Protecting your Indonesia business during COVID Season

Protecting your business during the Coronavirus pandemic is absolutely critical. As Indonesia’s economy worsens and non-essential businesses are forced to shutter, regulators, disgruntled employees, and other actors with a bone to pick are becoming increasingly opportunistic. This translates to a higher likelihood of bad actors seeking to profit by exploiting knowledge gaps within Indonesia’s corporate legal framework during this crisis.

Running a tight ship by making sure your documentation and paperwork are in order will help you avoid trouble and gain more control from individuals who might seek to exploit vulnerabilities in your business. We have identified three risks as the most pressing while protecting your business during the current business climate, and we discuss how to mitigate them in the article below.

Risk 1 – “Owning” or using land as a part of your business without the correct documentation and agreements:

Protecting your business means you have to be wary of offers to purchase land under your name. Foreigners are not allowed to purchase land in Indonesia, and any claims to ownership are null in the eyes of the law. Foreign claims to land ownership and the use of said land for private gain may be considered a violation of the rights of the original Indonesian landowner, and are thus punishable under Indonesian criminal law.

Using land in Indonesia for your business carries the implicit responsibility of ensuring that documentation of ownership and agreements are in line with government regulations. While foreigners are individually restricted from owning land in Indonesia, it is possible to secure limited rights over land and gain the legal security that comes with this

Note: You can learn more about protecting your business on the various legal rights that foreigners can have over land in Indonesia in these articles that are on the Permitindo website:

• Can Foreigners Own Land in Indonesia?
• What to Know When Purchasing Land as a Foreigner

At a minimum we suggest that any business owning land or with rights to land in Indonesia ensure the validity of the following documents: 

• The Sale Purchase Deed (Akta Jual Beli, or AJB)
• Proof of payment for:
  • Land and building acquisition fees (BPHTB)
  • VAT
  • PPH (withholding tax)
  • Land and building taxes (PBB)
• A revised Land Certificate registered with the National Land Registry (BPN)

While not expatriates are not permitted full ownership rights to Indonesian land, foreigners domiciled in Indonesia have limited rights to land including the Right of Use (Hak Pakai) to the land of up to 2,000 m2. Remember that the validity of Hak Pakai rights is directly tied to the validity of the foreigner’s residence permit. This means that in the event that the foreigners KITAS or KITAP is not renewed after one or five years, respectively, their Hak Pakai rights will be invalid and must be transferred or surrendered.

For foreigners who are interested in acquiring Indonesian land rights, our recommendation remains to acquire these rights through a registered foreign investment company, or PT PMA in Indonesia. Locally incorporated entities (such as PT PMA’s) are able to secure more comprehensive legal rights to land, specifically the Hak Guna Bangunan, or HGB. Please connect with us directly if you are interested in exploring this option. 

Risk 2 in protecting your business – Improperly structured nominee agreements:

While protecting your business, nominee agreements are often used by foreign entrepreneurs or investors to circumvent foreign ownership restrictions in Indonesia or to avoid the relatively high paid-up capital commitments of PT PMAs. However, it is important to remember that nominee agreements are unenforceable according to Indonesian law, therefore if you choose to use a nominee you need to be very careful in your evaluation process and make sure you have taken every step possible to structure your agreement in the safest way possible.

The most basic advice we have in considering nominees is picking on you can trust. In general, unless our clients know someone locally that they trust extremely well we recommend that they work with a company like ours that can act as a nominee. Working with an established business that provides nominee services is safer because that’s part of their regular job function; they have no incentive to act as a bad actor as it would destroy their reputation and the rest of their business.  By assigning nominee status to a company, you also ensure professional conduct and avoid complications arising from individual risks such as death, marriage, or divorce.

In order to secure a nominee investment, we recommend a set of agreements between the nominee and principal. The most important agreements are the following:

Core Documents for Nominee Agreements:

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You can read more about nominee services in this article; if you require more information please feel free to contact us directly. 

Risk 3 in protecting your business – Immigration risks arising from foreigners working without paperwork:

Protecting your business means you have to be aware that illegal foreign labour in Indonesia is a highly politicized issue that is frequently covered by the local media. Penalties for illegally employing foreign labour range from the deportation of the worker to one to four years in jail or a fine of 100 – 400 million IDR for an employer without permission to employ a foreigner (Izin Mengerjakan Tenaga Asing or IMTA).

If you have a local company and you are hiring foreigners, you must complete the following steps in order to legally employ foreign talent.

1. The sponsoring company must request a Rencana Penggunaan Tenaga Kerja Asing, or  RPTKA document, from the Ministry of Manpower. This document will permit the company to hire a foreign employee for a period of 6-12 months.
2. A $600-$1200 payment must be made to the Expertise and Skill Development Fund depending on the length of employment.
3. Finally, the company must apply for an Izin Mengerjakan Tenaga Asing, or IMTA permit from the Ministry of Manpower. This is a work permit that will be issued to the applicant. Once the IMTA is received, the Department of Immigration will approve the Izin Tinggal Sementara, or ITAS, which allows the applicant to live and work in Indonesia.

Further steps from this point will have to be conducted by the applicant and are explained in this article regarding Indonesian work permit laws on our website.

The following documents may also be required on behalf of the expatriate.

• KITAS (Limited Stay Permit Card) – mandatory
• MREP (Multiple Re-entry Permit) – mandatory if traveling overseas
• SKTT (Residential Permit Card) – optional

Conclusion on Protecting Your Business in Indonesia During COVID:

Protecting your business in Indonesia during COVID is not an easy task. We believe the risks we have discussed in this article pose the biggest challenges during this uncertain time caused by the COVID crisis and we hope our advice will help give you some peace of mind in protecting your business. If you have any feedback on our content or have any questions you’d like to discuss with us related to protecting your business in Indonesia during COVID please do reach out to us.

We also understand that Indonesian bureaucracy often seems byzantine, and we are happy to assist you in any way we can. Please reach out to us at anita@permitindo.com or by contacting us here with any further questions or concerns you may have.

Photo by Martin Sanchez

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