Indonesian Legal Review: E-Commerce

Legal Updates
Indonesian Legal Review: E-Commerce
27 April 2016

Many retail transactions today are conducted through websites or mobile applications - in other words, they are digitalized. Business actors in Indonesia often raise the question whether there are any Indonesian legal restrictions on digitalizing their businesses through websites or mobile applications.

There is no specific Government of Indonesia (GOI) law or regulation that deals with e-commerce activities in any depth or detail. However, the GOI's current Negative Investment List provides that an e-commerce business must be 100 percent owned by Indonesians, because this is seen as a retail activity closed to foreign investment. There are a number of other laws and regulations that deal in part or otherwise touch on this business sector but do not purport to directly regulate it.

Laws and Regulations Law No. 7 of 2014 regarding Trade (the Trade Law)

In 2014, the GOI enacted the Trade Law, Article 66 of which provides that further provisions on trade transactions through electronic systems shall be regulated by a government regulation. However, to date no draft government regulation has been issued to the public, although press reports have indicated one is under discussion, led by the Minister of Trade (MOT) together with the Minister of Communications and Information (MOCI), the Ministry of Home Affairs, the Indonesian Internet Services Providers Association (APJII), Bank Indonesia, the Indonesian Financial Transaction Reports and Analysis Centre (PPATK) and social media network providers.

Media reports have indicated that the draft government regulation (GR) on e-commerce that is under consideration contemplates three types of e-commerce transactions: (i) sellers (merchants), (ii) organizers of e-commerce transactions through electronic systems (Penyelenggara Transaksi Perdagangan Melalui Sistem Elektronik or PTPMSEs), and (iii) intermediary service organizers (Penyelenggara Sarana Perantara or PSPs).

It appears that the draft GR may require retail sellers and merchants to obtain certificates or licenses from the MOT to conduct e-commerce transactions. It also appears that any foreign PTPMSE that wants to enter the Indonesian market would be required to establish an Indonesian entity.

Media reports have indicated that PSPs may be required to register with the MOT but it is not clear whether they also must establish Indonesian entities.

Law No. 11 of 2008 regarding Electronic Information and Transactions (the ITE Law) and Government Regulation No. 82 of 2012 regarding the Implementation of Electronic Systems and Transactions (GR 82) 

The ITE Law, GR 82 and various MOCI regulations implementing the ITE Law deal partly with the e-commerce sector. An e-commerce business actor is also regarded as an Electronic Systems Provider since it manages a website and stores personal data of its customers. The e-commerce website itself must be registered with the MOCI because it has a domain name. At present, there are no requirements to register or obtain a license from the MOCI for e-commerce business actors. However, investors are advised to verify licensing requirements with the MOCI before entering this business since it could regulate this sector at any time.

Minister of Communications and Information Technology Regulation No. 82 of 2012 regarding Implementation of Electronic System and Transactions (MOCI Reg 82/2012)

Article 41 of MOCI Reg 82/2012 states that any business actor conducting an electronic transaction may be certified by a Certificate of Competence Institution. The purpose of a Certificate of Competence is to evidence that a business actor conducting electronic trading has been assessed or audited by an authorized agency. The proof that a Certificate of Competence has been obtained is a trust mark logo on the web home page of the business actor.

However, this is a compulsory requirement applicable only for electronic transaction providers for national services. This requirement is not mandatory for electronic transaction providers that are not providing any services intended for national services. Therefore few Indonesian electronic transaction providers, and in particular e-commerce business actors, have trust mark logos on their websites.

Government Regulation No. 39 of 2014 regarding List of Business Fields Closed to Investment and Business Field Open, with Conditions to Investment (GR 39/2014) 

GR 39/2014 is the GOI's latest version of the Negative Investment List (the 2014 DNI). The 2014 DNI contains a list of those sectors that are closed for foreign investment or are open with restrictions. As noted above, the e-commerce business sector is presently closed to foreign investment. This is because e-commerce activities are regarded as retail activities open only for domestic investors.

However, the GOI has announced a plan to issue a new DNI (the 2016 DNI) and the attendant press coverage has indicated that this new DNI will, inter alia, loosen the foreign investment restrictions on the e-commerce business, as discussed further below.

Chairman of Central Statistics Agency Regulation No. 95 of 2015 on Standard Indonesian Business Field Classification or Klasifikasi Baku Lapangan Usaha Indonesia (the KBLI)

The KLBI contains industrial classifications and provides specific descriptions of e-commerce activities, incorporating the stages of ordering, payment and delivery. An e-commerce transaction is defined to describe the ordering stage only, the ordering and payment stages, or to include all stages conducted through the internet or other electronic procedures. The current KLBI divides e-commerce transactions into two KBLI types: (i) KBLI Code 4791, which covers retail trade through postal order or internet, and (ii) KBLI Code 62012, which covers Development Activities of Commercial Application through the internet (e-commerce).

KBLI Code 4791 covers retail activities through the internet by which customers select a product through a catalog or advertisements available on the merchant's website and then pay for the product by credit card or other electronic means.

An important change in the KLBI Code 4791 is that there is an addition to the business activities covered, which is contained in one of the sub-categories, Sub-Code 47919 9 (Retail through Media for Other Types of Goods). The activities conducted by PTPMSEs (as defined above) are electronic communication platform services that enable users to conduct commercial transactions (e.g., marketplace, daily deals, price grabbers, online classified advertising, etc.). This business activity was not included in Code 4791 in the previous KBLI issued in 2009.

There are now two types of business activities represented in Sub-Code 47919: (i) online sellers (merchants) and (ii) PTPMSEs. The additions to KLBI Code 4791 therefore define a broader scope of e-commerce activity, such as the development of e-commerce applications and consultation, analysis and programming of such e-commerce applications. There are no details provided with regard to KLBI Code 62012 and we assume that category includes supporting services for e-commerce.

BI Regulation No. 17/3/PBI/2015 regarding Mandatory Use of Rupiah within the Territory of the Unified State of the Republic of Indonesia (BI Reg 17/2015)

BI Reg 17/2015 provides that a price quotation on any online media in Indonesia aimed at local or foreign customers must state the price of a product or service in Indonesian Rupiah, regardless of whether the payment by a foreign customer would be completed in a foreign currency.

The Future - the 2016 DNI and the Draft GR on E-Commerce

As noted, the new Negative Investment List is anticipated this year and the GOI has announced it will open e-commerce to foreign investment in some manner. The Coordinating Minister for Economic Affairs issued an official press release on February 15, 2016 attaching the list of business activities that will be 100 percent open or conditionally open for foreign investment, including the new requirements to be stipulated in the new DNI.

Specifically, for the PTPMSE business, the 2016 DNI apparently will provide that foreign investors may invest 100 percent in that part of the e-commerce sector if the minimum capital of the foreign capital investment company is at least 100 billion Rupiah. In the event the foreign capital investment company's capital is less than 100 billion Rupiah, the foreign investor can hold a maximum of 49 percent of the shares. There is no further information on the foreign ownership requirement for online merchants' business activities and presumably that part of the e-commerce business will remain closed for foreign investment.

We emphasize that the foregoing information is subject to change until the 2016 DNI is actually issued. In addition, the MOCI is expected to issue a government regulation for this sector in 2016.

This article is from SSEK's Indonesian Legal Review, which looks at recent legal and regulatory developments in almost 50 sectors, from Airports to Tourism. 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.

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Winnie Yamashita Rolindrawan
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