The Pro’s And Con’s Of Private Equity

In recent years private equity has become a popular way for many companies to fulfill their plans for growth. In this article, the Corporate team of Greenaway Scott outline what private equity is and its advantages and disadvantages.

Private equity consists of funds and investments directed to private companies by an investor, who in return will receive part ownership or an interest in the company. When offering investments to potential new shareholders, companies will be able to raise significant amounts of capital and this option can be used to replace bank loans.

The main reason behind an equity investment for shareholders is the expectation of a return from the investment. When funds are received by the company, managers and directors of the business will aim, through growth plans, to provide a return to the shareholders. The capital funds flowing from the investment can assist companies to buy new technologies to enhance the business, plan an acquisition of a competitor, strengthen their balance sheet etc.

When looking at the possibility of obtaining private equity for a business, various factors should be considered by business owners.

An important advantage is the ability to choose the investors that are going to be part of the business. This is an important consideration for the business owners as they will want to ensure that the new shareholders have the same values and objectives for the company, as well as sharing their knowledge and their assistance. Once a potential investor becomes a shareholder, all the rights attached to the specific position will come into play and decision making power will influence the decisions of the company in general.

Another important factor is flexibility. Business owners will have the ability to control the investment and the return of ownership to the potential new shareholder. This will be linked to the potential return to the investor in a longer period of time, giving the company and the managers a greater opportunity to use the investment in the company.

It is really important for business owners to ensure that when an investment is requested, the capital is raised quickly, unlike with a public company. Investment rounds can be completed quickly and the money can be transferred to the company in a reasonable amount of time.

At the same time, when considering new investments into the business, business owners and managers should consider certain disadvantages.

One disadvantage is the dilution in the company. When a new investor is introduced, other shareholders will need to accept the dilution of their shareholding and the control of the decision-making procedure of the business. This reduction of control from the shareholders is linked as well to the loss of control from the management. The release of control over the company to another investor can cause loss of basic elements of your business, for example targets and strategy, as well as the choice of the management of the company.

Another important consideration relates to the eligibility requested by the company for specific investors. When capital investments are made into a company, the investors will look into the potential of the business, the contracts and work planned for the future, the financial position and the experience that they can bring to the business, but most importantly a lucrative return and a potential exit in the future.

One last consideration is related to the limited market that will be available and the limited number of potential investors in comparison to the public exchange. Investors might not be interested in a small return from a private company, which means that the investors might not provide a big investment.

As in every business venture, there are pros and cons that will need to be evaluated by the parties. The factors above will need to be taken into consideration to ensure that the investment is balanced with the presence of a new person in the business.

To speak with the Corporate team for more information, please contact 029 2009 5500 or email admin@greenawayscott.com.

CCWC and Hogan Lovells: Our Shared Vision

As part of our commitment to being a leader in diversity and inclusion, we are proud to announce the beginning of a partnership between Hogan Lovells and Corporate Counsel Women of Color (CCWC).

The nonprofit organization provides a support network to in-house women of color attorneys, promotes career advancement and success at all levels within corporations, and promotes all aspects of global diversity in the legal profession and workplace. We look forward to working with CCWC as part of our shared vision to support the leadership and professional development of women of color in the legal industry.

Please watch the video below to learn more about this partnership.

Amendments to the Share Capital and Debentures Rules

Amendments to the Share Capital and Debentures Rules
On 5th June 2020, the Ministry of Corporate Affairs notified certain amendments to the Companies (Share Capital and Debentures) Rules, 2014 (“Rules”) with respect to issuance of sweat equity shares and debenture redemption reserve (“Notification”).
A. Sweat Equity
Start-up companies were allowed to issue sweat equity shares to their directors or employees at discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property rights or value addition, upto fifty per cent of paid up share capital of the Company for a period upto 5 years from the date of incorporation or registration.

 

Pursuant to the Notification, start-up companies can issue sweat equity shares for 10 years from the date of incorporation or registration instead of 5 years. This move should surely help startups boost the morale of the employees during the slowdown caused by the pandemic Covid-19 crisis.

 

Further, in the said provision, the reference to old definition of a startup company which was issued by the Department of Industrial Policy and Promotion (“DIPP”) vide Notification No. G.S.R. 180(E) dated 17th February, 2016 is substituted with the new definition as issued vide Notification No. G.S.R. 127(E) dated 19th February, 2019. This is a welcome change after the DIPP broadened the definition of a startup in February 2019. It recognized an entity as a startup if it had been incorporated for less than 10 years and did not have a turnover of more than Rs. 100 crores for the financial year from the earlier turnover not exceeding Rs. 25 crores.

