Doing business in Indonesia
A Q&A guide to doing business in Indonesia.
This Q&A gives an overview of the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
To compare answers across multiple jurisdictions, visit the Doing business In... Country Q&A tool.
This article is part of the global guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/about/doingbusinessin-guide.
The current administration has demonstrated strong willingness to become more efficient and transparent in its governance. This is also reflected in the regional governments, especially Jakarta and the other major provinces and cities. Specifically, the government has taken a more lenient approach toward investment and operations by issuing regulations that will facilitate investment, especially in relation to foreign ownership.
Throughout 2016, the government issued several economic packages (14 at the time of writing), which aim to deregulate and simplify bureaucracy in several sectors, including land, energy, entertainment, tourism, retail and housing for the poor. The regional governments have also been more welcoming to foreign investors, especially for infrastructure construction, with the likes of the Jakarta MRT Project, Jakarta-Bandung fast train and Surabaya-Madura Bridge being constructed by foreign construction companies.
The Investment Co-ordinating Board (Badan Koordinasi Penanaman Modal) (BKPM) has started a three-hour licensing programme for investors with an IDR100 billion investment plan and/or employing at least 1,000 employees. To date, over 250 investors have used this facility. The BKPM has also been granted greater authority to issue business licences to foreign investment companies, such as an Oil and Gas Registration Letter (SKT Migas). Representatives of several ministries and institutions sit in the BKPM to expedite investor services in their respective sectors.
Specifically in relation to foreign investment, the president issued a new Negative Investment List, which opened more sectors to foreign investment and increased the foreign ownership limits for several other sectors. For example, mail order and internet retail are now open to 100% foreign ownership, if the investors partner with Indonesian small and medium-sized enterprises.
The tourism and creative economy sectors have opened up, with restaurants, bars, cafés, swimming arenas, football courts, and other sporting arenas now open for 100% foreign investment. There is now a Creative Economy Agency (Badan Ekonomi Kreatif) (BEKRAF) working directly under the president.
The financial sector, especially venture capital, has also been opened up. To keep up-to-date with emerging technologies, the central government and the Ministry of Communication and Informatics have issued a number of regulations on, among other things, e-commerce, personal data protection and electronic transactions.
The result of the government's efforts is reflected in the increased ranking in the World Bank's Ease of Doing Business, where Indonesia leapfrogged 15 positions to No. 91. This is regarded as the highest year-on-year increase in the history of Ease of Doing Business.
Foreign companies cannot generally operate in Indonesia. Instead, foreign investors must participate through share ownership in a limited liability company domiciled in Indonesia.
Certain types of business are open to foreign investment, subject to requirements stipulated in the Negative Investment List, such as:
Minimum capital/project value requirements.
Obligations to partner with local co-operatives and communities.
Certain other sectors, especially mining, are also subject to divestment requirements, in which portions of foreign shareholding must be sold off to local shareholders over a period of years.
The Negative Investment List only restricts foreign investment in the form of share participation. Foreign investors can still invest through hybrid financing, such as mandatory convertible bonds, warrants and similar structures, that give the investor elements of management control without running up against shareholding limitations.
Perhaps the most significant development has been the exemption of foreign shareholding restrictions on investments made through the Indonesian Stock Exchange (portfolio investments).
Use of IDR in Indonesia
Since mid-2015, within the territory of Indonesia, all transactions (cash and non-cash) must use IDR, and any party that transacts in Indonesia must declare the price of goods and services only in IDR and accept IDR as payment. Certain transactions are exempted:
Certain implementations of state revenues and expenditures.
Grants from or to overseas.
International trade transactions.
Savings at banks in the form of foreign exchange.
International financing transactions.
Companies can request special treatment from Bank Indonesia to accommodate non-cash transactions if it can be shown that the rules present specific challenges.
Restrictions on IDR transactions
Indonesian banks are prohibited from entering into the following transactions with foreign parties:
Lending or financing in IDR or foreign currencies.
Placement in IDR of bank funds in other banks in the form of demand deposit, inter-bank call money, time deposit, certificates of deposit, lending or financing, and other equivalent placements of funds.
Purchase of securities issued by foreign parties in IDR.
Inter-office billings in IDR.
Inter-office billings in foreign currencies in the context of lending or financing overseas.
Capital investment in IDR by placements of bank funds in the form of stock in banks and other financial companies, including investment in convertible bonds with equity options or other transactions that result in the bank owning stock in banks or companies engaging in other financial sectors.
Foreign parties include:
Foreign legal entities or institutions.
Indonesian citizens with permanent residence in another country who are not domiciled in Indonesia.
Foreign offices of Indonesian banks.
