New Regulation on Foreign Employees in Indonesia

Indonesia’s Minister of Manpower (MoM) recently issued Regulation No. 16 of 2015 on Procedures for the Utilization of Foreign Employees (Regulation 16/2015). The new regulation came into effect on 29 June 2015 and replaces MoM Regulation No. 12 of 2013 (Regulation 12/2013). Similar to the 2013 regulation, Regulation 16/2015 sets out the procedures for obtaining work permits to employ expatriates in Indonesia.

Key features of Regulation 16/2015 include:

• a new requirement for non-resident directors and commissioners of Indonesian companies to hold a work permit
• changes to the scope of work permitted under a temporary work permit
• a new foreign-to-local employee ratio for hiring expatriates.

While Regulation 16/2015 essentially aims to provide clearer guidelines for employing expatriates, some of the new provisions are more onerous than those found in Regulation 12/2013.

Under Regulation 16/2015, an expatriate to be employed in Indonesia must first satisfy the following requirements:

1. have appropriate educational qualifications for the position;
2. have certificates of competency or at least five years of work experience relevant to the position;
3. provide a statement letter describing how the mandatory transfer of knowledge and skills to the Indonesian counterparts will be effected and evidenced by training reports;
4. provide evidence of an insurance policy with an Indonesian insurance entity; and
5. hold an Indonesian Taxpayer Registration Number (NPWP) if they have been working in Indonesia for more than six months;
6. be enrolled in the National Social Security System (Jaminan Sosial Nasional) if they have been working in Indonesia for more than 6 months.

However, the following exemptions apply:

• the requirements under points (1), (2) and (3) are exempted for directors and commissioners of an Indonesian company and members of the boards of patrons, management, and supervisors of an Indonesian foundation;
• expatriates employed for emergency and urgent work are exempt from these requirements; and
• expatriates employed for temporary work or as entertainers are only required to satisfy the local insurance requirement (point 4).

Previously, the ratio of Indonesian to foreign employees in an Indonesian entity was not clearly regulated, except for representative offices. In practice, an unwritten policy of at least 3-to-1 has been used as guidance. Under the new regulation, however, an employer of expatriates must now have at least 10 Indonesian employees for each expatriate hired.

The 10-to-1 ratio does not apply to the following expatriate positions:

• Directors and commissioners of an Indonesian company, or the members of the boards of patrons, management, and supervisors of an Indonesian foundation;
• expatriates employed for emergency and urgent work;
• expatriates employed for impresario (entertainment) services; or
• expatriates employed for temporary work.

A significant change introduced by Regulation 16/2015 is an expansion to the types of work that require a temporary Expatriate Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or RPTKA) and temporary Expatriate Work Permit (Izin Mempekerjakan Tenaga Kerja Asing or IMTA).

While local legal practitioners have differing opinions, we believe that the requirements to obtain the temporary RPTKA and IMTA for the types of work provided in Regulation 16/2015 will only apply to employment of expatriates by Indonesian companies. This is in line with Regulation 12/2013, which clarified that temporary RPTKA and IMTA were required for Indonesian companies to employ expatriates for a short period.

Under Regulation 16/2015, a temporary IMTA may be granted for the following activities:

1. providing guidance, counselling, and training in implementation of and innovations in industrial technology to enhance the quality and design of industrial products, and in international marketing cooperation;
2. producing commercial films (with a permit from the competent authority);
3. giving lectures;
4. participating in meetings with the head office or representative office in Indonesia;
5. conducting audits, quality control on production, and inspections of Indonesian branches;
6. taking work competency tests;
7. performing one-off work; and
8. performing work related to machinery and electrical installation, after-sales service, and product testing in the market.

In our view, the above activities of expatriates will be subject to the temporary RPTKA and IMTA requirement only if the activities are carried out by the expatriate in Indonesia while employed by an Indonesian company.

Temporary RPTKA and IMTA are generally valid for up to one month, except for work undertaken under points (2), (7) and (8) above, where the period may last up to six months (and is not extendable).

All directors and commissioners of Indonesian companies, and all members of the boards of patrons, management and supervisors of Indonesian foundations, including people not currently domiciled in Indonesia, are now required to obtain a work permit.

A strict reading of this requirement suggests that a company must now obtain an IMTA for any foreign director or commissioner, even if they reside overseas. The company must first apply for approval of its RPTKA before proceeding with IMTA applications for the individuals concerned. An IMTA issued for a company director or commissioner is valid for two years.

Regulation 16/2015 is silent on any transitional period to implement these new requirements. So there appear to be no exemptions to or delays in its implementation. Some of the new provisions will nevertheless require further clarification through MoM-led socialization and implementing regulations, and we will issue a further update as soon as that has happened. In the meantime, the MoM is likely to apply its own unwritten policy.