B.  Debenture Redemption Reserve
The Notification further provides that all listed companies in context of their issuance of privately placed debentures will now not be required to invest or deposit a sum of 15% of the amount of its debentures maturing during the year, ending on the 31st day of March of the next year on or before 30th day of April in each year.

 

The amendment to the Rules will free up vital cash resources of listed companies which would have been otherwise blocked for the requirement of such mandatory investment.

Disclaimer
This news flash has been written for the general interest of our clients and professional colleagues and is subject to change. This news flash is not to be construed as any form of solicitation. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this newsflash.

 

For further clarification and details on the above, you may write to Mr. Vaishakh Kapadia (Partner) at vkapadia@almtlegal.com, Mr. Ankit Parekh (Senior Associate) at aparekh@almtlegal.com, and Mr. Vinit Shah (Associate) at vshah@almtlegal.com.

Corporation Tax: Setting Up In The UK

The responsibility for correctly calculating the UK corporation tax liability falls on business directors, irrespective of whether they are based in the UK or overseas. 

Corporation tax is an amount that limited companies must pay to HMRC on all taxable trading profits. It could be referred to as income tax. It is also known as a CT600. It is set at a flat rate of 19% for most UK company’s. All limited companies and non-profit organisations that are trading in the UK must pay corporation tax on all forms of taxable income. 

“The tax credit system in the UK is far superior to the Australian system and is much more dare I say understanding and/or forgiving. For example, we recently reopened a client’s 2018 corporate tax return. They had commissioned a third party to produce an R&D report and that third party had charged them a percentage of their refund. We found a few errors in it so we revised up their claim and £25,000 is currently being returned to them. £25,000 to start any sort of business off in the UK is obviously phenomenal, that’s someone’s salary but the client was very happy. We charged her an hourly rate for that and didn’t charge a percentage. 

A UK company tax return is typically made up of a number of items: 

  • Form CT600 which must be signed by an authorised signatory; director, company secretary or authorised tax representative 
  • The Company accounts, known as statutory accounts. These are the accounts the company must prepare for its members under the Companies Act, including directors’ reports and, if applicable, auditor’s reports 
  • Separate computations and/or calculations showing how figures on the CT600 have produced 
  • Supplementary pages to the CT600 where required. 

Companies can also benefit from the Enterprise Investment Scheme (EIS) and/or  Seed Enterprise Investment Scheme (SEIS), which aims to boost investment in smallstart-upsby offering income tax relief on the shares bought through crowdfunding websites.If companies have this certificate then you can promote this on certain crowdfunding websites which makes you more attractive for local investment in the UK. Paul mentions, “there are websites such as Crowd Key, for example, where you take a look at the website, it’ll have different companies it’s funding, how long the funding run is going for and it will specify whether they are SEIS or EIS compliant. 

We can help to minimise corporate tax exposure and relieve the administrative burden of compliance with the current tax legislation. Please do  get in touch to discuss in more detail.

WFaria Advogados boots its M&A Practice

WFaria Advogados has announced Maria Beatriz Bueno Kowalewski as its new M&A and Corporate partner. With Bia Kowalewski, WFaria extends and improves its corporate governance, M&A, risk analysis and proposals for mitigation structures services

– Your effective knowledge about corporate and regulatory issues are very importante at this moment that many clients must be define strategic decisions about your future after Covid-19 economic debacle.

Bia Kowalewski stands outs for her track record on assisting clients through complex transactions, such as acquisition by Brookfield of Odebrecht Ambiental assets (2017). She she worked as a foreign associate for first-tier international law firms in Berlin and Brussels, between 2003 and 2007,before joiningTozzini Freire as M&A partner also responsible for the firm German Desk. She is also an active member of the Brazilian Institute for Corporate Governance (IBGC).

Bia Kowalewski is graduate in USP and has Master Degreee about German Law,  European Union Law and  M.LL.P. legal practice certification, Jur. Fakultät der Humboldt-Universität zu Berlin, Berlim, 2006, with magna qualification com cum laudae.

About WFaria Advogados

For companies, law firms, and CPAs whose clients require legal support in Brazil, WFaria is the one-stop shop that provides high-quality legal, tax, and compliance services at fair fees.