Foreign offices of Indonesian companies.
The most common form of business vehicle in Indonesia is the limited liability company (Perseroan Terbatas) (PT), which can be privately owned or publicly listed. Trust institutions are recognised, but only conducted by banks. For foreign direct investment, the PT is the only legal entity that is available. Other forms of entity, such as partnerships and co-operatives, are not available for foreign investment.
The Investment Law prohibits share ownership on behalf of other parties, and any such nominee arrangements are void by operation of law.
Registration and formation
In general, foreign investors intending to form a limited liability company (PT) must apply for a principal licence from BKPM. See website, www.bkpm.go.id for application forms and information. Following issuance of the principal licence, the PT is incorporated by:
Executing a deed of establishment before a local notary.
Obtaining a certificate of domicile from the local sub-district office.
Obtaining a taxpayer registration number from the tax office.
Opening a bank account.
Submitting these documents to the Ministry of Law and Human Rights for ratification.
The timeline is approximately one to two months.
Once the PT is ready to commence commercial operations, it must obtain a business licence from BKPM, which should take about six business days to process.
Certain sectors are regulated separately and must obtain additional business licences from their technical ministries. For the financial sector (banks, insurance, multi-finance, and venture capital), registration is with the Financial Services Authority (Otoritas Jasa Keuangan) (OJK) rather than BKPM. The timeline for OJK to issue a financial services business licence depends on the area of business, for example 30 days for insurance, multi-finance or venture capital, and longer for banks.
Foreign investment companies must submit the following reports:
Investment activity report every semester if it has obtained a business licence, or quarterly if it has not yet obtained a business licence.
Annual financial statement to the Ministry of Trade.
Mandatory manpower report to the relevant manpower office.
For financial services companies (depending on the type of business), reporting obligations are as follows:
Monthly report and audited annual financial report to OJK.
Annual business plan and implementation of good corporate governance to OJK.
Annual financial statement to the Ministry of Trade.
Mandatory manpower report to the relevant manpower office.
For foreign investment companies in general, the minimum total investment (excluding land and buildings) is IDR10 billion, with minimum paid-up capital of IDR2.5 billion. The minimum participation for each shareholder is IDR10 million, and the percentage of share ownership is based on the nominal value of shares.
For financial services, the minimum paid-up share capital depends on the type of business, as follows:
Insurance: IDR100 billion.
Reinsurance: IDR200 billion.
Multi-finance: IDR100 billion.
Venture capital: IDR50 billion.
For large capital-intensive investments, such as power plants, metal refineries, ports, railways, and other transportation businesses, the government imposes much higher capital requirements, as per the level of anticipated investment.
Shares can be issued for non-cash consideration (for example, tangible and non-tangible assets such as land, machinery, IP and so on). Valuation must be carried out by a non-affiliated appraiser.
Rights attaching to shares
Restrictions on rights attaching to shares. Restrictions on rights attaching to shares are governed by the Company Law, and may also be governed under the articles of association and the shareholders' agreement or joint venture agreement.
Automatic rights attaching to shares. Rights attaching to shares under the Company Law are as follows:
Right to attend and cast votes at the general meeting of shareholders (GMS).
Right to receive dividends and liquidation assets.
Other rights, such as the right to call a GMS or file a lawsuit against the board of directors and/or board of commissioners for losses of the company due to their negligence.
Unless classified as a non-voting share or enhanced voting share in the articles of association, each issued share entitles its owner to cast one vote. Voting rights do not attach to:
Shares of a company that are controlled by the company itself (treasury shares).
Shares of a holding company that are controlled directly or indirectly by its subsidiary.
Shares that are controlled by another company that is directly or indirectly controlled by the company.
Share classifications can include:
With or without voting rights.
Special rights to nominate the company board of directors/board of commissioners.
Rights to revoke or exchange for another class of shares.
Pre-emptive rights to receive dividends (cumulative or non-cumulative).
Pre-emptive rights to receive liquidation assets.
Management of a PT consists of two organs:
Board of directors (BOD).
Board of commissioners (BOC).
The BOD is responsible for daily operations, while the BOC supervises and advises the BOD.
Some companies can have only one director and one commissioner, but others are required to have at least two of each.
Indonesian law does not recognise inactive directors located overseas because, under Indonesian law, a director is responsible for daily operations of the company.
Foreigners cannot hold positions of authority in human resources or personnel and cannot be legally responsible for hiring and firing.
Foreigners can serve on the BOD and BOC of Indonesian companies, but cannot be commissioners in wholly locally-owned companies.
