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A. CORPORATE ESTABLISHMENT

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Continue on page 10... Benefits of a Foreign-Owned Company Although the establishment process is more demanding, foreign-owned companies offer vital benefits that entirely compensate the previously invested time and efforts. a. Employment of Foreign Workers b. A foreign-owned company can sponsor and issue work permits as well as stay visas (working ITAS) for its international employees. c. Furthermore, this kind of company is allowed to sponsor business visas of its business partners and clients arriving in Indonesia for a short stay. d. Full International Ownership To attract more foreign investors and multiple investments critical to the Indonesian economy, Indonesia has been relaxing the limited foreign ownership lately. Wholly-owned foreign companies became less rare, and it is, therefore, likely that you can start an international company without any partnership or local shares of your property. 3. REPRESENTATIVE OFFICE Commonly considered as a branch of parent company overseas, it can be your first step to enter the Indonesian market. The purpose of this legal entity is marketing activity, preparing the establishment of PT PMA, or conducting market research. No direct selling or generating revenues is allowed. Registering a Representative Company in Indonesia A representative office means market presence without large capital investment. The primary purpose of representative offices in Indonesia is testing the water before the actual company incorporation. Furthermore, a representative office might conduct market research, approach potential clients and build brand awareness of your business. However, no activities that generate profit are allowed, and this is the prominent factor that distinguishes a representative company in Indonesia from other legal entities. Registration Process of a Representative Office in Indonesia Step 1: obtaining a representative office (KPPA) license Step 2: obtaining domicile letter from the local subdistrict Step 3: applying for taxpayer registration number (NPWP) Step 4: getting a company registration certificate (TDP) The Benefits of Representative Office in Indonesia a. Low Incorporation Cost As mentioned, a representative office (RO) is an affordable way of how to penetrate the market in Indonesia. Whether you are not sure about your target audience or the presence of business partners, these companies will help you to understand the Indonesian market properly. b. Visa Sponsorship Even though representative offices are not permitted to generate revenues, they are entitled to sponsoring work and stay permits for their foreign employees. Moreover, an RO can sponsor a business visa for business partners coming to Indonesia.

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Continue on page 11... Organisational Structure To establish a representative office in Indonesia might be the most feasible solution for many entrepreneurs due to its lenient corporate structure. As opposed to a foreign company no shareholder or director is required, and only one chief executive is sufficient. Currently, four types of representative offices are available: a. KPPA: General RO of a Foreign Company b. KPPPA (known as KP3A or K3PA): RO of a Foreign Trading Company c. BUJKA: RO of a Foreign Construction Service Company d . KPPA MIGAS: RO of a Foreign Oil and Gas Company

Indonesian Employment Law And Covid-19: As a result of the serious economic disruptions from COVID-19, there are several options available to employers under Indonesian employment law, as follows: 1. SALARY CUTS AND UNPAID LEAVE a. If employees freely agree to the employer’s proposal to salary cuts and/or unpaid leave, that agreement should be recorded in writing. b. If there is a union at the company then the employer must consult with and secure the approval of the union for any agreed salary cuts and/or unpaid leave. c. If employees decline to agree to salary cuts and/or unpaid leave, the employer can seek to encourage agreement by implying that employees who do not agree to the proposed changes could potentially be made redundant, subject to a mutual termination agreement (“MTA”) or, if disputed, approval from the labor court. It is important to secure the consent from each employee for proposed salary cuts and/or unpaid leave. The agreement with employees must be signed in the Indonesian language. A dual-language form of the agreement can be drafted but the prevailing language must be Indonesian. If the agreement is not signed in the Indonesian language, there is a risk that it could be considered null and void if disputed in the courts. 2. EMPLOYEE TERMINATIONS The central government and regional governments have not issued any impending regulations with regard to the termination of employment, specifically during the COVID-19 pandemic. Companies should therefore, follow the regulations stipulated in the Labor Law. There are a number of different scenarios employers might consider in response to COVID-19 as follows: a. The complete closure of the business. The business is no longer financially viable and the redundancy of all the employees, or laying off only a portion of the workforce. Considerations include the following: 1. Under the Indonesian Manpower Law, terminations for efficiency basically can be done only when there is a closure of the business (including partial closure or a reduction of overall business activities), either preceded with or without losses for two consecutive years (this is relevant for determining termination entitlements). 2. Whether a force majeure event would be an acceptable reason for employee terminations with minimal severance payment. 3. If the business is not being shuttered, employee terminations can still be done but only with the express written agreement of employees by way of a mutual termination agreement (“MTA”).