With offices in Brazil and in the United States, we are a superior service provider composed by senior experts with international vision and experience that allow us to assist clients doing business in Brazil, from market entrants to Fortune 500 companies.

“Strong position in the Brazilian compliance and fraud investigation scenario, having played a key role at major cases such as the Eletrobras investigation, which led to the relisting of the company’s stock at NYSE and the avoidance of monitoring by US Department of Justice.

WFaria has supported over 100 international companies in their investment in Brazil through M&A deals and greenfield investment.

Our Tax Recovery department has worked with hundreds of companies and recovered millions of dollars in taxes.

The Litigation Team has deep expertise in supporting our clients in tax, civil, corporate, and labor litigation and arbitration.”

Piercing of Corporate Veil

he right of an entrepreneur to allocate funds for the incorporation and operation of a legal entity pursuing commercial activity is founded and, when exercised, produces legal effects; the legal entity which is formed, is independent from the founder and its actions count for it.

The above is not applicable when the legal personality of a company is (ab)used to cover the activity of its founder. In such case, the controlling person is considered to be jointly liable for the obligations of the legal entity.

Insufficient funding, the coincidence of corporate and personal property are indications of abuse of the legal entity by the controlling person.
Piraeus One Membered Court of Appeal Judgment no 462/2018, Judge: M. Papadogrigorakou, Attorneys at law: P. Mountzouronis, G. Darra, Maritime Law Review vol. 46, p. 241.

NOTE: In the case under consideration, one of two individuals alleged to abuse the corporate veil to cover their own activity was found as having no relationship with the company. Test for the other individual to abuse was the coincidence of her property with the corporate assets.

The legal column was written by Manolis Eglezos, Attorney at law, Manolis Eglezos & Associates Law Firm, Attorneys at Law and Consultants

Denmark Post-COVID

Denmark is gradually gaining control over the novel Coronavirus. However, its consequences will have a huge impact on the country’s political economy in the coming years. Here are five issues to follow closely.

Support for the Government

The popularity of the current Social Democratic government has skyrocketed in recent months, with the Social Democrats now polling 15% above their nearest rivals. This is predictable – almost all governments have experienced a “rally round the flag” effect during the pandemic; even those with imperfect responses like the United Kingdom and Italy. Factor in Mette Frederiksen’s calm and forthright approach, so impressive as to be praised by opposition politicians, and the popularity is no surprise.

In normal times, the government would be tempted to call an election so they would no longer be reliant on the Social Liberals. This is not a practical option during a pandemic, so the question is how long the popularity will last. It may be more fragile than it looks – Commerce Minister Simon Kollerup found its limits the hard way when he had to track back on IKEA opening. There are also sundry examples abroad about the rallying effect waning gradually – George H W Bush lost his re-election even though he skilfully held a fragile coalition together in the Gulf War, as did Norway’s Jens Stoltenberg despite a dignified response to the Utøya tragedy. The Social Democrats are aware of this, and well proceed carefully regardless of their current popularity.

Budgetary Cuts

Like every country in the Western world, the current crisis is hugely expensive for Denmark. The pandemic is costing tens of billions of Kroner a month in extra health expenditure, lower revenues, and multiple compensation packages. Denmark is better positioned than most countries to deal with it; it had a budget surplus and one of the lowest debt/GDP ratios in the Western world.

This gives Denmark a bit of wiggle room, but the government will need to grapple with the same issue as every country. How long can the current support last, and how quickly can it be phased out. This is complicated by the fact that Denmark, as an export orientated economy is vulnerable to the performance of larger foreign countries. Even if Denmark stabilises, if large export countries like Germany, the US and the UK remain fragile, any recovery is likely to be slow.

The EU Issue won’t go Away

The EU has enjoyed relative tranquillity until recently, particularly compared to hapless British governments. Ironically, Brexit made the EU more popular, as the UK struggled to square the circle of the referendum; in the process the dysfunction of the EU was papered over by a united front.

This calm has now ended, as the Coronavirus has brought dormant issues back to the fore. Italy is (understandably) upset that its frantic pleas for help feel largely on deaf ears. Whilst it is not unreasonable for countries to prioritise their own citizens in a crisis, the lack of prompt help contrasts sharply to EU visions of continental solidarity.

This has soured Italian public sentiment, a dangerous point given the current discussions about mutualisation of debt. Italy, backed with varying degrees of enthusiasm by Spain and France, insist this well help the country out of its deep economic hole; Northern Europeans, led by the Dutch, insist they should not be given huge grants.