Directors' and officers' liability
The BOD acts on behalf of the company, and any liability that arises from their actions binds the company, and not them as individuals. However, directors and commissioners are personally liable for losses of the company caused by:
Fault or negligence in carrying out their duties.
Failure to report to the company, and record in the special registry, shares owned by them and their family.
Bankruptcy due to mistake or negligence by the BOD.
Parent company liability
A parent company is not individually responsible for commitments made by a subsidiary and is not responsible for the subsidiary's losses exceeding the nominal value of the shares subscribed by the parent company.
Parent company limitation of liability does not apply when:
The requirements for the subsidiary to exist as a legal entity have not been fulfilled.
The parent company, acting in bad faith, takes advantage of the subsidiary for its personal interest.
The parent company is involved in unlawful acts conducted by the subsidiary.
The parent company unlawfully uses the subsidiary's assets, causing the subsidiary's assets to be insufficient to settle its debts.
Laws, contracts and permits
Employment relations are governed by the:
Industrial Relations Law.
Social Security Law.
Work Safety Law.
In addition, there is a well-developed body of implementing regulations from the Minister of Manpower.
The Manpower Law generally favours employees (both foreign and national). In some cases, foreign employees may not enjoy all of the protections provided under the law, such as termination benefits.
All agreements for employment in Indonesia must be governed by Indonesian law, regardless of the nationality of the employee. For Indonesian nationals working abroad, the agreement can be governed by the law of Indonesia or the country in which the work is performed.
A contract for permanent employment may be made in writing or orally. If made orally, a letter of appointment must be drafted to address the basic terms of the arrangement.
Fixed-term employment agreements must be prepared in writing, stating at least the following:
Name, address, and business area of the employer.
Name, gender, age, and address of the employee.
Position or type of work.
Place of work.
Wage and payment mechanism.
Terms and conditions of work.
Effective date and term of employment (maximum initial term of two years).
Place and date of execution.
Signatures of employer and employee.
Failing to meet the requirements of fixed-term employment, or working in excess of the term, leads to permanent employment by operation of law.
Inter-regional, inter-country, and maritime employment agreements must also be made in writing.
All written employment agreements must be executed in Indonesian (bilingual is acceptable).
To employ a foreigner, an employer must obtain a valid expatriate employment permit (Izin Mempekerjakan Tenaga Kerja Asing) (IMTA) based on a Foreign Manpower Utilisation Plan (Rencana Penggunaan Tenaga Kerja Asing) (RPTKA) approved by the Ministry of Manpower. Once the IMTA is granted, the employee must obtain a limited stay visa (Visa Tinggal Terbatas) (VITAS) and a temporary residency permit (Kartu Izin Tinggal Terbatas) (KITAS). Annual contributions of US$1,200 must be paid into the Foreign Manpower Utilisation Compensation Fund.
The regulations stipulate three working days to obtain an RPTKA and three working days to obtain an IMTA on completion of all required documents. In practice, the processing time is approximately two to three months.
The VITAS and KITAS can be granted for periods of 30 days, 90 days, six months, one year or two years. However, they are generally issued to correspond with the IMTA (which is only valid for one year at a time, even if the employment contract is for two years). The employee must apply for the VITAS at the Indonesian embassy in the home country (or another offshore location, such as Singapore), where processing time runs from one to five business days, depending on the policies of the embassy. A KITAS is processed in Indonesia, soon after the employee has entered the country and started working.
Foreigners who enter Indonesia for non-employment business purposes (such as to attend meetings) can enter using a business visit visa, which can be issued for single entry or multiple entries. A single entry business visa is issued initially for a maximum of 60 days. A multiple entry business visa can be valid for up to five years, with 60 days' stay for each visit.
Termination and redundancy
The Company Law requires companies to notify employees regarding any proposed merger, consolidation, acquisition or spin-off at least 30 days before the date of the general shareholders' meeting that approves the corporate action and also to make post-transaction notifications.
Neither the Manpower Law nor the Company Law expressly stipulates that consent from employees is necessary to approve corporate transactions. However, in the event of change of status of the company (IPO or de-listing), merger, consolidation, or change of control, employees can opt not to continue employment and are then entitled to receive termination benefits.
During the process, employees have the right to be represented by their lawyer or a labour union.
In general, Indonesia does not recognise termination-at-will, and employees cannot be dismissed without cause. Termination for cause is subject to approval from the Labour Court, and wages must continue to be paid until a final order is issued. As termination requires approval from the Labour Court, neither notice of termination nor pay in lieu of notice is recognised under the Manpower Law.
Employers can only terminate employment for specifically stipulated reasons, with approval from the Labour Court, including:
Legitimate business necessity, including:
permanent closure due to two years' consecutive losses;
change of status (IPO or de-listing); or
Prolonged illness lasting longer than one year.
