SSEK Legal Consultants

Indonesia and Covid-19

Legal Updates

As of April 9, 2020
 1. Force Majeure
The COVID-19 pandemic is causing contracts and
transactions to be delayed or cancelled globally. What
are the repercussions on contracts in Indonesia, how is
the concept of force majeure recognized here and how
do force majeure clauses work?

COVID-19 and Indonesia: Force Majeure and Other

Considerations

FAQs on Force Majeure in Indonesia

2. Tax
The Indonesian government has issued a new regulation
aimed at providing tax relief for the coronavirus-battered
economy.

Indonesia and COVID-19: New Tax Policies Aim to

Stimulate Economy

3. Employment
As a result of the serious economic disruptions from
COVID-19, many employers in Indonesia may be
forced to reduce costs for the foreseeable future. What
are the options?

Indonesian Employment Law and COVID-19

4. Visas
Following the announcement of COVID-19 as a global
pandemic, Indonesia enacted regulations to govern the
traffic of individuals entering and leaving the country.

Update on Indonesian Visas in the Time of COVID-19

5. Capital Market
Government authorities in Indonesia have put in place
a number of measures meant to calm the market and
check its downward volatility.

Indonesian Capital Market Update During the

Coronavirus Pandemic

6. Social Restrictions
The Indonesian government has passed a regulation that
allows the authorities to enforce social distancing
measures.

Indonesia and COVID-19: Government Issues

Regulation on Limiting Social Interactions

7. Shipping
Indonesia’s Directorate General of Sea Transportation
has issued several regulations to assist the shipping
industry and hopefully check the spread of Covid-19
through Indonesian ports.

Navigating Sea Transportation in Indonesia During

COVID-19

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COVID-19 and Indonesia: Force Majeure and Other Considerations

By Dewi Savitri Reni and Syarifah Reihana Fakhry

The COVID-19 global pandemic has caused significant disruptions to businesses globally. The
rapid rate of transmission, the unchecked growth in the number of cases and the lack of a
vaccine has forced governments around the world to implement policies that have disrupted
business operations globally.

In Jakarta, Governor Anies Baswedan declared a two-week state of emergency, beginning

March 20, later extended by two weeks, in an attempt to contain the virus. The Jakarta
administration has urged all businesses and organizations to close their offices or at the very
least reduce the number of employees working in the office.

These actions will likely, if they have not already, cause contracts, agreements and transactions
to be delayed or cancelled. Whether due to travel and import restrictions, supply and demand
issues, and/or a lack of human resources, more and more businesses are finding it difficult to
continue to operate and meet their contractual obligations.

This raises a number of questions regarding COVID-19 and its impact on existing contracts. Can
the defaulting party avoid liability? Will the contract be terminated? Will the obligations be
suspended? How can parties to a commercial contract protect themselves during the pandemic?

This article discusses the repercussions of COVID-19 on contracts in Indonesia, the concept and
implementation of force majeure clauses, and the ability of defaulting parties to avoid liability.

What Is Force Majeure?

Force majeure clauses are contractual clauses that alter parties’ obligations and/or liabilities
under a contract in the event that an extraordinary event or circumstance beyond their control
prevents one or more of the parties from fulfilling those obligations.

Under Indonesian law, the concept of force majeure is mentioned in Articles 1244 - 1245 of the
Indonesian Civil Code (ICC). These articles provide that a defaulting party (obligor) is liable for
compensation for costs, losses and profits for non-performance or the late performance of a legal
obligation under a contract, unless they can prove that such non-performance or delay is caused
by something which is unforeseen, for which they cannot be held responsible, even in the
absence of bad faith on their part, and/or fulfilling such obligation would be deemed as
committing a prohibited act.

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In light of the above, one may surmise that in order to constitute force majeure that may exempt
the defaulting party from liability for compensation, the following elements must be met:

1. An unexpected event/circumstance.
2. Circumstances beyond the defaulting party’s control.
3. The defaulting party is not accountable for the event/circumstance.
4. The event/circumstance could not be anticipated/avoided by any of the parties.
5. The situation prevents the defaulting party from performing its obligations.
6. The performance of the obligation would be prohibited.
7. There is no bad faith from the defaulting party.
8. No intention of the defaulting party to default.

If the contract provides a detailed force majeure clause, the terms of that clause will generally
prevail. Indonesian courts will likely enforce the clause written in a contract agreed between both
parties on the twin principles of sanctity and freedom of contract.

Force Majeure Clause in a Contract

The drafting and construction of a force majeure clause is to be negotiated between the parties
to the contract. However, the parties should consider including these components in the clause:

1. A clear description of what matters constitute a force majeure event. In order to

accommodate an event such as COVID-19, wording such as “pandemic” or “outbreak”
should be included. General examples will likely give rise to debate as what may or may
not qualify as a force majeure event.
2. The consequences of the occurrence of a force majeure event. Parties should clarify
the impact on the agreement should a force majeure event occur. For example, will it
delay the object of the agreement, or terminate it, and who will be liable for any costs
incurred as a result of the force majeure.
3. Procedures to be taken upon the occurrence of a force majeure event. For example,
parties may choose to regulate that the party invoking force majeure is obliged to notify
the other party of its intention and include a description of the impediments it is facing.
4. The party invoking the force majeure clause shall prove that it has exhausted the
necessary and reasonable measures to mitigate the damages brought upon the
occurrence of the force majeure. This can be included to protect the other parties to
the contract and ensure that the force majeure directly impedes the performance of the
agreement and is beyond the control of the parties.