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Continue on page 12.. 4. Without an MTA the proposed terminations will be deemed as being disputed and can only be settled through the labor court, a process that can take six months or more, during which the employees’ salaries must be paid. 5. Indonesia does not recognize the concept of notice of termination. Unless an MTA is reached, the lengthy and costly termination process for permanent employees is as follows: a) The parties (the employer and employees, or if applicable, a labor union) are required to meet in an attempt to reach an amicable termination settlement, a process known as bipartite negotiation. b) If a settlement is reached, an MTA should be executed and registered at the relevant labor court; c) If negotiations fail, either the company or the employee may file the dispute with the relevant manpower affairs office. The manpower office will ask both parties whether the dispute should be resolved through conciliation with private conciliators or mediation with a mediator from the manpower office. d) If the non-binding written recommendation of the conciliator or mediator is rejected, the matter must be brought by either party to the relevant labor court to approve the termination and the benefits payable in connection with the termination. e) If the labor court decision is appealed the case then goes to the Supreme Court. b. Statutory Severance Requirements 1. For contract/fixed-term employees:

The balance of the contract must be paid to fixed-term employees terminated before the end of their fixed-term employment agreement. 2. For permanent employees:

A permanent employee’s entitlement in connection with termination of employment depends on their years of service and the circumstances of the separation. The categories of possible separation entitlements under Article 156 of the Manpower Law consist of: a) severance pay of up to nine months’ wages, b) service pay of up to 10 months’ wages, and c) other compensation (ie, for unused annual leave, any applicable relocation costs or expenses, compensation for housing, medical and hospitalization, and other separation benefits as may be agreed). Under the Indonesian Manpower Law, in the event of terminations as a result of the company closing down due to two consecutive years of continuous losses or due to force majeure, terminated permanent employees are entitled to single severance pay, single service pay, and compensation In the event of terminations for downsizing due to efficiency reasons (ie, not due to financial losses or force majeure), terminated permanent employees are entitled to double severance pay, single service pay and compensation. Note that an ex gratia payment of two to three months’ salary on top of the permanent employee’s mandatory severance entitlements may be necessary to ensure the mployee signs an MTA to avoid the costly labor court process. 3. EMPLOYMENT WAGES 1. Worker/Labor Protection and Business Continuity for the Prevention and Control of COVID-19.

Under the circular – Letter of Republic of Indonesia Ministry of Manpower No. M/3/HK.04/III/2020 on Worker/Labor Protection and Business Continuity for the Prevention and Control of COVID-19 – employers must continue paying the full wages of employees working from home unless an agreement between the two parties says otherwise.

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Continue on page 13.. Employees who are under the ODP (monitored) status will still be entitled to full salaries. An ODP status means the person has a travel history of entering a COVID-19 hotspot and came in contact with possible COVID-19 patients, and thus have to go into self-isolation.

Employees who are under the PDP status (surveillance) are those that have displayed symptoms of COVID-19, such as fever, respiratory problems, and dry coughs and are undergoing self-isolation – they will be categorized as being on sick leave. The company will then have to adhere to the Law

No. 13 of 2003 (Labor Law).

Under the Labor Law, the employee on sick leave is entitled to: a. 100 percent of wages during the first four months of sick leave; b. 75 percent of wages during the second four months of sick leave; c. 50 percent of wages during the third four months of sick leave; and d. 25 percent of wages during each subsequent month of sick leave (until the termination of employment is agreed upon). 3. Possible Deduction Of Employees’ Payroll And THR

In essence, companies cannot make wage deductions beyond those agreed upon by employers and employees in their respective work contracts.

This can be excluded if the clause regarding wage deduction is prescribed in a work contract, collective agreement or the company regulations. This wage deduction also applies to certain conditions, such as fines, compensation, and advance payment of wages.

Although, based on the Circular of the Minister of Manpower No. M/3/HK.04/III/2020 regarding Worker/Labor Protection and Business Continuity in the Context of Preventing and Countering Covid-19, it mentions that for companies that limit business activities by considering business continuity, changes in wage levels and ways of payment can be made in accordance with agreement between the company and their employees. However, this does not have a strong legal basis, which may lead to industrial relations disputes, where dispute of rights are defined in Article 1 number 2 of Law

No. 2 of 2004 regarding Industrial Relations Disputes Settlement:

“dispute of rights refers to a disput which occurs due to the non-fulfillment of rights because there is inconformity between the implementation or interpretation of provisions under laws and regulations, employment agreement, company regulation, or collective labor agreement.”

THR is a part of non-wage income. As is the case in a wage, the company shall also pay the THR to employee(s) at least 7 (seven) day before the Religious Holiday. THR is regulated in a number of regulations including Government Regulation No.78 of 2015 concerning Wages and Regulation of the Minister of Manpower (GR No.6 of 2016 concerning THR for employees in the Company).

As per the Minister of Manpower Regulation No.20 of 2016 concerning Procedures for Granting Administrative Sanctions, companies who fail to pay on time or does not pay THR to employees may be subject to consequences in the form of fines or administrative sanctions with accordance to the prevailing laws and regulations. However, for companies that have difficulty paying THR amid Covid-19, they can open a dialogue with employees to reach agreement on other options in paying the THR to employees. The company can propose a suspension of THR payments up to a mutually agreed period or the company can pay THR in stages to employees 4. Postponement Of Employees’ Minimum Wages For The Protection Of Employees’ Right

Companies are facing issues such as low running income, disrupted production, but the burden of expenditure is keeping the business world on the verge of mass bankruptcy. With the economic decline, companies may not be able to pay finance expenses without any income including their employees’ wages by the end of June 2020.