Denmark unsurprisingly backs the Dutch position. Although not part of the Eurozone, the single currency distinction is mattering less and less; with the UK now gone, the EU is dominated by Eurozone economies, and the two are becoming increasingly synonymous. This means that the issue is real and the key question is simple: is the EU a glorified free trade area, or is it much closer to a federal state? Brexit may be over, but the fundamental question the referendum posed, is still something Europeans can’t agree on.

Climate Change

Before the Coronavirus broke out, climate change dominated the political discourse. The Government set ambitious CO2 targets, and businesses were planning how to meet them. Not everyone agrees that climate change is an existential threat though. The older generation are particularly ambivalent, embodied by the Danish Queen, whose recent controversial comments were both poorly argued and a clear breach of protocol.

Nobody should expect Her Majesty to hit the barricades, but it is likely that other climate sceptics will form an informal alliance with Corona-hit businesses. A certain logic dictates that the easiest way out of a crisis is to tone down ambitious targets and allow a period of stability. Climate activists will argue that the virus doesn’t mean that climate change is any less pressing, and a delay of a couple of years could be critical. Climate entrepreneurs will argue that governments should embrace the zeitgeist of the crisis by supporting the establishment of climate friendly businesses. The Government has the unenviable task of squaring this circle.

Supply Chains

The crisis has forced every country to assess its supply chain and whether they can cope with an emergency. Denmark has muddled through the current crisis, although there have issues regarding protective equipment. It is likely though to reassess how much manufacturing is outsourced outside of Europe

Added to this issue, is the broader geopolitics, with the Trump administration seemingly keen on provoking a global outcry against China. Whether this is because of genuine concern or simply a smokescreen for the administration’s own failings, it risks creating a dynamic where globalisation is sharply reversed. Managing this process would be tricky for a small, open country which has performed well in recent decades.

Indonesia Issues Guidance for Online Licensing Service

The Indonesian Investment Coordinating Board (“BKPM”) on April 1, 2020, issued BKPM Regulation No. 1 of 2020 regarding Guidelines for the Implementation of Electronic Integrated Licensing Services (“BKPM Reg. 1/2020”).

The BKPM issued this regulation as part of its authority to provide guidance on business licensing services through the Online Single Submission System (the “OSS System”) under Article 94(1) of Government Regulation No. 24 of 2018 regarding Electronic Integrated Business Licensing Services (“GR 24/2018”) and Presidential Instruction No. 7 of 2019 regarding Acceleration of Ease of Doing Business.

With the issuance of BKPM Reg. 1/2020, the BKPM has set the norms, standards, procedures and criteria for the business licensing framework through the OSS System, as presently governed under BKPM Regulation No. 6 of 2018 regarding Guidelines and Procedures for Capital Investment Licensing and Facilities, and its amendment, BKPM Regulation No. 5 of 2019. BKPM Reg. 1/2020 does not revoke or amend any past BKPM regulations.

Scope of New Regulation

BKPM Reg. 1/2020 covers:

a. Services relating to:

i. access right to the OSS System;
ii. issuance of Business Registration Number (Nomor Induk Berusaha or “NIB”);
iii. business license;
iv. issuance of licenses related to business infrastructure;
v. representative offices; and
vi. other services relevant to business licensing.

b. Supervision of business licensing compliance.

Noteworthy Provisions

With 69 articles, BKPM Reg. 1/2020 provides technical guidance on the application for and the issuance of business licenses through the OSS System and a legal basis for new features implemented in OSS System version 1.1.

BKPM Reg. 1/2020 contains provisions applicable to all businesses, foreign and domestic, individuals or entities. However, we will limit our discussion here to provisions relevant to foreign investment. In that context, below are some of the more noteworthy provisions in BKPM Reg. 1/2020.

  • a. Minimum total investment value. In general, the BKPM requires a minimum total investment value of more than IDR 10 billion (excluding land and buildings) for each line of business per project location as determined by the five digits of its Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”) number.This means that if a foreign investment company, typically referred to as a PT PMA, intends to engage in the mining services business under KBLI No. 09900 and wholesale trading of office and industrial machinery, spare parts and paraphernalia, which falls under KBLI No. 46591, the total investment value of that company must be more than IDR 20 billion. Or if a PT PMA operates as a data center service provider under KBLI No. 63112, but does so in Jakarta, Surabaya, and Medan, the total investment value of that company must be more than IDR 30 billion because it has three separate project locations.

