Regional Round-Up: Indonesia Q1 2021

A New Age in Employment

Following the enactment of the Omnibus Law, the Government issued Government Regulation No. 35 of 2021 to further regulate fixed-term employment agreement, outsourcing, working hours and time-off, and termination of employment.

While the changes brought by this regulation are extensive, the below key points are worthy of highlighting:

    1. The maximum term of a fixed-term employment agreement is now increased from two years to five years. Employers should note that they must pay compensation after the expiration of the agreement.
    2. A court approval is no longer required to terminate employment. Employers can terminate by simply issuing a notification of termination at least 14 days before the termination date.
    3. New termination payment formulae that categorise the amount that must be paid based on the reason for termination have been introduced.
    4. Outsourcing companies must obtain a license from the Ministry of Manpower. An outsourcing company must also enter into an employment agreement with each outsourced employee.

Indonesia's New Investment List Widens Investment Opportunity

Another follow-up to the Omnibus Law was the enactment of the highly anticipated Priority Investment List under Presidential Regulation No. 10 of 2021 to replace the Negative Investment List. The new investment list significantly widens investment opportunity in Indonesia, and is designed to boost economic growth in the country.

Compared to the previous regime, all business sectors listed in the new list are open for foreign investment unless expressly declared as closed. The number of conditionally open business fields was reduced from 350 to only 46. By way of example, investment in the telecommunications, health, and trading, all of which were previously closed or capped to a certain percentage, is now 100% open.

At the same time, the Government also showed its commitment to protect the local industry by allocating 51 business fields for micro, small, and medium enterprises (“MSMEs“) and cooperatives. Any investment in these fields must be conducted in cooperation with MSMEs or cooperatives.

Lastly, six business sectors are closed, and business sectors that are services in nature or fall under the defence and security framework can only be carried out by the central government.

For Public Companies, New Rule on Going Private and Obligation regarding Controlling Shareholders

In the capital market sphere, the Financial Services Authority or OJK enacted Regulation No. 3/POJK.04/2021, where it introduced rules on going private, as well as reinforcing the obligation to disclose controlling shareholders.

On going private, OJK allows a public company to go private voluntarily or based on a request from OJK or the Indonesia Stock Exchange (“IDX“). For a voluntary go private, the public company needs to obtain its independent shareholders’ approval, buyback all shares owned by its public shareholders, announce the go private plan to the public, and apply to OJK to revoke its effective registration statement.

On the other hand, either OJK or IDX can order a public company to go private in certain situations, for example if the public company is found to have breached the law or if the public company’s business continuity is adversely impacted by a specific event.

Meanwhile, disclosure of controlling shareholders is now mandatory. A public company must disclose its controlling shareholders when it submits its registration statement, and disclose periodically if there are changes to such shareholders. It is important for public companies to note that the determination of controlling shareholders carry certain liabilities for the shareholders.

Bank Indonesia Introduces Rule on Payment System

Bank Indonesia Regulation No. 22/23/PBI/2020 covers new grounds in regulating companies that provide payment services and infrastructures. The key elements of this regulation are as follows:

    1. Instead of granting licences based on the types of product or functions offered, Bank Indonesia now regulates risks and activities, thus dividing payment system providers into front-end service providers (i.e. e-money issuers, e-wallet providers, and payment gateway providers) and back-end service providers (i.e. principals, switching providers, clearing providers, and settlement providers).
    2. Bank Indonesia separates economic interests and voting rights in a front-end service provider. For example, while foreign investors can hold up to 85% of an e-money company (previously only 49%), only domestic parties can hold voting rights (thus being a controller of such provider).

Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice

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