It is stipulated in Law No.13/2003 that the employer is prohibited from paying the employees’ wages lower than the minimum wages. However, an employer who is unable to pay the minimum wages can ask for a postponement for the payment of minimum wages to their employees. This postponement of the payment of minimum wages is explained in Article 90 paragraph (2) of Law No.13/2003 wherein the specific article.

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C. TAX AND ACCOUNTING

Continue on page 14.. The postponement of the payment of minimum wages by a company that is financially unable to pay minimum wages is intended to temporarily release the company from having to pay minimum wages for a certain period of time. If the postponement comes to an end, the company is then under an obligation to pay minimum wages that are applicable at the time of postponement, where the remaining wages that were not paid during the postponement period will be paid to the employee (aggregate amount of remaining wages for the postponement period) subsequent to the end of postponement period. The procedure for the postponement of the payment of minimum wages is regulated in Minister of Manpower and Transmigration Decree No. Kep.231/MEN/2003 concerning Procedures for Postponing the Application of the Minimum Wage. The application for the postponement of the minimum wage payment obligation must be submitted by the employer to the Governor through the provincial Manpower Office no later than 10 (ten) days before the minimum wage is implemented effectively The application itself must be made in the form of a written agreement between the employer and the employees/labor union, which was made pursuant to an in-depth, honest, and open negotiation between the 2 (two) parties. Thus, if the employer is in financial distress due to the Covid-19 outbreak and has not been able to pay his employees’ wages according to the minimum wage, then the employer can postpone payment of wages by first negotiating with the employees or worker union/ labor union. However, the postponement of payment of the minimum wage by employers to employees does not eliminate the obligation of employers to pay the difference in minimum wages during the postponement period (where the remaining amount of wages that was postponed must be given to the employee after the end of the postponement period).

In a bid to provide certainty to tax and fiscal during COVID-19 pandemic, the Government has issued Government Regulation Number 29 of 2020 on Income Tax Facilities to Address Corona Virus Disease (Covid-19). The statement was made by Taxation Regulation Director II Yunirwansyah in a virtual Media Briefing on Taxation on Thursday (25/6), in Jakarta. Taxpayers who support the Government’s efforts in tackling COVID-19 pandemic are eligible for income tax facilities. Based on the Regulation, the Government provides 5 tax facilities; among others: 1. Indonesian Resident Taxpayers (WPDN) who produce medical equipment and/or Household Health Supplies (PKRT) to handle COVID-19 are entitled to an additional reduction in net income by 30 percent of the costs incurred. The medical equipment includes of N95 surgical masks and respirators, body protection, medical disposable ventilators, and diagnostic test reagents for Covid-19. Meanwhile the PKRT may include antiseptic hand sanitizers and disinfectants. 2. For taxpayers who give donations to address COVID-19, the donations can be deducted from gross income. These donations must be supported by the receipt of donations and received by charitable institutions that have Taxpayer Identification Numbers (NPWP) such as National Disaster Management Agency (BNPB), Regional Disaster Management Agency (BPBD), Ministry of Health, Ministry of Social Affairs, or charitable institutions. However, the deduction must either follow provisions of Government Regulation Number 29/2020 or Number 93/2010. 3. In Government Regulation Number 29 of 2020, the donations may be given to the BNPB, BPBD, Ministry of Health, Ministry of Social Affairs, or charitable institutions that have the NPWP. The charitable institutions are obliged to report the donations. In this regard, donations may be given in the form of money, goods, and others. 4. Donations that have been deducted as a reduction in gross income under Government Regulation No. 93 of 2010, cannot be further reduced under

Government Regulation Number 93/2010. The taxpayers must choose between Government Regulation Number 29 or Number 93 5. The Regulation also states that individual taxpayers that are health workers and assigned to provide health services to address Covid-19 will receive additional income from the Government in the form of honoraria or other benefits.The additional income is subject to final Article 21 Income Tax withholding at a rate of 0 percent.

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Continue on page 15.. 6. The health workers consist of medical staff and health support staff including cleaners, administrative staff, morticians, ambulance drivers, and other supporting staff. 7. Income of taxpayers in the form of the Government’s compensation and reimbursement for the use of assets based on Government Regulation

Number 34 of 2017 is subject to a final income tax of 0 percent. 8. Taxpayers of publicly-listed company who are willing to buyback shares traded on the stock exchange are entitled to a 3 percent lower rate. Thus, 40 percent of their shares will be traded on the Indonesian Stock Exchange (BEI) or owned by at least 300 parties. Each party may only own shares of less than 5 percent of the total issued and fully paid shares within a minimum of 183 calendar days within a tax year. The parties do not include publicly-listed company taxpayers that repurchase their shares and/or are affiliated. The taxpayers are considered meeting these requirements once they received appointment and approval from the Ministry/ Financial Services Authority (OJK). The share buyback is carried out from 1 March until 30 September 2020. The share can only be owned until 30 September 2020. They are obliged to submit report of share buyback in their Annual Tax

