24 August, 2015
Introduction
On 29 June 2015, Indonesia’s Ministry of Manpower (“MOM”) issued an important new ministerial regulation (No. 16 of 2015) on the procedures to employ foreign workers in Indonesia (“Regulation 16”) which replaces the previously applicable MOM regulation No.12 of 2013 (“Regulation 12”). According to the introductory recitals in Regulation 16, Regulation 12 no longer reflects current developments in the employment sector and as such, needs to be improved upon. Regulation 16 seeks to clarify existing general procedures and requirements for employing expatriates in Indonesia and includes new requirements as well.
The main changes relate to the required expatriate to local employees ratio (Regulation 16 clarifies and tightens the previous general expatriate to Indonesian employee ratio requirements, which were unclear and often loosely interpreted), the requirement for an employer to apply for and obtain a permit (in practice, often loosely referred to as a ‘work permit’) to employ foreigners for non-resident foreign directors and commissioners, and the temporary plan for hiring expatriates and temporary permits.
An immediate key issue under the new regulation is the lack of transition time frame to comply with Regulation 16 which is stated to be effective from the date of its enactment (i.e. 29 June 2015). There remains a high degree of uncertainty on how many aspects of Regulation 16 will be applied in practice, and how strict the MOM will be in enforcing this new regulation. There is currently a lack of coordination among relevant government authorities when it comes to employing expatriates in Indonesia and the linkages between Regulation 16 and other existing regulations. For example, it remains unclear as to how Regulation 16 will inter-relate with the requirements and options under various other regulations from the Directorate General of Immigration (“DGI”) and the Indonesian Tax Office. Therefore, employers wishing to comply with Regulation 16 will also need to carefully consider the interface with other applicable regulations as those may have a direct impact on the relevant expatriates.
Employing expatriates in Indonesia
By way of background, the employment of expatriates by employers in Indonesia is regulated by MOM, while the issuance of visas and residency permits for expatriates is regulated by the DGI, a directorate under the Ministry of Law and Human Rights (“MOLHR”). Various documents need to be processed by these two government entities before a foreigner can work and live in Indonesia. In broad terms, the process for hiring expatriates in Indonesia will involve at least the following:
(a) the relevant company/employer must submit to MOM its Expatriate Utilisation Plan (Rencana Penggunaan Tenaga Kerja Asing – “RPTKA”) which consists of the organisational structure of the employer and the position(s) to be filled by the expatriate(s);
(b) once the RPTKA has been approved by MOM, the company/employer must apply for a permit to employ foreigners (Izin Memperkerjakan Tenaga Kerja Asing – “IMTA”) from MOM for each expatriate it wishes to employ – note that this permit is held by the company/employer and should not be confused with the visa and/or residency permit that must be held by the relevant expatriate (such as the KITAS referred to in paragraph (c) below); and
(c) once the employer has obtained an IMTA and after the relevant expatriate arrives in Indonesia, he/she must apply for a limited stay permit card (Kartu Izin Tinggal Terbatas – “KITAS”) from the DGI as the basis for residing in Indonesia.
We set out below some of the key new provisions and requirements in Regulation 16 that employers will now have to observe.
Expatriate / Local Employees Ratio
Under Regulation 12, the required expatriate to local employees ratio was not clearly regulated and under previous policy it was often the case that a 1:1 or 1:3 ratio was deemed acceptable by MOM. Under the new Regulation 16, employers in Indonesia will now, as a general rule, need to have at least 10 Indonesian employees when they hire one expatriate.
Certain positions are exempted from the ratio requirement such as members of the Board of Directors and Board Commissioners, positions required to fill an emergency role or temporary role and certain positions in the entertainment industry (jasa impresariat) Note that Regulation 16 is silent on whether the 10 Indonesian employees hired should have an equivalent role to the particular expatriate.
However, a recent informal discussion with the MOM suggests that it is not necessary for the Indonesian employees to have an equivalent role or qualification to the expatriate. Note, however, that for some technical and professional sectors the requirement to have an Indonesian counterpart that has an equivalent role to the expatriate may be regulated under separate specific regulations applicable to certain sectors. For example, the regulation of the Ministry of Energy and Mineral Resources Number 31 of 2013 requires oil and gas companies who hire an expatriate to also have an Indonesian employee that has an equivalent role to the expatriate. It is not yet clear how the general and specific ratio requirements will inter-relate in practice.
