TAXES
LAW
6
Luther LLP in collaboration with Maqdir Ismail & Partners
A Lifting of the Export Ban but a Changed Framework Altogether
Outsourcing Practice in Indonesia – the Never Ending Battle
The combination of Government Regulation 1/2017 (GR 1/2017) and
Ministry of energy and Mineral Resources Regulation 9/2017 (MEMR
9/2017) may lead to heavier restrictions on foreign-owned companies
in terms of divestment and is a setback for refineries and smelters
that have been planning for the mineral export ban that had been set
to take effect in mid-2017.
According to GR 1/2017, foreign-owned companies holding a IUP
(Mining Licence) or IUPK (Special Mining Licence) must – regardless
of the applied mining method and/or associated or integrated
smelting capacities – divest their ownership as follows after the
5th year of production (percentage indicates required Indonesian
shareholding): 6th year: 20%; 7th year: 30%; 8th year: 37%; 9th year
44%; 10th year: 51%. This is an outlook far different from that to be
expected according to IUP holders under GR 77/2014 that offered far
more beneficial shareholding which would not ultimately lead to a loss
of control. Share divestment is to be conducted by way of a staged
offer to (in order of priority): the central government, the provincial
government as well as by tender to: SOEs, ROEs and lastly to private
entities. Should this mode of divestment be unsuccessful, IPO/public
offerings may be undertaken.
WhileGR1/2017 issilent onwhether current holdersof CoW(Contracts
of Work) fall under the same divestment requirements as holders of
IUP/IUPK, MEMR 9/2017 stipulates that the divestment requirement
Outsourcing in Indonesia is often portrayed as robbing workers of
their basic rights for the sake of increasing company profits. On the
other hand however, when done properly and in accordance with the
prevailing laws and regulations, outsourcing can help absorb a large
number of workers to reduce unemployment and informal workers
in the country.
Indonesian law recognizes and regulates 2 types of outsourcing;
business process outsourcing (
pemborongan pekerjaan
) and
labor supply (
penyediaan jasa pekerja/buruh
). In business process
outsourcing, the work that can be outsourced by a user company to
a service provider must not be the main (core) business of the user
company as determined in the production process flowchart by its
business sector association. For labor supply outsourcing, a licensed
labor supply company is limited to supply labor for the following
activities: (i) cleaning services; (ii) catering services; (iii) security
services; (iv) supporting services in the oil and gas sector; and (v)
transportation services.
The purpose of both outsourcing services regulated under Indonesian
law is to support companies in delegating their non-core business
process to external companies. Outsourcing should not be seen only
as an attempt to reduce costs with the aim to increase profit; because
by delegating to companies more capable of carrying out its non-
core business (such as administration for payroll & accountings), a
Labor
is applicable to CoW holders as well. This creates uncertainties for
CoW holders who are not planning to convert their CoW into a IUP/
IUPK since the CoW itself typically provides more or less detailed
stipulations on when and how divestment shall take place.
The MEMR has practically and selectively lifted the export ban that
was to take effect in mid-2017 for CoW holders who change the
CoW into a IUP/IUPK or whose product has been processed until
the minimum threshold. Still, an export approval from the Ministry
of Trade as well as an export recommendation from the MEMR are
required. The latter will continue to be based on progress in smelter/
refinery development.
There will be a number of CoW holders who contemplate the change
to IUP/IUPK while others will be able to retain their CoW due to
progress in their value-adding capacities in Indonesia.
user company will also enjoy the benefits of better quality labor.
However, there are still many oversights in the use of outsourced
labor in Indonesia. To avoid disputes adversely affecting a user
company and its outsourced employees, an outsourcing company
must comply with employment regulations generally applicable
in Indonesia; including minimum wage, Transfer of Undertaking
Protection of Employment (TUPE) for those employed under
employment agreements for a specific period (
perjanjian kerja untuk
waktu tertentu
or PKWT) as well as various social security schemes
(i.e. BPJS) for outsourcing employees. When outsourcing companies
obey these laws and regulations, the outsourcing process is better
managed, companies are encouraged to ensure the welfare of their
employees and any discontent can be better contained.
Philipp Kersting
Senior Associate
+60 321 6600 85
Bayu Perdana
Associate at Maqdir Ismail & Partners
+62 21 3911191
Natural Resources
7
th
Edition | June 2017
