Indonesia Issues Implementing Regulation for E-commerce Sector: Key Features

• In May 2020, Indonesia issued Regulation 50 of 2020, which is an implementing regulation for the country’s Law on E-commerce.
• The regulation provides legal guidelines for the establishment of e-commerce entities for domestic and international businesses.
• Foreign e-commerce organizers, such as online marketplaces, must establish a representative office in Indonesia if they completed more than 1,000 transactions with local consumers.

On May 19, 2020, Indonesia’s Ministry of Trade issued Regulation 50 of 2020 (Reg 50/2020), which sets out the legal guidelines for domestic and international businesses engaging in trade through electronic systems (e-commerce). Reg 50/2020 serves as an implementing regulation to Reg 80/2019, Indonesia’s first-ever law on e-commerce, which was issued in November 2019.

In line with Reg 80/2019, Reg 50/2020 describes the three types of e-commerce entities or internet companies that will be subject to tax laws and business licensing regulations, namely; merchants, e-commerce organizers, and intermediary service organizers. Additionally, the regulation also sets out the criteria for foreign e-commerce players to be obligated to establish a foreign representative office in Indonesia.

While Reg 80/2019 and Reg 50/2020 are not tax regulations, the potential tax impacts would be far-reaching, considering Indonesia’s e-commerce sector is set to be valued at US$100 billion in 2025, compared to US$28 billion in 2018.

Businesses have been given until November 2021 to adjust their operations and adhere to the new provisions.

What are the business entities described in the regulations?

Both regulations describe three e-commerce entities based on their business activities. These are:

• Merchants (sellers): Businesses or individuals that conduct electronic offerings through electronic systems either managed or owned by themselves or through an e-commerce organizer;
• E-commerce organizers (PPMSE): Businesses or individuals that provide electronic systems to facilitate e-commerce transactions. These include business models, such as online streaming platforms, online marketplaces, online classified advertisements, and price comparison platforms, among others; and
• Intermediary Service Organizers (PSP): These are businesses or individuals that provide search system facilities (for example, Google, Bing) or those that provide information storage services (hosting and caching).

The aforementioned entities can be either domestic or foreign businesses and the legal requirements for each type will also differ.

Domestic merchants

Domestic merchants must obtain a business license from the government’s Online Single Submission (OSS) Agency. Under the country’s Standard Classification of Business Fields, businesses carrying out trading via the internet need to comply with KBLI classification 4791.  

Domestic e-commerce organizers

Businesses who operate their own e-commerce facilities are classified as PPMSEs and must obtain a special license named, Surat Izin Usaha Perdagangan melalui Sistem Elektronik (business license for trading through an electronic system (SIUPMSE).

The SIUPMSE can be applied through the OSS system and businesses will need to adhere to certain criteria to be eligible. These are:

• Obtaining an Electronic System Provider certificate within 14 days after the SIUPMSE is issued;
• Must provide a website and/or application name to the government;
• Must establish a consumer complaints section on their website/application, which includes e-mail address and contact number in addition to the details of the Directorate-General of Consumer Protection and Trade Compliance;
• The PPMSE must provide facilities that inform or link customers to the OSS Agency’s website; and
• The business must submit its transaction data (subscribers, payments, complaints, contracts, shipments etc.) to Statistics Indonesia (BPS), the government agency responsible for conducting statistical surveys.

Foreign merchants

Foreign merchants must provide a valid business license issued in the country where they are established to the domestic PPSME company which provides their electronic communication facilities. The domestic PPSME will then need to report all the transactional activities (subscribers, payments, complaints, contracts, shipments etc.) of the foreign merchant to the BPS.

Foreign e-commerce organizers

Foreign PPSMEs are obligated to establish a representative office in Indonesia; however, this would only apply if:

• The PPSME has completed over 1,000 transactions with Indonesian consumers within a year; or
• Has delivered over 1,000 packages to Indonesian consumers with a year.

The PPSME will need to establish a specific type of representative office, namely, a representative office for a foreign trading company (KP3A).

The KP3A is divided into the following categories:

• Can act as a buying/or selling agent for the parent company, performing liaising, or promotional activities; or
• Act as a manufacturing agent with its activities also limited to market research and liaising.

To establish a KP3A, the company will first need to obtain a Foreign Company Trade Representative license (SIUP3A), which can be done through the OSS system. There are several requirements for this, which are:

• Evidence that the company is being appointed as a representative of the parent company. This must be legalized by a notary and should be accompanied by a clarification letter issued by the trade attaché of the Indonesian embassy in their country of origin;
• Must provide evidence of the Article of Association/incorporation of the company which will need to be legalized by a notary and officially translated to the Indonesian language;
• Provide proof of identity of who will be managing the representative office; and
• Provide the number and details of local workers to be hired along with their employment certificates/contracts.

As with the other types of e-commerce entities, the PPSME must submit their data to the BPS as well as provide a link that informs and connects their website to the OSS Agency’s own website. 

Further, the PPSME must establish a consumer complaints service, which includes contact details that customers can use in addition to the contact details of the Directorate-General of Consumer Protection and Trade Compliance.

Intermediary service organizers

Reg 50/2020 does not differentiate between domestic and foreign PSPs and both must secure a SIUPMSE license from the OSS Agency.

They have to adhere to the following conditions:

• They must not be direct beneficiaries of e-commerce transitions; and
• Are not allowed to be involved in any contractual obligations between parties engaging in e-commerce activities.

Online advertisements

E-commerce businesses are permitted to distribute online advertisements provided they comply to applicable laws and regulations in Indonesia.

The regulation does state several requirements online advertisements should satisfy. These include:

• Must not deceive consumers on the quality, prices, materials, and quantity, or other false and incorrect information for the goods/service being provided;
• Must not provide false claims with regards to warranties or guarantees;
• The company must provide the usage risks for the said goods/services being advertised; and
• All electronic advertisements should have an exit function, such as through a ‘skip’ or ‘close’ button to close the advertisement.

Consumers can make complaints for ads that are not incompliance with the relevant laws and regulations through the Director-General of Consumer Protection and Trade Compliance.

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