In our e-bulletin on 21 September 2011 we noted that Bank Indonesia ("BI") had proposed to issue new regulations requiring (i) Indonesian debtors; and (ii) Indonesian exporters receiving proceeds (in a foreign currency) to deposit such proceeds in a bank in Indonesia. On 30 September 2011, BI issued two regulations to implement this proposal with effect from 2 January 2012, namely:
- BI Regulation No.13/20/PBI/2011 dated 30 September 2011 (“PBI13/20”) regarding Receipt of Foreign Exchange from Export Proceeds and Drawdown of Foreign Exchange from Offshore Loan;
- BI Regulation No.13/22/PBI/20011 dated 30 September 2011 (“PBI13/22”) regarding Obligation to Report the Drawdown of Foreign Exchange from Offshore Loan1.
- Proceeds of certain offshore borrowings must be drawn down through local bank account (of the borrower) held with certain licensed foreign exchange banks in Indonesia. Likewise, exporters in Indonesia must receive, within 90 days of registration of the export notification, all foreign exchange arising from export proceeds through such local bank accounts (of the exporter).
- These new "on shoring" obligations are supplemented by related reporting obligations to BI.
- These new rules do not require the foreign currency brought into Indonesia to be converted into Rupiah or for the foreign currency to be kept in Indonesia for a specified period of time. The rules seek to balance the competing demands of bringing, in particular, Indonesia's large export proceeds into the domestic banking system, whilst at the same time respecting Indonesia's long standing free foreign exchange movement policy.
- We expect these new rules to have an impact on Indonesia-related arrangements in relation to export and offshore loan proceeds, including cash waterfall and accounts regimes under offshore lending structures that involve export proceeds being paid into controlled offshore accounts.
Foreign exchange from proceeds of loans (to debtors domiciled in Indonesia) from foreign creditors must be drawn down through the local bank account (of the borrower) held with banks which are licensed by Bank Indonesia to trade foreign currency ("Bank Devisa") (including any branch of a foreign bank in Indonesia) (“Foreign Exchange Bank”). This requirement applies to the cash proceeds of offshore borrowings from the following sources:
- new offshore loans which are based on any "non-revolving" loan agreement and which are not used for refinancing purposes (i.e. subject to paragraph (b) below, offshore loans entered into for refinancing purposes are not subject to the requirements);
- the difference between a refinancing facility and the amount of the previous offshore loan (i.e. if the size of the offshore loan entered into for refinancing purposes exceeds that of the old loan facility amount, the excess amount must be drawn down through a Foreign Exchange Bank); and
- offshore l debt securities in the form of bonds, medium term notes, floating rate notes, promissory notes and commercial paper.
The drawdown of such loans must be reported by the debtor to BI. Further details regarding the reporting obligation are set out in PBI13/22, including the following:
- the report must be submitted to BI in relation to each month, by the 10th day of the following month;
- the report must include supporting documents evidencing that the draw down has been done though a Foreign Exchange Bank.
- The aggregate amount drawn down under the offshore borrowing must be equal to the amount committed under the loan. If the aggregate amount drawn down through the Foreign Exchange Bank is less than the committed amount of the loan (e.g. as a result of deductions for any fees or costs), the debtor must provide written explanation to BI in relation to the deficit.
- Administrative sanctions are set for failure to draw down through the local bank account (of the borrower) held with a Foreign Exchange Bank: a fine of Rp10 million for each non-compliant draw down of the offshore loan. The sanctions will take effect from 2 July 2012.
- In relation to obligation to report the drawdown to BI, the administrative sanction for delay in submitting the report to BI will be as provided under BI's general regulation for the reporting of offshore loans. A delay in complying with the obligation to provide the relevant supporting documents is a fine of Rp100,000 for each day of delay in relation to each debtor, subject to a maximum of Rp10 million. The penalty for failing to submit the relevant supporting document is a fine of Rp10 million.
- Any draw down which relates to an offshore loan agreement entered into before 2 January 2012 need not be drawn down through a Foreign Exchange Bank, except for any draw down of additional loan amount which results from an increase in the credit facility amount due to an amendment entered into after 2 January 2012.
- Exporters in Indonesia must receive all foreign exchange arising from export proceeds through the local bank account (of the exporter) held with a Foreign Exchange Bank.