    This has long been an unwritten policy of the BKPM, albeit with inconsistent enforcement, and has now been made an express requirement under this new regulation.

    The BKPM provides the following exceptions for wholesale trading, food and beverages, and construction business activities:

1. For wholesale trading, the BKPM requires an additional minimum total investment value of more than IDR 10 billion if a PT PMA engages in wholesale trade activities under KBLI classification numbers whose first two digits are different. For example, if a PT PMA engages in wholesale trading of office and industrial machinery, spare parts and paraphernalia under KBLI No. 46591, and wholesale trading of new cars under KBLI No. 45101, the PT PMA will be required to have a minimum total investment value of more than IDR 20 billion because the first two digits of the KBLI numbers are different. In contrast, if a PT PMA engages in wholesale trading of bread products under KBLI No. 46332 and wholesale trading of confectionary items under KBLI No. 46331, the PT PMA will not be required to have a minimum total investment value of more than IDR 20 billion.

2. For food and beverage services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only for project locations that are not in the same regency or city.

3. For construction services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only if the business activity is not part of one activity. BKPM Reg. 1/2020 does not offer an explanation as to what constitutes one activity. However, in our discussions with a BKPM official, we were informed that this means an additional total investment value of more than IDR 10 billion would be required for each construction project/work. We note, however, that this view is far from official policy and is subject to change as the BKPM begins to put this regulation into actual practice.

Interestingly, the above total investment value requirement is being imposed on PT PMAs that obtained their license on or after the effective date of GR 24/2018, which was June 21, 2018, not after the effective date of BKPM Reg. 1/2020 itself. A possible explanation for this is that the BKPM intended to expressly impose this investment value requirement with the introduction of the OSS System by GR 24/2018, but the system was not yet capable of such implementation and now the BKPM is playing catch up with the rollout of the upgraded OSS System version 1.1.

  • b. NIB can be revoked. BKPM Regulation No. 7 of 2018 regarding Procedure and Guidance for the Supervision of Investment Implementation discusses the revocation of business licenses as one of the administrative actions the BKPM can take in its supervisory role, but it does not contemplate the revocation of NIBs.Under BKPM Reg. 1/2020, the BKPM can revoke a PT PMA’s NIB if it finds that the company has conducted business activities that are inconsistent with its NIB or has violated any provisions of prevailing laws and regulations, or if the PT PMA’s NIB is declared voided or invalid based on a binding court decision and/or the PT PMA requests the revocation of its NIB.
  • c. Main project and supporting project. Under OSS System version 1.1 and BKPM Reg. 1/2020, a PT PMA can now separate business activities into main project and supporting project. A business activity is considered to be a supporting project if it:1. falls under a different KBLI number than the main project;
    2. is intended only to support the main project;
    3. is not utilized to generate revenue; and
    4. is carried out in accordance with the applicable laws and regulations.

    A PT PMA is required to fulfill the commitments under both the main project and supporting project, although only the main project is used to determine the minimum total investment value.

  • d. Business licenses and commercial or operational licenses. BKPM Reg. 1/2020 addresses business licenses and commercial or operational licenses at length, particularly the technical details of fulfilling commitments related to the licenses. BKPM Reg. 1/2020 divides business licenses and commercial or operational licenses into four categories, depending on the commitments the PT PMA must fulfill to effectuate the relevant license. BKPM Reg. 1/2020 also changes the format of business licenses and commercial or operational licenses issued under BKPM Reg. 1/2020.BKPM Reg. 1/2020 also specifies measures to be taken by the BKPM in the event of incompliance by a PT PMA.

    e. BKPM to issue registration and licenses as well as NIB for representative offices. The BKPM now issues registration and licenses for all types of representative offices – foreign company representative office (KPPA), foreign trade company representative office (KP3A), foreign construction company representative office (BUJKA), foreign franchisor and foreign futures traders. A representative office is also required to obtain an NIB, in addition to the appropriate registration or licenses.

    Conclusion

    Through the issuance of BKPM Reg. 1/2020, it appears the BKPM is trying to minimize uncertainty in the licensing process. It remains to be seen, however, whether OSS System 1.1 itself and the enforcement in the field will raise more questions than BKPM Reg. 1/2020 can answer.

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.

Indonesia Targets Taxation of Tech Companies to Boost Economy

Indonesia is set to tax tech companies that may or may not have a legal presence in the country, as electronic transactions and the use of streaming services and online telecom apps have increased notably during the COVID-19 pandemic.

