A Q&A guide to finance in Indonesia. The Q&A gives a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security, negative pledge clauses, guarantees, and loan agreements. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.
To compare answers across multiple jurisdictions, visit the Finance Country Q&A tool. This article is part of the PLC multi-jurisdictional guide to finance. For a full list of contents visit www.practicallaw.com/finance-mjg.
The regulations on transaction settlement payments and the collection of export proceeds have been revised under Law No. 7 of 2011 on the currency (Currency Law). The Currency Law:
Reconfirms the Rupiah as the legal and official tender of the Republic of Indonesia.
Deals with the requirements for the issuance, printing and minting of Rupiah bank notes and coins.
Regulates the use of the Rupiah to settle transactions and provides that the Rupiah must be used in certain transactions conducted within Indonesia.
These provisions have given rise to interpretational issues, as they appear to have a broad application. International payments are not affected provided they relate to trade and financing. Payments between two domestic parties must be made in Rupiah even if they relate to trade and finance. This may have serious effects on the domestic payment system because payments in, for example, commodities such as coal or oil, have traditionally been made in US dollars.
However, the Minister of Finance (Minister) has recently made a presentation which clarified that the requirement to use Rupiah is limited to cash payments. Payments made using wire transfer or banking instruments such as letters of credit need not be made in Rupiah. In addition, parties (including domestic parties) can waive the requirement to use Rupiah by agreement.
Although the Minister's view should be treated as government guidance in interpreting the Currency Law, and may not be followed by the Indonesian courts, in practice the risk of prosecution is low and the market appears to have accepted the flexibility offered by the Minister.
Regulation Nos. 13/20/PBI/2011 (Regulation 20) and 13/22/PBI/2011 (Regulation 22) come into force on 2 January 2012. They aim to both:
Stabilise exchange rate volatility caused by instability in the supply of foreign currency to the domestic market.
Create a reporting system that will enable the collection of important financial data.
Under Regulation 20 all drawdowns of external debt (that is, debt owed by a resident debtor to a non-resident creditor and denominated in any currency other than Indonesian Rupiah) must be made through a bank licensed by Bank Indonesia to carry out foreign exchange banking activities (a Foreign Exchange Bank). A Foreign Exchange Bank is an onshore general bank or syaria general bank which obtains an appointment letter from Bank Indonesia to conduct banking business in foreign currency. The definition includes the Indonesian branch of a foreign bank, but excludes the foreign branch of an Indonesian bank.
Drawdowns under loan agreements signed before 2 January 2012 will not be subject to the new Regulations, but if the principal amount of the loan is subsequently increased, any increase will be subject to Regulation 20.
Regulation 20 also stipulates that all resident exporters must collect foreign exchange export proceeds through a Foreign Exchange Bank rather than into an offshore account. Where there is an agreement not to receive export proceeds through a Foreign Exchange Bank or a payment obligation of the exporter dated before 2 January 2012, export proceeds need not be received through a Foreign Exchange Bank until 2 January 2013.
This will affect financing structures that use offshore bank accounts into which exports are routed and over which security is taken. Regulation 20 is silent on the length of time for which export revenue must be kept onshore, and based on press statements from the Governor of Bank Indonesia (stating that Regulation 20 does not oblige export proceeds to remain in an onshore account for any definite period), it seems possible that for those wishing to use such structures after 2 January 2013, a two-step process can be implemented:
Export proceeds should first be deposited into a secured onshore account.
They can then be swept into an offshore secured account.
Further confirmation from Bank Indonesia is required to confirm the timing of the subsequent sweep and the legality of this practical solution generally.
Real estate comprises:
Land.
Buildings.
Fixtures.
Registered vessels with a gross weight of 20 cubic metres or more and aircraft are also considered to be immovable assets and can be mortgaged.
The most common form of security over real estate is a mortgage (Hak Tanggungan). In a mortgage, the borrower grants the lender an interest in the borrower's real estate as security for the debt.
