Ship Finance in Indonesia: Repayment

Legal Updates
Ship Finance in Indonesia: Repayment
16 September 2015

SSEK Legal Consultants founding partner Dyah Soewito, senior foreign legal advisor Michael D. Twomey and Stephen Igor Warokka, an associate at the firm, have contributed the Indonesia chapter of the new Getting the Deal Through global guide to Ship Finance.

SSEK Legal Consultants has one of the leading shipping practices in Indonesia. SSEK advises multinational and joint venture shipping and offshore drilling companies on all aspects of their operations in Indonesia, including advising on the establishment of joint venture companies, the opening of representative offices and the acquisition and sale of vessels. SSEK is ranked as a tier-one shipping firm by The Legal 500 and is highly recommended for its shipping practice by Asialaw.

The following is an excerpt from the Indonesia chapter of the Getting the Deal Through global guide to Ship Finance written by SSEK Legal Consultants.

Is central bank or other regulatory approval required for repayment of a loan in foreign currency?

Bank Indonesia's approval is not necessary for a company to enter into or repay a loan in foreign currency. We note there are obligations to notify Bank Indonesia of the company's intent to enter into a foreign loan, reg­ister the loan with Bank Indonesia and to submit regular reports on the foreign loan to Bank Indonesia. There are also obligations to comply with hedging and liquidity requirements and maintain a minimum credit rating in certain circumstances when obtaining a foreign loan. Finally, there are reporting obligations if amounts in excess of US$100,000 are transferred overseas.

Bank Indonesia recently issued Bank Indonesia Regulation 17 of 2015 (BI Regulation 17) and a Circular Letter elaborating on BI Regulation 17. BI Regulation 17 and the Circular Letter require all domestic transactions to be settled in rupiah unless the transaction is entitled to one of the exemp­tions to the requirement listed in BI Regulation 17. As a result, loans with domestic banks will likely need to be made in rupiah.

While loans by foreign lenders can be made in foreign currency, a lender will need to understand which of the documents to be entered into in connection with the transaction or project being financed by the offshore loan may provide that payments thereunder can be made in the foreign currency.

Do usury laws limit the interest payable to a lender in respect of a vessel financing?

There is no limitation on the amount of interest that may be charged. The Indonesian Civil Code provides that parties to a contract may agree on an interest rate. While there is no limit on the amount of interest payable between unrelated parties, Indonesian courts may consider if the lender is being unjustly rewarded if the amount of interest payable is challenged by a party.

Under the Usury Law of 1938 (contained in State Gazette No. 524 of 1938), Indonesia restricts the imposition of excessive or extraordinary interest rates (as determined by the courts, upon application) and allows the debtor to request the Indonesian courts to lower the agreed interest rate or cancel the agreement. In our experience, this law is rarely applied.

Are withholding taxes payable on principal or interest payments to non-resident lenders?

Withholding taxes are payable on interest payments to non-resident lend√Ç­ers. The current withholding tax rate is 20 per cent, which may be reduced by compliance with the applicable Tax Treaty. There is no withholding tax payable on repayments of principal.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user\'s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

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