The legal basis for this measure is the recently enacted emergency bill Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Policy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability (“GR 1/2020”).

Collection of VAT

Article 6 of GR 1/2020 states that the government will collect value-added tax (“VAT”) for intangible taxable goods and/or taxable services from outside Indonesia which are utilized in the country through electronic system trade activities, in accordance with Law No. 8 of 1983 regarding Value-Added Tax for Goods and Services and Sales Tax on Luxury Goods, as lastly amended by Law No. 42 of 2009. This VAT will be collected, deposited and reported by foreign traders, foreign service providers, foreign electronic trading system providers and/or domestic electronic trading system providers appointed by the Minister of Finance. These parties can appoint representatives domiciled in Indonesia to collect, deposit and report the VAT.

Procedures for the appointment of representatives and for the collection, deposit and reporting of the VAT are further regulated under Minister of Finance Regulation No. 48/PMK.03/2020 regarding Procedures for the Appointment of Collectors and for the Collection, Deposit and Reporting of VAT for the Use Inside the Customs Area of Intangible Taxable Goods and/or Taxable Services from Outside the Customs Area through Electronic System Trade Activities (“MOF Reg. 48/2020”).

Collection of Income Tax

The government will also collect income tax from foreign traders, foreign service providers and/or foreign electronic trading system providers that have a significant economic presence in Indonesia. The determination of “significant economic presence” is based on the consolidated gross turnover of the business group, sales in Indonesia, and number of active users on digital media in Indonesia. The threshold for these criteria are to be further regulated in a Minister of Finance regulation. A party that meets the threshold for a significant economic presence in Indonesia will be treated as a permanent establishment and subject to income tax.

If foreign traders, foreign service providers or foreign electronic trading system providers are determined to have a significant economic presence in Indonesia but cannot be treated as permanent establishments due to the application of agreements with other governments in the context of avoiding double taxation and the prevention of tax evasion, they will be subject to an electronic transaction tax.

Such income tax or electronic transaction tax is to be paid and reported by the foreign traders, foreign service providers and foreign electronic trading system providers. Similar to the VAT payment, parties are allowed to appoint representatives domiciled in Indonesia to fulfil their income tax or electronic transaction tax obligations.

The rate for the income tax or electronic transaction tax, its calculation, the procedures for tax payment and reporting, and the procedures for the appointment of representatives to fulfil tax obligations are to be further regulated by Minister of Finance regulation.

Sanctions

Foreign companies that do not comply with the above provisions are subject to administrative sanctions and could also have access to their apps blocked by the Minister of Communication and Informatics.

As the government implements large-scale social distancing restrictions and businesses apply work from home policies, the number of users of streaming services and online meeting apps has increased markedly.

The government has for years been aiming to collect taxes from foreign tech companies that enjoy significant revenue from Indonesia, but to no avail. It has been a struggle because of these companies’ lack of a physical presence in Indonesia, with prevailing tax regulations only covering companies domiciled in the country or those that can be considered permanent establishments.

This is a loophole in the era of the cross-border digital economy that GR 1/2020 tries to address. As noted by Indonesian Finance Minister Sri Mulyani Indrawati, under the new regulation a permanent establishment would no longer be defined solely on physical presence. Consequently, even if foreign tech companies do not open an office in Indonesia, they would still have tax obligations if they established a significant economic presence in the country.

For example, it has been reported that, pursuant to MOF Regulation 48/2020, the government will impose a 10% tax on subscription fees for streaming apps starting July 1, 2020.

Status of GR 1/2020 

It appears that these efforts to tax foreign tech companies will continue after the COVID-19 pandemic ends. Pursuant to Law No. 12 of 2011 regarding the Formulation of Laws and Regulations, as amended by Law No. 15 of 2019, an emergency bill must be submitted to the House of Representatives for approval. If it is approved by the House it will then become a law, and if it is rejected, the emergency bill will be revoked.

In this regard, the House has approved the adoption of GR 1/2020 as a law, resulting in the promulgation of Law No. 2 of 2020 regarding Stipulation of GR 1/2020 regarding State Financial Policy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability, This new law is effective as of May 18, 2020. (May 20, 2020)

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.

COVID-19 in Vietnam: Travel Updates and Restrictions

In light of the recent COVID-19 outbreak, Vietnam has imposed several travel restrictions on those entering the country. As of May 19, Vietnam had confirmed 324 cases of COVID-19, though 263 of the patients had recovered.

