Indonesia Introduces New Requirements For E-commerce Companies.
Legal News & Analysis - Asia Pacific - Indonesia - Regulatory & Compliance
19 June 2020
The Indonesian Minister of Trade (“MOT”) has issued a regulation that seeks to clarify many of the issues associated with doing business in the country’s booming e-commerce sector, while at the same time imposing new requirements on both foreign and domestic e-commerce companies selling goods and services in Indonesia through online platforms.
This new regulation is MOT Regulation No. 50 of 2020 regarding Provisions on Business Licensing, Advertising, Guidance and Supervision of Businesses Trading Trade through Electronic Systems (“MOT Reg. 50/2020”). It is an implementing regulation for Government Regulation No. 80 of 2019 regarding Trading through Electronic Systems (“GR 80/2019”). MOT Reg. 50/2020 was issued on May 19, 2020 and will take effect on November 19, 2020.
This article looks at some of the key points in MOT Reg. 50/2020 and their possible implications for e-commerce companies.
Requirements to Conduct E-Commerce Business in Indonesia
MOT Reg. 50/2020 divides e-commerce business actors into the following categories:
E-Commerce Organizers (Penyelenggara Perdagangan melalui Sistem Elektronik or “PPMSE”), both domestic and foreign;
Merchants, both domestic and foreign; and
Intermediary Services Organizers (Penyelenggara Sarana Perantara or “PSP”), both domestic and foreign.
Parties in each category must satisfy certain prerequisites before engaging in the relevant e-commerce activities, as follows:
Domestic PPMSE’s must obtain an E-Commerce Trade Business License (Surat Izin Usaha Perdagangan melalui Sistem Elektronik or “SIUPMSE”).
Foreign PPMSE’s are required to appoint a Foreign Trade Company Representative Office in the field of Trade through Electronic System (Kantor Perwakilan Perusahaan Perdagangan Asing di bidang Perdagangan melalui Sistem Elektronik or “Representative Office”) upon the fulfillment of certain criteria. This requirement is described in further detail below.
Domestic e-commerce merchants must obtain the appropriate Trade Business License for their activities. If a domestic merchant has its own e-commerce facility, such as a website or online platform, it must procure a SIUPMSE.
Foreign merchants must register their valid business license from their country of origin with a domestic PPMSE with electronic communication facilities for foreign merchants, which, in turn, will store the submitted registration data.
Intermediary Services Organizers
PSPs generally are required to obtain a SIUPMSE. However, a PSP may be excluded from this requirement if (i) it is not a direct beneficiary of the e-commerce transactions or (ii) is not directly involved in the contractual relationship between the parties conducting e-commerce transactions.
MOT Reg. 50/2020 permits e-commerce business actors to create and/or distribute electronic advertisements for marketing or promotional purposes. E-commerce business may distribute an e-advertisement directly or through a third-party e-commerce application facility provider. The business actor creating the advertisement, providing the facility, and/or disseminating the electronic advertisement must ensure that the substance or material of the advertisement does not contravene applicable laws.
An electronic advertisement must be in compliance with the Indonesian advertising code of ethics as well as all relevant laws and regulations. The e-advertisement must also comply with the following:
it does not deceive consumers on the quality, quantity, materials, uses and price of the advertised goods and/or services, or the timeline for the delivery of the goods and/or services;
it does not include false claims on guarantees or warranties applicable to the advertised goods and/or services;
it does not contain false, incorrect, or inaccurate information regarding the goods and/or services;
it contains information on any risks associated with the use of the advertised goods and/or services;
it does not exploit any incident and/or person without authorization or the approval of the relevant parties; and
it provides an exit function, indicated by a close or skip mark, that is clearly placed to allow consumers to close the advertisement.
Prioritization of Local Products
MOT Reg. 50/2020 requires e-commerce business actors to support government programs by prioritizing locally produced goods and services, increasing the competitiveness of local goods and services, and, specifically for domestic PPMSEs, providing space to promote locally produced goods and services. It is not surprising that MOT Reg. 50/2020 emphasizes the need to support locally made products and services in response to the easy availability of foreign-produced products and services through cross-border e-commerce platforms.