Returns (SPT). (Ministry of Finance/EN) (Source: Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation Date 26 Juni 2020) Tax Developments In Response To Covid-19 Tax-related measures introduced in Indonesia in response to the COVID-19 pandemic are regulated under Ministry of Finance (MoF) Regulation No. 86/ PMK.03/2020 and MoF Regulation No. 110/PMK.03/2020 on Tax Incentives for Taxpayer Affected by the Coronavirus Outbreak, and Government Regulation in Lieu of Law (Perppu) no 1 year 2020. Article 21 Employee Income Tax For the months of April – December 2020 for employees who: • receives income from a qualified employer (There are 1,189 categories of industries and companies, those listed in the Attachment A of MoF No. 86/PMK.03/2020) • has a Tax ID number (NPWP) • receives an annualized regular gross income not exceeding IDR 200 million. Bonus and Religious. Holiday Allowance are not included in calculating the threshold. The employer should give the Art. 21 income tax as additional payment to the employee. The taxpayer should prepare e-billing with notes “employee income tax is borne by Government based on MoF 86/PMK.03/2020.” Tax Developments In Response To Covid-19 Tax-related measures introduced in Indonesia in response to the COVID-19 pandemic are regulated under Ministry of Finance (MoF) Regulation No. 86/ PMK.03/2020 and MoF Regulation No. 110/PMK.03/2020 on Tax Incentives for Taxpayer Affected by the Coronavirus Outbreak, and Government Regulation in Lieu of Law (Perppu) no 1 year 2020. Article 21 Employee Income Tax For the months of April – December 2020 for employees who: • receives income from a qualified employer (There are 1,189 categories of industries and companies, those listed in the Attachment A of MoF No. • 86/PMK.03/2020) • has a Tax ID number (NPWP) • receives an annualized regular gross income not exceeding IDR 200 million. Bonus and Religious. Holiday Allowance are not included in calculating the threshold.

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Continue on page 16.. The employer should give the Art. 21 income tax as additional payment to the employee. The taxpayer should prepare e-billing with notes “employee income tax is borne by Government based on MoF 86/PMK.03/2020.” Article 22 Income Tax on Imports can be exempted for companies who: • have a business classification stated in that is among those listed in the Attachment H of of MoF No. 86/PMK.03/2020 (there are 721 specific industrial fields or companies that have been granted KITE (Import Facility for Export Purposes)). • Qualified taxpayers must apply for this incentive via DJP Online website. If approved, the DJP Online system will issue a Tax Exemption Letter (SKB) that is valid starting from the issuance date up to and including 31 December 2020. The taxpayer should submit realization letter to DGT (three months period for April – June 2020), realization letter should be submitted on 20 July 2020 at the latest and on the 20th of the following month thereafter, through DJP online with specific format that can be uploaded from DJP online. Article 25 Income Tax • 50% reduction of the Article 25 Monthly Tax Installments for qualified taxpayers (1,013 specific industrial fields, listed in the Attachment M of MoF

No. 110/PMK.03/2020) is provided. • 50% reduction of the Article 25 Monthly Tax Installments for qualified taxpayers (1,013 specific industrial fields, listed in the Attachment M of MoF

No. 110/PMK.03/2020) is provided. • This reduction in tax installments is valid until the tax period of December 2020. • Qualified taxpayers must inform the tax office that they are utilizing this incentive via DJP Online website. Value Added Tax (VAT) • The government will automatically consider qualified taxpayers (listed in the Attachment P of MoF No. 86/PMK.03/2020) as low-risk and provide a preliminary VAT refund facility for the fiscal periods April through December 2020. • Applicable for VAT returns (including amendments) that are submitted before 20th January 2021 with overpayment status, with a maximum amount of IDR 5 billion (per month). • Taxpayer is not in the preliminary evidence audit position and did not perform any criminal actions during the last five years before VAT return submission. New digital economy tax measures • On 31 March 2020, the Indonesian government issued the Government Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang- Undang/Perppu) No.1 Year 2020 (the regulation) which purports to apply new measures to the digital economy. • On 16 May 2020, Perppu 1/2020 was passed into Law No. 2 Year 2020. The new law imposed tax on over-the-top electronic transaction. This tax is imposed on foreign traders, foreign service providers, and / or trade operators through an overseas electronic system (PMSE) that cannot be designated as a permanent establishment (BUT). The issuance of these regulations occurred in the context of the Indonesian government’s response to

Covid-19. • Starting July 2020, PER-12/PJ/2020 imposes 10% VAT to the provision of intangible goods and services through an e-commerce system by non- residents for consumption in Indonesia. • The obligation to register and account for VAT applies to foreign e-commerce providers (including foreign platforms, foreign individuals and digital companies). Foreign e-commerce providers are entitled to appoint a representative in Indonesia to fulfil their tax obligations.