Violation of the work agreement or company regulation.
Gross misconduct resulting in a final and binding verdict from a criminal court.
The employee being unable to work after six months of criminal proceedings (not related to violation in the workplace) or the employee is convicted of a crime before the six-month period ends.
Absenteeism without notice for five or more consecutive working days, where the employer has sent two written warnings to the employee's home.
Labour Court approval is not required for:
Termination during a probationary period.
Expiration of a fixed-term agreement.
When an employee dies or reaches retirement age.
The Manpower Law stipulates elaborate provisions on severance and long-term service pay based on length of employment, as well as compensation for accrued allowances and repatriation to the place of recruitment. Multipliers are imposed based on the reason for termination.
The concept of separation pay is also mentioned but not regulated in any detail, as it would be contractually determined.
Theoretically, fixed-term employees can be terminated without cause, provided the employer pays all wages remaining under the fixed-term agreement.
Redundancies and mass layoffs require discussion/negotiation with employees and employee groups/unions, and are subject to approval by the Labour Court. The employer must first attempt to:
Reduce salary and perks of top-level employees.
Limit or eliminate overtime.
Reduce working days/hours.
Lay off employees internally for a certain period.
Not extend/renew fixed term employees.
Offer pensions to qualifying employees.
Taxes on employment
The Income Tax Law defines tax residents (subjek pajak dalam negeri) as any individuals who are either:
Domiciled in Indonesia.
Present in Indonesia for more than 183 days in any 12-month period.
Present in Indonesia during a tax year and intend to have domicile in Indonesia, as proven by possession of a work visa or temporary stay permit (KITAS) for a period more than 183 days.
Individuals who do not meet these qualifications but conduct business through a permanent establishment (representative office, factory, warehouse, and so on) or those who potentially generate Indonesian-source income (whether from conducting business through a permanent establishment in Indonesia or not) are considered non-resident taxpayers.
Tax resident employees
Personal income tax is imposed progressively from 5% to 30%, according to the employee's income, and must be withheld by the employer.
Employers must also withhold social security contributions, as follows:
Old age savings: 2% of monthly salary.
Pension insurance: 1% of monthly salary.
Healthcare contribution: 1% of monthly salary (with a monthly cap of IDR4,725,000) and an additional 1% for each family member.
Non-tax resident employees
Income generated by an employed non-resident taxpayer with no permanent establishment is taxed at a 20% flat rate, unless an applicable tax treaty requires otherwise. Non-resident taxpayers' income on sales of shares in Indonesian companies and certain assets are subject to 5% final tax on the sale proceeds.
Income tax must be calculated, withheld, and remitted to the State Treasury on the employees' behalf. Penalties are imposed for late payment, late filing, underpayment and voluntary amendment of returns.
Employers' shares of social security contributions are as follows:
Work accident protection: 0.24% to 1.74% of monthly salary.
Death insurance: 0.30% of monthly salary.
Old age savings: 3.70% of monthly salary.
Pension insurance: 2% of monthly salary.
Healthcare contribution: 4% of monthly salary (with monthly cap of IDR4,725,000).
Tax resident business
Business vehicles are also subject to the residency concept. Corporate resident taxpayers can be duly incorporated or domiciled in Indonesia.
Non-tax resident business
Companies who meet the following requirements are categorised as non-resident taxpayers:
Incorporated overseas but have a permanent establishment in Indonesia that carries out business and generates income.
Generate or accrue income through business activities in Indonesia, and tax is withheld by the Indonesian party paying the income.
Permanent establishments have the same treatment as corporate taxpayers and include the following forms of business or business activities:
Space for promotion and sales.
Mining and extraction of natural resources area.
Oil and gas working area.
Fishery, animal husbandry, agriculture, plantation or forestry.
Construction, installation or assembly project.
Any kind of services provided by employees or any other persons for more than 60 days within a period of 12 months.
An individual or entity acting as a dependent agent.
An agent or employee of an insurance company that is established and domiciled outside Indonesia, receiving insurance premiums or insuring risk in Indonesia.
Computer, electronic agent or automatic equipment owned, rented, or used by any electronic transaction provider to conduct business through the internet.
Permanent establishments have the same treatment as corporate taxpayers for tax purposes.
Branch offices are taxed at the same rate as corporate taxpayers. However, a branch office can be taxed at a maximum of 20% on income (subject to protection under a double tax treaty), in addition to the corporate taxes. An exemption from withholding can be enjoyed by a permanent establishment that reinvests its net profit in Indonesia as a founding shareholder in an Indonesian company, no later than the following fiscal year and for a period of minimum two years.