However, regardless of whether a contract contains a force majeure clause, force majeure can
still be applied by reason of law. Indonesian civil courts can determine whether force majeure

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has happened and whether it should preclude the defaulting party from all liability. Non-
performance may still be excused if a company successfully argues in court that COVID-19 is a
force majeure event and is able to prove that there is a direct causal link between the COVID-19
pandemic and its non-performance.

Is COVID-19 a Force Majeure Event?

In order to determine whether COVID-19 constitutes a force majeure event, a detailed analysis of
the specific contractual clause is required. The following questions should be considered:

1. What events are listed as force majeure events in the contract?

2. Are the words “pandemic” or “disease” included in the above list?
3. Has COVID-19 rendered it impossible for the party to fulfill its obligations under the
contract?
4. What is the impact on the party invoking the force majeure clause?

If the force majeure clause does not refer to specific events, the parties may need to rely on
general contractual terms and evaluate whether the effects of the COVID-19 pandemic fulfill the
elements of a force majeure event and have resulted in the defaulting party being unable to meet
its contractual obligations.

One may certainly argue that the pandemic is an unexpected event beyond the control of the
parties that could neither have been anticipated nor avoided. And it can certainly be regarded as
an impediment to business operations worldwide.

Nonetheless, it may be difficult to use COVID-19 to claim force majeure in the absence of
decisions or policies from local, provincial or national authorities that have created such
impediments to business operations. An example would be government-ordered travel
restrictions, quarantines, office closures or a citywide lockdown. If the government orders
companies to halt business operations and workers to stay home to check the spread of the
virus, this may result in various failures to perform contractual obligations.

Once proven that these measures prevented performance, the defaulting party’s argument for
COVID-19 as a force majeure event would in these circumstances be difficult to dispute. But in
the absence of any such government policies, regulations or orders, it is difficult to determine
when exactly COVID-19 may be categorized as a force majeure event.

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What Must Be Shown to Invoke Force Majeure?

Regardless of whether pandemic is included in the contract as a force majeure event, the party
claiming force majeure will want to show that any failure to perform its contractual obligations
was beyond its control and that it could not have otherwise prevented or mitigated the damage
from such failure.

The party claiming force majeure should ideally show:

1. The inability to perform the obligation was directly caused by the pandemic.
2. Its non-performance was beyond its control.
3. There were no reasonable steps it could have taken to avoid the non-performance and/or
mitigate the damage.

Although it is not specifically mandated by the abovementioned articles of the ICC, the party
seeking to invoke force majeure for non-performance must still take reasonable steps to mitigate
the foreseeable damages brought about by the non-performance, to strengthen its case in legal
proceedings. In this regard, companies should ensure that all the impacts of COVID-19, as well
as the companies’ actions in response to such impacts, are documented. These records may be
crucial to support the claim that the company took steps to mitigate the damages in the event of
non-performance.

We also encourage all businesses looking to invoke force majeure to show that they are still
acting in good faith by complying with all the other requirements of the contract.

As mentioned above, a well-drafted force majeure clause in a contract will also require the party
invoking force majeure to comply with specific procedures upon the occurrence of a force
majeure event. For example, contracts often require parties to provide notifications or updates to
the other party, including at the commencement and conclusion of the force majeure event. In
this regard, the defaulting party should give the other party notice of its situation, describing the
impediments it is facing and expressing its intention to invoke the force majeure clause.

The impact of invoking the force majeure clause depends on the contract. It will generally excuse
the invoking party from performing its obligations under the contract, provide the invoking party
additional time to perform its obligations or give one or both parties the option to terminate the
agreement. The clause may also allocate liability for increased costs arising during the
continuation of the force majeure event.

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Impact of COVID-19 on Indonesian Courts

The outbreak has delayed and/or suspended operations for not only businesses but also
government institutions and agencies, including court tribunals. The Indonesian Supreme Court
recently issued Circular Letter Number 1 of 2020, dated March 23, 2020, giving court tribunals
the discretion to determine any postponement of hearings or restrictions on visitors attending
hearings. Parties in civil, religious and state administrative proceedings are encouraged to utilize
the e-litigation application system the courts recently introduced (E-Court). Several courts in
Indonesia have announced that they have postponed proceedings for two weeks to
accommodate the Government’s efforts to battle the COVID-19 outbreak.

The Supreme Court recently issued Letter No. 379/DJU/PS.00/3/2020 dated March 27, 2020, to
allow trials for criminal cases to be held by teleconference.

Practical Steps for Businesses Affected by COVID-19

There is no doubt the COVID-19 pandemic has presented unprecedented challenges and
impediments to businesses in conducting their normal operations. It is imperative that businesses
enact policies and measures to protect themselves during this time. We suggest several
measures companies can take in this situation.