Non-resident Foreign Directors and Commissioners
9. As an important new development, Regulation 16 clarifies the previously unclear position, such that employers must now also apply for an IMTA for the appointment of not only resident, but also non-resident foreign directors and commissioners Article 66 of Regulation 16 further states that the requirement to have a proper IMTA for each foreign director and commissioner, including each non-resident director and commissioner, must be complied with as soon as the company's initial Deed of Establishment of the relevant employer company is approved by the authorised institution and/or upon each subsequent new appointment by amendment of the Articles of Association of the company.
It is currently unclear as to how this requirement will work in practice and as to the timing of its application to existing non-resident directors and commissioners on Indonesian entities, particularly as Regulation 16 also requires new company employers to submit its approved Deed of Establishment (which includes the Articles of Association) when applying for an IMTA.
Furthermore, it will also be interesting to see whether the DGI will issue a new regulation in line with Regulation 16 and indicate the type of residency visa and/or permit that would be applicable to a non-resident director or commissioner who is the subject of an IMTA (if any) noting that the DGI regulation which enables foreign visitors to enter Indonesia with a multiple entry ‘business’ visa has not been revoked. Based on recent informal discussions, MOM is taking the view that in theory a non-resident foreign director or commissioner is not entitled to attend board or other meetings in Indonesia before the company/employer obtains the newly required appropriate IMTA.
We query how MOM will monitor compliance with this requirement since in practice, non-resident foreign directors and commissioners are currently able to do short visits to Indonesia based on an APEC card, if the foreign visitor is from an Asia Pacific country or a multiple entry ‘business visa’.
Temporary RPTKAs and IMTAs
Under Regulation 12, temporary RPTKAs and IMTAs were only possible for ad hoc or one-off roles and roles that relate to the installation of machinery, electrical devices, after-sales services or products used during business development phase. Regulation 16 has expanded the list of activities to include:
(a) roles for providing guidance and training in the implementation and innovation of industrial technology to increase the quality and design of an industrial product and cooperation related activities for offshore marketing;
(b) roles in the film industry which has received relevant regulatory approval;
(c) providingspeeches;
(d) attending meetings with the head or branch offices in Indonesia;
(e) carrying out audits, quality controls or inspections on an Indonesian branch; and
(f) a role of an expatriate during a probation period.
Under Regulation 12, the above-mentioned activities did not require a temporary RPTKA and IMTA and in practice, foreigners were able to conduct the above activities under short stay visas and/or residency permit. It is unclear whether Regulation 16 implies that expatriates undertaking the above activities would now be required to hold a valid residency visa and/or permit.
Emergency RPTKAs and IMTAs
Regulation 16 does not provide any real clarity on the meaning of emergency rol that an emergency role must be one which requires immediate attention and which, if not dealt with directly, may cause ‘fatal’ losses to the company and/or the public. The regulation also suggests that an emergency role includes work in a situation of natural disaster, force majeure, engine / equipment failure or breakdown.
Regulation 16 further indicates that emergency RPTKAs and IMTAs can be issued within a short time frame. It will be interesting to see how the MOM will implement this new system and whether the process of applying for an emergency RPTKAs and IMTAs can be as quick as applying for a multiple entry ‘business’ visa in order to facilitate emergency visits.
Criteria for Expatriates
Under previous Regulation 12, companies can in general only employ expatriates who meet the following criteria:
(a) has the education qualification that is appropriate for the position to be performed by the expatriate;
(b) holds a competence certificate for the proposed role or has at least 5 years' experience for the proposed position;
(c) provides a statement that he/she is willing to share their expertise with their counterpart Indonesian workers; and
(d) is able to communicate in the Indonesian language.
Interestingly, the language requirement is not included in the new Regulation 16 as the latter only refers to the requirements under paragraphs (a), (b) and (c) above and adds the following new additional requirements:
(e) expatriates who have been working for more than 6 months in Indonesia must hold an Indonesian tax registration number (Nomor Pokok Wajib Pajak or “NPWP”),
(f) expatriates who have been working for more than 6 months in Indonesia must join the Indonesian national social security scheme; and
(g) expatriates must hold an insurance policy with an insurance company with a legal status in Indonesia.
