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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Distribution Arrangements and Import Licensing in Indonesia      

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By: Dezan Shira & Associates
Editor: Samuel Glickstein

In March 2016, the Indonesian Ministry of Trade (MOT) issued Regulation No. 22 of 2016 on General Provisions on the Distribution of Goods. This law explains how goods can be distributed directly and indirectly within Indonesia. It defines a number of terms in Indonesian law including, distributors, sub-distributors, agents, sub-agents, grocers, retailers, etc. Furthermore, this regulation states that importers and distributors must go through retailers to sell their goods to consumers.

However, prevailing analysis on Regulation No. 22 indicates that changes it puts forward are meant for domestic companies and not foreign investment.

Related Services from Dezan Shira & Associates RELATED: Corporate Establishment Services from Dezan Shira & Associates

Distribution Via Local Partnerships

Foreign investment (PMA) companies are currently subject to regulation under Ministry of Trade Regulation No. 11 of 2006, which prohibits PMA companies from directly selling their goods to retailers. According to this regulation, PMA companies have to appoint a local distributor/agent to sell goods to a retailer. Then the retailer can sell the original products to consumers. Therefore, PMA companies must add another layer to their distribution chains, which will likely increase the price of their products.

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Regulatory Update: Updated Income Tax Allowances in Indonesia Extend Incentives to New Business Lines

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By Winnindo Business Consult
Editor: Mourme Taruna Halim and Samuel Glickstein

In April of 2015, the Indonesian government released a revised regulation on income tax allowances titled Government Regulation (PP) No. 18 / 2015 on Income Tax Allowance for Investment in Certain Business Fields and/or Regions. The regulation updates and revises the previously applied Regulation No. 52 / 2011 on income tax allowances and has been in effect since May of 2015.

Related Services from Dezan Shira & Associates RELATED: Tax Advisory Services from Dezan Shira & Associates

Eligibility for incentives

Broadly speaking, the measures introduced set out to increase investment by providing a tax allowance for corporate taxpayers. To qualify, investors must have been shown to establish new investments or expand their businesses in Indonesia. Allowances under the regulation will now extend to the following sectors:

  • Food and beverages
  • Petrochemicals (such as crude palm oil and crude palm oil kernel processing)
  • Textiles
  • Coal mining and natural oil processing
  • General Mining Operations
  • Renewal energy power plants
  • Pharmaceutical (modern and traditional) industry
  • Agriculture
  • Marine and fishing industry
  • Livestock
  • Forestry
  • Tourism

Regulation No.18/2015 also includes certain maritime sectors , such as the shipyard and seaport industry, which consists of shipping manufacturing, shipping equipment, shipping supplies and spare parts, and cargo loading and handling services.

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An Introduction to Indonesia’s Renewable Energy Industry   

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By Samuel Glickstein

Indonesia possesses enormous potential for renewable energy. According to a 2015 report by the International Energy Agency (IEA), the nation has 75 gigawatts (GW) of hydropower potential and 28 GW, or 40 percent, of global geothermal reserves. The report also states that the archipelago holds solar energy potential of approximately 1,200 GW. Although Indonesia’s wind power potential is relatively small at less than 1,000 MW due to low wind velocity, this resource has also recently caught the attention of foreign companies.

Investors may consider Indonesia’s growing demand for energy as a significant reason to invest in the nation’s renewable energy sector. The country’s energy consumption has increased rapidly since the early 2000s, aided by a growing economy, rising middle class, and upticks in urbanization. In addition, the country’s electrification ratio (the percentage of households that are connected to the power grid) is approximately 82 percent, one of the lowest ratios in the Asia-Pacific region. This means that millions of Indonesians do not have access to electricity. Energy use is set to rise in coming years as the Indonesian government works to reduce poverty and develop remote areas that are not connected to the national power grid.

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Financial Services Update: Registration and Supervision of Actuaries, Public Accountants, and Appraisers in Indonesia

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By Agus Sugih Hart, Winnindo Business Consult
Editor: Samuel Glickstein

financial-services-indonesiaOn December 21, 2015, the Indonesia Financial Services Authority (Otoritas Jasa Keuangan/OJK) published Regulation No. 38/POJK.05/2015 titled “Registration and Supervision of Actuaries, Certified Public Accountants, and Appraisers to Provide Services for the Non-Banking Financial Industry in Indonesia”. According to this regulation, actuaries, public accountants, and appraisers must register with OJK as non-banking financial industry (IKNB) service providers before they can conduct services for non-banking financial institutions (LJKNB). The term LJKNB includes insurance companies, pension funds, leasing companies, and other non-banking financial institutions (including Sharia law-based financial institutions).