Review all business contracts and identify what events are regulated as force majeure
and the remedies provided in the event of force majeure, as well as the requirements to
invoke force majeure if business operations are disrupted by the effects of COVID-19.
Companies should identify and assess the consequences of the non-performance of all
their valid contracts.
Identify any notification requirements. Some contracts require parties immediately to
notify the other parties of their intention to invoke force majeure, or at the very least to
inform the other parties of any change in their business operations.
Businesses should ensure they have taken reasonable steps to avoid non-performance
or to mitigate the damages brought about by the non-performance.
Assemble and retain all documentation pertaining to the impact of COVID-19 on business
operations and the measures taken by the company in response to such impact.
Include wording or provisions on infectious disease/pandemic in new contracts and
amend existing contracts if possible.
Continually engage and communicate with workers regarding updates on the pandemic.
Create a policy for the foreseeable future (for example, a work from home policy in the
event of a lockdown) and provide adequate training for workers in an effort to prevent
business operations from being severely impeded.

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 Check insurance arrangements, including whether the business is covered in the event of
non-performance as a result of a pandemic.
Conduct risk assessments.
Ensure proper training and provide information and education on the virus for workers.

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

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Indonesia and COVID-19: FAQs on Force Majeure

By Michael S. Carl and Mahareksha S. Dillon

1. Is force majeure a recognised concept and how is it defined?

Yes, the concept of force majeure is recognized in the Indonesian Civil Code (the “ICC”).
However, the concept as formulated in the ICC is relatively unspecific in comparison to what is
generally found in contemporary international legal practice. As a result, parties will want to
negotiate their own rules of force majeure when drafting their contract.

The principal rules of law relevant to the concept of force majeure are found in Articles 1244 and
1245 of the ICC, which read as follows:

Article 1244:

“An obligor shall be ordered to compensate for costs, losses and profit if he/she cannot prove
that the non-performance of a legal obligation or the late performance of such legal obligation, is
caused by something which is unforeseen, for which he/she cannot be held responsible, even in
the absence of bad faith on his/her part.”

Article 1245:

“There is no compensation for costs, losses or profit, if because of uncontrollable circumstances

or because of happenstance, the obligor is prevented from delivering or performing something
which is obligatory, or commits an act which is prohibited for him/her.”

The Indonesian for the phrase “uncontrollable circumstance,” or “keadaan memaksa,” found in
Article 1245 above, is commonly used as the Indonesian translation for “force majeure” or “act of
God” in English. There is thus no doubt that the concept of force majeure exists in Indonesian
law, although neither Article 1244 nor Article 1245 provide any examples of force majeure or give
much granularity to the concept.

In the absence of a rigid statutory formulation, many Indonesian legal scholars rely on common
law formulations in broadly describing force majeure as an event which: (i) causes the party
claiming the force majeure to be unable to perform an obligation; (ii) results from an occurrence
for which the claiming party cannot be faulted; and (iii) could not have been foreseen by the
claiming party at the time the obligation was formed. However, one should not assume that an
Indonesian court will follow this or any other formulation of the concept.

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In certain sectors, regulatory pronouncements and legal practices may also be relevant. For
example, government-formulated rules for emergency situations in the petroleum industry make
specific provision for pandemics, among others.

Finally, employment law is also relevant. An employer is not generally permitted to terminate an
employee on force majeure grounds, except in limited situations provided by statute and after
paying compensation in an amount mandated by law. Neither may an employer suspend or
reduce an employee’s salary and other compensation, except with the employee’s permission.

2. Is it only available if it is specified in a contract?

Indonesia is part of the civil law tradition. Articles 1244 and 1245 of the ICC thus apply generally
in circumstances where the parties themselves have not addressed the issue of force majeure in
their legal relations. However, Indonesia also honors the principle of freedom of contract found in
Article 1338 of the ICC. Consequently, parties may supplement or opt out of the ICC provisions
governing force majeure by instead including bespoke force majeure clauses in their written
contracts. This is highly recommended.

3. What are the key requirements, such as notification, to claim force majeure?

The ICC does not stipulate any specific requirements for a party to claim force majeure, including
notice. As with the substantive formulation of force majeure, the parties are also free to agree
procedural requirements in their contract, and both the substantive and procedural requirements
may generally be expected to prevail in legal proceedings.

4. What is the effect of a force majeure certificate issued by a government body?

Indonesian law does not presently provide a mechanism by which the government will issue a
force majeure certificate or its equivalent. However, government agencies can and often do
comment on natural disasters and other instances of force majeure. Nothing in Indonesian law
prevents a court from considering these declarations or pronouncements in determining whether
specified circumstances of unclear origin are to be treated as natural disasters or other acts of
God.

There is also one instance, quite controversial, in which the Government issued a regulation
directing that a particular disaster of questionable origin be treated as an act of God in legal
proceedings, and the courts have honored this regulation.

There are presently no reports that the Government will issue any regulation, guidelines or other
pronouncement with respect to the effect of the COVID-19 pandemic on private contractual

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relations. Should there be any such pronouncement, one may expect the Indonesian courts to
give it significant weight.

5. What remedies are available if there is a force majeure event?

Where the parties have themselves provided for remedies in the case of a force majeure event,
one may expect that those remedies will generally prevail. In the absence of contractually
specified remedies, Articles 1244 and 1245 of the ICC provide that a party which is successful in
claiming force majeure is relieved of the obligation to pay damages. In effect, the party is
excused from the performance to which the force majeure relates.

In the context of a sale of goods, Article 1264(3) of the ICC provides that if goods, due to no fault
of the seller, depreciate in value while awaiting the satisfaction of conditions precedent for their
delivery, the buyer shall have the option either to cancel the agreement or to require delivery of
the goods in their existing condition without any reduction in the agreed price.

