An interesting question in Indonesia is whether non-resident directors and commissioners need to obtain work permits. Our team takes a look.
Do non-resident directors and commissioners need to obtain work permits?
Unfortunately, Indonesian legislation does not provide a clear answer to this point and there are arguments which can be made for and against the approach of not obtaining a work permit for a foreign director who does not reside in Indonesia.
The relevant manpower legislation only states that:
“Every employer that employs an expatriate must obtain a written permit from the Minister or the relevant appointed official.”
As can be seen, the wording of the manpower legislation is broad. The provisions do not specify whether the words “employs an expatriate” also include foreign persons with a position in the company who do not reside in Indonesia. Therefore, the legislation is, on its wording, unclear as to whether such foreigners who hold office or are employed by an Indonesian company, but who do not reside within the country, would also require work permits. The practice of most companies to date is that such non-resident persons would not typically hold work permits in Indonesia unless they are regularly in the country performing executive or visible roles for the employer.
However, in practice, there are two conflicting views on the interpretation of the requirement to obtain work permits. On the one hand, there is a view that such foreign persons do not require work permits as long as they do not carry out any work and/or reside in Indonesia for more than 183 days (because staying longer than 183 days in Indonesia typically triggers tax residency in Indonesia) or other number of days specified in an applicable Double Taxation Treaty. This, in our opinion, is the legally correct view.
On the other hand, in the absence of any express regulation on this point, it is open to the Ministry of Manpower to argue that, even though the foreigner does not reside in Indonesia, he needs to have a proper work permit to carry out any work for an Indonesian employer. We have seen instances in recent years in which the Ministry of Manpower forcefully applied this narrow interpretation.
Unfortunately and as discussed above, there is no clear answer to this point and there are arguments that can go both ways.
Given that a director is authorised to manage the company and act on behalf of the company by virtue of the company’s articles of association, it would be difficult to be of a certain view that a foreign director who does not reside in Indonesia does (or does not) need a valid work permit. It would be even more difficult to argue against the view that a foreign director that resides overseas must have a valid work permit if the foreign director carries out actual work (eg signs documents or otherwise works in Indonesia in relation to the relevant employer entity).
Our views on non-resident directors also apply in relation to a non-resident commissioner.
However, it would somewhat be easier to argue against the view that a commissioner who does not reside in Indonesia requires a valid work permit because, under the Indonesian Company Law, the primary function of commissioners is only to supervise the management of a company by the board of directors, and is therefore by law meant to be non-executive.
If, however, a foreign commissioner were based in Indonesia or was in fact actively engaged in a company’s activities, there is a greater chance that the Ministry of Manpower would argue that the commissioner’s role is actually “working” and hence requires a work permit to perform his/her role.