On-line platform operators may wish to verify their VAT obligations in Indonesia.

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Continuation of page 15 • The obligation to collect VAT from payments made by Indonesian buyers and customers is the responsibility of the e-commerce business providers (either e-commerce foreign or domestic providers, or offshore traders). The Indonesian tax office will appoint the e-commerce business providers as

VAT collectors if the transactions satisfy certain thresholds in the Indonesia market. E-commerce marketplace providers will be appointed as VAT Collectors if their activity in the Indonesian market meets either of the following thresholds: • transaction value with customers in Indonesia exceeding IDR 600 million in a year or IDR 50 million in a month; • access to their e-commerce platform from Indonesia exceeds 12 thousand users in 12 months, or one thousand users in one month. Other tax measures • MoF Regulation No. 125/PMK.010/2020 on import Value Added Tax (VAT) for newsprint paper and/or magazine paper, borne by the 2020 state budget until December 31, 2020 • Liquefied Natural Gas or LNG has been added to list of products the imports of which will no longer be charged with VAT : Government Regulation

No. 48/2020 on the amendment to Government Regulation No. 81/2015 on the import and/or submission of taxable strategic goods that are exempted from added value taxes, • MoF Regulation No. 96/PMK.010/2020 on the amendment to MoF Regulation No. 11/PMK.010/2020 on the implementation of Government Regulation No. 78/2019 on Income Tax Facilitation for Investment in Certain Business Fields and/or Certain Regions. The regulation effectively gives the

Indonesia Investment Coordinating Board (BKPM) the authority to determine the eligibility of companies for the tax allowance as the application must now be done through the BKPM’s Online Single Submission (OSS) system. This regulation came into effect starting August 10, 2020. RECOVERY PLAN

1. Business or taxation Incentives Taxes borne by the government such as reduction in article 25 (corporate income tax), exemption from income tax Article 21 (employee income tax), Article 22 on imports tax, and preliminary VAT refunds. 2. Ministries & Regional Governments Almost 35% of Ministeries & Regional government budget has been allocated to boost tourism sector, food security and fisheries, industrial estates, ICT development, Central Government loan to regional governments, and anticipating economic recovery. REQUIREMENTS TO QUALIFIED INCENTIVES 1. Companies/individual need to obtain an Ease of Import for Export Purposes (KITE) under certain Business Classification Code (KLU) in the Attachment MoF No. 110/PMK.03/2020. 2. Exemption of Income Tax Article 22 on Import Tax and purchases of the aforementioned goods by agencies/government institutions, referral hospitals, and other parties designated to assist in handling the COVID-19 outbreak as mentioned in appendix I of 86/PMK.03/2020 (PMK 86/2020). 3. Preliminary VAT refund for low-risk Taxable Entrepreneur (PKP) who submits an overpayment of VAT Tax Return overpayment for April – December 2020 tax period up to IDR 5 billion per month. 4. An exemption of Income Tax Article 21 on Employee Income Tax with annual gross income up to Rp200 million. Taxpayer should prepare e-billing with 5. notes “employee income tax is borne by Government based on PMK 86/2020.

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D.AUDIT & COMPLIANCE

Continue on page 18... REQUIREMENTS TO QUALIFIED INCENTIVES 1. Companies/individual need to obtain an Ease of Import for Export Purposes (KITE) under certain Business Classification Code (KLU) in the Attachment MoF No. 110/PMK.03/2020. 2. Exemption of Income Tax Article 22 on Import Tax and purchases of the aforementioned goods by agencies/government institutions, referral hospitals, and other parties designated to assist in handling the COVID-19 outbreak as mentioned in appendix I of 86/PMK.03/2020 (PMK 86/2020). 3. Preliminary VAT refund for low-risk Taxable Entrepreneur (PKP) who submits an overpayment of VAT Tax Return overpayment for April – December 2020 tax period up to IDR 5 billion per month. 4. An exemption of Income Tax Article 21 on Employee Income Tax with annual gross income up to Rp200 million. Taxpayer should prepare e-billing with notes “employee income tax is borne by Government based on PMK 86/2020.

A. Guide for Foreign Investors Investors should be paying attention to Company Law, Investment Law and Market Law. 1. The Company Law a. Foreign investors should understand, which sets outs the requirements for audit compliance and preparing financial statements. Other important and relevant laws are the Investment Law and Capital Markets Law. b. If a company’s fiscal year differs from the calendar year, then their deadline for reporting and paying corporate income tax is four months after the end of their fiscal year. c. There is currently no single unifying regulation on auditing and compliance in Indonesia. Foreign investors will need to be aware that regulations regarding auditing, accounting, and financial reporting are stipulated over several laws and bylaws, and that a good understanding of these can ensure their business stays compliant. d. Investors should use the services of registered local advisors to make sure they understand the prevailing regulations. 2. The Investment Law

Lys out of the basic requirements on how to operate in Indonesia. These are part of key compliance norms: a. Implementing good corporate governance; b. Undertake corporate social responsibility activities; c. Comply with the labor law; d. Submit quarterly investment activities to the Investment Coordinating Board (BKPM); e. Honor the cultural traditions of communities. f. Criteria for the company to be audited g. Companies with assets exceeding 50 billion rupiah (US$3.6 million); h. Public companies; i. Companies that issue debt instruments; j. The company is a state-owned enterprise; or k. The company collects or manages public funds (such as banks and insurance companies).

