You would like to start your business in Indonesia but not sure how and where to start?

Let's watch our video about basic information on business entities and tax in collaboration with Zentax, a tax consulting company, based in Indonesia:
https://youtu.be/IHPvYp9PFAY

​PS: The discussion is in Indonesian language and the context is for local Indonesian owned businesses, especially SMEs.


 

During this global Covid-19 Pandemic, more companies are in payment defaults.

​Please watch our video in collaboration with Simmons & Simmons Singapore and Singapore Chinese Chambers of Commerce & Industry on Best Practices to Effectively Managing Non-Performing Payments.

https://lnkd.in/gtpUcFr 

Here are the 5 tips we would like to share with you when you are entering into an agreement with an Indonesian party for performing such agreement in Indonesia:

1. Indonesian language
Under Law No. 24 of 2009, if an agreement is entered into between an Indonesian party and a foreign party, there shall be an Indonesian version of the agreement. This means that it is not a mere translation, but the parties shall also sign the Indonesian version of the agreement.

Under certain laws, you must enter into the agreement in Indonesian language, for example mortgage deeds and fiduciary security deeds. 

2. Necessary approvals/ consent
If you would like to enter into an agreement with an Indonesian company, you will need to check the articles of association of that company, whether any corporate approval is required, for example, board of commissioners' approval or general meeting of shareholders' approval. 

If you would like to enter into an agreement with an Indonesian individual, you may need a spousal consent if he/she is married, unless the individual has a pre-nuptial agreement. This is because under the Indonesian Marriage Law, all assets obtained by the husband/ wife during their marriage will be considered marital property. Therefore the husband and wife own the marital property jointly. Without the spousal consent, it does not mean that your agreement will be considered invalid, however, in the event of default and you would like to enforce your rights and claim damages, there would be difficulties on enforcing the marital assets given that the assets are jointly between the husband and wife. The spousal who is not a party to the agreement might argue that the assets are joint assets owned by them and therefore could not be enforced without his/ her approval.

3.  Authorised signatory

If you would like to enter into an agreement with an entity, you would need to check the articles of association of such entity, who may represent the entity. For example, for a limited partnership (CV), only the active partner is allowed to represent a limited partnership. In respect of a company, sometimes, certain articles of association require two directors to represent the company, or if the president director is not available, he/ she shall give a written authorisation to another director to represent the company.

In addition, you need to request the latest general meeting of shareholders of the company appointing the current directors and commissioners and cross check it with the company profile of the company which you can download online from the Ministry of Law and Basic Human Rights website. But the payment of the company search can only be done through bank transfer to certain banks in Indonesia which you are not able to do so if you are not in Indonesia. You may also require your Indonesian counter party or your lawyer to provide the company profile to you.

4.  Power of attorney
If you are going to sign a notarial deed or a deed before a land deed official (for land related transactions) but the authorised signatory is not able appear before the notary or land deed official in person, he/ she may grant a power of attorney (POA) to a representative to sign the agreements on his/ her behalf.

You need to factor in the timeline of signing with the timing to obtain the POA. A notary or land deed official will only accept a POA which has been legalised by the Indonesian embassy at where the company which issues the POA is domiciled. For example, if it is a Singapore company issuing the POA, then the POA has to be legalised by the Indonesian embassy in Singapore.

Indonesian embassy will only accept the POA for legalisation if it has fulfil certain requirements, for example, for Indonesian embassy in Singapore, such POA has to be signed before a Singapore notary. Furthermore, the POA has to be authenticated by the Singapore Academy of Law and legalised by the Singapore Ministry of Foreign Affairs. It usually takes few days to complete the process but during this Covid-19 pandemic, it could take longer.

You need to check with the relevant Indonesian embassy what the requirements are. Furthermore, for country which does not have an Indonesian embassy, you need to check with the Indonesian Ministry of Foreign Affairs, which Indonesian embassy in the neighboring country which will be able to accept legalisation.

5.  Form of agreement
Most of the agreements can be signed in the usual forms and by way of counterparts however certain agreements have to be in a notarial deed or a land deed official deed. For example, fiduciary security has to be signed in the form of a notarial deed. Land related transactions, such as sale and purchase of land or mortgage of land has to be signed in the form of land deed official deed.

They have specific formats of the deeds. Once the agreements are in the final form, lawyers will send the final versions to the notary or land deed official and they will convert the agreements into the required forms. If the agreements are not in the required forms, they will be considered invalid.