Mortgages are established through a two-stage procedure:
The signing of the mortgage deed before the Land Officer (Pejabat Pembuat Akte Tanah) (PPAT) with jurisdiction over the land to be mortgaged. This deed must be in Bahasa Indonesia (the official language of Indonesia) and in the prescribed PPAT form.
The registration of the mortgage deed at the relevant Land Registration Office (Badan Pertanahan Nasional) (BPN). A mortgage deed must include the following information:
the identity of the parties;
the domicile of the parties;
a clear reference to the secured obligations;
the secured amount; and
a description of the mortgaged property.
The mortgage is established at the moment it is entered in the land book located at the BPN. Therefore, certainty as to the moment of registration is very important to the lender. The PPAT must submit the execution mortgage deed to the BPN by, at the latest, seven days after the execution date of the mortgage deed. The actual date of the registration is deemed to be the seventh day after the BPN receives the complete mortgage application. If the seventh day falls on a day which is not a business day, then the actual date of the registration will be the next business day.
The total time, from application for registration of the mortgage deed to the issuance of the mortgage certificate as evidence of registration can take between two weeks and six months, although it usually takes two to four weeks.
Tangible movable property comprises:
Machinery.
Inventory.
Raw materials.
Vehicles.
The most common form of security over tangible movable property is a fiduciary transfer. A fiduciary transfer can also secure intangible assets (see Question 5) and certain immovable assets (including buildings which cannot be the subject of a mortgage (Law No. 4/1996 concerning Hak Tanggungan (Mortgage) on Land and Objects Related to Land (Mortgage Law)), such as buildings which were erected on land plots with rights that cannot be subject to a mortgage (see Question 2).
A fiduciary transfer takes the form of a notarial deed, under which the transferor (borrower) transfers to the transferee (lender) its legal title to the transferred assets for the period during which the debt remains outstanding. The deed must be in (Law No. 42/1999 Fiduciary Law):
Bahasa Indonesia.
Notarial form.
The transferor retains possession of the tangible assets, and is normally entitled to use or dispose of them in the ordinary course of business. The fiduciary transfer deed must include the following information:
The identity of the fiduciary transferor and transferee.
The date of the underlying agreements secured by the fiduciary transfer.
A description of the assets that are the objects of the fiduciary transfer.
The amount secured.
The value of the assets that are the objects of the fiduciary transfer.
A fiduciary transfer also covers any insurance proceeds payable on the secured assets. In practice, however, a fiduciary assignment of insurance proceeds is still subject to a separate document since the insurance sometimes covers not only the assets which are the subject of the fiduciary transfer, but other assets as well.
The fiduciary transferee must register the fiduciary transfer agreement in the Fiducia Registration Book kept by the Fiducia Registration Office. Registration is necessary even if the transferred assets are located outside of Indonesia (Fiduciary Law). There is no specific time period for registration. The fiduciary transfer, however, comes into effect on the date of registration. If a party granting a fiduciary transfer fraudulently executes a fiduciary transfer over the same assets in favour of more than one party, only the first party to register its security interest will obtain a security interest enforceable against third parties. In that case, the transferee of the earlier fiduciary transfer will have a claim in contract against the transferor.
On acceptance of the registration application, the applicant will obtain a Fiduciary Security Certificate. It can take one week to one month for issuance of the Certificate. The date of the Certificate will be the same as the date of the application for registration.
The most common types of financial instrument over which security is granted are shares.
The most common form of security over shares is a pledge.
There is no formal legal requirement for a pledge agreement to be in writing. However, it is standard practice for pledges to be created by a deed of pledge (notarised or executed privately) setting out the pledge's particulars. In practice, it is often notarised, for evidencing purposes.
Different formalities apply depending on the type of security:
Registered shares. The pledge takes effect on notification of the pledge to the company in which the shares are held and recording of the pledge in the company's register of shareholders.
