Assuming the internal procedures of the Company to distribute dividends as set out in its articles of association are fulfilled and that all organs of the Company are in agreement on the dividend distribution, the preparation and passing of:
- circular shareholders' resolutions (for final dividends) or
- board of directors ("BOD") and board of commissioners ("BOC") approvals (for interim dividends)
approving the distribution of dividends can take around 1 week, subject to the availability of the relevant signatories.
In practice, the timing for outward remittance will be subject to banks' availability of cash in the desired currency and the Company's internal procedures (if any).
Under Law No. 40 on Limited Liability Companies ("Company Law"), final dividends are approved at the Company's annual general meeting of shareholders ("AGMS") held within six months of the conclusion of a Company's financial year.
Interim dividends can be distributed with the BOD's approval after obtaining the BOC's approval at any point in the financial year, subject to a clawback should the Company not generate net profits at the end of the financial year.
This depends on the Company's internal procedure as set out in its articles of association. The preferred account needs also to be audited in accordance with the accepted local accounting principles (PSAK).
No. However, the Law No. 40 of 2008 on Limited Liability Companies (“Company Law”) the Company Law stipulates that the Company can only distribute the final dividend if the Company has a positive balance of profit.
Further, the Company must set-aside some amount as compulsory mandatory reserve fund (a certain amount of the company's net profits which must be allocated until it reaches at least 20% of the Company’s subscribed issued and paid-up capital). As long as some amount is set aside, the Company can distribute the dividends -- even if the 20% of issued and paid up capital threshold has not been reached. Once the mandatory reserves reach the 20% of issued and paid up capital, the final dividends can be distributed without and funds being set aside further.
Yes. The Company Law regulates that the minimum mandatory reserves are 20% of the company’s issued and paid-up capital. Should the company plan on increasing such reserves, it can be done by obtaining an approval from GMS. If the approval is unanimous, the GMS can be held via circular resolutions, the drafting and execution of which takes around 1 week -- subject to the availability of the relevant shareholders' signatories.
We note that generally. GMS held in person or through video conferencing will need to be preceded by an announcement made 14 clear days before the GMS. GMS approval obtained in this way will take at least 16 days outside of the document preparation process.
Dividends, Interim Dividends, or Repayment of Share Premium - No
Reduction of Capital - Yes. To be effective, after the GMS has approved the reduction of capital, the GMS resolutions need to be restated in a deed form by an Indonesian notary and then approved by the Ministry of Law and Human Rights ("MOLHR"). We note that in order to obtain this approval, the BOD of the Company will need to announce the reduction of capital in a nationally circulated newspaper at the latest 7 days after the GMS resolutions are passed. If any creditors object to the reduction of capital within 60 days of the announcement, the objection must first be settled before the MOLHR can approve it.
Further, the company's investment information on the online single submission (OSS) system will need to be updated.
No, there are no specific foreign exchange requirements on paying dividends to foreign parent companies.. However, Bank Indonesia regulations stipulate that any exchange of Indonesian Rupiah into foreign currency without an underlying transaction is limited to US$25,000 for spot transactions and US$100,000 for standard derivative transactions per month per customer. Otherwise, the shareholders will need to prepare underlying documentation (ie, the GMS resolutions approving the dividend distribution). We note that Law No. 25 of 2007 on Investment allows for dividend distributions to be made in a foreign currency -- we also note that there is a restriction in transferring Indonesian Rupiah abroad.
For final dividends, the source of the distribution of dividends must be the net profits of the Company for a certain financial year -- not any borrowed funds. While the financial year is ongoing. the shareholders can "borrow" interim dividends from the Company. If the Company fails to turn a profit at the end of the financial year, the shareholders must return the interim dividends which were distributed. If the Company achieves sufficient profits to cover the interim dividend distribution, then this should be acknowledged in the next annual GMS and no amount should be returned to the Company.
The Company Law generally prescribes that dividends must come from a Company's profits; hence the Company should not borrow from third parties to settle dividends.
The Company Law is silent on this issue, it merely states that dividends should be sourced from the net profits of the company. In practice, dividends are commonly paid in cash to the shareholders. Because dividends may be subject to withholding, an in-kind distribution may give rise to valuation issues.
No.
There is no issue with a foreign shareholder providing a loan to an Indonesian group company in a non-Indonesian Rupiah currency. The loan must be reported to Bank Indonesia and the Ministry of Finance.
With respect to the loan amount, from a corporate and investment law perspective there is no strict requirement on a company's debt to equity ratio -- however, we are aware that the Indonesian Investment Coordinating Board has an informal policy of maximum debt to equity ratio of 3:1 for a company with foreign shareholding.
For a loan from an Indonesian company to its foreign group company, Bank Indonesia regulations stipulate that any exchange of Indonesian Rupiah into foreign currency without an underlying transaction is limited to US$25,000 for spot transactions and US$100,000 for standard derivative transactions per month per customer. The Company must provide the loan documentation to the bank for reference. If the Company already has the relevant foreign currency to be loaned out, then the limitation is not applicable.
We note that Indonesian Rupiah cannot be transferred offshore under prevailing regulations.
Onshore banks are able to transfer Indonesian Rupiah to the onshore account of offshore party or joint account between offshore party and onshore party provided that:
- the nominal does not exceed US$1,000,000 a day; or
- there should be an underlying transaction if more than US$1,000,000 a day.