BUSINESS INVESTMENT GUIDE INDONESIA. Roosdiono & Partners (a member of ZICOlaw)

Transcription

1 BUSINESS INVESTMENT GUIDE INDONESIA Roosdiono & Partners (a member of ZICOlaw) SWEET & MAXWELL THOMSON REUTERS

2 CONTENTS Publisher's Introduction About the Contributors Table of Statutes Abbreviations v vii xxiii xxxix Introduction 1 Chapter 1 An Overview of the System of Law and Government System of Law Origin of Legal System Sources of Law 14 Codification Law-making Bodies 16 Constitutional powers 16 Administration 17 Court system Organisation of Government 17 State resources Language of the Law Structure of Legal Profession 20 Bar associations 21 Foreign lawyers Determination of Applicable Law Choice ofmethod and Forum Treaty Obligations Membership of International Banks International Agreements OECD Declaration Guarantees and Incentives Investment Protection Treaties Joint Trade Agreements Multilateral Investment Protection Treaties Government Guarantees for Foreign Investors Protection for Foreign Investors 24 Chapter 2 Land Tenure The Site of the Investment Land Tenure Forms of Land Tenure 25 Right of ownership (hak milik) 25 Right of exploitation (hak guna usaha) 25 Right to build (hak guna bangunan) 26 Right of use (hak pakai) 26 Right of lease of land for building (haksewa untuk bangunan) 27 Right to open up undeveloped land (hak membuka tanah) 27

3 x Contents Right to collect forest producta (hak memungut hasil hutan) 27 Traditional/customary rights 27 Other rights 28 Ownership of land rights by foreigners Private Ownership of Land Restrictions on Transfer of Land Local Regulations 30 Codes and statutes 30 Customary or unwritten law Special Areas Customary Land Rights Rights in Land Nature of Rights in Land 31 Rights of ownership 31 Leasehold 31 Restrictions on leasehold 33 Rights of access 33 Loss of ownership by lapse of time Transfer of Rights in Land 34 Who does conveyancing? 34 Costs of conveyancing 35 Form of transaction 35 Necessary approvals Restrictions on Acquisition of Rights in Land Land Surveying Registration of Security in Land Registration of Rights of Land Use and Ownership System of Land Registration 38 Guarantees against errors or fraud 38 Unregistered interests 39 Investigations of ownership prior to registration Specific Rights Extent of Rights in Land 40 Crops 40 Fixtures, including buildings 40 Other rights Agreements Restricting Land Use Ascertainment of Existing Restrictions Powers of Acquisition of Land Compensation for Acquired Land 41 Entitlement to compensation 41 Assessment of compensation 42 Resolution of disputes 43 Land acquisition for infrastructure Taxes and Rates 44 Non-payment 44 Availability of Information 44 Form of Information 45 Taxes not revealed by searches 45 Basis of land tax Seizure of Land in Execution of Judgment 45

4 Contents xi Environmental Restrictions Regulation on Environmental Control 46 Regulator/ agencies 46 Composition 46 Penalties for infringement 47 Intentional offence 47 Negligent offence 47 Intentional release of engineered genetic material 47 Dumping hazardous substances 47 Failure to obtain an environmental permit 47 Corporate liability 47 Additional penalties Government Requirements for Environmental Assessment Drafting of the AM DAL document 48 Drafting of the UKL-UPL (for business/activities which do not require an AMDAL) 49 Evaluation of the AMDAL document 49 Evaluation of the Terms of Reference 49 Evaluation of the ANDAL and the RKL-RPL 49 Review of the UKL-UPL (for business/activities which do not require an AMDAL) 50 Application for an Environmental Licence 50 Obligations of Environmental Licence holders Pollution Standards Incentives for Non-polluting Plants Nature of Pollution Controls Detriment to the Environment 51 Chapter 3 The Structure of the Investment Historical Sources of Contract and Commercial Law Codification of Law Distinction between Contract and Commercial Law Requirements for Government Contracts Requirements for Contracts with Foreign Entities Treatment of Consumer Contracts Liability for Injury Caused by Defective Products Methods ofsettlement Outside Court System Special Rules for Institutions Use of Standardised Contracts Remedies under the Commercial Law Performance of Contracts under Changed Circumstances Company Law Forms of Commercial Organisations 57 Maatschap or Civil Partnership 57 Firma or Firm 58 Commanditaire Vennoofsc/ioop/Commanditaire Corporation 58 Perseroan Terbatas (Limited Liability Companies) 58 Co-operative Organisation/Koperasi 67