Shares listed on the Indonesia Stock Exchange. To create a pledge, it must be notified to the company in which the shares are held and to the Stock Administration Bureau appointed by the company. The pledge will then be recorded in the shareholders' register held by the Stock Administration Bureau.
Dematerialised shares kept in the custody of the Indonesian Central Securities Depository (PT Kustodian Sentral Efek Indonesia) (PT KSEI). PT KSEI must be notified and will issue a confirmation letter certifying that the shares are pledged.
The most common types of claims and receivables over which security is granted are debts.
The most common form of security over receivables and claims is a fiduciary transfer (see Question 3, Common forms of security). It is doubtful that non-pecuniary rights under contracts can be assigned for security purposes.
For creation and perfection formalities for fiduciary transfers, see Question 3, Formalities.
The fiduciary transfer is validly created on the registration of the deed with the Fiducia Registration Office. The debtor or insurance company obliged to pay the receivables or claims (obligor) can, however, still pay them to the fiduciary transferor to discharge his debts or obligations until the fiduciary assignment has been:
Notified to the obligor. A court bailiff must officially serve the notification on the debtor.
Acknowledged by the obligor. This can be done in writing on the deed of transfer.
Once notified or acknowledged, the obligor can no longer validly settle with the fiduciary transferor and must make payments directly to the fiduciary transferee. Because of the nature of a fiduciary transfer, in the case of a transfer of trade receivables, notification or acknowledgment of the obligor only takes place when an event of default is anticipated. In other cases, however, such as a transfer of insurance proceeds, the transfer is usually notified to the insurance company at the time of, or soon after, creation.
The most common form of security over cash deposits is a pledge over a bank account using the same formalities as a pledge over shares (see Question 4, Formalities).
However, the Fiducia Registration Office has expressed the view that a bank account cannot be the subject of an Indonesian security interest and the enforceability of a pledge over a bank account is yet to be tested in court. Although its enforceability is doubtful, it is common in practice to secure cash deposits with a pledge over a bank account.
The most common type of intellectual property over which security is granted is a trade mark.
The most common form of security over registered intellectual property rights is a fiduciary transfer (see Question 3). It is not possible to take security over unregistered intellectual property rights. However, it is possible to provide an undertaking to grant security over the intellectual property rights when they are registered.
In relation to formalities for a fiduciary transfer, see Question 3, Formalities.
Most future assets can be taken as security, other than future real estate (see Question 2, Real estate).
In relation to future tangible assets, receivables and insurance proceeds which do not exist at the time of the original fiduciary transfer, it is necessary to transfer these assets each time they come into existence as the registration authorities require a clear description of the assets to register security (see below, Fungible assets). This is usually done by the original fiduciary transfer agreement containing a contractual obligation for the transferor to periodically submit lists of recently created assets to the transferee. The transferor must sign these lists, and they must contain a reference to the original fiduciary transfer deed. The updated lists must be registered with the Fiducia Registration Office.
It is doubtful whether future shares will be automatically pledged by the original pledge of shares agreement. It is advisable, therefore, to execute an additional pledge of shares each time the security provider acquires or subscribes to shares.
The law does not expressly prohibit granting security over fungible assets. However, it may not be feasible in practice as the relevant registration authority will require a clear description of the assets.
There are no other assets over which security cannot be granted or is difficult to grant.
There is no prescribed form to release an Indonesian security interest. A security interest is of an accessory nature and is conditional upon the existence of the underlying secured obligation(s). A security interest will be null and void if the obligation over which it is taken is:
Void.
Rescinded.
Performed.
Expired.
However, there is an administrative procedure to deregister the security interest from the public register (for example, the mortgage, fiduciary transfer or pledge over listed shares).
It is not common to take security over shares of an SPV set up to hold certain of the debtor's assets, rather than to take direct security over those assets.
Quasi-security structures are not common in Indonesia. Lenders normally prefer to use the available forms of security (see Questions 2 to 6).
