Directorate General of Sea Transportation Reaffirms Requirement to Have Indonesian Shipping Company as Majority Shareholder for Vessel Registration

Following the major change in 2021 to the criteria for the registration of vessels in Indonesia, the Director General of Sea Transportation (“DGST”) has reaffirmed that any company that wishes to register a vessel in Indonesia for commercial purposes must have an Indonesian sea transportation company as its majority shareholder.

The elucidation to Article 93 (2) (c) of Government Regulation No. 31 of 2021 dated February 2, 2021, regarding the Implementation of the Shipping Sector (“GR 31/2021”) stipulates that a joint venture company with foreign ownership (“JV Company”) that registers a vessel in Indonesia for commercial purposes must be majority-owned by a wholly owned national sea transportation company (i.e., a wholly Indonesian company with a Sea Transportation Business License) (the “Requirement”). Now the DGST has reaffirmed this position with the issuance of Circular Letter No. SE-DJPL 25 TAHUN 2023 dated September 4, 2023, regarding Supervision of the Implementation of Ship Registration Activities and Sea Transportation Business Licensing (the “Circular Letter”).

Essentially, the Circular Letter affirms the Directorate General of Sea Transportation’s latest position on the Requirement, which also extends to all non-shipping JV Companies intending to own a vessel and register the vessel in Indonesia to support their main business activities.

The following are highlights of the Circular Letter:

1. The DGST instructs Vessel Title Transfer and Registrar Officials (Pejabat Pendaftar dan Pencatat Baliknama Kapal) to examine the shareholding composition of new vessel registration applicants to ensure compliance with Article 93 of GR 31/2021.
2. The DGST instructs Vessel Title Transfer and Registrar Officials to evaluate/examine the owners of vessels registered prior to the stipulation of GR 31/2021 and to encourage such vessel owners to adjust their shareholding composition to be in accordance with Article 93 of GR 31/2021.
3. JV Companies intending to register vessels in Indonesia are required to adjust their shareholding composition to have a domestic shipping company as the majority shareholder. There is additional language that suggests a non-commercial wholly owned Indonesian company may also qualify to be the majority shareholder, but the phrasing of the term “non-commercial” is ambiguous.
4. Registrations of vessels in Indonesia prior to the enactment of GR 31/2021 shall remain valid, but JV Company owners are required to adjust their shareholding composition pursuant to Article 93 of GR 31/2021.
5. JV Companies that are vessel owners and which engage in shipping activities and have obtained a shipping business license (i.e., SIUPAL) are permitted to continue their business activities but are required to adjust their shareholding composition to be in accordance with Article 93 of GR 31/2021 and must report such adjustment during the endorsement of their business license, which is done every two years.

Following the issuance of the Circular Letter, we can anticipate the Government fully enforcing the Requirement for companies engaging in shipping business activities and non-shipping companies utilizing a vessel to support core business activities.

It is worth noting that the Circular Letter imposes additional requirements for existing vessel owners to adjust their shareholder composition which are not stipulated in GR 31/2021. The legal standing/position of the Circular Letter to apply retroactively is not entirely clear, bearing in mind that the law, i.e., GR 31/2021, does not expressly provide for such retroactive application.

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