In the context of the employer-employee relationship, Indonesian law does not allow employers
unilaterally to suspend and/or reduce the salary or other compensation of employees except with
the express consent of the employee, irrespective of any force majeure event.

6. What are the risks of claiming force majeure incorrectly?

If a party claims force majeure incorrectly and discontinues performance of a contract

unilaterally, that party may be held in breach of its obligations and the other party may be
successful in seeking damages for non-performance. Although the ICC provides for specific
performance a breached obligation in Article 1267, it is generally understood that courts are
reluctant to award specific performance, and where they do so, the judgment is very difficult to
enforce. Damages are thus generally the preferred remedy.

7. Are there alternatives to force majeure such as frustration of contract or “change in

circumstances”?

Although the ICC does not recognize “frustration of contract” or “change in circumstances” as
express legal doctrines, there may be alternative concepts which may accommodate these
concepts with effective legal advocacy. For example, Article 1254 of the ICC provides:

“All conditions that are intended to do something that cannot be done, something that is contrary
to morality, or something that is prohibited by law are void and render agreements conditioned
upon them not in effect.”

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The circumstances captured by the phrase “cannot be done” in the above provision are open to
interpretation.

Another example may be found in Article 1381 of the ICC, which provides in relevant part:

“Obligations shall cease … by reason of the destruction of the goods that were owed.”

8. How can you find out if courts or other types of tribunals have been closed or
suspended?

The Supreme Court of the Republic of Indonesia has issued Circular Letter Number 1 of 2020,
dated March 23, 2020, following the earlier promulgation of the same Circular Letter, regarding
the Adjustment of the Working System for Judges and Court Apparatus in Efforts to Prevent the
Spread of COVID-19 at the Supreme Court and Subordinate Courts (the “Circular Letter”).

The Circular Letter gives to court tribunals the discretion to determine any postponement of
hearings or restrictions on visitors attending hearings. The Circular Letter also encourages
parties in civil, religious, and state administrative proceedings to utilize the e-litigation application
system which the courts have recently activated.

As of the date of this writing, several courts in Indonesia have announced that hearings in civil
matters are postponed for two weeks to accommodate the Government’s efforts to battle the
COVID-19 outbreak.

These and similar court announcements are generally made publicly and need to be monitored
continuously.

9. Are arbitration proceedings in the Indonesian jurisdiction being suspended?

We have been informed verbally that proceedings administered by the Indonesian National
Arbitration Board (BANI) are suspended until March 27, 2020. This date is subject to change and
requires continuous monitoring.

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

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Indonesia and COVID-19: New Tax Policies Aim to Stimulate Economy

By Michael S. Carl and Charvia Tjhai

The COVID-19 pandemic has slowed the Indonesian economy, cut state revenue and forced
increased state spending and financing. In response, the Indonesian government has issued a
new regulation aimed at providing tax relief for the coronavirus-battered economy.

The new regulation lowers corporate tax rates, imposes tax on electronic transactions by foreign
tax subjects, extends tax filing deadlines and empowers the Ministry of Finance to waive import
duties in the context of responding to the COVID-19 pandemic and/or in responding to a threat to
the economy or national stability.

This article takes a closer look at the implications of the new tax policies contained in
Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Policy and
Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or
in Facing Threats to the National Economy and/or Financial System Stability (March 31, 2020)
(“GR 1/2020”).

Lower Tax Rates for Domestic Companies

GR 1/2020 reduces tax rates for domestic corporate taxpayers and permanent establishments
from 25% to 22% applicable for the 2020 and 2021 tax years, and to 20% starting in the 2022 tax
year.

To qualify for the lower rates the domestic corporate taxpayer must be in the form of a publicly
listed company and have at least 40% of its shares traded on the stock exchange in Indonesia.
Also, if the domestic corporate taxpayer meets certain conditions it can qualify for a tax rate 3%
lower than the rates stipulated above. Those conditions are to be further regulated by or based
on government regulations.

Tax Treatment for Electronic Transactions

GR 1/2020 provides a tax treatment for Trade Through Electronic Systems (Perdagangan
Melalui Sistem Elektronik or “PMSE”) that is intended to increase state revenue. This includes
imposing value added tax (“VAT”) on intangible taxable goods and/or taxable services originating
from outside Indonesia and utilized inside the country as part of PMSE activities.

VAT will be imposed subject to the provisions of Law No. 8 of 1983 regarding Value Added Tax
for Goods and Services and Sales Tax on Luxury Goods, as lastly amended by Law No. 42 of

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2009 (the “VAT Law”). The VAT on PMSE activities is to be collected, deposited and reported by
foreign traders, foreign service providers, foreign electronic system trade providers (Foreign
PPMSE) and/or domestic electronic system trade providers (Domestic PPMSE), appointed by
the Minister of Finance.

Electronic system trade providers, or PPMSE, as referred to above, are business actors that
provide electronic systems used for trade transactions. Foreign traders and foreign service
providers are individuals or entities residing or domiciled outside Indonesia that engages in
transactions with buyers of goods or recipients of services in Indonesia through an electronic
system.

GR 1/2020 also imposes income tax or electronic transaction tax on PMSE activities carried out
by foreign tax subjects that meet certain criteria. Foreign traders, foreign service providers and
Foreign PPMSE deemed to have a “significant economic presence” in Indonesia can be treated
as a permanent establishment subject to income tax. Significant economic presence is
determined by sales in Indonesia, number of active users on digital media and the consolidated
gross turnover of the business group.