Sale and leaseback is used in commercial transactions and is not recharacterised as a security interest.
Factoring is used in commercial transactions and is not recharacterised as a security interest.
Hire purchase is not common in practice. Where it is used, it would not be recharacterised as a security interest.
Retention of title is not common in practice. Where it is used, it would not be recharacterised as a security interest.
There are no other types of quasi-security structure that are common in Indonesia.
A negative pledge is a contractual undertaking by the borrower not to create a further security interest. It would not be recharacterised as a security interest. Negative pledges are not unusual in Indonesia.
Guarantees (whether personal or corporate) are commonly used. A guarantee is created by written agreement (notarised or executed privately) by the guarantor and the beneficiary. There is no registration required to make it effective.
There is no general prohibition on a company providing financial assistance to acquire its shares, although under certain circumstances this may be ultra vires (see below, Corporate benefit).
When a company enters into a guarantee or security arrangement, its directors must take into account:
The company's articles of association.
Whether the company derives a commercial benefit from the transaction.
It is possible to challenge an act taken by a company which does not take these factors into account, under the ultra vires doctrine. However, this challenge can only be brought by the company itself, through:
The company's shareholders.
The company's board of directors.
The company's board of commissioners (a supervisory board which supervises the board of directors).
A receiver or trustee in bankruptcy.
To mitigate the risk of this happening, the written consent of the shareholders, board of directors, and board of commissioners should be obtained.
There is no general prohibition on a company making a loan to its directors or directors of a related company. Whether this is permissible depends on whether the transaction has corporate benefit (see above, Corporate benefit).
A usury law (Woekerordonantie) is in force. However, its provisions are generally not considered to affect commercial loan agreements and facilities.
There are no other relevant laws which affect the validity of a loan, security or guarantee.
Only owners of assets can be held responsible for pollution under environmental law, and lenders cannot become owners by holding security over assets.
Contractual subordination is possible and common. It can be effected through an inter-creditor agreement between the lenders or an individual subordination deed (which is commonly used by a shareholder for its loan to the company).
Structural subordination is not common in Indonesia.
Intercreditor agreement is common in Indonesia. The parties normally include lenders, the borrower and the obligor. An agreement is used to set out various lien positions and the rights and liabilities of each lender and its impact on the other lenders.
Transfer of debt is effected by an assignment instrument called a cessie. The debtor under the debt must acknowledge the assignment to bind the debtor to pay the debt to the assignee. Without this acknowledgment, the debtor is entitled to continue paying to the assignor despite the assignment being complete between the assignor and assignee.
Security interests such as mortgages, pledges and fiduciary transfers are accessory rights. This means they are tied to the debt that they secure. Because of this, any assignment of debt secured by a security interest automatically includes an assignment of the security interest. The assignee of the underlying debt will become the new mortgagee, pledgee or transferee, and can exercise all rights under the security agreement.
However, the relevant entries in the register should be amended to ensure that the rights over the security interest are preserved, particularly for security interests that must be registered in a public registry.
The agent concept is recognised in Indonesia, and security agents can enforce rights on behalf of the other lenders.
The trust concept is not recognised in Indonesia. A trust created under foreign law would not be enforceable and a security trustee would not be able to enforce its rights in the courts.
Different types of security must be documented separately.
There are no rules on how loans should be documented. It is standard practice, however, that loans are created in a deed (notarised or executed privately), which sets out the loan's provisions. A notarised deed has evidentiary advantages in court proceedings.
Agreements or memoranda of agreements that involve, among others, Indonesian private institutions, must be set out in Bahasa Indonesia. If the agreement involves a foreign party, the agreement can also be set out in the language of the foreign party and/or in English (Law No. 24 of 9 July 2009, regarding Flag, Language, National Emblem, and National Anthem) (Law No. 24/2009).
It is unclear, however, whether agreements that breach these requirements are invalid or unenforceable. Law No. 24/2009 requires implementing regulations to be issued within two years of its issue. No implementing regulations have, as yet, been issued and therefore it is uncertain whether this means that the requirements:
Apply to all agreements.
