8 October, 2016
OJK Moves to Support Tax Amnesty by Relaxing Disclosure and Tender Offer Rules
In recognition of the reality that a taxpayer's disclosures made in the context of the Tax Amnesty could reveal that they are in fact the controlling shareholder of a public company, thus automatically triggering the need for a mandatory tender offer under the provisions of Capital Markets & Financial Institutions Supervisory Board Rule IX.H.1, the Financial Services Authority ("OJK") has issued a Circular to exempt an amnesty participant from the need to conduct a tender offer in the case of a (de facto) acquisition that becomes apparent as a result of Tax Amnesty disclosures.
Further, a public company that becomes aware that it has a new controlling shareholder as a result of disclosures made under the Tax Amnesty is exempted from the requirement to disclose material information and facts under OJK Regulation No. 31/POJK.04/2015.
New Patents Law Enacted by DPR
On 27 July 2016, the House of Representative ("DPR") passed the Patents Bill into law. The new legislation ("2016 Patents Law") is aimed at stimulating innovation and growth in the number of patents granted to Indonesian inventors from both the public and private sectors, while placing an express obligation on patent holders to use their patented processes or manufacture their patented products in Indonesia. It further streamlines the patenting process and introduces the possibility of engaging independent experts as patent examiners in anticipation of rapid developments in the technological, communications, information and health sectors. The 2016 Patents Law has recently been gazetted as Law No. 13 of 2016.
Tax Amnesty: A Game-Changer?
After months of prolonged debate and considerable controversy, the House of Representatives finally approved the Government-initiated Tax Amnesty Bill during a plenary session on 28 June 2016. The Tax Amnesty (the "Amnesty") was proposed by the Government as a stop-gap measure to shore up declining tax revenues amid the ongoing economic downturn. The Government hopes that up to Rp 165 trillion will be repatriated as a result of the Amnesty, although the figures vary wildly depending on which government department is doing the talking. This has led many economists and commentators to question whether the government is actually in possession of accurate data as to the true amount of Indonesian funds parked overseas that would come within the scope of the Amnesty. The Tax Amnesty Law has recently been gazetted as Law No. 11 of 2016.
Geothermal Energy Producers Required to Pay Bonuses to Local Governments
Government Regulation No. 28 of 2016, which came into force on 14 July 2016, requires the holders of: (i) geothermal licenses; (ii) geothermal resources exploitation rights; (iii) joint-operating contracts for the exploitation of geothermal resources; and / or (iv) geothermal resources exploitation licenses to pay geothermal energy production bonuses to local governments in geothermal production zones. The amounts of such bonuses are set at: (i) 1% of gross income generated from sales of geothermal steam; or (ii) 0.5% of gross income generated from sales of electricity.
Ministry of Energy/Mineral Resources Introduces 3-Hour Licensing Service for Infrastructure Development
Minister of Energy and Mineral Resources Regulation No. 15 of 2016, which came into force on 30 June 2016, established a three-hour licensing service for infrastructure development in the energy/mineral resources sector. This applies to the following lines of business: (i) geothermal energy exploitation; (ii) power plants; (iii) electricity transmission; and (iv) temporary licenses for downstream oil-and-gas businesses. This service only applies to the issuance of licenses that come within the purview of the minister via the Investment Coordinating Board (BKPM), i.e. licenses for foreign direct investment ("FDI") in the energy and mineral resources sectors.
Business Size Classifications Redefined in Industrial Sector
Ministry of Industry Regulation No. 64/M-IND/PER/7/2016, which came into force on 27 July 2016, redefines business size classifications in the industry sector as follows:
- Small industrial business – maximum of 19 employees and investment value of less than IDR 1 billion, excluding land and buildings;
- Medium industrial business – maximum of 19 employees and minimum investment value of IDR 1 billion, or maximum of 20 employees and maximum investment value of IDR 15 billion; and
- Large industrial business – minimum of 20 employees and investment value of greater than IDR 15 billion.
OJK Issues Circular to Clarify Capital Adequacy Reserves
The Financial Services Authority ("OJK") has issued Circular No. 26/SEOJK.03/2016 (on Mandatory Minimum Capital Reserves Based on Risk Profile and Compliance of Capital Equivalency Maintained Assets).
