Adjusting Company Regulations For PMA Company In Indonesia

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Can PMA Company in Indonesia directly apply a company regulation from their parent company in overseas?

Most of the time, Foreign Direct Investment Company or Perseroan Terbatas Penanaman Modal Asing (“PT PMA or PMA Company”) apply for the same company regulation as their parent company abroad to determine the policy for their employees.

This action is usually taken as a form of implementation of the global corporate value that they want to apply within all branches of the company, including ones established in Indonesia, either as a branch, a subsidiary, or as a partner. However, the implementation does not always run smoothly. This is because every country has different laws and regulations concerning employment. In Indonesia for example, provisions regarding termination and the Employer’s obligation to give severance pay package can be different than in other countries. So, if the terms in the Company Regulation of the parent company is contrary to the prevailing laws and regulations in Indonesia, it is not applicable in Indonesia.

So how to solve this? All companies established in the territory of and under the laws of Indonesia, specifically Law No. 13 of 2003 on Manpower (“Manpower Law”)  which have at least 10 (ten) employees are required to have Company Regulation (Peraturan Perusahaan or “PP”). This includes PMA Companies which fulfill that criteria.

Therefore, PMA Companies in Indonesia are allowed to apply for the Company Regulation of their Parent Company, with necessary adjustments for the Company Regulation to be applicable in Indonesia.

There are several matters that should be noted when adjusting a Company Regulation:

  1.  Provisions contained in Company Regulation

When using Company Regulation of their Parent Company, PMA Companies are advised to adjust the provisions regulated in the Company Regulation, so they are in line with the prevailing laws and regulations in Indonesia.

At the very least, the terms in the Company Regulation must comply with the provisions in the Manpower Law. When the PMA Company reduces the provisions and terms so that they do not fulfill the terms as regulated by Manpower Law, it will result to the Company Regulation becoming not applicable in Indonesia.

If the PMA Company continues to apply the Company Regulation of their Parent Company without any adjustments, the consequence is that if there is a contradiction between the provisions of the Company Regulations and the Manpower Law, the Manpower Law will prevail. Also, the Company Regulation containing the contrary provisions cannot be legalized in Indonesia, therefore the PMA Company will not be able to enforce the Company Regulation to its employees.

  1.  Language used in the Regulation of the Company

Generally, Company Regulation from the parent company are drawn up in the foreign language utilized in the parent company from the Country of Origin. In Indonesia, the most crucial thing to note by PMA Companies is the mandatory use of Bahasa Indonesia in the regulation of the company.

Pursuant to Law Number 24 of 2009 on Flag, Language and Symbols of the Nation and the National Anthem (“Language Law”), Bahasa Indonesia must be used in all official communication in the work environment in both the government and the private sector. “Private work environment” includes both Local and PMA Companies established in Indonesia.

Thus, all Company Regulations must be made in Bahasa Indonesia. This obligation to utilize Bahasa Indonesia also applies for all work agreement, employment contract, or other agreement made between the company and the employees.

Failure to fulfill the obligation to use Bahasa Indonesia may result in the agreement being rendered null and void (cancel). A tip to avoid this is to make the company regulation, working agreement or other employment-related agreement in bilingual, which is not prohibited by law.

  1.  Ministerial Approval of the Company Regulation

Company Regulations in Indonesia are only applicable by law after obtaining an Approval from the Ministry of Manpower.

Therefore, company regulations used by PMA Companies, which are obtained from parent companies are not automatically enforceable by Indonesian law before the regulation is approved by the authorized government, which is the Ministry of Manpower. The approval is given only after a period of verification by the relevant institution, after which they will issue an approval which states that the Company Regulation has complied with all prevailing laws and regulations in Indonesia, especially those governing matters on manpower and employment.

Adjustment of Company Regulation to be in accordance with the prevailing laws and regulations in Indonesia must be made by both Local PT and PMA Company in order get a strong legal position if problems arise between the company and its employees.

if you want consultation about PMA Company Regulation in Indonesia, you can arrange meeting with SMART Legal Consulting  or contact at:

E: info@smartcolaw.com

H: +62821-1234-1235

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Fairus Harris Senior Associate
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