If foreign traders, foreign service providers or Foreign PPMSE are determined to have a
significant economic presence but cannot be treated as a permanent establishment due to the
application of agreements with other governments in the context of avoiding double taxation, they
will be subject to electronic transaction tax. This tax shall be imposed on the sale of goods or
services from outside Indonesia through PMSE activities to buyers or users in Indonesia by
foreign tax subjects, either directly or through a Foreign PPMSE.

Income tax or electronic transaction tax on PMSE activities is to be paid and reported by foreign
traders, foreign service providers and Foreign PPMSE. Note that they may appoint
representatives domiciled in Indonesia to collect, deposit and report VAT owed and/or to fulfill
their income tax or electronic transaction tax obligations.

Failure to fulfill the above provisions shall be subject to administrative sanctions as provided by
the VAT Law. Additional government regulations will be issued as necessary to further regulate
the imposition, calculation, collection and other matters related to the above taxes.

Tax Filing Deadlines Extended

GR 1/2020, in light of the COVID-19 outbreak, provides extensions for the fulfillment of tax
obligations, as follows:

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 a. the deadline for a taxpayer to file an objection as referred to in Article 25 (3) of Law No. 6
of 1983 regarding General Provisions and Procedures on Tax, as lastly amended by Law
No. 16 of 2009 (the “KUP Law”), is extended by six months;
b. the deadline for filing a request for the return of tax overpayment as referred to in Article
11 (2) of the KUP Law is extended by one month; and
c. the deadline for taxpayers to apply for the return of tax overpayment as referred to in
Article17B (1) of the KUP Law, file an objection letter as referred to in Article 26 (1) of the
KUP Law, or apply for the reduction or cancellation of administrative sanctions or
incorrect tax assessment or the cancellation of examination results, as referred to in
Article 36 (1) KUP Law, is extended by six months.

These extensions are subject to future changes based on the situation with the coronavirus
outbreak.

Ministry of Finance Empowered to Provide Customs Facilities

Lastly, GR 1/2020 authorizes the Minister of Finance to provide customs facilities in the form of
exemption or relief of import duties, which is to be further regulated by Minister of Finance
regulations. (April 9, 2020)

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 14

Indonesian Employment Law and COVID-19

As a result of the serious economic disruptions from COVID-19, many employers in Indonesia
may be forced to reduce costs for the foreseeable future.

What options are available to employers under Indonesian employment law?

Salary Cuts and Unpaid Leave

Employers that want to avoid terminations as much as possible can pursue the option of
reaching an agreement with employees on salary cuts and/or unpaid leave arrangements.

Key points to consider include:

If employees freely agree to the employer’s proposal to salary cuts and/or unpaid leave,
that agreement should be recorded in writing.
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.
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. Without that consent, employees remain entitled to their benefits under
their current employment agreement.
Note that 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.

Employee Terminations

There are a number of different scenarios employers might consider in response to COVID-19.
These include the complete closure of the business because it is no longer financially viable and
the redundancy of all the employees, or laying off only a portion of the workforce.

Some of the key considerations for these scenarios include the following:

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

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 overall business activities), either preceded with or without losses for two consecutive
years (this is relevant for determining termination entitlements).
Whether a force majeure event would be an acceptable reason for employee
terminations with minimal severance payment.
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”).
Note that 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.
Note that 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:
o 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. If a settlement is reached, an MTA should
be executed and registered at the relevant labor court;
o 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.
o 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. If the labor court decision is appealed the case then goes to the
Supreme Court.
Statutory Severance Requirements:
o 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.
o 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

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 relocation costs or expenses, compensation for housing, medical and
hospitalization, and other separation benefits as may be agreed).
o 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
o 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.
o 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 employee signs an MTA to avoid the costly labor court process.

For more information, please contact Fahrul S. Yusuf at fahrulyusuf@ssek.com

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 17

Indonesian Visas in the Time of COVID-19

By Stephen Igor Warokka and Manika Jashan Sadarangani

On 11 March 2020, the World Health Organization (“WHO”) officially announced that COVID-19
had become a global pandemic. Following this announcement, as with many other countries,
Indonesia enacted regulations to govern the traffic of individuals entering and leaving the
country. These regulations specifically mandate limitations and exceptions for the granting of
Entry Permits and Re-entry Permits for foreign nationals wanting to visit or return to Indonesia
and Emergency Stay Permits (Izin Tinggal Dalam Keadaan Terpaksa) for all foreign nationals
currently in Indonesia.

Please visit the website of the Indonesian Directorate General of Immigration, imigrasi.go.id, or
its official Instagram account, @ditjen_imigrasi, to access the abovementioned regulations and
other relevant information, as well as the Indonesian Director General of Immigration circular
letter and the Indonesian Ministry of Foreign Affairs’ announcement regarding this matter, all of
which need to be read collectively to determine the required steps in terms of visas during the
COVID-19 pandemic.

Entry Permits and Re-entry Permits

In response to the COVID-19 pandemic, the Government of Indonesia has temporarily

suspended all foreign visitors from entering or transiting in Indonesia. This suspension, however,
does not apply to anyone holding a Limited Stay Permit (Izin Tinggal Terbatas or “ITAS”);
Permanent Stay Permit (Izin Tinggal Tetap or “ITAP”); Diplomatic or Service Visa; or a
Diplomatic Stay Permit or Service Stay Permit. Also exempted from the suspension are medical,
food and humanitarian aid support workers; crew members for means of transport; and foreign
nationals entering Indonesia to work on national strategic projects, e.g. infrastructure or
construction.

