BRIEF UNDERSTANDING FOR EXPATRIATE WORK AND STAY PERMIT

BRIEF UNDERSTANDING FOR EXPATRIATE WORK AND STAY PERMIT

1. NATURE OF INVESTMENT
   In Indonesia the term “investment” has two meanings. The first meaning is direct investment and the second meaning is indirect investment. Direct investment is investment through the mechanism of the Foreign Investment Law. While indirect investment is investment by way of buying shares through the stock exchange.
   
   Here we will focus on Foreign Direct investment (“FDI”) and will not deal with foreign indirect investment. Matters concerned with FDI are handled by the Investment Coordinating Board (Badan Koordinasi Penanaman Modal) better known as “BKPM”. Please note, however, that investment in mining, forestry, oil, banking and insurance are not under the exclusive purview of BKPM. These sectors are handled also by relevant ministries. 
   
   
2. LEGAL ASPECT  
   Foreign Investment Law No. 1 of 1967
   Foreign Direct Investment (FDI), further referred to as PMA (Penanaman Modal Asing-Foreign Investment), is governed primarily by the Foreign Investment Law No. 1 of 1967, as amended. A PMA company is granted a period of 30 years to operate after its legal formation and can be expanded for another 30 years.  
   
   Share Ownership 
   A PMA company is generally established as a joint venture between foreign and Indonesia partners. The partnership may involve legal entities (corporations) or individual persons. A joint venture entity shall take the form of a limited liability company, which is subject to Indonesian Company Law (No. 1, year 1995), denoted as PT (Perseroan Terbatas) and its implementary regulation. A PMA company may be established with 100 % foreign ownership.  
   
   
3. TAXATION
   Income Tax
   Income tax in Indonesia is progressive and applies to both individual and corporate taxpayers. In order to provide more facilities for taxpayers, the self-assessment system is maintained, but its application is improved continuously. Tariffs of tax on tax on taxable income of taxpayers are as follows:  
   
   a. Income up to Rp. 25.000.000 = 5 %
        -  Income over Rp. 25.000.000 up to Rp. 50.000.000 = 10 %
        -  Income over Rp. 50.000.000 up to Rp. 100.000.000 = 15 %
        -  Income over Rp. 100.000.000 up to Rp. 200.000.000 = 25 %
        -  Income over Rp. 200.000.000 = 35 %
   b.Resident corporate taxpayer and permanent establishment:
        -  Income up to Rp. 50.000.000 = 10 %
        -  Income over Rp. 50.000.000 up to Rp. 100.000.000 = 15 %
        -  Income over Rp. 100.000,000 = 30 %  
   
   Land and Building Tax
   Land and Building Tax is payable annually on land, buildings and permanent structures. The effective rates are nominal, typically not more than one tenth of one percent per annum (0,1 %) of the value property.
   
   
4. INCENTIVES
   Import Duties
   All PMA Investment projects approved by BKPM will be granted exemption/relief from import duty and levies on the importation of capital goods namely machinery, equipment, spare parts and auxiliary equipment.
   
   Export Manufacturing
   Restitution (drawback) of import duties and import charges on the importation of goods and materials needed to manufacture the exported finished products.
   Bonded Zones
   
   The industrial companies  located in bonded areas are provided with incentives as follows:
   -  Exemption from import duty, import surcharge, excise, income tax of Article 22, Value Added Tax and Sales Tax on luxury goods on the important of capital goods and equipment including raw materials for the production process. 
   -  Allowed to divert their products amounted to ¼ of their export (in terms of volume) to the Indonesian customs area, through normal import procedure including payment of customs duties.
   -  Allowed to lend their on own machinery and equipment to their subcontractors located outside the bonded zone for no longer than two years in order to further process their own products.
   
   
5. LAND AND BUILDING  
   Indonesian land legislation does not recognize the concept of free hold land rights. To foreign investors, the following three main rights are significant:
   -  The Land Cultivation Right (Hak Guna Usaha, abbre-viated HGU)
   -  The Right of Building on Land (Hak Guna Bangunan, abbreviated HGB)
   -  The Right of Use on Land (Hak Pakai, abbreviated HP)
   
   These rights authorize the use of land in some ways, and their differences are mainly on the duration of validity, the nature of utilization, the opportunity to mortgage, and proof of title.
   The Land Cultivation Right (HGU) is the right to use state owned and for the purpose of agriculture namely plantation, fishing or cattle raising. By law the title is granted for a maximum period of 35 years, but may be extended by 25 years if the land is properly use and managed. This title of right is given to Indonesian partner(s) or legal entities domiciled in Indonesia including PMA companies. It can be used as a collateral or transferred to a third party with the government’s approval.
   
   The Right of Building on Land (HGB) is the right to construct and own buildings on a piece of land that one has purchased. The title is granted for a maximum period of 30 years which can be extended for a maximum period 20 years. The title is granted to Indonesian individual(s) and/or legal entities domiciled in Indonesia, including PMA companies, and can be used as collateral or transferred to a third party. The Right of Use on Land (HP) is the right to use land for any purpose for a period of 25 years and can be extended for 20 years. It has no collateral value to the owners and is not transferable.
   
   
6. RELEVANT INTERNATIONAL AGREEMENTS
   To create a favorable inter-national investment climate Indonesia has also signed multilateral agreements with over 50 countries, thereby promoting foreign direct investment in Indonesia. Indonesia is now a member of the Multilateral Investment Guarantee Agency (MIGA), which will protect investment against various political risks.
   
   
7. NEW DEREGULATION
   - Release regulation for a PMA factory does not have to be located in an industrial estate or bonded warehouse
   - Tax holidays for 22 types of industries.
   - More lines of business for PMA investments, such as import trading, distribution, retail and restaurants.
   
   
8. EXPATRIATES AND WORKING PERMITS
   The employment of foreign operational directors, managers, technicians, experts and even specialised workers by PMA companies is allowed in Indonesia. An expatriate wishing to take up or continue employment in Indonesia must have a work permit. Work permits are also required to be possessed by expatriates who will be directors.
   
   
9. REPRESENTATIVE OFFICE
   A foreign representative office in Indonesia for market surveillance, promotion, supervision, coordination, to facilitate commercial relations, etc is issued by different government departments depending upon the line of business such as:
   - Representative Office from the Ministry of Industry and Trade (Bilateral Trade).
   - Representative Office from the Ministry of Investment Board (Regional Office).
   - Representative Office from the Ministry of Transport (Airline and Cargo Agent).
   - Representative Office from the Ministry of Public Works (Contractor)
   - Representative Office from the Ministry of Finance (Banking & Finance)

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PT. BINKA CONSULTING
Jl. Danau Sunter Utara Blok G2/24, Sunter Podomoro, Jakarta - 14350 PO.BOX 4375 JKT
Telp: (021) 6405416, 64054017, 65300481, 6505522 Fax:  (021) 6401095
Email: chand@binka.co.id

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