Update: New Indonesian Manpower Ministry Regulation On Requirements For Employing Expatriates

Introduction

1. 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.
2. 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.
3. 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.
4. Please click here for a summary of the key provisions in Regulation 16 and our preliminary observations.