- The export proceeds must be received through the Foreign Exchange Bank within 90 calendar days after the date of registration of the Notification of Export of Goods (Pemberitahuan Ekspor Barang – “PEB”). For export proceeds where (i) the due date for payment falls 90 or more days after the registration date for the PEB; and (ii) the payment is by means of certain specified payment methods, being payments by "usance letter of credit", "consignment", deferred paymentor "collection", the export proceeds must be received through the Foreign Exchange Bank within 14 calendar days of the relevant date on which payment is due.
- The exporter must submit the information in the PEB, in relation to the export proceeds, to the Foreign Exchange Bank within 3 BI working days of the exporter’s receipt of the export proceeds through the Foreign Exchange Bank (which in turn reports to BI).
- The value of export proceeds that is received through the Bank must, subject to certain limited exceptions, correspond to the "free on board" value as stated in the PEB ("PEB Value"). If the export proceeds received is less than the PEB Value, the exporter must provide a written explanation to the bank (which will in turn pass it on to BI).
The administrative sanctions for non-compliance with the requirements relating to the on-shoring of export proceeds are as follows:
- a fine of 0.5% of the export proceeds which have not been received through the Foreign Exchange Bank, subject to a minimum amount of Rp10 million and a maximum amount of Rp100 million; and
- (in the event the exporter fails to pay the fine set out above and/or fails to comply with the export proceeds obligation) suspension of export activity, which will be enforced by the custom authority based on request from BI.
The provisions relating to sanctions will take effect from 2 July 2012.
- Where it has been previously agreed that the relevant export proceeds will not be routed through a Foreign Exchange Bank in Indonesia and/or where the export proceeds relate to a payment obligation of the exporter that has been entered into before 2 January 2012, such export proceeds need not be received through a Foreign Exchange Bank until 2 January 2013. The receipt of such export proceeds must be reported by the relevant exporter to BI. For PEBs issued in 2012, the relevant export proceeds must be received through the Bank within 6 months of the registration date of the PEB.
- As noted in our e-bulletin of 21 September 2011, there appears to be two main competing policy aims in play: (a) the desire to strengthen Indonesia’s domestic liquidity of foreign currency by requiring, in particular, Indonesia’s sizeable export proceeds to be brought into the domestic banking system; and (b) respecting Indonesia’s long-standing general policy of free foreign exchange movement. In particular, a key stated objective of the new rules is to mitigate the effects of sudden capital reversals of portfolio investments. Proceeds of exports and offshore loans are perceived as more stable sources of foreign exchange, and hence the rules aim to bring such proceeds into the Indonesian domestic banking system, whilst at the same time preserving Indonesia's free foreign exchange movement policy.
- Apart from the stated reasons for introducing these regulations, it is clear that these new requirements are connected with Indonesia's other moves in recent times to reduce the huge loss to State revenues due to rampant transfer pricing practices in export sales whereby profits were generated out of sight overseas. Significant new general anti-transfer pricing tax regulations have been introduced, together with mandatory minimum sales pricing for mineral sales linked to international indices. All these measures are directed at improving transparency in export trading and ensuring the State coffers receive proper revenue therefrom.
- The new rules do not require the foreign currency brought into Indonesia to be converted into Rupiah or for the foreign currency to be kept in Indonesia for a specified period of time. This suggests that the foreign currency can be brought into a bank account held with a Foreign Exchange Bank on one day and transferred out of Indonesia the very next day.
- The regulations only require the proceeds of "non-revolving" loan agreements to be paid on-shore. The elucidation to the regulations defines a "non-revolving" loan as "a loan agreement which does not enable the accumulated realized draw down of the offshore loan to exceed the committed amount" but no further details. It will be interesting to see whether all revolving facilities will fall firmly outside the regulations or whether there may be future attempts to bring at least some revolving facilities within the ambit of the regulations.
- The proceeds of offshore loans need not be routed through an onshore account where such loans are for refinancing of an existing loan, unless the size of the new offshore loan exceeds that of the refinanced offshore loan, in which case the excess amount must be drawn down through an onshore account. Hence, it should be made clear on the face of the loan agreement (i) whether the offshore loan is a refinancing facility; and (ii) if so, whether the amount of the refinancing facility is equal to the amount of the previous offshore loan being refinanced.
- Any cash and account management agreements, in relation to export proceeds (including cash water fall and accounts regimes under offshore lending structures that involve export proceeds being paid into controlled offshore accounts), entered into before 2 January 2012 (which requires proceeds to be kept offshore) may need to be reviewed and potentially amended to take into account the new onshore bank account requirement. This must be done by 2 January 2013.
- BI regulations are often followed up by a BI circular to clarify and further implement the relevant regulation. It is not clear at this stage if or when a circular in relation to the new rules will be issued.