Those planning to travel to Vietnam should be aware of the latest restrictions currently in place:

  • Vietnam has suspended the entry of all foreigners from March 22 until further notice to limit the spread of COVID-19. The measure will not apply to diplomats, officials, foreign investors, experts, and skilled workers as per Prime Minister Nguyen Xuan Phuc.
  • Vietnam’s Immigration Department on May 18 announced automatic visa extensions until June 30 for foreigners that entered the country on visa waiver programmes, e-visas, or tourist visas since March 1.
  • Foreigners that entered the country before March 1 including those with temporary residence permits will also be entitled to extensions till June 30 but must present proof of documents such as health declarations and official documents from embassies. For assistance, applicants can all the immigration helpline at 0243.9387320.
  • Travelers that are still in Vietnam can call the Tourist Helpline at +84378173371 for guidance on visas, accommodation, hospitals, embassy, or consulate details. The helpline is available from Monday to Friday from 9:00 a.m. to 5:30 p.m. local time.
  • Vietnam lifted social isolation measures on April 23 with most businesses resuming operations. Nevertheless, measures such as wearing face masks and observing strict hygiene standards remain in place.
  • As of 12:00 pm on March 15, Vietnam suspended all visas and will deny entry to travelers from the UK and the 26 Schengen countries; this includes travelers that have visited or transited through these countries in the past 14 days. This will be effective for 30 days.
  • In addition, Vietnam has suspended visa on arrival for all foreign nationals except for those on official or diplomatic trips. Those who currently hold visas to enter Vietnam will need to undergo screenings and may be quarantined when entering the country.
  • From March 7, all travelers coming to Vietnam will be required to submit a health declaration upon arrival. Passengers can fill out this declaration at the airport or submit it online via this link (picture below).
  • Those that are assessed to have symptoms of the epidemic will be transferred to designated health facilities for isolation.
  • There is a temporary ban on travelers with travel history to mainland China, except for those on official or diplomatic missions.
  • We have also heard of travelers in more remote border crossings into Vietnam being denied entry if they possess any China visa history in their passport. If travel is required, we recommend using the main border entry-exit points.
  • Do not travel if you are sick; those that travel while sick, risk being quarantined, and undergo tests.
  • Visa-free travel has been suspended for South Korean and Italian nationals as well as ethnic Vietnamese from these countries. In addition, travelers arriving from or those that have transited through Daegu and Gyeongsangbuk in South Korea in the past 14 days will be denied entry.
  • In addition, visa-free travel has also been suspended for eight countries: Denmark, Finland, France, Germany, Norway, Spain, Sweden, and the UK from March 9.
  • Travelers from China that are permitted to enter Vietnam, as well as those from South Korea, Iran, and Italy, are required to undergo a 14-day quarantine upon entry.
  • Flights and passenger trains, as well as various border crossings to mainland China, remain suspended.
  • All Vietnam carriers have suspended flights to South Korea, while other foreign airlines have reduced the number of flights significantly between Vietnam and South Korea.
  • Flights to Hong Kong, Taiwan, and Macao remain operational though they are operating with reduced capacity.
  • Additional restrictions are possible for travelers when they return to their country of origin, including entry restrictions and quarantine.

The Vietnamese government officially declared COVID-19 as an epidemic on February 1, with authorities taking swift and strict measures to contain the virus.

These include measures such as the suspension of schools, the cancelation of festivals, and tourist activities nationwide. In addition, bars, clubs, and movie theatres have also been closed in Hanoi and Ho Chi Minh City until March 31.

In addition, several Vietnamese businesses, residential complexes, and restaurants have installed their own preventative measures to keep customers safe.

Due to the epidemic, travelers should monitor restrictions and comply with advisories issued by the local and national authorities.

The Vietnamese Ministry of Health is updating about the epidemic here, while the Tourism Ministry has also listed travel updates here.

In addition, basic precautions one can take to reduce their risk to the coronavirus as advised by the World Health Organization (WHO) are:

  • Wash hands with soap and water or an alcohol-based hand rub;
  • Cover nose and mouth with tissues or inside of elbow when coughing or sneezing;
  • Avoid close contact with anyone with cold or flu-like symptoms;
  • Thoroughly cook meat and eggs; and
  • Avoid unprotected contact with live wild or farm animals.

This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.