Do not yet apply due to the lack of implementing regulations.
To avoid the danger of breaching this law, parties commonly translate and execute the Bahasa Indonesia version of the loan agreement within a certain period of time. This version will then be deemed to be effective from the date the English language version was executed.
The events of default are specified in the agreement (for example, failure to pay interest or principal when due). There is no mandatory requirement that lenders must comply with to enable them to enforce the loan, guarantee or security.
On default, a security interest can be enforced through a public auction or private sale.
In theory, a public auction can be conducted without a court judgment or order if the owner of the assets is co-operative. In practice, however, a court order is required.
In the case of listed shares, however, the Indonesian Civil Code clearly specifies that an auction held by two brokers can be conducted in the market. In this case, no court order is required so long as a power of attorney to dispose of the shares has been given (usually at the time the pledge is created) (see Question 4).
A private sale is permitted if this means that a higher sale price can be achieved for the parties. Private sale requires consent from the owner of the assets, which is normally included in the relevant security documents.
For mortgage and fiduciary transfer, private sale can only be conducted:
After the expiry of one month from written notification of the intended sale to interested parties and publication of this notice in at least two daily newspapers with circulation in the area where the asset is located.
Where no third party has voiced an objection against the private sale. The law is unclear as to who these third parties may be, although it is safe to assume that they include, at least, the borrower's other creditors.
The only formal company rescue process available is a suspension of payments (moratorium) under Chapter II of the Bankruptcy Law.
The procedure is started by the debtor or its creditor petitioning the Commercial Court for a suspension of payments. The Commercial Court must then grant a provisional moratorium, and appoint a supervisory judge and an administrator or receiver to assist the debtor in managing its estate. The debtor will be entitled to manage and dispose of its assets jointly with the administrator. During this suspension period the debtor does not have to make payments to its unsecured creditors and secured creditors cannot enforce their security without the court's consent. The purpose of a suspension of payments is to enable the debtor to propose a composition plan.
The Commercial Court must call a meeting of the unsecured and secured creditors within 45 days of granting a provisional moratorium. At this meeting, unsecured creditors and secured creditors can either:
Approve a composition plan, if the debtor has submitted a plan to the court.
Agree to convert the provisional moratorium into a permanent moratorium of a maximum of 270 days from the start of the provisional moratorium. The permanent moratorium is extendable if the creditors and the court consent.
Any creditors' meeting to consider the plan must be held before the permanent moratorium expires.
Decisions require affirmative votes of both:
More than 50% in number representing at least 66.67% in value of the unsecured creditors present or represented at the meeting.
More than 50% in number representing at least 66.67% in value of the secured creditors present or represented at the meeting.
If no plan is submitted and the unsecured creditors fail to extend the moratorium, the court will declare the debtor bankrupt.
If the creditors approve the plan, the supervisory judge must submit it as a report in writing to the Commercial Court and the Court will consider the report, including hearing the administrator and dissenting creditors. The Commercial Court must refuse to ratify the plan if:
The value of the debtor's assets considerably exceeds the amount agreed in the plan.
It is not sufficiently certain that the plan will succeed.
The plan was concluded as a result of fraudulent transactions or undue preferences of one or more creditors, or other unfair means, regardless of whether the debtor or any other party co-operated with this.
The cost and expenses for the administrator and/or other professionals engaged have not been paid or the payments have not been adequately assured.
A plan can be submitted only once; if it is rejected by the creditors or not ratified by the court, a bankruptcy declaration will be made and the debtor's assets will be placed in the state of insolvency and liquidated under the settlement process.
Once ratified, the plan becomes final and binding on all creditors, except dissenting secured creditors. Dissenting secured creditors are entitled to compensation from the debtor at the lowest of either the:
Value of their security (which they can choose between the security value provided in the security documents or the security value designated by an appraiser appointed by the supervisory judge).
