Inter Company Loan Agreement Template for Indonesia

An Inter Company Loan Agreement is a critical legal document that governs financial arrangements between related corporate entities operating in Indonesia. This agreement establishes the terms and conditions under which one company lends money to another within the same corporate group, ensuring compliance with Indonesian corporate and banking regulations while protecting the interests of all parties involved.

When do you need this document?

You need an Inter Company Loan Agreement when your parent company is providing financing to a subsidiary, when sister companies within the same group are engaging in internal financing arrangements, or when restructuring debt between related entities. This document is particularly essential if you're involved in cross-border transactions where foreign-owned companies are lending to Indonesian subsidiaries, or when establishing working capital facilities between group companies. The agreement is also crucial when you need to demonstrate arm's length pricing to Indonesian tax authorities or when regulatory reporting requirements under Bank Indonesia regulations apply to your transaction.

Key legal considerations

Several critical legal aspects must be addressed in your Inter Company Loan Agreement. The interest rate must comply with transfer pricing regulations and reflect arm's length terms to avoid tax penalties under Government Regulation No. 94 of 2010. You must ensure proper corporate approvals are obtained from the Board of Directors and shareholders where required under Law No. 40 of 2007 on Limited Liability Companies. The agreement should include comprehensive default provisions, security arrangements if applicable, and clear repayment terms. Currency considerations are particularly important if the loan involves foreign currency, as this may trigger reporting requirements under Bank Indonesia regulations. Additionally, you must consider the impact on the borrower's debt-to-equity ratio and ensure compliance with any existing financing covenants.

Legal requirements in Indonesia

Under Indonesian law, Inter Company Loan Agreements must comply with several regulatory frameworks. The Indonesian Civil Code provides the foundational contract law principles governing validity, performance, and breach. Law No. 40 of 2007 on Limited Liability Companies requires proper corporate authorization procedures, including Board of Directors resolutions and potential shareholder approvals depending on the loan amount. For foreign investment companies, Law No. 25 of 2007 on Investment may impose additional requirements. Transfer pricing documentation must be maintained under Government Regulation No. 94 of 2010 to justify the interest rate and terms. If the loan involves foreign currency or offshore borrowing, Bank Indonesia Regulation No. 16/21/PBI/2014 requires specific reporting and may impose restrictions. The agreement must be properly executed, potentially requiring notarization depending on the loan amount and corporate policies, and should include provisions for Indonesian law governance and dispute resolution.