The Circular provides as follows:
- Commercial banks must comply with the mandatory minimum-capital allocation requirements based on their risk profiles, namely: (i) 8% of a bank’s risk-weighted assets ("RWA") for banks which have a level-1 risk profile; (ii) 9% of RWA for banks which have a level-2 risk profile; (iii) 10 – 11% of RWA for banks which have a level-3 risk profile; and (iv) 11 – 14% of RWA for banks which have a Level-4 risk profile.
- Banks must design and apply an internal capital adequacy assessment process ("ICAAP") comprising; (i) active monitoring of the bank's risk level, capital sufficiency and risk management by directors and commissioners (including policy preparation and strategies for the management of capital, ensuring the implementation of the bank's strategic plan, etc); (ii) assessment of captial-adequacy levels; and (iii) internal controls.
- Banks are required to submit reports on their compliance with the minimum capital-allocation requirement to the OJK every semester, along with the results of self-assessments of soundness levels.
OJK Clarifies Rules for Investment of Tax Amnesty Funds in Capital Markets
OJK Regulation No. 26/POJK.04/2016, which came into force on 25 July 2016, clarifies a number of aspects related to the investment in the capital markets of funds repatriated under the Tax Amnesty. The provisions of the Regulation may be summarized as follows:
It sets out further details on the investment of repatriated funds in the capital markets under the tax-amnesty program, covering: (i) procedures for opening a securities account; (ii) management of investment funds by an investment manager; (iii) registration statements for public offerings of asset-backed securities; and (iv) sanctions for non-compliance (i.e. written warnings, fines, restrictions on business operations, suspension of business operations, cancellation of OJK approval or cancellation of registration).
It mandates that taxpayers should present a Tax Amnesty Certificiate (Surat Keputusan Pengampunan Pajak) from the Minister of Finance to a financial-services provider when opening a securities account and when investing in any of the following financial instruments: (i) mutual fund; (ii) management of securities portfolio for individual customer; (iii) asset-backed securities in the form of collective-investment contracts; (iv) asset-backed securities in the form of participation letters; (v) real-estate investment funds in the form of collective-investment contracts; (vi) securities which are traded both internally and externally on the stock exchange.
New Rules and Procedures Issued for Investment of Repatriated Funds in Financial Market Instruments under Tax Amnesty
Ministry of Finance Regulation No. 123/PMK.08/2016 (amending Minister of Finance Regulation No. 119/PMK.08/2016) sets out the requirements and procedures for the repatriation and investment of taxpayer funds in financial market instruments in the context of the tax amnesty. The Regulation, which entered into force on 8 August 2016, contains the following key provisions:
Funds repatriated from foreign countries to Indonesia as part of the tax-amnesty program must be deposited in special accounts with one of the gateway banks designated by the Minister of Finance and must also be supported by evidence of participation in the amnesty from the relevant authorities.
Introduces a new type of investment instrument for repatriated funds, namely, futures contracts traded on the Jakarta Futures Exchange.
The investment of repatriated funds in bonds issued by state-owned companies and investment products issued by gateway banks must be made via special accounts that are managed by the Indonesian Central Securities Depository (Kustodian Sentral Efek Indonesia/KSEI).
New Rules and Procedures for Investment of Repatriated Funds in Non-Financial Market Instruments under Tax Amnesty
The Ministry of Finance has issued Regulation No. 122/PMK.08/2016 to provide for the procedures for the repatriation and investment of taxpayer funds in non-financial market instruments as part of the tax-amnesty program. The principal features of the new regulation, which entered into force on 8 August 2016, may be summarized as follows:
Tax-amnesty participants may invest repatriated funds in, among other things, (i) infrastructure projects developed under public-private partnership schemes; (ii) equity investments in areas of the real sector that are prioritized by the government; and (iii) property (land and / or buildings), with the exception of government-subsidized property developments.
Such investments must be made through a gateway bank.
Authorized Capital Requirement for Companies Relaxed
Under Government Regulation No. 29 of 2016, which came into effect on 14 July 2016, the amount of authorized capital required to establish a limited liability company is to be determined based solely on the agreement between the promoters of the company, with the exception of companies that are required to satisfy certain minimum authorized capital levels under the prevailing laws and regulations, such as venture-capital companies and banks.
For further information, please contact:
Eng Beng SC, Partner, Rajah & Tann
eng.beng.lee@rajahtann.com