Note that these exceptions only apply to foreign nationals if they are travelling from a country that
has not been affected by COVID-19 or have not travelled to or transited in a country affected by
COVID-19 within the last 14 days; and after satisfying the other requirements provided under
Indonesian Minister of Law and Human Rights (“MOLHR”) Regulation Number 11 of 2020 on the
Temporary Prohibition of Foreigners Entering Indonesia (“MOLHR Reg No. 11/2020”).

Emergency Stay Permits

As stipulated in Articles 4 and 5 of MOLHR Reg No. 11/2020, an Emergency Stay Permit is
automatically applicable to any foreign national whose stay permit (any stay permit) has

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completely expired and can no longer be extended, without having to submit an application to the
immigration office. This overstay will not be subject to a fine and will be completely free of
charge.

Director General of Immigration Circular Letter No. IMI-GR.01.01-2114 Year 2020 provides that
Emergency Stay Permits are applied differently for foreign nationals who arrived in Indonesia
before and after 5 February 2020. However, in practice, Emergency Stay Permits have been
leniently provided to every foreign national in Indonesia whose permit can no longer be
extended, even if they arrived before 5 February 2020.

There may be additional requirements to obtain new visas/visa extensions in practice.

Please note that Article 6 of MOLHR Reg. No 11/2020 stipulates that the minister may issue
other policies related to immigration facilities for foreign nationals as long as such policies
provide general benefits. We have received further information from the Director General of
Immigration that another Circular Letter will be issued regarding MOLHR Reg No. 11/2020.

These exceptions and visa requirements are subject to future changes based on the situation
with the COVID-19 pandemic.

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 19

Indonesian Capital Market Update During the Coronavirus Pandemic

By Ira A. Eddymurthy and Callista Putri Mayari

To generally calm the market from its consistent downward volatility amid the global coronavirus
pandemic, the relevant Indonesian government authorities have taken several actions. These
include (i) the suspension of all short selling transactions implemented by the Indonesia Stock
Exchange (“IDX”) and (ii) the introduction by the Indonesian Financial Services Authority (“OJK”)
of a new policy on share buybacks.

IDX Suspends Short Selling

The IDX suspended short selling as the Jakarta Composite Index (“JCI”) was in a free-fall,
continuing its losses since the start of 2020. The IDX believed the stock market correction in
Indonesia was mirroring similar losses around the world over fears of the coronavirus pandemic.

The IDX suspension resulted from a coordination meeting attended by IDX officials and
Indonesian President Joko Widodo, together with other financial industry regulators, including
OJK, Bank Indonesia and Ministry of Finance officials.

The suspension of short selling was declared effective upon the issuance of IDX Circular Letter
No. S-01419/BELPOP/03-2020 on Provisions Relating to Short Selling Transactions dated March
2, 2020. It is further reiterated through IDX Announcement No. Peng-00058/BEI.POP/03-2020 on
the Revocation of the List of Securities that Can Be Transacted Through Short Selling dated
March 2, 2020 (“IDX Announcement 058”).

Under IDX Announcement 058, all securities stipulated by the IDX as securities or shares eligible
for short selling transactions, as stated in item I.e. of IDX Announcement No. Peng-
00054/BEI.POP/02-2020 on Securities that Can Be Transacted and Guaranteed in the Context of
Margin Transactions and/or Short Selling Transactions dated February 28, 2020, are now
prohibited from being transacted by way of short selling in Indonesia for an indefinite period.

Current IDX Policy on Short Selling

In essence, the IDX has adopted three policies regarding short selling transactions as of this
writing:

1. The IDX will not issue any list of securities that can be traded through short selling
transactions for an indefinite period;

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 2. The IDX will not entertain any applications requesting short selling transactions, even if
requested by Securities Exchange members, for an indefinite period; and
3. Securities Exchange members are obliged to ensure that any transaction carried out,
both for the benefit of Securities Exchange members and/or their customers, is not a
short selling transaction.

The above prohibition applies to any natural or legal person irrespective of their country of
residence, including all qualified investors and securities companies listed on the IDX website
which had previously obtained approval from the IDX to carry out short selling transactions.

OJK Policy on Share Buybacks

The week after the IDX introduced its prohibition on short selling, the OJK, also taking into
account the pressure of the global pandemic and the plunging JCI, which had fallen about
18.46% since the start of the year, issued Circular Letter No.3/SEOJK.04/2020 dated March 9,
2020, on Other Significantly Fluctuating Market Conditions for the Performance of Buyback of
Shares Issued by Issuers or Public Companies (“OJK Circular Letter No. 3/2020”).

On March 16, 2020, the OJK issued Circular Letter No. S-89/D.04/2020 to further clarify
procedures for share buybacks as set forth in OJK Circular Letter No. 3/2020 (“OJK Circular
Letter No. S-89/2020”). In principle, OJK Circular Letter No. S-89/2020 regulates procedures for
issuers or public companies (i) to provide written disclosure of information according to the
required timeline and (ii) to satisfy the stipulated mechanism for the refloat of treasury shares.