Usually land deed officials are notaries but not all notaries are land deed officials. In respect of land matters, only the land deed official who has authority in the regency where the land is located may sign the deed. For example, a land deed office in South Jakarta may not sign a mortgage deed in respect of land in Central Jakarta.

We hope the tips are helpful for you. 

Recently, Law No. 3 of 2020 on Amendments to the Mining Law No. 4 of 2009 (Law No. 3). Currently, Law No. 3 is being heard at the Indonesian Constitution Court. The applicants argued that Law No. 3 is unconstitutional because it gives too much to the private sector.

In this article, we would like to focus on what changes in Law No. 3 which may impact on the financing transactions. Mining is a heavy capitalised business relies heavily on financing.

There are some changes under Law No. 3 which lenders need to take note:​​

Restriction to Encumber Mining Products
Law No. 4 of 2009 does not prohibit encumbrance of mining products. Under  Law No. 4 of 2009, mining products are belonged to the state until the relevant royalties (production fees) have been paid. This means we can create a valid security when the relevant royalties have been paid.  

Article 93C of Law No. 3 prohibits encumbrance of mining products expressly.  Any existing security over mining products will be deemed invalid from the effective date of Law No. 3, 10 June 2020 and lenders will not be able to have security over mining products going forward.

One Mining Company may Have More than 1 Mining Licence (IUP)
Under Law No. 4 of 2009, the general rule is one company may only hold 1 IUP, unless it is a listed company.

Under Law No. 3, one mining company may hold more than 1 IUP if:

• it is a state owned company; or
• the IUP is only in respect of non-metal mineral or rocks.

The financing structure will be simpler if the borrower holds all the mining licences.

It is unclear to us if the mining company has an IUP for coal or metal mineral product, whether it can have an additional IUP for non-metal mineral or rocks or all IUPs must not be in respect of coal or metal mineral products.  

Restriction on Transfer of Shares
Under the MOEMR Regulation No. 7 of 2020, it appears that share transfer during the exploration stage is possible provided that an approval from the Minister of Energy and Natural Resources (MOEMR) or a governor is obtained.

Under Article 93A of Law No. 3, non-listed shares in a mining company may not be transferred without an approval from the MOEMR.

​An approval may be given if the company has fulfilled the following conditions:

• the exploration stage is completed; and
• the company fulfilled the administrative, technical, environmental and financial requirements.

An implementation regulation will be issued to regulate on the transfer of shares.
This could impact on the enforcement of pledged shares if the pledged shares are shares in a mining company which is still at the exploration stage.
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Divestment Rules
The timeframe and percentage of divestment for each stage under the divestment rule are not stated in the Law No. 3 and they will be regulated further under a government regulation. It remains to be seen what the changes would be.

Adjustment of Existing IUPs to the Law No. 3
Under a transition provision of the Law No. 3, the existing IUP holders have to adjust their IUPs to be in accordance with the Law No. 3 within 2 years from the date the Law No. 3 was enacted.

Lenders should check in due course with the obligors who are IUP holders, if their licences have been adjusted accordingly.

 








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From 8 July 2020, all mortgage registrations in Indonesia must be made through an online system, HT-el System. HT means "hak tanggungan" (mortgage). No offline registrations will be allowed.

Before the HT-el was effective, registrations were done offline by land deed officials (pejabat pembuat akta tanah, "PPAT") at the relevant land offices. Under the HT-el System, the mortgage registrations would require the involvement of the mortgagees too.

Each mortgagee must have an account registered through mitra.atrbpn.go.id. which is under the Ministry of Agrarian and Spatial Planning/ National Land Office.

Through its account, the mortgagee has to check and confirm if the details in the mortgage application filed by the relevant PPAT are correct. Once the mortgagee has confirmed that, the HT-el will issue an invoice to the mortgagee, and it has to make payment within certain period. After the payment is made, the mortgage certificate will be issued electronically to the mortgagee.

Currently there is no option at the mitra.atrbpn.go.id. to register an account for a foreign entity which is not a financial institution. Under the Indonesian Mortgage Law, a foreign entity that is not a financial institution is allowed for being a mortgagee.

Such foreign entity may not appoint an Indonesian financial institution as a security agent and register the mortgage under the name of the security agent to resolve the issue above. This is because under the Indonesian Mortgage Law, the mortgagee shall be the creditor of the loan (not a security agent).

We hope this system limitation issue could be resolved soon.
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