Based on our latest discussions with officials from the Ministry of Employment ("MOE") and actions recently taken by the MOE, it appears that the MOE has started to implement Minister of Employment Regulation No. 16 of 2015 on Guidelines for the Utilisation of Foreign Manpower ("Regulation 16"). Please click here for our previous client alerts on Regulation 16.

Since Regulation 16 was issued:

1. The MOE has been in discussions with a number of other government institutions (e.g., the Ministry of Law and Human Rights, Immigration, BKPM and the Tax Office), industry groups and business associations in relation to the implementation of Regulation 16.
2. MOE officials have indicated that the MOE will issue written guidelines on the implementation of Regulation 16. To date no written guidelines have been issued and we are not sure when they will be issued and what they will say (if issued).

Despite other government institutions asking the MOE to reconsider the implementation of certain aspects of Regulation 16, as far we are aware, such institutions have either not pursued the matter further or the MOE’s views have prevailed.

Set out below is an update on the implementation of the following items regulated under Regulation 16:

• temporary work permits
• work permits for non-resident directors and commissioners
• 10:1 ratio

Temporary Work Permits

Under Regulation 16, a foreigner intending to conduct the following activities in Indonesia needs to obtain a temporary work permit ("TWP") (italics emphasis added):

1. providing guidance, counselling, and training in the implementation and innovation of industrial technology to improve the quality and design of industrial products as well as overseas marketing cooperation for Indonesia;
2. making movies that are commercial in nature and that have received authorisation from the authorised agency;
3. giving lectures;
4. attending a meeting held with the headquarters or the representatives in Indonesia;
5. conducting audits, production quality control, or inspection at the company's branch in Indonesia;
6. undergoing testing of capability to work;
7. work that is completed in one go;
8. work that is related to machinery installation, electrical, after sales service, or products that are in business exploration stage.

Under Regulation 16 a TWP can be granted for a maximum of 1 month, except for the activities listed in points b, g and h, which can be granted for a maximum of 6 months.

In light of Regulation 16, some of the activities that foreigners were previously allowed to enter Indonesia for using a "visit visa" for business purposes (commonly referred to as a "business visa") now require a TWP, e.g., items a, c, d, e and f above (i.e., the items above in italics).

In relation to the activity mentioned in point (d) above (i.e. attending a meeting held with the headquarters or the representatives in Indonesia), the MOE has (verbally) confirmed that if foreigners are coming to Indonesia to meet with representatives of their local office, they need a TWP. However, if foreigners are coming in to meet with others (e.g., potential customers), they do not need a TWP.

Under Regulation 16 an Indonesian counterpart does not need to be appointed for the holder of a TWP, and the 10:1 ratio does not apply to the holder of a TWP.

In relation to a TWP, we understand from discussions with the MOE that:

• the MOE is now ready to process applications for TWP (previously they were not);
• the holder of a TWP is not considered as an employee of the sponsoring entity, a salary figure does not need to be inserted in the application for a TWP, and the holder of a TWP does not need to be paid a salary by the sponsoring entity; and
• the holder of a TWP should enter Indonesia using a visit visa sponsored by the entity that is sponsoring the TWP.

As the MOE is now ready to process applications for TWP, if foreigners are entering Indonesia to conduct any of the activities listed above as requiring a TWP, they should obtain a TWP.

The requirement to obtain TWPs could result in applications being continually made for foreigners who make frequent trips to Indonesia.

It is not yet clear how the MOE will enforce the requirement to obtain a TWP, e.g., will Immigration officials be questioning foreigners at airports, or will MOE officials be conducting inspections of offices? We understand that enforcement is still being discussed. If enforced, then visitors who do not obtain a TWP will need to be careful how and where meetings are held.

Non-resident Director and Commissioner Work Permits

Regulation 16 provides that all foreigners who are directors and commissioners of an Indonesian company must obtain a work permit. This applies whether the foreign directors and commissioners are residing in Indonesia or not.

Previously the MOE had indicated that it was still deliberating the implementation of this requirement and was going to issue a guideline that would address the matter (as mentioned above, to date no implementing guideline on Regulation 16 has been issued).

We understand from discussions with the MOE that:

• the MOE is now ready to receive applications for work permits for non-resident directors and commissioners;
• the address of the Indonesian company can be inserted in the work permit application documents as the residential address for the non-resident director or commissioner; and
• a salary figure does not need to be included in the work permit
  application documents for a non-resident director or commissioner.

Under Regulation 16 an Indonesian counterpart does not need to be appointed for a director or a commissioner, and the 10:1 Indonesian/foreigner ratio does not apply to directors and commissioners.

We have just experienced the MOE refusing to approve the renewal of an existing work permit for a foreigner until the company can show that all foreign directors and commissioners of the company have obtained work permits.

In light of the above, companies should now consider applying for work permits for non-resident directors and commissioners (or consider how the boards could be structured). However, tax advice should be sought. Under current tax regulation, a work permit that is valid for more than 183 days is considered to be evidence of an intention to reside in Indonesia, resulting in a requirement to be tax registered for tax. A person who is tax registered needs to file returns, and if tax resident is subject to worldwide tax. So unless the Tax Office comes out with a ruling, non-resident directors and commissioners will need to show that they are not tax resident for any financial year.

In relation to visa requirements for non-resident directors and commissioners, the MOE has indicated that non-resident directors and commissioners should use a single entry or multiple entry visit visa sponsored by the Indonesian company to enter Indonesia, and should not use a visa on arrival or visa free facility (if from an ASEAN member country).

10:1 Ratio

Regulation 16 requires an employer that employs foreigners to employ at least 10 Indonesians for each foreigner employed (i.e., a 10:1 ratio requirement). The 10:1 ratio requirement applies to companies and representative offices. There are exceptions to this requirement, e.g., the 10:1 ratio does not apply to foreign directors and commissioners.

No mention is made in Regulation 16 of representative offices or chief representatives being exempt from the 10:1 ratio requirement. Late last week a senior official of the MOE verbally confirmed that the 10:1 ratio applies to representative offices, including the position of chief representative.

Sanctions

Regulation 16 does not include any sanctions for non-compliance with the requirements of Regulation 16 by an Indonesian company (or a representative office) or a foreigner.

During our discussions with officials of the MOE and Immigration, they indicated that sanctions will be imposed for non-compliance. However, they have not yet made it clear what sanctions will be imposed.

There are existing sanctions under:

1. the Labour Law for employers who do not obtain the required permits for "foreign workers" employed by the employer imprisonment for a minimum of 1 year and a maximum of 4 years and/or a fine of a minimum of 100,000,000 IDR and a maximum of 400,000,000 IDR
2. the Immigration Law for foreigners who conduct activities not in accordance with the purpose of their permits - maximum imprisonment of 5 years or a maximum fine of 500,000,000 IDR

Even if sanctions are not imposed (or at least not for some time), it appears that the MOE may well stop employers obtaining new work permits and/or renewing existing work permits until:

• the 10:1 ratio has been complied with for relevant positions; and
• all non-resident directors or commissioners of the company have
  obtained a work permit (in the case of a company).

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 13th october 2015

Tweet

digg

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

Related Topics

Labour Pains in Indonesia

New Manpower Law: Foreign Domiciled Directors Must Have Indonesian Work Permit

Indonesia Introduces New Visitor Visa Exemption

Indonesian Language Law from the Perspective of the Courts

Indonesia’s Brain Drain Pains

Useful Documents

Minister of Manpower Regulation No. 16/2015 on the Procedure for the Utilisation of Foreign Manpower (Indonesian)