Share Buyback Without a GMS

Under OJK Circular Letter No. 3/2020, issuers and public companies can now conduct share
buybacks without convening a General Meeting of Shareholders (“GMS”). In addition, the
number of shares that can be repurchased by issuers and public companies can now be more
than 10% of paid-up capital and at most 20% of paid-up capital, provided that the outstanding
shares are at least 7.5% of paid-up capital.

For the sake of clarity, the relaxed process of share buybacks without obtaining prior GMS
approval is not mandatory in nature. This is merely an option for issuers and public companies,
to allow them if they choose to expedite the timeline by being able to skip the approximately two
months required to plan and hold a GMS to approve a share buyback.

With the issuance of OJK Circular Letter No. 3/2020 and OJK Circular Letter No. S-89/2020, the
OJK is seeking to help reduce the impact of the coronavirus pandemic on the market by

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empowering issuers and public companies to execute expedited share buybacks without
violating the provisions of applicable laws and regulations.

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 22

Indonesia and COVID-19: Government Issues Regulation on Limiting
Social Interactions

By Ridzki Putra Ramadhan

As part of the national effort to battle the spread of the coronavirus in the country, the
Government of Indonesia (“GOI”) has issued Government Regulation No. 21 of 2020 on the
Limitation of Large-Scale Social Interactions to Expedite Countermeasures Against COVID-19
(March 31, 2020) (“GR 21/2020”). GR 21/2020 is an implementing regulation for Law No. 6 of
2018 on Health Quarantine (the “HQ Law”).

Under the HQ Law, health quarantine is defined as an effort to prevent or curb the spread of a
disease and/or public health risk factor that has the potential to cause a public health emergency.
The HQ Law defines a public health emergency as an extraordinary public health event as
indicated by the spread across regions or countries of infectious disease and/or events caused
by nuclear radiation, biological pollution, chemical contamination, bioterrorism or food
contamination.

COVID-19 Declared a Public Health Emergency

On the same date it issued GR 21/2020, the GOI designated COVID-19 a public health
emergency by virtue of Presidential Decree No. 11 of 2020 on the Stipulation of Coronavirus
Disease 2019 (COVID-19) as a Public Health Emergency (“Decree 11/2020”). Decree 11/2020
recognizes COVID-19 as a public health emergency as defined by the HQ Law, empowering the
GOI to introduce health quarantine measures as set out in the HQ Law to fight the spread of
COVID-19 in Indonesia. These quarantine measures include home quarantine, regional
quarantine, hospital quarantine, and limits on large-scale social interactions.

While the HQ Law discusses the general provisions for the implementation of health quarantines
in the event of a public health emergency, GR 21/2020 focuses solely on limitations on large-
scale social interactions, particularly as a countermeasure to the spread of COVID-19.

Such limitations are a method of health quarantine by way of temporarily closing certain public
places to prevent the spread of an infectious disease stipulated as a public health emergency by
the GOI. The implementation of such limitations includes at least the following:

a. temporary closure of schools and places of work;

b. limitations on religious activities; and/or
c. limitations on activities in public places or facilities.

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Pursuant to GR 21/2020, the enforcement of such limitations on large-scale social interactions
can be initiated by the Minister of Health (“Minister”) or by a governor/regent/mayor. In the case
of the latter, the governor/regent/mayor would need to submit a recommendation to the Minister,
who would then consider such recommendation and determine whether to enforce the requested
limitations in a certain region.

The implementation of such large-scale social distancing efforts must be based on various
considerations as set out in Article 2 paragraph (2) of GR 21/2020, including epidemiology, scale
of threat, resources, and political, economic, social, cultural, defense and security considerations.

Further, under Article 3 of GR 21/2020, for limitations on large-scale social interactions to be

implemented, the following conditions must be fulfilled:

a. the number of infections and/or the death toll from the disease have increased and
spread significantly and quickly to several regions;
b. there exists an epidemiologic link with a similar case in another region or country.

As of the date of this article, we are not aware of any decree or stipulation by the Minister that
enforces any limitations on large-scale social interactions in any region in the country. In practice,
however, several regional governments, including those in DKI Jakarta and West Java, have
begun to implement such limitations in their own regions.

Given that GOI has stipulated COVID-19 a public health emergency and issued an implementing
regulation specifically for the exercise of large-scale social distancing efforts in response to the
COVID-19 pandemic, it would appear that it is possibly preparing itself, by validating its authority
pursuant to the HQ Law, to introduce health quarantines to handle the crisis.

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 24

Navigating Sea Transportation in Indonesia During COVID-19

By Stephen Igor Warokka and Shafira Nindya Putri

The Indonesian Directorate General of Sea Transportation (“DGST”), at the Ministry of

Transportation, has issued several circular letters aimed at preventing the spread of COVID-19.
This article discusses measures taken in Indonesian ports, including terminals, as well as
measures concerning ship crews.

Indonesian Ports and Terminals

During the early spread of COVID-19, and in response to Indonesian Director General of Disease
Prevention and Control of the Ministry of Health the Circular Letter No. PM.04.02/III/43/2020
dated January 3, 2020, and International Maritime Organization Circular Letter No. 4204 dated
January 31, 2020, the DGST issued Circular Letter No. 5 of 2020 regarding Anticipating
Coronavirus Spread in Port Areas in Indonesia dated February 5, 2020 (“DGST CL 5/2020”). The
DGST instructs all port operators to identify all ships arriving from abroad, including those in
transit, especially from countries with COVID-19 cases. Port operators are also instructed to
intensify supervision of ships, especially those from mainland China and Hong Kong. Under this
Circular Letter, the DGST also establishes a special integrated task force to handle the spread of
severe pneumonia disease from sea transportation.

