Indonesia Update: Further Developments On Indonesian Manpower Ministry Regulation On Requirements For Employing Expatriates

We refer to our previous bulletin on 24 August 2015 regarding Indonesia’s Ministry of Manpower Regulation 16 of 2015 on the procedures to employ foreign workers in Indonesia (Regulation 16) – please click here for our 24 August 2015 bulletin.

Following numerous questions that arose as a result of the new requirements under Regulation 16, on Friday 23 October 2015, the Ministry of Manpower issued a new ministerial regulation (No. 35 of 2015) which amends and clarifies certain requirements under Regulation 16 (Regulation 35).

Regulation 35 seems to have been issued as part of President Jokowi’s “Economic Stimulus Package IV” which seeks to de-bureaucratize certain parts of government’s role and reinvigorate growth in Indonesia’s economy. Regulation 35 therefore relaxes some of the key requirements under Regulation 16 as follows:

1. The requirement to have 10 Indonesian employees whenever an employer hires one expatriate has been removed by Regulation 35. With this removal, it is currently not clear, what expatriate to Indonesian employee ratio will now be applied. From our recent discussion with the Ministry of Manpower, we understand that this removal may be interpreted to mean that it is possible for an employer to only hire one Indonesian employee whenever the employer hires one expatriate. It is also worth highlighting, however, that Regulation 35 indicates that the relevant Directorate General of the Ministry of Manpower will issue an implementing regulation in respect of the requirement to have an Indonesian counterpart for the purpose of technology transfer and we anticipate further developments in this area in the near future. 
2. The requirement that was previously imposed by Regulation 16 on employers to apply for an IMTA (i.e. employer’s permit to employ foreign workers) for the appointment of non-resident foreign directors and commissioners in Indonesian companies has now been removed by Regulation 35. Regulation 35 amends Article 37(2) of Regulation 16, which previously imposed an obligation on employers to apply for an IMTA for the appointment of non-resident foreign directors and commissioners. Regulation 35 states instead that the requirement to obtain an IMTA for non-resident directors and commissioners is not applicable to directors and commissioners who are domiciled overseas. 
3. With the requirement to apply for an IMTA for the appointment of non-resident foreign directors and commissioners in Indonesian companies being revoked by Regulation 35, non-resident foreign directors and commissioners will no longer be subject to the requirement to apply for taxpayer registration number (NPWP) pursuant to Regulation 16. This was an issue which previously caused some uncertainty, as having an NPWP may give rise to tax implications. 
4. Regulation 35 further states that temporary IMTAs are issued to employers who intend to invite foreign visitors to carry out the following activities: 
   

   4.1  Commercial film production which has received the relevant regulatory approval.

   4.2  Carrying out audits, quality control or inspection on an Indonesian branch for a period of more than one month.

   4.3  A role that relates to machine or electrical installation, after sales activities or product pre-testing.

5. Unlike Regulation 16, Regulation 35 no longer provides that employers who intend to invite foreign visitors to “attend meetings to be held at the head or branch offices in Indonesia or carry out a one-off type of role” will require temporary IMTAs. Again, this amendment seems to remove the previous requirement under Regulation 16 which imposed an unrealistic obligation on employers to obtain a temporary IMTA whenever they invite foreign employees to attend meetings in Indonesia.
6. Similar to Regulation 16, Regulation 35 does not provide for any transitional period and is therefore in force immediately from the date of enactment, namely 23 October 2015. Regulation 35, however, states that any companies who have made the relevant payment to utilise an expatriate as part of their IMTA application process (ie. DKP-TKA payment) pursuant to the Regulation 16 cannot seek refund for that payment. It is not clear whether this will also mean that any IMTA application submitted pursuant to Regulation 16 will continue to be processed by the Ministry of Manpower but, as at the date of this bulletin, there remains a possibility that such application will continue to be processed; and hence the applicant will continue to be required to comply with the other requirements under Regulation 16 in relation to that application.
7. Note also that Regulation 35 clarifies the position concerning the appointment of a foreign commissioner by domestic investment companies (PMDN companies) and expressly states that PMDN companies cannot hire foreign commissioners. Regulation 35, however, does not mention whether this prohibition will also extend to local ordinary (non-investment or PT. Biasa) companies. From our recent discussion with the Ministry of Manpower, we understand that this prohibition is meant to only apply only to PMDN companies. It remains to be seen, however, whether the Ministry of Manpower will in practice only impose this restriction on PMDN companies, rather than extending its applicability to non-investment (or PT. Biasa) local companies as well.

In broad terms, the amendments introduced in Regulation 35 in relation to abolishing the requirements to have an IMTA for non-resident directors and commissioners, and the removal of the 10 to 1 local to expatriate ratio, are to be welcomed. Such incremental improvement is a positive signal that the Indonesian government is focused on efforts to gradually reduce the red tape that foreign investors currently face in seeking to operate in Indonesia.