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Continuation of page 17 By law, a company must keep its accounting records and books for at least ten years from the end of its reporting period. Moreover, audits are to be conducted based on the Indonesian Financial Accounting Standards (SAK), which are set by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI), for sharia-based companies. Since 2015, the DSAK IAI has converged its accounting standards with that of the International Financial Reporting Standards (IFRS), issued by the IFRS Foundation and the International Accounting Standards Board (IASB). (The IFRS are a set of global accounting standards that apply to all financial reporting, quality control, and auditing standards relating to all profit-oriented entities.) This is part of Indonesia’s efforts to make local financial statements more comparable and understandable across international boundaries as the country aims to attract greater foreign investment and play a more prominent role within the G20.

VI. The government’s policies

The Government of Indonesia has issued stimulus policies in order to boost Indonesia’s economic growth in the coming year. The national economic growth was driven by ongoing global economic improvement such as export performance, coupled with growing domestics demand in term of consumption and investment. A. BANK INDONESIA MIX STRATEGY 2022 B. FISCAL POLICY 2022 FOR “ECONOMIC RECOVERY AND STRUCTURAL REFORM”

Topic Feature

A. BANK INDONESIA MIX STRATEGY 2022

Continue on page 19... The Bank Indonesia policy mix in 2022 will remain synergized as part of the national economic policy direction to accelerate recovery (pro-growth) while maintaining economic stability (pro-stability). The policy mix comprise five important policy instruments, consist of one policy as pro-stability and four policies as pro-growth. 1. Pro-stability policy: Bank Indonesia monetary policy in 2022 will be oriented towards maintaining stability in terms of the inflation target and rupiah stability, as well as macroeconomic and financial system stability. Monetary policy normalization will be performed in a measured and prudent way to avoid disrupting the national economic recovery process. This policy is issued to overcome the risk of increasing global financial market instability pressures from monetary policy normalization (tapering) by the Fed and in several other advanced economies 2. Pro-growth policy: Consist of four policies below, pro-growth will be oriented towards the joint efforts to accelerate national economic recovery (pro growth), as follows: 1) Macro prudential policy:

An accommodative macro-prudential policy will be maintained and expanded to revive bank lending to priority sectors and MSMEs, thereby accelerating the national economic recovery while maintaining financial system stability and pursuing development of the green economy and finance.

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A. BANK INDONESIA MIX STRATEGY 2022

Continuation of page 18 2) Payment System Policy

Payment system digitalization will be expanded to accelerate the national digital economy and finance by strengthening industry consolidation, developing modern payment system infrastructure (QRIS, SNAP, BI-FAST), expanding QRIS acceptance to 15 million merchants, expanding crossborder QRIS cooperation and continuing the electronification of regional government financial transactions, G2P social aid program (bansos) disbursements 4.0, and different transportation modes, as well as digitalization of the MSME and tourism sectors. 3) Financial Market Deepening Policy

Money and foreign exchange market deepening will be accelerated in accordance with the Money Market Deepening Blueprint (BPPU) 2025 to strengthen the effectiveness of policy transmission, create modern money market infrastructure based on international standards and develop financing instruments, including sustainable finance. 4) MSME Policy and the Sharia Economy and Finance

Programs to develop an inclusive economy and finance for MSMEs as well as the sharia economy and finance will be expanded through digitalization and by expanding domestic and export market access. The Bank Indonesia policy mix in 2022 will remain synergized as part of the national economic policy direction to accelerate recovery (pro-growth) while maintaining economic stability (pro-stability). The policy mix comprise five important policy instruments, consist of one policy as pro-stability and four policies as pro-growth. 1. Pro-stability policy: Bank Indonesia monetary policy in 2022 will be oriented towards maintaining stability in terms of the inflation target and rupiah stability, as well as macroeconomic and financial system stability. Monetary policy normalization will be performed in a measured and prudent way to avoid disrupting the national economic recovery process. This policy is issued to overcome the risk of increasing global financial market instability pressures from monetary policy normalization (tapering) by the Fed and in several other advanced economies 2. Pro-growth policy: Consist of four policies below, pro-growth will be oriented towards the joint efforts to accelerate national economic recovery (pro growth), as follows: 1) Macro prudential policy:

An accommodative macro-prudential policy will be maintained and expanded to revive bank lending to priority sectors and MSMEs, thereby accelerating the national economic recovery while maintaining financial system stability and pursuing development of the green economy and finance. 2) Payment System Policy

