NEWS DETAIL

24 Aug 2020
New e-Commerce Rules Require Offshore Players to Establish Representative Offices in Indonesia, Provide Greater Consumer Protection

 

  1. Introduction
  2.  

    The Ministry of Trade (“MOT”) has issued an important ancillary / implementing regulation to give effect to Government Regulation No. 80 of 2019 on E-Commerce (“GR 80/2019” – for an ABNR analysis, click here). The new regulation (MOT Regulation No. 50 of 2020 / the “Regulation”),[1] which enters into force on 19 November 2020, requires global e-commerce companies doing online business in Indonesia to establish local representative offices, thus bringing them within Indonesia’s tax net. In addition, it provides for greater consumer protection by, among other things, introducing tight licensing requirements for e-commerce businesses and stricter rules on online advertising.

     

    Given the broad scope of the Regulation, it is not possible to analyze all of the changes it introduces in this legal update. Consequently, we will confine our discussion primarily to the licensing and local-presence aspects.

     

    But first, some definitions of important terms. An “e-Commerce Business”[2] (used as a catch-all term throughout the Regulation) is defined as an individual or business undertaking (whether incorporated or otherwise) that engages in e-commerce business activities.

     

    An e-Commerce Business may be an:

           

    1. e-Commerce Merchant;[3]
    2. e-Commerce Service Provider;[4] or
    3. e-Commerce Intermediary Service Provider.[5]

     

  3. Key Features
  4.  

    1. Domestic e-Commerce Businesses
    2.  

      The licensing regime for domestic e-Commerce Businesses is as follows:

       

      1. All domestic e-Commerce Merchants (including micro, small and medium enterprises) are required to have a General Trading License[6] and the generally applicable sectoral licenses, as required under the laws and regulations governing the relevant sector;
      2. All domestic e-Commerce Service Providers, non-exempt Intermediary Service Providers[7] and Merchants that operate their own E-Commerce platform are required to have an e-Commerce Trading License.[8]

       

      To obtain an e-Commerce Trading License, the applicant must commit to obtaining an electronic-system registration certificate from the Minister of Communications and Information Technology (“MCIT”) within 14 working days of the issuance of the e-Commerce Trading License.

       

    3. Offshore e-Commerce Merchants
    4.  

      An offshore e-Commerce Merchant wishing to sell into Indonesia is required to furnish the particulars of the number, name, and issuing authority of its home-country business license to the Indonesian e-Commerce Provider that provides it with electronic communications facilities.

       

    5. Offshore e-Commerce Providers
    6.  

      Under Article 7 of GR 80/2019, an offshore e-Commerce Provider will be considered to have a permanent business presence in Indonesia if it actively makes offers to, or engages in transactions with, consumers who are resident within the territory of Indonesia, provided that certain thresholds are satisfied:

       

      The Regulation puts flesh on this provision by specifying two thresholds that trigger the requirement for an offshore e-Commerce Provider to establish a representative office in Indonesia:[9]

       

      1. Sales to more than 1,000 customers in Indonesia within a period of one year; and/or
      2. Shipped more than 1,000 packages to customers in Indonesia within a period of one year.

       

      A representative office must obtain a Representative Office e-Commerce Trading License via the OSS system.[10] As with the E-commerce Trading License required by a domestic e-Commerce Business, the holder of a Representative Office e-Commerce Trading License must obtain an Electronic Systems Registration Certificate from the MCIT within 14 working days of the issuance of the Representative Office e-Commerce Trading License.

       

    7. Statistical Reporting Obligation
    8.  

      Both domestic and offshore e-Commerce Providers are required to submit data and information on their operations to Statistics Indonesia (Badan Pusat Statistik).

       

    9. Sanctions
    10.  

      The Regulation provides regulators with a formidable array of administrative sanctions that range from written warnings up to suspension and blocking of services.

     

  5. Shorter Grace Period Than Under GR 80/2019
  6.  

    The Regulation officially enters into force on 19 November 2020 (six months after its date of promulgation). Thus, e-commerce businesses should have all of the licenses prescribed by the Regulation before that date. By contrast, GR 80/2019 (the higher legal instrument under which the Regulation was issued) provides a grace period of 2 years for businesses to comply with its requirements, meaning that they should have until 25 November 2021 to obtain the necessary licenses – more than one year more than the deadline under the Regulation.

     

  7. ABNR Commentary
  8.  

    The first thing to be said is that all e-commerce businesses need to be aware of the shorter grace period provided under the Regulation compared with that under GR 80/2019, as discussed in Section C above. The lack of synchronization between the two regulations is unfortunate as it gives rise to legal uncertainty and imposes additional compliance burdens on businesses that had been planning for the 25 November 2021 deadline.