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An Introduction to Foreign Investment in Indonesia – New Issue of Indonesia Briefing Magazine

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indonesia-fdi-250x350The inaugural issue of Indonesia Briefing magazine, titled “An Introduction to Foreign Investment in Indonesia“, is out now and available to subscribers as a complimentary download in the Asia Briefing Publication Store.

Contents

  • Navigating Indonesia’s Foreign Investment Environment
  • Indonesia’s Updated Negative List: New Opportunities for Foreign Investment
  • Establishing a Representative Office in Indonesia
  • Understanding Tax Treatment of Representative Offices in Indonesia

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Indonesia Financial Accounting Standard (IFAS) 70 in Support of Tax Amnesty Program

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By: Mourme Taruna Halim

As a supporting action of the Institute of Indonesian Chartered Accountants (Ikatan Akuntan Indonesia / IAI) for Indonesia’s Tax Amnesty program, the Financial Accounting Standard Board (Dewan Standar Akuntansi Keuangan / DSAK) has released Indonesia Financial Accounting No. 70 concerning Accounting for Tax Amnesty Assets & Liabilities. This standard provides guidance for entity preparing financial reports in the wake of the recently applied Tax Amnesty Law. This standard also provides guidance for entities hoping to avoid financial accounting misstatements in the future under the amnesty program.

Indonesia’s Tax Amnesty: A Quick Background

Indonesia has had a Tax Amnesty program in place since July of 2016, which will run until March 2017. The general purpose of this program is to increase tax revenue of the current year, improve tax compliance in the future, and increase overseas fund repatriation. To participate in the Amnesty, Indonesia taxpayers are required to declare any additional assets and liabilities (domestic and overseas) which has not been reported in the last annual tax filing (2015 being the cut-off year). As a penalty, those declaring assets under the amnesty will be required to pay a percentage of the net assets declared (depending on the location and time during which these assets are declared) which can range from 2 to 10 percent. Defined by the authorities as redemption money, penalties have been touted as a means of increasing government revenue.

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Indonesian Stimulus Gets Serious with Major Negative List Revisions

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By: Dezan Shira & Associates
Editor:  Cameron Turnbull

On February 17th, 2016, Indonesian president, Joko Widodo, announced plans to further liberalize his nation’s economic policy’s 10th economic stimulus package aimed at stimulating foreign direct investment.

Indonesia has long been on the radar of international investors as a rapidly developing region with serious potential. More stable and diversified than many believe, domestic consumption represents 56 percent of total GDP.  This is higher than fellow ASEAN member countries Malaysia (52.4 percent) and Thailand (52.2 percent). It also dwarfs the domestic consumption of Asian economic giant China, which comes in at just 36.5 percent.

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Remitting Profits Overseas from Indonesia

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By: Dezan Shira & Associates
Editor: Alexander Chipman Koty

In comparison to Singapore, Malaysia, and Thailand, Indonesia is more prohibitive to foreign businesses. Not only does Indonesia generally demand higher taxation, but it also has more bureaucratic red tape. Still, many investors are intrigued by the country’s enormous potential. Like Thailand, loss prevention requirements, timing requirements, and pre-remittance compliance are not required. In addition, Over 60 countries hold DTAs with Indonesia, reducing the relatively high withholding taxes the country levies. In order for investors to qualify for DTA benefits, recipients of remittances must confirm their tax residency by providing the Indonesian Tax Office with a certificate of domicile certified by their home country’s tax authority. Foreign entities operating through Permanent Establishments (PEs) generally have the same tax commitments as resident companies. PEs have a relatively broad definition in Indonesia and are subject to particular government regulations and tax rates. As such, investors should be certain whether or not their businesses accidentally qualify as PEs.

Dividends: Remittance of dividends is liable to a 20 percent withholding tax. This amount can be reduced through a DTA. Even with a DTA, however, the rate is generally still between 10 and 15 percent. If the nonresident recipient has a PE in Indonesia, domestic rates of 10 to 15 percent apply.

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Understanding Tax Treatment of Representative Offices in Indonesia

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By: Winnindo Business Consult
Editor: Mourme Taruna Halim 

In early April 2016, Indonesia Tax Authority indicated that Google Indonesia, Yahoo Indonesia, Facebook Singapore Pte Ltd and Twitter Asia Pacific Pte Ltd were avoiding tax in Indonesia.

Among the four companies, Facebook and Twitter are established in Indonesia in form of Representative Offices (RO). This article will not analyze the pros and cons of the representative office compared to other investment vehicles, but instead will focus on application of tax regulation to representative offices; and highlight regulations that caused tax authorities to target Facebook and Twitter.

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