Amount of their outstanding secured claims.
The dissenting secured creditors rule is a recent change that was introduced in Law No. 37 of 2004, which was enacted on 18 October 2004, and there are no implementing regulations as to how it will work or precedents.
Following ratification, the moratorium is ended and the administrator or receiver (as applicable) will be discharged. The business and assets of the debtor will be returned to the debtor's control, subject to any specific provisions contained in the plan.
Insolvency in the Indonesian context has a specific meaning of being unable to pay, which is triggered after a composition plan is not offered in the creditors' meeting, or the offered composition plan is rejected, or the ratification to the agreed composition plan is rejected by a final and binding court decision (Article 178, Bankruptcy Law) (see Question 24). For that reason, insolvency proceedings are usually referred to as bankruptcy proceedings in Indonesia.
An automatic stay is triggered from the date of a Commercial Court decision declaring that the debtor is bankrupt, or granting a provisional suspension of payments (see Question 24).
In the provisional suspension of payments procedure the stay is at least 45 days, and is extendable up to a maximum of 270 days (Article 246, Law 37/2004) in line with the suspension of payments period granted (see Question 24, First creditors' meeting). During bankruptcy proceedings, the secured creditors' rights to enforce security is subject to the automatic stay for a maximum of 90 days (Article 56(1), Law 37/2004). It will be less than 90 days where the bankruptcy is terminated or a state of insolvency declared before the expiry of the 90-day period.
The receiver can apply to the court to nullify a preferential transfer transaction (such as a transaction involving a loan, guarantee or security interest) on the basis that this transaction is detrimental to the creditors (Articles 41 and 42, Bankruptcy Law). The receiver must prove the following:
The debtor entered into the transaction before it was declared bankrupt.
The debtor was not required by an existing contractual obligation or by law to perform the transaction.
The transaction prejudiced the creditors' interests.
The debtor and the third party to the transaction had, or should have had, knowledge that the preferential transaction would prejudice the creditors' interests. The debtor and the third party will be deemed to know a transaction was detrimental, unless they can prove otherwise, when:
it was entered into within one year before the company's bankruptcy;
the transaction was not mandatory;
the transaction belongs to one of the following three categories:
it was a transaction in which the consideration that the debtor received was substantially less than the estimated value of the consideration given;
it was a payment or granting of security for debts which are not yet due;
it was a transaction entered into by the debtor with a relative or related party. A relative or related party has a wide meaning, and applies to debtors that are individuals and debtors who are legal entities.
The Bankruptcy Law does not set a time limit within which an application must be brought.
The general rule on distributing the proceeds of a bankruptcy estate to unsecured creditors is one of equality, subject to the statutory priority rights of certain categories of creditors. The ranking order of creditors under the bankruptcy is as follows:
Specific expenses stipulated by the Tax Law, consisting of:
legal expenses arising solely from a court order to auction movable and/or immovable goods;
expenses incurred for securing the goods;
legal expenses arising solely from the auction and settlement of inheritance (in the context of a death of an individual).
Preferred debts ranking above secured debts under the Civil Code, for example:
tax claims;
court charges which specifically result from the disposal of a movable or immovable asset (these are paid from the proceeds of the sale of the assets over all other priority debts, including pledges or mortgages);
legal charges, exclusively caused by the sale and preservation of the estate (these have priority over pledges and mortgages).
Post-bankruptcy creditors, that is, claims against the bankruptcy estate for (Article 39(2), Bankruptcy Law):
the salary of the receiver;
the costs of liquidating the bankruptcy estate (for example, the appraiser's and accountant's fees);
new financing;
the lease costs for the bankrupt's house or offices as of the date of the declaration of bankruptcy; and
the wages of the bankrupt's employees as of the date of the declaration of bankruptcy.
Secured creditors holding a mortgage, pledge, fiduciary transfer or a hypothec (a type of security interest granted over aircrafts and ships with a size of more than 20 cubic metres) (see Questions 2 to 6).