5 xii Contents IMA or Indonesische Maatschappij Op Aandelen (Maskapai Indonesia atas saham) 68 State-owned enterprises Foreign Companies Registration of Non-resident Companies 69 Fees 69 Statutory accounts 69 Local agents 69 Documents to be filed 69 Statutory approval 69 Body with Jurisdiction Requirements for Establishment of Subsidiäres 70 Fees and duties 70 Composition of board 71 Nationality of management and staff 71 Percentage of share capital held by non-residents 71 Registered shares 72 Issue of nominal capital 72 Directors' qualifications 73 Time taken to incorporate 73 Branches of subsidiäres 75 Statutory accounts 75 Disclosure of shareholding 75 Shares held by nominees 75 Payment for shares 75 Voluntary and involuntary liquidation 76 Disposal of shares Investment in Local Companies 76 Application and approval procedures 77 Hostile takeover regulations 78 Extent of local ownership 79 Government participation 79 Geographica! area 80 Requirement to use local staff, contractors or subcontractors Percentage of Foreign Ownership Types of Governing and Managing Structures Structure and Powers of Joint Venture 80 Creation of new Joint enterprise 80 Restrictions on management contracts Bankruptcy Law 81 Bankruptcy 81 Suspension of Debt Payment Obligation 81 Reasons to Refuse a Settlement 82 Chapter 4 Taxation General Taxation International Tax Treaties 83 DTA and withholding tax 84 DTA abuse 84

6 Contents xiii Existence of Tax Credits Procedures for ResolvingTax Disputes Fiscal Year Method of Payment of Tax Liabilities Commercial and Business Profits Taxation of Commercial and Business Profits Taxable Activities and Undertakings Details of Tax on Companies 90 Tax rates 90 Special rates of tax 90 Mining and natural resources 90 Underdeveloped areas 90 Oil and gas drilling companies 90 Banking 91 Expatriate employees 91 Foreign aid contractors 91 Representative Offices 91 Tax differentials 91 Requirements for keeping books and records 91 Submission of accounts 93 Certification of accounts 93 Registration of taxpayers 93 Tax on net profits 93 Carrying forward losses 94 Depreciation allowances and amortisation 94 Depreciation 95 Non-building assets 95 Building assets 96 Amortisation 96 Costs 96 Tax treatment of losses 96 Carry back of losses 96 Filing of returns 97 Withholding tax and fringe benefits (benefits-in-kind) for employees 97 Fringe benefits or benefits-in-kind returns 97 Accumulated profits 98 Thin capitalisation 98 Transactions between parties with a special relationship Details of Business Profits Tax Taxation of Individuais 99 Tax rates 99 Basis of assessment 99 Tax residency of individuals and deceased estates 100 Tax residency of legal entities and permanent establishments 100 Place of payment 100 Exclusions 100 Tax certificates 101 Visiting industrial experts 101 Tax on expatriates 102