Other business vehicles
Income of non-resident business vehicles (other than permanent establishments) that derives from dividends, interest, royalties and payments for services is subject to 20% withholding tax.
A final 25% of the transaction value applies for deemed-taxable revenue from the sale of shares in a foreign company established or domiciled in a tax-haven country that acts as a special purpose company or conduit company and holds shares of an unlisted Indonesian company.
Corporate income tax
Corporate income tax rates depend on turnover and status:
Flat rate of 25% on net taxable income.
20% applies to public companies with greater than 40% of their shares traded on the Indonesia Stock Exchange. Public companies that meet certain conditions are entitled to discount of 5%.
12.5% for small enterprises or companies with a gross turnover below IDR50 billion.
1% for companies with gross turnover below IDR4.8 billion.
As an investment incentive, the government provides a tax holiday in the form of a 10% to 100% reduction of corporate income tax if the taxpayer meets the following requirements:
A newly registered taxpayer,
Operates in a "pioneer industry" such as:
oil refineries and oil refinery infrastructure;
basic organic chemistry from oil and natural gas;
mechanisms producing industrial machinery;
agriculture, forestry and fishery processing;
telecommunications, information and communication;
sea transportation; or
economic infrastructure projects (other than those using public-private schemes).
Has a new authorised capital investment plan of minimum IDR1 trillion.
Meets the debt-to-equity ratio set out in the relevant regulation (this is theoretically 3:1, but the effectiveness of this has been postponed).
Submits a statement letter demonstrating the company's ability to deposit at least 10% of the capital investment plan in Indonesian banks. These funds cannot be withdrawn before investment realisation.
Has Indonesian legal entity status approved on or after 15 August 2011.
The capital investment requirement of IDR1 trillion can be reduced to a minimum of IDR500 billion for pioneer industries, if the company introduces high technology. For companies with capital investment of IDR500 billion to IDR1 trillion, the tax reduction for pioneer industries does not exceed 50%.
Value Added Tax (VAT)
In general, the VAT rate in Indonesia is 10%. VAT on the export of taxable tangible and intangible goods as well as export of services is fixed at 0%, with exceptions for certain types of goods and services (such as oil) (see Question 24).
Luxury-goods sales tax
Luxury tax ranges from 10% to 200%, depending on the type of goods. Luxury tax of 20% is imposed on:
Houses and town houses with non-strata title with a selling price of more than IDR20 billion.
Apartments, condominiums, and town houses with strata title with a selling price of IDR10 billion or more.
Land and building tax
Land, buildings, and other permanent structures are subject to annual land and building tax at a typical rate of 0.5% of the sale value of the property. The acquisition of land or a building is subject to 5% tax on the acquisition value.
Income tax is imposed at the rate of 5% for non-tax residents who sell or transfer their assets in Indonesia.
Regional/provincial tax is applied for various local services, such as 10% hotel, restaurant and parking tax.
Stamp duty may be due with a nominal value ranging from IDR3.000 to IDR6.000, depending on the transaction value of the document.
Dividends, interest and IP royalties
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign corporate shareholders?
Dividends paid to a non-resident (foreign) taxpayer are subject to 20% withholding tax, subject to reduction under an applicable tax treaty, as long as a Certificate of Residence (COR) is provided to the party paying the dividend, and the non-resident taxpayer is the beneficial owner of the revenue.
See Question 19.
Interest paid to a non-resident taxpayer is subject to 20% withholding tax on the gross interest income, subject to reduction under an applicable tax treaty.
IP royalties paid
For tax purposes, the term "royalty" refers to any charge to use tangible or intangible assets, including transfer of the right to use such assets. IP royalties remitted abroad are subject to 20% withholding tax, subject to reduction under an applicable tax treaty.
Groups, affiliates and related parties
Thin capitalisation is governed under a Ministry of Finance regulation. If a taxpayer's debt-to-equity ratio exceeds 4:1, then the cost of the loan used in calculating taxable income is the amount of loan in accordance with the debt-to-equity ratio. If a taxpayer's equity is zero or less than zero, then all of its loan costs cannot be used in calculating the taxable income.
Loan costs include:
Discount and premium related to the loan.
Additional costs incurred in relation to borrowing arrangements.
Financial costs in lease financing.
Fees for security of payment.
Exchange rate discrepancies.
Costs of loans from an affiliate are also subject to restrictions on transfer pricing.
The thin capitalisation restriction does not apply to infrastructure and energy projects, banks and financing and insurance companies.
