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Key Regulatory Update: Indonesia’s New Requirements on Foreign Exchange Export Proceeds from Natural Resources

By : Mutiara Rengganis, Bob Allen Simatupang, Siti Kartikatul Qomariyah

30-Aug-2023

Key Regulatory Update: Indonesia’s New Requirements on Foreign Exchange Export Proceeds from Natural Resources

 

Commencing on 1 August 2023, significant updates, and new requirements on Foreign Exchange Export Proceeds from Natural Resources (Devisa Hasil Ekspor dari Barang Ekspor Sumber Daya Alam – “DHE-SDA”) have come into effect, as outlined in the recently enacted Government Regulation of the Republic of Indonesia Nr. 36 of 2023 on Foreign Exchange Export Proceeds from the Business, Management and/or Processing of Natural Resource, dated 12 July 2023 (“GR Nr. 36/2023”). This GR Nr. 36/2023 supersedes the previous government regulation on DHE SDA, i.e., the Government Regulation of the Republic of Indonesia Nr. 1 of 2019, dated 10 January 2019.

In a strategic leap towards propelling economic advancement, the Government of the Republic of Indonesia (“GOI”) has unveiled this transformative GR Nr. 36/2023. This regulation is designed to enhance the placement of the DHE-SDA within the Indonesian financial system[1]. By strengthening requirements on the placement of DHE SDA within the Indonesian financial system, GOI aims to foster sources for financings and investments in economic development in the natural resources sector, fortifying macroeconomic stability and strengthening domestic financial markets. With expectations of a notable increase in DHE-SDA placement participants (exporters), GOI is also now offering fiscal and non-fiscal incentives to exporters who comply with the DHE-SDA new regulations.

 

A new set of implementing regulations is also issued following GR Nr. 36/2023, i.e.:

 

1. Bank Indonesia Regulation No. 7 of 2023 on Foreign Exchange Export Proceeds and Foreign Exchange Import Payments, dated 31 July 2023, as further regulated under the Members of the Board of Governors of Bank Indonesia Regulation Nr. 4 of 2023, dated 31 July 2023 (“BI Regulation No. 7/2023”);
2. Ministry of Finance Regulation Nr. 73 of 2023 on Imposition and Revocation of Administrative Sanctions for Violations of Provisions on Foreign Exchange Export Proceeds from the Business, Management and/or Processing of Natural Resource (“MoF Regulation Nr. 73/2023”).

 

(GR Nr. 36/2023 together with BI Regulation No. 7/2023 and MoF Regulation Nr. 73/2023 shall be referred to as “DHE SDA New Regulations”)

 

I. Requirements and Exemptions on the DHE-SDA

In addition to the previous requirement that exporters are obliged to place their DHE-SDA derived from mining, plantations, forestry and fisheries business activities into the Indonesian financial system no later than the end of the third month as of the month of the Export Customs Notice (Pemberitahuan Pabean Ekspor – “PPE”)  registration, the DHE-SDA New Regulations stipulate additional requirements that:

 

1. such placement is mandatory for exporters having DHE-SDA with free-on-board export value stated in the PPE (“Export Value”) of at least USD250,000 (or its equivalent)[2];
2. such placement is made through a designated DHE-SDA account (in the form of current account, savings account or other eligible account for transactions specified for the placement of DHE-SDA) at any appointed domestic foreign exchange bank (“FX Bank”) and/or the Indonesian Export Financing Institution (Lembaga Pembiayaan Ekspor Indonesia – “LPEI”)[3] (“Designated Account”);
3. such placement shall be in the amount in accordance with the Export Value;
4. minimum 30% of the placed DHE-SDA (“Retained Minimum 30% DHE-SDA”) must continue to be placed for a minimum of 3 (three) months from the placement date in the Designated Account (calculated as of 1 August 2023).

This placement obligation is not intended to convert DHE-SDA to Rupiah, therefore, the currency can be kept in the form of foreign currency (i.e., United States Dollar, Euro, Japanese Yen or Chinese Renminbi). Nevertheless, should any issues related to macroeconomic stability and/or financial system stability arise, the Designated Account may need to be converted as per the relevant laws and regulations.

The placement obligation applies to each PPE. If single placement are resulting from multiple PPEs, the Retained Minimum 30% DHE-SDA applies for the total Export Values across all PPEs, even if each Export Value in each PPE is less than USD250,000.

 

a. Specific regulations for the Retained Minimum 30% DHE-SDA

While there are limitations on its utilization, the Retained Minimum 30% DHE-SDA can be placed throughout the following instruments (“30% DHE-SDA Instruments”):

 

1. the Designated Account in foreign currency;
2. banking instruments in the form of foreign currency deposits;
3. financial instruments issued by LPEI in the form of foreign currency promissory notes;
4. Bank Indonesia instruments in the form of conventional open market term deposits in foreign currency at Bank Indonesia; and/or
5. any other instruments stipulated by Bank Indonesia,

 

provided that the term of the instruments shall be at a minimum of 3 (three) months and cannot be retrieved prior to the due date.

 

Other than that, the exporters are allowed to use the 30% DHE-SDA Instruments as credit collateral for rupiah denomination credit/loan granted by the FX Banks and/or LPEI and other uses stipulated by Bank Indonesia, as follows:

 

1. Designated Account in foreign currency can be utilized as underlying for FX swap transactions between exporter and issuer (FX Bank/LPEI where the Designated Account is placed);
2. instruments as specified in points (i), (ii), (iv) and (v) can be utilized by FX Bank/LPEI as underlying for hedging swap transactions between FX Bank/LPEI and Bank Indonesia, or for other utilization as stipulated by Bank Indonesia;
3. instrument as specified in point (iv) can be utilized by FX Bank/LPEI as underlying for swap transactions with Bank Indonesia, for the benefit of exporter, in the form of transfer from conventional open market operation term deposit transactions in foreign currency at Bank Indonesia to swap transactions from the FX Bank/LPEI with Bank Indonesia.