     

    For offshore e-commerce businesses, besides the deadline issue, the aspect of the Regulation that will likely be of greatest interest is the local-presence requirement, which serves to bring them unambiguously within the Indonesian taxman’s net. The local-presence requirement is actually mapped out in general terms in GR 80/2019, but now the Regulation fleshes out the rule by stipulating very low thresholds which mean that just about any platform or merchant that does online business in Indonesia will need to establish a local representative office here.

     

    In reality of course, Indonesia, like jurisdictions all around the world, has long been puzzling over how to tax global e-commerce businesses. The importance of the issue to the Government is highlighted by the fact that it is specifically referred to in the emergency legislation introduced to address the financial fallout from Covid-19 at the end of March,[11] which was followed by Minister of Finance Regulation No. 48/PMK.03/2020 and Directorate General of Taxation Regulation No. PER-12/PJ/2020, which set out the procedures for collecting value added tax on online sales of goods and services into Indonesia.

     

    For local e-commerce businesses, the Regulation’s provisions that will be of most significance are those related to licensing and advertising. When it became apparent that GR 18/2019 required all domestic e-commerce merchants to be licensed, including SMEs, there was a storm of protest. However, the MOT has stood its ground by maintaining this requirement in the Regulation.

     

    For consumers, the Regulation is undoubtedly good news. The reality is that prior to the issuance of GR 80/2019, Indonesia’s e-commerce scene was virtually unregulated and consequently became a happy hunting ground for fraudsters. Despite this, the industry has thrived and grown to become one of the largest in the world. However, there are few shoppers in Indonesia who are not at least a little jittery when making purchases online, particularly from unfamiliar vendors. The Regulation helps to allay these jitters by putting various protections in place that should bolster consumer confidence in the industry. Whether or not this actually transpires, though, will ultimately depend on the seriousness with which the Regulation is enforced.

 

Contact Us

 

Should you have any queries on the above or require legal advice as to how you can best protect your interests during this time of uncertainty, please contact the persons below, call us on +62-21-2505125 or email us at info@abnrlaw.com.

 

Mr. Emir Nurmansyah (enurmansyah@abnrlaw.com)

Mr. Nafis Adwani (nadwani@abnrlaw.com)

Mr. Agus Ahadi Deradjat (aderadjat@abnrlaw.com)

 

[1] Minister of Trade Regulation No. 50 of 2020 on E-commerce Licensing, Advertising, Management and Supervision (Peraturan Menteri Perdagangan Republik Indonesia Nomor 50 Tahun 2020 Tentang Ketentuan Perizinan Usaha, Periklanan, Pembinaan, dan Pengawasan Pelaku Usaha Dalam Perdagangan Melalui Sistem Elektronik).

[2] Pelaku Usaha Perdagangan melalui Sistem Elektronik / PPMSE.

[3] A “Merchant” (pedagang) is a domestic / offshore e-commerce business that engages in e-commerce transactions using either its own facilities or facilities provided by a domestic / offshore e-commerce service provider or another electronic system that provides e-commerce facilities.

[4] An “e-Commerce Service Provider” (penyelenggara perdagangan melalui sistem elektronik) is a domestic / offshore e-commerce business that provides electronic services and/or communication facilities which make the conducting of e-commerce transactions possible.

[5] An “e-Commerce Intermediary Service Provider (penyelenggara sarana perantara ) is a domestic / non-domestic e-commerce business which provides electronic communication facilities that function solely to electronically link the parties to an e-commerce transaction.

[6] Surat Izin Usaha Perdagangan / SIUP)

[7] Penyelenggara sarana perantara - exemptions from the e-Commerce Trading License requirement are provided for e-commerce service providers that (i) are not direct beneficiaries of transactions, and (ii) is not directly involved in the contractual relationship between the transacting parties.

[8] Surat Izin Usaha Perdagangan Melalui Sistem Elektronik / SIUPMSE

[9] Kantor Perwakilan Perusahaan Perdagangan Asing di Bidang Perdagangan melalui Sistem Elektronik (KP3A bidang PMSE)

[10] Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing di bidang Perdagangan melalui Sistem Elektronik / SIUP3A

[11] Emergency Government Regulation No. 1 of 2020 (Peraturan Pemerintah Pengganti Undang-Undang (Perppu) Nomor 1 Tahun 2020), now enacted into law as Law No. 2 of 2020

 

This edition of ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained herein. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.