Payment system digitalization will be expanded to accelerate the national digital economy and finance by strengthening industry consolidation, developing modern payment system infrastructure (QRIS, SNAP, BI-FAST), expanding QRIS acceptance to 15 million merchants, expanding crossborder QRIS cooperation and continuing the electronification of regional government financial transactions, G2P social aid program (bansos) disbursements 4.0, and different transportation modes, as well as digitalization of the MSME and tourism sectors. 3) Financial Market Deepening Policy

Money and foreign exchange market deepening will be accelerated in accordance with the Money Market Deepening Blueprint (BPPU) 2025 to strengthen the effectiveness of policy transmission, create modern money market infrastructure based on international standards and develop financing instruments, including sustainable finance. 4) MSME Policy and the Sharia Economy and Finance

Programs to develop an inclusive economy and finance for MSMEs as well as the sharia economy and finance will be expanded through digitalization and by expanding domestic and export market access.

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B. FISCAL POLICY 2022 FOR “ECONOMIC RECOVERY AND STRUCTURAL REFORM” The preparation of the Macroeconomic Framework and Fiscal Policy Principles (KEM PPKF) document is carried out in an atmosphere of high uncertainty due to the Covid-19 pandemic. The PPKF 2022 KEM document which will be the basis for the preparation of the 2022 State Budget was prepared by taking into account the latest economic dynamics and future economic prospects as well as the challenges and development targets to be achieved. In the KEM PPKF 2022 document, the fiscal policy architecture is designed to support “Economic Recovery and Structural Reforms.” In general, the direction of fiscal policy in 2022 is as follows: 1. The first, continuing efforts to strengthen economic recovery while still prioritizing the health sector over the handling of Covid 19 as the key to national economic recovery 2. Second, maintain the sustainability of social protection programs to strengthen the foundation of social welfare, prevent an increase in poverty and vulnerability due to the impact of Covid 19, and as an effort to strengthen the leverage of MSMEs and the business world. 3. Third, improving competitiveness and productivity requires Information and Communication Technology (ICT) infrastructure, connectivity, and energy, as well as food security to support Indonesia’s economic transformation 4. Fourth, optimizing state revenues, including taxation, strengthening spending through spending better and financing innovation. This will be key in the context of consolidating a fair and sustainable APBN policy. 5. Fifth, ensuring the implementation of fiscal policy in 2022 can run optimally, so that it becomes a solid foundation for realizing smooth fiscal consolidation in 2023. Through the acceleration of economic recovery, structural reforms and fiscal reforms, fiscal policy in 2022 is expected to be effective, prudent and sustainable, which is reflected in the increasing state income, increasing quality of state spending, the primary balance moving towards a positive direction, the deficit decreasing and the debt ratio under control.

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VII. Investment opportunity in Indonesia

Topic Feature

A. INVESTMENT STRATEGIES.

B. PRIORITY BUSINESS FIELD The Indonesian Ministry of Investment/BKPM along with central and local governments work together in order to solve the investment problems in Indonesia, to improve “an ease doing business in Indonesia, the investment ecosystem and business activities” Therefore, the Government prepared and implemented strategies such as: 1. A strategic project map of investment opportunities in Indonesia, which is a structured investment design in the form of a pre-feasibility study. This study will analyze investment from various aspects, infographics, and spatial-based project information. 2. An Electronically Integrated Risk-Based Business Licensing System or Online Single Submission Risk Based Approach (OSS-RBA). This system allows potential investors and business actors to start a business with a fast and easy licensing system 3. The Job Creation Law has been ratified by the Ministry of Investment/BKPM, which consists of 186 articles, and was signed by President Joko Widodo on November 2, 2020. The Job Creation Act, which summarizes 77 laws, is divided into 11 clusters, including ease of doing business and improving the investment ecosystem and business activities. This law will increase labor absorption by encouraging investment and providing enormous space for strengthening Micro, Small and Medium Enterprises (MSMEs). 4. Providing a number of fiscal incentives to attract local and foreign investors. The government has also prepared a list of investment priorities. Investors who invest in priority industries are entitled to fiscal incentives. This policy was implemented because of the awareness that to attract investors, four things are needed, namely convenience, certainty, efficiency and transparency

The Indonesian government has released Presidential Regulation (Perpres) Number 49 of 2021 concerning Amendments to Presidential Regulation Number 10 concerning the Investment Business Sector. These changes are made in the context of limiting the implementation of Investment as well as controlling and supervising alcoholic beverages. However, the list of priority business fields still refers to Presidential Decree No. 10 of 2021. Referring to article 4 paragraph 1 of Presidential Regulation Number 10 of 2021, priority business fields are business fields that meet the criteria, namely: 1. National strategic program/project 2. Capital intensive 3. Labor intensive 4. High technology 5. Pioneer industry 6. Export orientation, and/or 7. Orientation in research, development and innovation activities

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C. INCENTIVES FOR INVESTMENT.