We note that a fairly similar requirement exists in the Indonesian Negative List, which specifies business activities that are either entirely closed or conditionally open to foreign investment, for a foreign investment company to conduct business as an online retailer. The requirement in the Indonesian Negative List is described as a “partnership” (kemitraan) and can be fulfilled by, among other measures, entering into a marketing cooperation with, providing a business location to or receiving supplies from an Indonesian micro, small or medium enterprise (“UMKM”).
What these provisions mean is that foreign-owned online retailers that want to do business in Indonesia will have to take steps to support local UMKM, which typically do not have as large a reach as foreign online retailers.
In contrast to the partnership requirement under the Indonesian Negative List, MOT Reg. 50/2020 broadens the requirement to prioritize local products to include not only foreign online retailers, but all e-commerce business actors. This means that even local merchants, which themselves may be a UMKM, will be required to support local goods and services. Notwithstanding the differences between the requirements under MOT Reg. 50/2020 and the Indonesian Negative List, the goal is the same, which is to support local businesses and their reach in the market.
Requirement to Appointing a Representative Office
As briefly mentioned above, foreign PPMSEs that meet certain criteria are required to appoint a Representative Office. This requirement applies to foreign PPMSEs that have completed more than one thousand transactions with consumers within a year and/or have delivered more than one thousand packages to consumers within a year. One Representative Office may only represent one foreign PPMSE.
A Representative Office can act on behalf of the foreign PPMSE only with respect to consumer protection matters, the provision of guidance to increase the competitiveness of locally made products and dispute resolution matters.
A consequence of this Representative Office requirement is that the profits of foreign PPMSEs may be subject to branch profit tax to the extent that the Representative Office receives payment for its services. However, given that Representative Offices are typically prohibited from generating income, this may be less of an issue.
It is interesting to note that a Representative Office is required to submit an Electronic Service Provider Registration Certificate (“ESP Certificate”) in the name of the foreign PPMSE within 14 business days after its Representative Office license is issued. The requirement for a foreign electronic system provider to obtain an ESP Certificate is already contained in Government Regulation No. 71 of 2019 regarding the Provision of Electronic Systems and Transactions, and applies to electronic system providers whose electronic system is used and/or offered within Indonesian territory. However, as of this writing, we have not seen this requirement actively enforced. Given that the failure of a Representative Office to furnish its foreign PPMSE with an ESP Certificate will be subject to written warnings and suspension of the Representative Office’s business, we suspect MOT Reg. 50/2020 may be used as a gateway for a more proactive enforcement by the government of the ESP Certification requirement under GR 71/2019.
Pursuant to Article 52 of MOT Reg. 50/2020, business licenses obtained by a domestic PPMSE, domestic merchant or domestic PSP before MOT Reg. 50/2020 takes effect will remain valid as long as the business license has not expired or been revoked, and such license has been registered with the Online Single Submission system.
It should be noted that the SIUPMSE is a new license introduced by MOT Reg. 50/2020 and tailored specifically for the e-commerce sector. MOT Reg. 50/2020 does not stipulate which, if any, existing business license is replaced by the SIUPMSE. It is thus not clear whether certain domestic e-commerce players, e.g. marketplace organizers and domestic merchants with their own e-commerce facility, will be required to reapply for a SIUPMSE once MOT Reg. 50/2020 comes into effect or if their currently valid and registered business license will be sufficient to cover their business activities.
MOT Reg. 50/2020 provides some much-needed clarity regarding the provisions of GR 80/2019. It also materially affects how the domestic e-commerce sector operates, especially for individual merchants who will soon be required to obtain a business license to sell their goods and services through online platforms. And foreign e-commerce players will soon have to abide by a relatively lenient set of requirements before being able to carry out business in Indonesia.
Having said that, noting the increasingly large number of e-commerce players in Indonesia, it remains to be seen how MOT Reg. 50/2020 will be implemented, particularly how effectively it will be enforced for foreign e-commerce players.
Michael S. Carl, Soewito Suhardiman Eddymurthy Kardono