The Minister of Finance may find an offshore company (other than a public company) to be a controlled foreign company if a resident taxpayer participates in the company and either the taxpayer, or the taxpayer and other resident taxpayers, owns at least 50% of the company's voting stock.
The purpose of this regulation is to reduce the possibility of tax avoidance for capital investment abroad, other than in legal entities that sell their shares in the capital market.
The foreign tax credit (with a per-country limitation) does not extend to underlying corporate tax. Resident taxpayers can offset the taxes paid in foreign countries (up to a certain level) against their income tax obligations in Indonesia in relation to their worldwide income.
The Director General of Tax can:
Re-allocate income and deductions between related parties.
Characterise debt as equity to calculate taxable income between related taxpayers.
The term "related taxpayers" includes relationships where:
A taxpayer owns, directly or indirectly, at least 25% of the equity of another taxpayer.
The taxpayers both own at least 25% of the equity of the same two or more taxpayers.
A taxpayer controls other taxpayers, or two or more taxpayers are directly or indirectly under the same control (control can result from ownership or through participation in management or technology).
There is a family relationship through blood or marriage within one degree of lineage.
Any transaction between related parties must observe the arm's length principle. A requirement to produce specific transfer-pricing documentation to prove this has recently been introduced. Taxpayers conducting related-party transactions have several obligations, including:
Disclosing their transactions in detail on their corporate income tax return.
Detailed regulations are provided by the Ministry of Finance and Directorate General of Tax.
Imports can be subject to:
VAT of 10%.
Income tax of:
2.5% if imported with Importer Identification Number; or
7.5% if imported without Importer Identification Number (with a few exceptions).
Sales tax on luxury goods.
In addition, imports are subject to import duties according to the type of goods.
Generally, exports are subject to 0% VAT. However, certain products (such as palm oil, cocoa beans or mining products) are subject to export duties.
Double tax treaties
The Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) (KPPU) is responsible for regulating and supervising business competition under the Anti-Monopoly Law.
For detailed information, including regulations and case precedents, see website http://eng.kppu.go.id.
Restrictive agreements and practices
Restrictive agreements (between competitors or affiliates) such as cartel, trust, vertical integration, oligopoly, price discrimination, and area distribution are illegal under the Anti-Monopoly Law if they result in monopoly or unfair competition (rule of reason). Certain agreements, such as price fixing/predatory pricing, boycott, and closed agreements are prohibited without considering their impact (per se rule).
Abuse of a dominant position and market control that might lead to monopoly or unfair competition practices is restricted, as is conspiracy (such as tender fixing and abuse of confidential information).
The Anti-Monopoly Law imposes restrictions on:
Cross-shareholding ownership between companies engaging in the same business area with similar market share.
Holding double positions (director/commissioner) in other companies.
Certain corporate actions (mergers, consolidations, and acquisitions of shares).
Administrative and criminal sanctions can be applied to any violation of the anti-competition rules.
Market dominance undertakings holding 50% of market share, or two or three undertakings holding 75% of market share, must comply with the Anti-Monopoly Law and its implementing regulations in their daily operations and corporate actions to avoid being considered to be abusing a dominant position.
The Anti-Monopoly Law prohibits mergers, acquisitions of shares, or consolidations that might cause a monopoly or unfair competition. Any transaction must be reported to KPPU within 30 days after the transaction takes effect, if it results in either:
A joint asset value exceeding IDR2.5 trillion.
Joint sales exceeding IDR5 trillion (or IDR20 trillion for banks).
After notification, KPPU has authority to unwind the transaction if necessary.
Total asset value is calculated based on assets located in Indonesia, and total sales are calculated based on total sales in Indonesia (excluding exports).
The post-closing reporting obligation also applies to transactions performed by foreign parties if the transaction:
Is performed outside Indonesia.
Directly affects Indonesia's markets.
Fulfils the minimum thresholds (see above).
Is between non-affiliated parties.
Non-binding advisory opinions can be requested from KPPU before closing if there is cause for concern.
Any delay in reporting incurs an administrative sanction of IDR1 billion for each day of delay, with a cumulative maximum of IDR25 billion.
Definition and legal requirements. The Patent Law defines patents as exclusive rights granted to inventors for their technological inventions for a certain period of time, to implement the inventions themselves or to approve other parties to implement the inventions.
There are two types of patent protection:
Patents, which are granted for new inventions that contain inventive steps applicable in industry.
Simple patents, which are granted for new inventions, development of existing products or processes and are applicable in industry.
Registration. Patents are registered at the Directorate General of Intellectual Property (DGIP). Guidance on the application procedure is available in Indonesian on DGIP's website (www.dgip.go.id). Applicants can also register online through https://efiling.dgip.go.id/efiling.