D. OPEN AND CLOSED BUSINESS FIELDS FOR INVESTMENT

E. EASE OF DOING BUSINESS IN INDONESIA Investors who invest in industries that meet these criteria are entitled to fiscal incentives. 1. The fiscal incentives provided consist of tax incentives and customs incentives. 1) Tax incentives include: a. Income tax for investment in certain business fields and/or in certain areas (tax allowance) b. Reduction of corporate income tax (tax holiday) c. Reduction of corporate income tax and net income reduction facilities in the context of investment as well as reduction of gross income in the context of certain activities (investment allowance). The investment allowance provided includes: • Reduction of net income on new investment or business expansion in certain Business Fields which are labor-intensive industries, and/or • Reduction of gross income for the implementation of work practices, apprenticeship and/or learning activities in the context of human development and development based on certain competencies. 2. Customs incentive Customs incentives in the form of exemption from import duties on the import of machinery and goods and materials for the construction or industrial development in the context of investment.

The Presidential Regulation Number 49 of 2021 mentions several business fields are open and closed for investment. 1. Article 2 paragraph 1 states that all Business Fields are open for Investment, except those declared closed for investment and activities that can only be carried out by the Central Government. 2. Article 2 paragraph 2 describes the business fields that are closed for investment, namely Business fields that cannot be cultivated as stated in Article 12 of Law no. 25 of 2007 concerning Investment as amended by Law no. 11 of 2020 concerning Job Creation, and Alcoholic Beverage Industry,

Alcoholic Beverage Industry (Wine), and Malt Containing Beverage Industry.

1. Indonesia is ranked 73 among 190 countries in The Ease of Doing Business in. Indonesia, according to the latest World Bank annual ratings. The minimum level was 129 place and maximum 72 place. 2. The government expects Indonesia to register improvements across the majority of indicators that make up the World Bank’s ease of doing business (EODB) report, including a shorter time to start a business. 3. Since 2021, starting a business in the country is estimated to take around 2.5 days, which would mark an improvement from the 10-day time recorded in the 20 EODB assessment. The improvement is expected to reflect in the bank’s 2022 report. In September 2021, the World Bank announced it was “discontinuing” its “Doing Business” report, which ranks countries on the ease of opening and operating a company.

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Abbreviation

The National Economic Recovery (PEN) Money Market Deepening Blueprint (BPPU) PPKM (the public mobility restriction) Job Creation (UUCK) The Investment Coordinating Board (BKPM) Micro, Small and Medium Enterprises (MSMEs). Government Bonds (SUN Indonesian Crude Price (ICP) Capital Adequacy Ratio (CAR) The Indonesia Financial Services Authority (OJK) Indonesia Deposit Insurance Corporation (LPS) PMK (Finance Ministerial Regulation) G2P social aid program (bansos) DGT : Directorate General of Taxation - The Ministry of Finance JCI : the Jakarta Composite Index DPK: third-party funds (in bahasa: Dana Pihak Ketiga) ICP: the Indonesian Crude Price (ICP) ‘ FDI: Foreign Direct Investment Company The Investment Coordinating Board (in bahasa Badan Koordinasi Penanaman Modal) Foreign Investment Company (in bahasa Pnanaman Modal Asing) Trading Representative Office (“TRO”) : an Indonesian or foreign national appointed by a foreign company or an overseas company group as representative in Indonesia for promotion and marketing of the company’s products in Indonesia. Foreign Representative Office (“FRO”) : The FRO is led by one or more Indonesian or foreign citizens being appointed by a foreign company or an overseas company group as representative in Indonesia to carry out the following activities: Handling interests of the company or its affiliated company; and Preparing the establishment and business development of a foreign investment company operating in Indonesia or another country LLC : Limited Liability Companies in bahasa Perusahaan terbatas) Public Company (Perseroan Terbuka) The Workers Social Security Program (in bahasa BPJS) Construction Representative Office (in bahasa -Badan Usaha Jasa Konstruksi Asing – “BUJKA”) T he List of Business Fields (in bahasa –Daftar Negatif Investasi) Permanent Stay Permit/Card (in bahasa KITAP = Kartu Izin Tinggal )

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This guide has been prepared by KAP DJOKO, SIDIK & INDRA, an independent member of Antea

KAP DJOKO, SIDIK & INDRA

Graha Mandiri, Jl. Imam Bonjol No.61, RT.9/RW.4, Menteng, Central Jakarta City, Jakarta 10310, Indonesia Tel: +6221 39839735 kapdsi.kpusat@gmail.com www.kapdsi.com

Antea members in Indonesia:

JAKARTA

Contact partner: Indra Soesetiawan Tel.: + 6221 39839735/ 39838735 Mail: kapdsi.kpusat@gmail.com Web: www.kapdsi.com

JAKARTA (legal services)

Contact partner: Fadriyadi Kudri Tel.: +62 21 5225453 Mail: f.kudri@kndlawyers.com Web: www.kndlawyers.com Mallorca, 260 àtic 08008 – Barcelona Tel.: + 34 93 215 59 89 Fax: + 34 93 487 28 76 Email: info@antea-int.com www.antea-int.com

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This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.

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