7 xiv Contents 4.3 Investment Profits Taxes on Investment Profits Tax Credits Treatment of Residents and Non-residents Approval of Outward Remittances Form of Outward Remittances Meaningof "Royalty" Must Tax be Deducted from Investment Profits? Miscellaneous Taxes Miscellaneous Taxes 104 Stamp duty 104 Excise tax 105 Local development tax 105 House and land tax 105 Tax on sale of goods or services and value added tax 105 Payroll or other employment tax 106 Fiskal departure tax Unitary Tax Capital Gains Tax Method of Taxing Capital Gains Roll-overs Offset of Capital Losses against Revenue Gains Tax Incentives Tax Relief for New Industries Period of Tax Relief Criteria Affecting Relief 108 Product or industry 108 Siting of the industry or factory 108 Employment of local staff or contractors Existence and Nature of Export Incentives Export Processing Zones Deductibility of Expenses Incurred Exploring Export Opportunities Tax Incentives for Particular Industries and/or Particular Regions 109 Tax facilities 109 Tax holidays for pioneer industries 110 Chapter 5 Regulation of Business Licensing and Registration of Business Activities Granting and Nature of Licence or Registration Incentive Legislation 112 Types of incentives 113 Administration of incentives 113 Discretionary nature Disincentives or Restrictions on Certain Business Activities 114 Percentage of foreign ownership 115 Retail 127 Broadcasting 127 Banking 128

8 Contents xv 5.5 Special Regulation of Foreign Investment Special Controls for Foreign Businesses or Investors Control of Foreign Investors Definition of Foreign Businessman or Investor Special Regulations Covering Joint Ventures Incentives and Disincentives for Geographica! Areas Incentives and Disincentives for Particular Industries Types of Incentives, Disincentives and Controls Nature of Incentives, Disincentives and Controls 135 Administration 135 Discretionary nature 135 Change of law or regulation 136 Retroactivity of legislation 136 Policy links Guarantees against Expropriation of Assets Retention of Local Consultant Price and Profit Controls Commodities Subject to Price Control Price Control Body Exemptions from Price Control Special Restrictions for Certain Companies Right of Government Authority to Share in Profits Criteria for Application of Controls Unfair Trading Practices and Consumer Protection Consumer Protection Laws 138 Product Standards and safety 139 Warranties General Principles Governing Injuries Prohibition or Regulation of Restraint of Trade Contracts Licences under Statutory Monopolies Special Provisions Relating to Business Activities of Non-residents Laws Governing Advertising and Promotion of Products Review of "Unfair" Contracts 143 Chapter 6 Import and Export Controls Restrictions on Import of Goods Special Requirements for Importers Restrictions on Export of Goods Regulation of Export and Import Licences Special Restrictions Relating to Foreign Control of Business Major Objectives of Host Country Rates of Customs Duties 152 Rates 152 Exemptions from Import duties Taxes Tariff Agreements Concessional Entry of Goods Free Trade Zones 155 Entrepots 155

9 xvi Contents Production entrepot for export purposes (EPTE) 155 Bonded zones Labelling and Packaging Requirements International Treaties Penalties and Additional Taxes Anti-dumpingand Countervailing Duties Power to Detain Goods When is Duty or Tax Payable? 158 Chapter 7 Exchange Control The Movement of Money Which Laws Apply to Exchange Control? Who Administers Exchange Control? Major Objectives of Exchange Control Policies Reparation of Capital Remittance of Dividends, etc Limit on Amount of Local Currency and Foreign Currency to Remit out of Host Country Restrictions on Remittance of Currency Currency to be Used for Loans Method of Fixing Exchange Rate of Host Country's Currency Differing Rates of Exchange of Host Country's Currency Transactions Requiring Approval from Exchange Control Authorities Tests for Distinguishing Residents from Non-residents Distinctions between Foreign-controlled Companies Incorporated Inside the Host Country and Companies Incorporated Out of the Host Country Remittance from Host Country of Personal Savings and Pension Fund Contributions by Expatriate Personnel Exchange Control Formalities Forward Market for Foreign Exchange Restrictions on Repatriation of Capital Düring Continuation of Investment Incentives Taxation Considerations in Res pect of Exchange Control Regulations Chapter 8 Labour and Nationality Laws Effect of Nationality, Citizenship and Race on Labour Laws Basis of Nationality Law 165 Loss of nationality 165 Dual nationality Nature of Relationship between Employer and Employee 166 Business activities outsourcing 167 Manpower outsourcing 168 Transitional provision Conditions Guaranteed to Employees Control ofwages and Hours Settlement of Industrial Disputes Parameters of Legal System of Industrial Dispute Settlement Customary Method of Settling Industrial Disputes Status and Make-up of Labour Unions 172