Enforcement and remedies. Patents can be enforced by patent holders or licensees by filing a claim for compensation at the Commercial Court. The Patent Law also sets out criminal sanctions for patent infringement.
Length of protection. Patents are protected for 20 years from the filing date, while simple patents are protected for ten years, and cannot be extended.
Definition and legal requirements. The House of Representative recently passed the new Trademarks and Geographical Indications Bill (Trademarks Bill). However, as of the time of writing, the Bill has not been promulgated as a law. Under the Trademarks Bill, a mark is defined as a sign:
That can be graphically displayed in the form of a picture, logo, name, word, letters, figures or composition of colours, in two or three dimensions, sound, hologram or a combination of elements.
To distinguish goods and/or services produced by individuals or legal entities in the activities of trade in goods or services.
Under the Trademarks Bill, marks include:
Trade marks (marks for goods).
Collective marks (marks for goods and services).
Protection. Trade mark protection is on a first-to-file basis through registration at the DGIP. Guidance on the application procedure and online application is available in Indonesian on DGIP's website. Unregistered trade marks are not protected, except for well-known trade marks.
Enforcement and remedies. Registered trade mark owners and registered licensees can file a claim for compensation and/or termination of use at the Commercial Court against any party that unlawfully uses a trade mark that is similar in principle or in entirety for similar goods or services. Trade mark infringement is also subject to criminal sanction.
Length of protection and renewability. Trade marks are protected for ten years and can be extended every ten years.
Definition. Industrial designs used to produce a product, goods, industrial commodities or handicrafts are protected under the Industrial Design Law. Exclusive rights are granted for industrial designs that are new and that do not contradict prevailing laws and regulations, public order, religion or morality.
Registration. Industrial designs are registered at the DGIP. Guidance on the application procedure and online application is available in Indonesian on DGIP's website.
Enforcement and remedies. Industrial design right-holders and licensees can file a claim for compensation and/or termination of use at the Commercial Court against any party that violates their exclusive right. Industrial design infringement is also subject to criminal sanction.
Length of protection and renewability. Industrial designs are protected for ten years and cannot be extended or renewed.
Definition and legal requirements. Copyright is defined in the Copyright Law as an exclusive right of the creator that arises automatically upon creation in the fields of science, art and literature that is embodied in a tangible form. The main requirement is that the creation has been embodied in a tangible form.
Protection. Copyrights can be registered at the DGIP by the creator, copyright holder, related rights holder or their attorney. However, protection for copyright arises automatically on embodiment of the creation, regardless of registration, and moral rights of the copyright remain with the creator at all times. Economic rights can be licensed to other parties, but the creator cannot transfer moral rights of the copyright.
Enforcement and remedies. Creators, copyright holders and related rights holders can file a claim for compensation at the Commercial Court against any violation of the copyright or product of related rights. Copyright infringement is criminally punishable by imprisonment and/or fine.
Length of protection and renewability. Length of protection varies depending on the form of the creation:
Literary, dramatic, musical and artistic creations are protected until 70 years after the death of the creator or 50 years after the first publication, if the copyright holder is a legal entity.
Photographic and cinematographic creations, computer programs, translations and adaptations of other creations are protected for 50 years after the first publication.
Applied arts are protected for 25 years after the first publication.
Other types of IP include:
Integrated circuit layout designs.
Agency agreements are regulated by the Ministry of Trade. An agent is a domestically owned trading company acting for and on behalf of a principal to market goods and/or services without transfer of title. The agent must register the agency agreement at the Ministry of Trade to obtain a Registration Certificate (Surat Tanda Pendaftaran) (STP). Agency agreements with overseas principals must be notarised in the principals' country and attached with a statement letter from the Indonesian trade attaché or its official representatives.
An STP is valid for up to two years and can be extended. If an agency agreement is terminated before expiration of the STP, the principal can only appoint a new agent after a clean break with the previous agent is achieved.
Distribution agreements are also regulated by the Ministry of Trade. By law, a distributor is a domestically owned trading company acting for and on behalf of itself to purchase, store, sell and market goods and/or services that it owns/possesses. The distributor must register the distribution agreement to obtain an STP under the same registration and termination procedures as agency arrangements.
To qualify as a franchise, a business must:
Have distinctive features.
Be proven to be profitable.
Have written standard operating procedures.
Be easily taught and applied.
Provide continuous support.
Have registered IP rights.
Both the franchisor and franchisee (local or overseas) must be registered at the Ministry of Trade to obtain a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba) (STPW). To obtain an STPW, a franchisor must register the franchise prospectus and master franchise agreement, while the franchisee must register the franchise agreement. An STPW is valid for five years and can be extended every five years.