The DGST then issued Circular Letter No. 8 of 2020 regarding Preventive Steps Against the
Spread of Coronavirus in Indonesian Ports dated March 5, 2020 (“DGST CL 8/2020”). This
Circular Letter provides guidelines for handling passengers arriving in Indonesian ports. It
instructs all DGST Technical Implementation Units to take the following preventive measures:

a. determine if incoming ships are arriving from countries affected by COVID-19;

b. coordinate with health quarantine personnel to identify and handle arriving passengers
with COVID-19 symptoms;
c. ensure the international terminal and other locations in the port are equipped with
sufficient body temperature scanners and hand sanitizer;
d. ensure port operators are vigilant in maintaining the hygiene of terminals by spraying
disinfectant periodically; and
e. report any potential spread of COVID-19.

Limitations on Sea Transportation

DGST Circular Letter No. 13 of 2020 regarding Limitations on Passengers Aboard Ships,
Logistics Transportation and Port Services During the COVID-19 Outbreak Management

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Emergency Period (“DGST CL 13/2020”) emphasizes the importance of cooperation between
regional governments where ports are located and the DGST with respect to potential port
closures. The aim of such cooperation is to ensure the DGST is able to carry out a proper
evaluation before any closure is decided.

Under DGST CL 13/2020, passenger ships can continue to operate, with some limitations that
must be communicated to the relevant stakeholders in the shipping industry as well as potential
passengers. Despite the ongoing COVID-19 pandemic, the measures put in place by DGST CL
13/2020 are not as strict as some may have hoped in limiting the traffic of individuals and goods
going in and out of Indonesian ports. For example, instead of suspending all travel by sea
transportation, DGST CL 13/2020 only instructs relevant port authorities to disseminate
information to passengers on the risks of traveling during the COVID-19 outbreak.

DGST CL 13/2020 does prioritize access for ships carrying Indonesian nationals from abroad,
on-duty police officers and military personnel, primary and crucial goods and supplies, and
people who are ill and need to be moved to COVID-19 referral hospitals. DGST CL 13/2020 also
ensures that port services, such as berthing and unloading services, shall be made available for
cargo ships carrying supplies, goods for infrastructure development and export commodities.

Ban on Foreign Cruise Ships

DGST CL 13/2020 bans foreign-flagged cruise ships from berthing at Indonesian ports. If a
foreign-flagged cruise ship needs to refuel and disembark crew members for such purpose, it
must first apply for a permit in the determined anchorage area and only for the period stated in
the Foreign Ship Agency Approval (Persetujuan Keagenan Kapal Asing). Specifically for foreign-
flagged ships sheltering in the Riau Islands, crew disembarkation and refueling may only be done
in the Ship-to-Ship and Lay-Up locations at Nipah Island, Balai Karimun Cape and Galang Island.

Foreign crew members are prohibited from disembarking except in the determined anchorage
area. In the event of an emergency medical situation involving a foreign crew member, such
person may be disembarked from the ship only after the COVID-19 Task Force in the relevant
port has issued its authorization.

DGST CL 13/2020 also emphasizes the importance of maintaining good hygiene, practicing
social and physical distancing and supplementing ships with sanitation facilities and COVID-19
prevention announcements. Only if perceived as necessary in preventing the accelerating spread
of COVID-19 can ship operators limit the number of passengers allowed onboard.

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Ship Crews and Operators

DGST Circular Letter No. 11 of 2020 regarding Contingency Plan for Seafarers and Vessel
Operators dated March 24, 2020 (“DGST CL 11/2020”) prescribes exemptions and relaxations
for ship crews and ship owners and/or operators with respect to the management of crew
certification and documentation in the midst of the COVID-19 pandemic. It provides an exemption
for the Minimum Safe Manning Document in case there are crew members who must be
disembarked due to COVID-19 and the ship owners are unable to find replacements. If a
Seaman’s Book (Buku Pelaut) expires while the relevant crew member is onboard and not
permitted to enter the port or the transit country has implemented a lockdown in response to
COVID-19, the expired Seaman’s Book may be deemed as valid until the relevant authorities in
the transit country allow the crew member to disembark and renew the Seaman’s Book at the
Indonesian Embassy.

DGST CL 11/2020 also relaxes the Medical Certificate for Seafarers, pursuant to Standards of
Training, Certification and Watchkeeping Regulation 1/9 and Maritime Labor Convention 2006,
allowing the certificate to remain valid for an additional three months after its expiration in certain
circumstances such as the COVID-19 pandemic. In addition, foreign nationals working on
Indonesian-flagged ships whose Certificate of Recognition (“COR”) expires between March 1 and
May 31, 2020, may email a copy of their certificate and DGST CL 11/2020 to the Directorate of
Shipping and Navigation and a temporary COR valid for three months will be issued. (April 8,
2020).

This publication is intended for informational purposes only and does not constitute legal advice.
Any reliance on the material contained herein is at the user’s own risk. You should contact a
lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and
may not be reproduced without the express written consent of SSEK.

SSEK Legal Consultants 27