General Overview Of New E-Commerce Regulation In Indonesia

Nusantara Legal Partnership


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In October 2023, the Indonesian government through the Ministry of Trade ("MoT") issuedMoT Regulation ("MoTR") No. 31 of 2023 on Business Licensing.
Indonesia International Law
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In October 2023, the Indonesian government through the Ministry of Trade ("MoT") issued MoT Regulation ("MoTR") No. 31 of 2023 on Business Licensing, Advertising, Guidance and Supervision of Business Actors in Trade via Electronic Systems ("MoTR 31/2023"), which revokes the previous regulation, MoTR No. 50 of 2020 on Provisions on Business Licensing, Advertising, Guidance, and Supervision of Business Operators in Electronic Commerce ("MoTR 50/2020"). Due to the issuance of MoTR 31/2023, social commerce was prohibited from operating when the platforms facilitate payments via their electronic systems.

That prohibition resulted in the temporary suspension of TikTok Shop, which eventually came back after Bytedance made strategic decision to acquire Tokopedia, an Indonesian e-commerce platform.

We understand that there are many concerns regarding the issuance of MoTR 31/2023. As such, we provide below, the excerpt of the provisions on: (i) Permitted Business Models for e-commerce platform under MoTR 31/2023, (ii) Electronic Advertising; (iii) Licensing Requirements; (iv) Cross-border Transactions; (v) Major Principles in E-Commerce Activities; and (vi) Applicable Sanctions for Incompliance with MoTR 31/2023.

1. Permitted Business Models for E-Commerce Platform under MoTR

MoTR 31/2023 introduces new business models previously unrecognized under MoTR 50/2020:

  1. Online Retail: Merchant trading through the electronic system using a commercially created, managed, and/or self-owned website or application;
  2. Marketplace: A provider of facilities where some or all of the transaction processes are within the electronic system, in the form of a commercially operated website or application, which serves as a platform for merchants to post offers of goods and/or services;
  3. Online Classified Advertisement: A platform for operating an electronic system in the form of a website or application for commercial purposes, where the sellers and buyers meet, and the entire transaction processes occur outside the website or application;
  4. Price Comparison Platform: A platform for operating an electronic system in the form of a website or application with commercial purposes, displaying price comparisons of goods and/or services sold on other websites or applications;
  5. Daily Deals: A platform for operating an electronic system in the form of a website or application with commercial intent, offering discount coupons and/or other facilities that can be used as a means of payment by consumers to make purchases from other business providers; and
  6. Social Commerce: Social media providers that offer specific features, menus, and/or facilities that enable merchants to post offers of goods and/or services.

(Article 1 (12), (13), (14), (15), (16), and (17) of MoTR 31/2023)

Considering the recognized business models, the regulations on trade through the electronic system have been adjusted to specifically regulate each business model and are no longer generalized. Since there is a distinction between a marketplace and a social commerce platform, social commerce is now unable to provide a payment transaction within its platform. This is because social commerce is only permitted to promote or advertise its goods and/or services, not facilitating the actual transactions.

2. Electronic Advertising

These newly enacted regulation also covers some provisions regarding the electronic advertising that may be conducted by the business actors for marketing purposes. The business actors are allowed to produce, publish, and distribute electronic advertising for marketing purposes or promotional activities.

According to Article 28 of MoTR 31/2023, an electronic advertising shall meet the following criteria:

  1. not deceiving consumers in regard to the provided goods and/or services;
  2. not deceiving consumers regarding the guarantee of the provided goods and/or services;
  3. not containing false information;
  4. containing the information on the risks that come from the provided goods and/or services;
  5. not exploding any event and/or person without prior consent;
  6. providing clear options for consumers to exit the electronic advertisement using "close" or "skip" buttons.

The promotional activities shall adhere to Indonesia's prevailing laws and regulations concerning promotions and advertising, including Broadcasting Law, Personal Data Protection Law, and Competition Law.

3. Licensing Requirements

(a) Foreign Merchant Requirement:

Comprehensive requirements apply to foreign merchants that offer their goods and/or services within Indonesia's e-commerce platforms. A foreign merchant must provide information on:

  1. the identity of the foreign merchant, including the name and address in the foreign merchant's country of origin;
  2. the business license issued by the authority of the foreign merchant's country of origin. The license must be:
    1. legalized by the competent authority at the relevant country, or
    2. legalized by the officer of the Indonesian Embassy at the relevant country;
  3. the proof of compliance with the standards or technical requirements of the goods and/or services being offered; and
  4. the bank account that would be used for the transactions.