Note that the requirements under paragraphs (a), (b) and (c) do not apply to expatriates holding a position as a member of the Board of Directors or the Board of Commissioners, or other management or supervisory roles.
No transitional period
18. Regulation 16 does not provide for any transitional period and is therefore in force immediately from the stated date of enactment, namely 29 June 2015. Companies applying for a new permit to employ foreigners (or IMTA) will therefore now be expected to comply with Regulation 16, although it is unclear whether appropriate processes have been put in place by MOM to enable compliance with all of the new requirements in practice, particularly since there was no prior socialisation of the changes by the MOM before Regulation 16 was issued. Companies with existing permits to employ foreigners (or IMTA) will also need to assess whether they need to comply with Regulation 16, particularly in light of the new expatriate to local employees ratio.
Sanctions for non-compliance
19. As stated above, Regulation 16 applies to employers wishing to employ expatriates in Indonesia and sets out, among others, the requirements for submitting an RPTKA and applying for an IMTA. Failure to properly comply with the new requirements may result in cancellation of an IMTA. In addition to the sanction set out in the Regulation 16, the Manpower Law No.13 of 2003 itself provides that an employer who employs an expatriate must hold an IMTA and non-compliance may result in maximum imprisonment of 4 years and/or a maximum fine of IDR 400,000,000. Those sanctions apply to companies (employers) and the management of such companies (which typically consists of the Board of Directors and/or HR director who is responsible for arranging IMTA applications), rather than the relevant foreign employees. Based on our experience, the severity of the sanctions imposed would depend on the level of violation (e.g. repeat violations or deliberate intention to employ expatriates without proper permits/IMTAs) and it is less likely for a severe criminal sanction to be imposed at the outset of an investigation, if ever in practice.
Preliminary Observations
There remains a high degree of uncertainty on how several aspects of the new requirements in Regulation 16 will be applied in practice, but based on our recent informal discussions with MOM officials, it appears that MOM intends to apply Regulation 16 in accordance with the new principles. Note that there is no direct reporting obligation on compliance with Regulation 16. Hence, MOM will need to be pro-active in monitoring compliance and will need to allocate significant resources to monitor compliance by all employers. Such matters can also be picked up and raised as issues in the course of routine inspections which MOM normally conduct at least annually on companies employing expatriates.
It is also unclear how MOM will monitor compliance by companies who do not have existing IMTAs as required by Regulation 16. This is particularly relevant for companies who have non-resident foreign directors and commissioners without an IMTA in accordance with past practice. Note also that the names of existing directors and commissioners (including non-resident directors and commissioners) are currently recorded with MOLHR as part of their record of company constituent documents but it is unlikely that MOM will seek to obtain MOLHR's records of directors and commissioners to monitor compliance. There is a risk, however, that the requirement to have an IMTA for non-resident directors and commissioners will become an issue when the relevant company’s shareholders wish to change the composition of its Board of Directors or Board of Commissioners. Such change must be notified to the MOLHR and the latter may test compliance with Regulation 16 then.
The practical consequences flowing from holding an IMTA will also need to be considered carefully,
those which may have a direct impact on the relevant expatriates. One of those would be whether the DGI will adopt a new regulation in line with Regulation 16 and indicate the type of residency visa and/or permit particularly that would be applicable to a non-resident director or commissioner who is the subject of an IMTA (if any) noting that foreigners can still in practice visit Indonesia under a short stay visa for the purpose of attending business meetings. Note also that Regulation 16 sets out the requirements that must be met by the proposed expatriates which include, among others, the requirement that the foreigner must hold an Indonesian tax registration
number (NPWP) if he or she is in Indonesia for more than 6 months each year. In theory, this requirement should not apply to non-resident directors or commissioners assuming that they do not spend that period of time in Indonesia but it remains to be seen how this requirement will be implemented in practice by the Tax Office.
We will continue to closely monitor developments in this area.
For further information, please contact:
Narendra Adiyasa, Hiswara Bunjamin & Tandjung
narendra.adiyasa@hbtlaw.com
