermore, Indonesia has ratified most major international IP agreements, including the Paris Convention and the Berne Convention. In 2014 the Indonesian government amended the 2002 Copyright Law to improve the efficiency and effectiveness of the country’s IPR system and protect copyright owners. The changes include extending copyright protections for most types of works from 50 years to 70 years after the death of the author, outlawing the illegal upload and download of copyrighted material for commercial purposes, creating harsher penalties and criminal sanctions for copyright violations, and establishing landlord liability for “deliberately and knowingly” permitting the sale or duplication of copyright infringing products.

However, it is difficult to safeguard and enforce IPR in Indonesia. The Office of the United States Trade Representative has placed Indonesia on its Special 301 Priority Watch List, a list of trading partners that experience IPR protection and enforcement issues. Counterfeiting as well as physical and online piracy are common in Indonesia. According to the International Intellectual Property Alliance, 86 percent of business software in the archipelago is unlicensed and retail piracy rates are likely even higher. Investigators from the Directorate General of Intellectual Property (DGIP) do not have authority to arrest people and must cooperate with the police for enforcement action. IP owners in Indonesia must file formal complaints with the police before authorities can take action. Carrying out raids on businesses that violate IPR in Indonesia is an expensive and time-consuming process because the police must interview witnesses.

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Employing Local Workers in Indonesia    

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By: Dezan Shira & Associates
Editor: Samuel Glickstein

In order for a foreign firm to thrive in Indonesia, it must adapt to the country’s labor laws and human resource procedures. Although there is some space for flexibility in human resource management in Indonesia, the country’s labor laws and regulations have established firm protections for workers. Employers who violate these obligations will likely face significant legal repercussions. Therefore, it is paramount that employers learn about Indonesian manpower laws and the expectations that they may encounter when they interact with local workers.

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