E-commerce in Indonesia – Legal and Regulatory Framework

Law No. 11 of 2008 as amended by Law No. 19 of 2016 on Electronic Information and Transactions (the ITE Law) is applicable to any individual who carries out a certain legal action (as specified in the ITE Law) within or outside the Indonesian jurisdiction.

In the event of a dispute, the Indonesian courts shall refer to the ITE Law to determine the competent jurisdiction. For this purpose, the relevant Indonesian court shall use the definition of "individual" stipulated in the ITE Law, namely, a natural person holding Indonesian or foreign citizenship, which also includes local or foreign legal entities.

Considering that the utilisation of information technology is cross-territorial in nature, it is likely that a foreign citizen or foreign legal entity would be subject to the provisions of the ITE Law to the extent that the concerned legal action had certain legal consequences in Indonesia.

Establishment of Digital Business

There are no regulatory and procedural requirements that specifically govern the establishment of digital businesses in Indonesia. The requirements set forth under Law No. 40 of 2007 regarding Limited Liability Companies (the Company Law) for establishing a legal entity apply to digital businesses and brick-and-mortar businesses alike.

If the digital business is owned by a foreign individual or body, even if there is no physical presence in Indonesia, the business can still be categorised as a permanent establishment (PE). The Indonesian government recently issued Minister of Finance Regulation No. 35/PMK.03/2019 regarding the Determination of Permanent Establishment (MOF Reg 35/2019), which details how to determine whether a foreign individual or body has a PE in Indonesia.

If the criteria for a PE are met, the foreign individual or body is required to obtain an Indonesian tax identification number. In addition, if the foreign individual or body meets the criteria of a taxable entrepreneur for VAT purposes, they must register as a taxable entrepreneur for VAT purposes. In this case, there is no requirement for the foreign individual or body to follow the procedure set forth under the Company Law.

This first appeared in the Lexology GTDT e-Commerce 2021 global guide. 

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