Guarantee Fee Agreement Template for Indonesia

A Guarantee Fee Agreement is a specialized contract that establishes the terms for compensating a guarantor who provides security or backing for another party's obligations. Under Indonesian law, particularly the Civil Code (KUH Perdata), this agreement creates a legally binding framework that protects both the guarantor's interests and ensures fair compensation for the risk undertaken.

When do you need this document?

You need a Guarantee Fee Agreement whenever you're involved in transactions requiring bank guarantees, performance bonds, or corporate guarantees in Indonesia. This includes construction projects where contractors need performance guarantees, international trade deals requiring payment guarantees, corporate financing arrangements with parent company guarantees, and syndicated lending where multiple guarantees are involved. Banks and financial institutions regularly use these agreements when providing guarantee services to corporate clients, while multinational companies employ them when parent entities guarantee subsidiary obligations.

Key legal considerations

The agreement must clearly define the fee calculation methodology, whether based on a percentage of the guaranteed amount, fixed periodic payments, or risk-adjusted rates. Payment terms require specific attention, including currency denomination, payment frequency, and consequences of non-payment. Default provisions should address scenarios where the principal debtor fails to pay fees, potentially triggering the guarantor's right to terminate the guarantee. Cross-default clauses linking fee payment defaults to the underlying guaranteed obligations need careful drafting to avoid unintended consequences. For international arrangements, foreign exchange regulations under Law No. 24 of 1999 may apply, requiring compliance with Bank Indonesia reporting requirements.

Legal requirements in Indonesia

Indonesian guarantee fee agreements must comply with the Civil Code's contract formation requirements, including valid offer, acceptance, and lawful consideration. Banks providing guarantees must adhere to OJK Regulation No. 40/POJK.03/2019, which governs bank guarantee assessment and reporting obligations. The agreement should incorporate proper governing law clauses specifying Indonesian jurisdiction and applicable dispute resolution mechanisms. For cross-border transactions, compliance with foreign exchange regulations is mandatory, including proper documentation for international fee payments. Corporate entities must ensure board resolutions authorize guarantee fee payments, while banks must maintain adequate provisioning for guarantee exposures as required by banking regulations. The document should also address tax implications under Indonesian tax law, particularly withholding tax obligations on guarantee fees paid to foreign entities.