Specific statutorily preferred creditors whose preference relates only to specific assets (for example, the costs incurred in the maintenance of the property).
General statutorily preferred creditors (for example, revenue authorities).
Other unsecured creditors, paid pro rata from any of the remaining proceeds.
Shareholders, who rank behind all creditors in the distribution of the proceeds of the estate.
The cost of the bankruptcy is shared pro rata among the statutorily preferred creditors and the unsecured creditors.
This depends on the nature of the security.
The order of mortgage registration determines the priority of claims (see Question 2, Formalities). A mortgage registered first ranks over a mortgage registered second, and so on.
There is no ranking for fiduciary transfer. The priority of claims over the fiduciary objects is normally set out in the inter-creditor agreement or, in some cases, in the fiduciary transfer itself (see Question 13).
It is uncertain whether the concept of priority can be applied to a pledge, but some practitioners believe that priorities of claim can be established by applying a ranking under the share pledge agreement.
If a security interest has not been validly perfected, the security holder will rank as an unsecured creditor (see Question 24).
There are no restrictions on the making of loans by foreign lenders or granting security or guarantees to foreign lenders.
There are no restrictions on payment of foreign currency to a foreign lender. However, the conversion of Indonesian Rupiah to foreign currency, or foreign currency purchases, of more than US$100,000 each month (or its equivalent) (as at 1 December 2011, US$1 was about EUR0.7) for each customer (including the purchase of foreign currencies for derivative transactions) must be based on documentation of an underlying transaction. The underlying transaction must set a maximum amount and include a statement that the foreign currency will only be used to settle the payment obligations under the underlying agreement.
Indonesian law recognises a choice of foreign law as the governing law of a loan agreement except to the extent that:
A loan term or a provision of that law is clearly incompatible with Indonesian public policy.
The Indonesian court must give effect to mandatory rules of the law of another jurisdiction with which the situation has a close connection.
In practice, however, there have been cases where Indonesian courts have refused to give effect to choice of foreign law clauses for other specified or unspecified reasons.
A foreign choice of law is not permitted for security agreements or guarantees, and these agreements must be governed by Indonesian law.
Withholding income tax can apply to interest and fees (although not the principal of a loan) if the lender is required to pay income tax in Indonesia (see Question 31). Stamp duty of IDR6,000 (as at 1 December 2011, US$1 was about IDR9,107) is payable on any agreement signed by the parties.
Notary and registration fees for mortgages are normally based on the value of the secured amount under the mortgage (the lender has a choice whether to use the actual value of the assets or the principal amount of the loan), and can be costly. Fees concerning fiduciary transfers and pledges of shares and other forms of security interest vary and are in the notary's discretion.
See above, Registration fees.
For cross-border loans, the withholding tax rate can usually be reduced if the lender resides in a jurisdiction which has a tax treaty with Indonesia. To reduce mortgage registration fees, lenders should normally use the actual value of the assets rather than the secured amount under the mortgage.
There is no strategy to minimise the registration costs of other security interests, as they are generally considered to be reasonable.
There are no current proposals for reform.
T +62 21 250 5125
F +62 21 250 5001
E tbakker@abnrlaw.com
W www.abnrlaw.com
Qualified. The Netherlands, 1979
Areas of practice. Restructuring and insolvency; project finance; M&A; structured finance.
Recent transactions
T +62 21 250 5125
F +62 21 250 5001
E enurmansyah@abnrlaw.com
W www.abnrlaw.com
Qualified. Indonesia, 1989
Areas of practice. Corporate; M&A; banking and finance; capital markets; projects and natural resources.
Recent transactions
T +62 21 250 5125
F +62 21 250 5001
E nadiwibowo@abnrlaw.com
W www.abnrlaw.com
Qualified. Indonesia, 1995
Areas of practice. Financing; corporate and investment projects.
Recent transactions