10 Contents xvii 8.10 Rights and Obligations of Labour Unions Institutional Links between Government, Trade Unions and Employer Organisations Right to Strike or Lock Out Administration of Labour Law Legislative Control of Labour Law Transmission of Business Additional Obligations of Employers Special Application of Labour Laws to Foreigners Work Permits or Visas for Foreign Workers, Executives and Management 177 Workforce Social Security for foreign workers 179 Voluntary foreign workers Required Balance of Race or Nationality International Labour Organisation Conventions 179 Chapter 9 Intellectual Property International Agreements Domestic Legislation 181 Existing legislation 181 Other relevant laws Copyright 182 Rights of the Copyright holder 183 Ownership 183 Duration of protection 183 Civil infringement 183 Criminal penalties Marks 184 Well-known marks 185 Duration of protection 185 Infringement 185 Criminal penalties Patents 186 Novelty 186 Inventive step 186 Unpatentable inventions 186 Use of the patent by the Government 187 Petty patents 187 Prior inventors 187 Rights of the patent-holder 187 Obligations of the patent-holder 187 Duration of protection 187 Infringement 187 Criminal provisions Industrial Designs 188 Rights of the design holder 188 Duration of protection 188 Civil infringement 188 Criminal provisions 188 Issues 188

11 xviii Contents 9.7 Trade Secrets 189 Rights of the trade secret owner 189 Civil infringement 189 Criminal provisions Circuit Layouts 189 Rights of the circuit layout holder 189 Duration of protection 189 Civil infringement 190 Criminal provisions Plant Varieties 190 Rights of the plant variety inventor 190 Duration of protection 190 Civil infringement 190 Criminal provisions Unfair Competition Geographica! Indications Registration Procedures 192 Registration for foreigners 192 Copyright 192 Marks 192 Patents 193 Designs 194 Circuit layouts 194 Plant varieties 194 Note on registration procedures Transfers and Licensing Agreements 195 Transfers 195 Licensing agreements Compulsory Licences 196 Copyright 196 Patents 196 Plant varieties Table of Pees 196 Copyright 196 Trade secrets 197 Industrial design 197 Circuit layouts 197 Trademarks 197 Patents Disadvantages for Non-residents Enforcement 198 General observations 198 Injunctions 199 Chapter 10 Settlement of Disputes Basis of Courts' Jurisdiction Status of Foreign Companies Civil Procedure for Foreign Companies Rules of Civil Procedure and Evidence 202 District Court (Pengadilan Negeri) 202

12 Contents xix High Court (Pengadilan Tinggi) 202 Supreme Court (Mahkamah Agung) Service and Process of Execution Outside Jurisdiction Availability of Interlocutory Relief Collection of Evidence Outside the Jurisdiction Choice of Applicable Law Choice of Forum Costs and Delays Associated with Litigation Security for Costs Language of Courts Enforcement and Execution of Judgments 204 Problems in enforcement Recognition of Foreign Judgments Status of Foreign Lawyers Special Procedures for Certain Disputes 205 Taxation disputes 206 Industrial disputes 206 Housing and building disputes 206 Administrative disputes 206 Insolvency and debt recovery disputes 206 Investment disputes Arbitration Arbitration System 206 Background 206 New law 207 Arbitral bodies New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Special Provisions Required for Arbitration Clauses International Arbitration Rules United Nations Model Law Distinction between International and Domestic Arbitration Tribunals' Basis of Jurisdiction Exceptions Courts' Assistance in Arbitration Choice of Procedura! Law Choice of Applicable Law Specification of Appointment of Arbitrators Rules Governing Choice of Arbitrators Expense of Arbitration 211 BANI Delays in Arbitration Review by Court Arbitration by Amiable Companies Participation by Foreign Companies Rules of Natural Justice Status of Foreign Lawyers Assistance from Outside Jurisdiction Language of Proceedings Confidentiality of Proceedings 214