 

It should be noted that (a) the amount of credit shall be at a maximum of the nominal value of the instruments; and (b) the period of credit and credit collateral shall be in accordance with the remaining period of the instruments.

 

b. The source of placement into the Designated Account

Designated Account is made specifically for the placement of DHE-SDA. As such, funds allowed to be transferred into the Designated Account are only limited to the following:

 

1. DHE SDA belonging to the same exporter;
2. funds from banking instrument disbursements and/or interest payments, whose funds originated from the Designated Account belonging to the same exporter;
3. funds originating from any other Designated Account belonging to the same exporter;
4. funds from principal repayments and/or interest payments (or the equivalent) of the 30% DHE-SDA Instruments at Bank Indonesia, whose funds originated in the Designated Account belonging to the same exporter;
5. transfer for the shortfall of required nominal value for the placement obligation, and
6. other sources determined by Bank Indonesia.

 

Funds transferred into the Designated Account from the earlier sources must be supported by relevant documents, such as PPE, invoices, and other relevant reports.

 

c. The utilization requirements of the Designated Account

The utilization of DHE SDA in the Designated Account is only allowed for payments associated with:

 

1. export duties and other levies;
2. loans under written loan agreements;
3. obligations relating to importing goods used for exporting;
4. profits/dividend; and/or
5. other investment-related purposes such as equity, procurement of materials, operational expenditures, salary/remuneration payments, and loss compensation.

 

In making such payments, exporters are permitted to establish escrow accounts with FX Banks/LPEI. If foreign escrow accounts have been established before 1 August 2023, they must be migrated to the escrow account with FX Banks/LPEI. However, the migration of an existing foreign escrow account must be completed within 90 (ninety) days from 1 August 2023.

 

In addition to the above, funds transferred out of the Designated Account must be supported by supporting documents, i.e.:

 

1. bills from overseas sellers of goods and services;
2. loan agreements or other documents indicating an obligation to pay loan interest and/or principal;
3. contracts or other documents indicating the obligation to pay royalties and other intellectual property rights obligations;
4. documents of the general meeting of shareholders showing the obligation to distribute dividends to overseas shareholders;
5. employment agreements or other employment documents indicating the obligation to pay salaries and other income;
6. documents on domestic assets liquidation that are the rights of overseas parties;
7. documents on exemption or suspension of the obligation to use Rupiah for domestic foreign exchange transactions; and/or
8. other documents stipulated by Bank Indonesia.

 

d. Reporting obligations

 

As consequence of the above requirements, each fund transferred in or out to the Designated Account must be informed to FX Banks/LPEI, which at least contains information, i.e., transaction value, transaction purposes, transaction parties, and financial relationships between transaction parties.

 

II. Fiscal & Non-Fiscal Incentives

 

As part of the endeavor to boost DHE-SDA placement within the Indonesian financial system, GOI has established a good intention that exporters may be awarded with fiscal and/or non-fiscal incentives upon complying with the DHE-SDA New Regulations.

Fiscal incentives may be granted toward any income arising from DHE-SDA placement as outlined above. These incentives could be in the form of a relaxed tax facility in accordance with applicable laws and regulations. Non-fiscal incentive is awarded by giving sound reputation for exporters who have placed DHE-SDA in the Designated Account.

Additionally, upon its own discretion, Bank Indonesia/FX Banks/LPEI may directly grant their own incentives to exporters for establishing and maintaining the Designated Account and the 30% DHE-SDA Instruments.

 

 

III. Monitoring and Applicable Sanctions

 

 

a. General Monitoring Provisions

Monitoring for the implementation of DHE-SDA New Regulations will generally be carried out by the Ministry of Finance (“MoF”) through an integrated system prepared by MoF, Bank Indonesia, Indonesian Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) and other relevant government institutions. The enforcement of such sanctions, however, will respectively be carried out by the relevant technical ministries and/or institutions.

 

b. Administrative Sanctions

MoF may use the reports submitted by Bank Indonesia and OJK to consider imposing and/or revoking an administrative sanction. If Bank Indonesia and OJK reported that an exporter is non-compliance due to (a) not placing the DHE-SDA in the Designated Account as required, (b) not retaining the Retained Minimum 30% DHE-SDA in the 30% DHE-SDA Instruments within the permitted period, and/or (c) not creating nor migrating its existing foreign escrow account at the FX Banks/LPEI within the permitted period, such exporter can be imposed by administrative sanction in the form of denying export services pursuant to applicable laws and regulation in custom sector (including blocking of exporters’ access to the export customs service system).

 

 

This summary only highlights certain issues under the DHE-SDA New Regulations and may not be complete and comprehensive.

Please visit our website at www.aymp.law for more information about our firm.

For more specific inquiries about this matter or other emerging legal issues in Indonesia, please contact the following lawyers:

 

-  Mutiara Rengganis (Mutiara@aymp.law)

-  Bob Allen Simatupang (Bob.Allen@aymp.law)

-  Siti Kartikatul Qomariyah (Kartikatul@aymp.law)

 

[1] The Indonesian financial system is a system consisting of financial institutions, financial markets, and financial infrastructure, including payment systems, which interact to facilitate the collection of public funds within the Indonesian economy.

[2] In cases where the Export Value is less than USD 250,000 (or its equivalent), exporters can voluntarily place the DHE-SDA into the Designated Account. In this scenario, further obligations regarding the placement apply to them as well, including the Retained Minimum 30% DHE-SDA requirements.

[3] Only for export transactions from LPEI debtors.

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