E-commerce is regulated under the Trade Law and the Electronic Information and Transaction Law, which regulates electronic systems, transactions, contracts, signatures and other information and documents. The government recently announced that a Presidential Regulation on E-commerce Roadmap will soon be issued. This regulation will cover various aspects of e-commerce, including funding, tax, logistics and cyber security.
There is no single codified law on advertising. However, various rules govern advertising, such as:
Law No. 18 of 2012 on Food.
Law No. 8 of 1999 on Consumer Protection.
Law No. 40 of 1999 on the Press.
Law No. 32 of 2002 on Broadcasting.
Government Regulation No. 109 of 2012 on Protection of Materials with Addictive Substances in the Form of Tobacco Products for Health.
There is also the Advertising Code of Ethics in Indonesia (Etika Pariwara Indonesia) issued by the Indonesian Advertising Board (Dewan Periklanan Indonesia).
Product liability and safety are generally governed under the Consumer Protection Law, as well as various laws and regulations for specific industries, such as:
Law No. 39 of 2009 on Health.
Law No. 18 of 2012 on Food.
Various regulations issued by the Food and Drugs Supervisory Agency (Badan Pengawas Obat dan Makanan).
Products and services must:
Fulfil required standards.
Conform to the condition, quality, quantity, size or weight stated on their labels.
Not offer goods or services under false statements (such as in relation to price, condition, hidden defects, uncertain promises, and dangers of use).
The Consumer Protection Law provides administrative and criminal sanctions for violations.
Main business organisations
Investment Coordinating Board (Badan Koordinasi Penanaman Modal) (BKPM)
Main activities. Recommendations and study on national investment planning, determination of investment standards and procedures and investment maps. Responsible for co-ordination of investment one-stop services, licences and facilities.
Ministry of Law and Human Rights (Kementerian Hukum dan Hak Asasi Manusia)
Main activities. Administration of establishment of companies, immigration documentation and IP property rights. Also in charge of enforcement and human rights issues.
Ministry of Employment (Kementerian Ketenagakerjaan)
Main activities. Supervision of industrial relations, training and productivity, worker placement, employment and transmigration.
Minister of Trade (Kementerian Perdagangan)
Main activities. In charge of domestic and international trade, exporter and importer licensing, consumer protection, futures trading and special economic zones.
National Land Agency/Local Land Registries (Badan Pertanahan Nasional / Kantor Pertanahan Kabupaten/Kota)
Main activities. Conducts land surveying, measurement, and mapping, land registration and title, land conflicts and disputes and the issue of land permits.
Mohamad Kadri, Managing Partner
Areas of practice. Banking, finance and insurance; capital investment; capital markets; general corporate practice; land acquisition and real estate; mergers and acquisitions; plantations and biofuels; project finance.
Professional associations/memberships. Indonesian Advocate Association (PERADI); Association of Capital Market Legal Consultants (HKHPM); Inter-Pacific Bar Association (IPBA).
Johannes C Sahetapy-Engel, Partner
Areas of practice. Arbitration and dispute resolution; bankruptcy and restructuring; capital investment.
Professional associations/memberships. Indonesian Advocate Association (PERADI); Masyarakat Telematika Indonesia (MASTEL); Inter-Pacific Bar Association (IPBA).
- Articles related to Mining Updates published by Asian Law Business (ALB) Magazine in Singapore & Hong Kong in 2011 and 2012.
- Leaders in their field: Labour & Employment, by Chambers and Partners 2010, 2014 – 2016.
Arfidea D Saraswati, Partner
Professional qualifications. Register of Foreign Lawyers at the Singapore International Commercial Court.
Areas of practice. Bankruptcy and restructuring; capital investment; environment and
forestry; maritime and shipping; mergers and acquisitions; mining and energy.
Professional associations/memberships. Legal Department of the Indonesian Mining Association (IMA); Indonesian Advocate Association (PERADI); Inter-Pacific Bar Association (IPBA).
Articles related to Mining Updates published by Asian Law Business (ALB) Magazine in Singapore & Hong Kong in 2011 and 2013.
Best Mining Lawyer nominated by Who's Who Legal (www.whoswholegal.com) for years 2010-2013 and 2016.
Abadi Abi Tisnadisastra, Partner
Areas of practice. Banking and finance; insurance; capital investment; capital markets; corporate practice; real estate; mergers and acquisitions; project finance; IT and telecommunication.
Professional associations/memberships. Indonesian Advocate Association (PERADI); Association of Capital Market Leal Consultant (HKHPM); Inter-pacific Bar Association (IPBA).