Good news for companies which employ foreigners in Indonesia: the Indonesian government has just done away with the previously required Indonesian-to-foreign employee ratio of 10 local employees for each foreign employee. In practice some, (but a much lower), ratio may still be required, but there is no longer a mandatory ratio in place.
Good news for companies which employ foreigners in Indonesia: the Indonesian government has just done away with the previously required Indonesian-to-foreign employee ratio of 10 local employees for each foreign employee. In practice some, (but a much lower), ratio may still be required, but there is no longer a mandatory ratio in place. The unwritten rule was that a company must have three Indonesians or less for each foreign employee depending on the discretion of the Ministry of Manpower (MOM), and the Indonesia Investment Coordinating Board (BKPM).
The authorities also eliminated the requirement that a company must apply for a license to employ foreign workers (“Ijin Menggunakan Tenaga Kerja Asing”; in short IMTA) in relation to foreign directors or commissioners (members of the supervisory board) who are based overseas. IMTA is one of the three approvals required to be able to work and stay in Indonesia, the others being RPTKA (foreign workers manpower utilization plan) and KITAS (license to stay).
The above important changes were promulgated on 23 October 2015 by MOM Regulation No. 35, which revises MOM Regulation No. 16 of 29 June 2015 with respect to the Procedures for Employment of Foreign Workers (PP 35/2015).
PP 35/2015 also relaxes the requirement of temporary work permits for certain activities. For example, foreigners attending meetings will no longer need a temporary work permit.
The removal of the Indonesian-to-foreign employee ratio will be welcomed especially by foreign investors who no longer need to comply with a requirement, which was widely seen to be impractical, and a hurdle for investment in many (non-manufacturing) industries where relatively small numbers of local employees are needed.
According to data from the MOM there has been a downward trend of foreign employees being registered between 2012 and 2014. The government expects that the issuance of PP 35/2015 will help reverse the trend and that this change will encourage foreigners to work and live in Indonesia, facilitating transfer of technology and know-how to local Indonesian employees.
The following are other important revisions of applicable rules and regulations:
Our Indonesia team will continue to monitor further legal and regulatory changes relevant to foreign investors in Indonesia.
Please contact Anindya Pratidina, Associate, if you would like to know more about these changes or the Indonesian legal environment in general.
*The information contained in this legal update is provided for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.