13 xx Contents Special Procedures for Certain Disputes Arbitration in a Third Country Conciliation, Mediation and Alternative Dispute Resolution Alternative Methods of Dispute Resolution International Conventions Appointment of Conciliators and Mediators Special Rules Governing Proceedings Basis of Jurisdiction Enforcement of Settlements Right of Representation Choice of Applicable Law Courts' Power of Intervention Confidentiality of Proceedings Special Rules for Foreign Participation Provisions in Contracts for Forms of Dispute Resolution Types of Alternative Dispute Resolution Disadvantages of Conciliation, etc Joint Methods of Dispute Resolution Framework for Dispute Resolution International Conventions Recognised Arbitration Centres International^ Acceptable Arbitrators Availability of Local Advisers Position of Government Status of Government 217 Government guarantees 217 Government agencies 218 Joint ventures 218 Other commercial activities Choice of Forum Enforcement of Orders International Conventions 218 Chapter 11 Regulation of Local Finance Identification of Sources Types of Local Financial Institutions 219 National banking system 220 Central bank 220 Commercial banks 221 Rural banks 222 NBFIs 222 Banking sector developments How do Financial Institutions Raise and Supply Finance? 225 Financing institutions (Fls) 225 Banks Methods Used to Access International Capital Markets Specialised Institutions for Investment and Development Specialised Institutions for Financing Exports Local and Foreign Equity-Loan Ratios 226 Banks and NBFI 226

14 Contents xxi 11.2 Control of Financing Criteria for Regulation of Sources of Loan Finance 227 Foreign banking Manner in which Sources of Loan Finance are Controller! Regulations Covering Raising of Local Equity Capital Manner of Regulating Raising of Local Equity Capital 232 Rights issues 233 Conflicts of interest regulations Self-regulation by Credit and Financial Institutions Methods Used for Raising Capital 237 Pension Fund Law 238 Employers Pension Funds 238 Financial Institution Pension Funds 238 Taxation of pension funds 239 Supervisory body 239 EPF regulations 239 FIPF regulations 239 Pension fund Investments Taxation of Dividends or Interest to Non-residents Terms of Financing Customary Terms for Lending or Investing Money Flexibility of Customary Terms for Lending or Investing Money Interest Rates Covenants, Financial Ratios and Security Interests Covenants 244 Financial ratios 245 Security Local Arrangements Concerning Currency Exchange and Rates Which Law Governs Financing? 246 Governing law of loan agreements 246 Governing law of the security agreements 246 Jurisdiction 247 Service of process procedure Legal Securities for Finance Security Interests in Property Recognised Forms of Security Rights 247 Immovables land and buildings 247 Tangible movables machinery 247 Tangible movables inventory 248 Intangible movables receivables 248 Other assets Security Rights 249 Chapter 12 Movement of Goods (Transport, Shipping, and Aviation) Laws Relating to Inward and Outward Transport 259 Airtransport 259 Inland waters transport 259

15 xxii Contents Land transport 260 Sea transport Laws Related to the Movement and Storage of Goods 261 Air transport 261 Land transport 262 Sea transport International Conventions 263 Air transport 263 Sea transport Laws Related to the Movement of Dangerous Substances Arrests of Vessels, etc Regulation on the Shipbuilding Industry 265 Shipbuilding companies 265 Laws regulating shipbuilders Laws Related to the Shipping Register The Cape Town Convention in Indonesia Laws Related to Aircraft Procurement in Indonesia Laws Related to the Aircraft Register 270 Registration of aircraft Air Transportation Carrier Responsibilities 271 Chapter 13 Insurance Use of State-owned or Resident Brokers Classes of Insurance Underwriters Available Range of Insurance Insurance Required for Financing Arrangements Compulsory Insurance Insurance of Local Employees Legislation Affecting Choice of Insurance Company Application for Insurance Payments Product Liability Insurance 277