Proof of compliance with the standards as referred to in Point (iii) includes: (a) National Standard Certificate (Standar Nasional Indonesia or "SNI"), (b) fulfilment of other standards implemented in the country of origin of the goods and/or services, and (c) halal certificates for the goods and/or services that should be halal-certified based on the prevailing laws and regulations.

The relevant e-commerce platform provider must:

  1. use simple and easily understood Indonesian language in describing the goods and/or services being offered; and
  2. display information on the country of origin where the goods and/or services are shipped from.

(Article 5 of MoTR 31/2023)

(b) FTRO Requirement for Foreign Platform Provider

Since MoTR 31/2023 has revoked MoTR 50/2020, a foreign e-commerce provider is now required to appoint a representative in Indonesia (Kantor Perwakilan Perdagangan Asing di Bidang Perdagangan Melalui Sistem Elektronik or Foreign Trade Representative Office in the E-Commerce Sector "FTRO PMSE") if it has met certain thresholds.

According to Article 18 of MoTR 31/2023, a foreign e-commerce provider already meeting the following criteria is obligated to appoint its FTRO PMSE:

  1. The provider has conducted transactions with at least, 1,000 consumers within a 1-year period;
  2. It has delivered, at least 1,000 packages to consumers within a 1-year period; and/or
  3. It has maintained, at least 1% of domestic internet users' traffic or visitors within a 1-year period.

("Foreign PPMSE Threshold") (Article 18 of MoTR 31/2023)

Under the previous regulation (i.e., MoTR 50/2020), a foreign e-commerce provider had to appoint a FTRO PMSE in Indonesia, if it met the criteria as stipulated in points A and B above. With the issuance of this regulation, there is no longer a loophole allowing foreign platform providers to waive their obligation to appoint FTRO PMSE in Indonesia. Due to the expansion of the threshold, they now have to appoint FTRO PMSE, even if they only have 1% traffic of domestic internet users in Indonesia's Jurisdiction.

After meeting the aforementioned criteria and establishing FTRO PMSE, a foreign platform provider can proceed to acquire the necessary license, (i.e., Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing di Bidang PMSE or Business License for FTRO in the PMSE Sector "SIUP3A PMSE"). The PMSE SIUP3A can be obtained via the Online Single Submission System ("OSS System") after the establishment of FTRO PMSE (Article 38 (2) of MoTR 31/2023).

(c) Specific KBLIs for Local Actor

The applicable license(s) for the local merchant in the trading activities through the electronic system shall comply with the required business licensing based on the Indonesia Business Classification Number (Kode Baku Lapangan Usaha Indonesia or "KBLI") of retail trade via mail or the internet (Article 4 of MoTR 31/2023).

On the other hand, all local e-commerce providers must obtain the required business license(s) based on the risk-based business licensing, through the OSS system. The business entity of an e-commerce provider must be registered under KBLI 63122 - Web Portals and/or Digital Platforms for Commercial Purpose (Articles 6, 7, and 8 of MoTR 31/2023).

5. Cross Border Transaction

Both foreign and/or local e-commerce provider conducting a cross-border transaction shall apply a minimum Price of Goods imported directly from abroad, the minimum price is a Freight on Board/FOB which are USD100 for each unit for purchases of finished goods from offshore to Indonesia. Furthermore, any cross-border merchants must comply with regulations related to exports and imports as well as regulations related to electronic information and transactions (Article 19 of MoTR 31/2023).

4. Major Principles in E-Commerce Activities

There are several major principles that e-commerce platform providers must comply with and enforce while conducting trade through the electronic system, including consumer protection.

In addition of revamping the licensing requirements, MoTR 31/2023 also strengthen the mandatory principles that need to be complied with by platforms provider such as the requirement to establish and effectively implement a consumer handling mechanism through the dedicated consumer service channel integrated into its electronic system. This channel should be easily accessible to consumers through its user interface (Article 9 of MoTR 31/2023).

As the consumer protection aspect is also crucial in electronic advertising conducted by platform provider, the provider must avoid providing misleading information about product quality, quantity, materials, utility, and pricing, as well as delivery timing. Instead, the provider must provide accurate information, including usage risks, and events or individuals should not be exploited without proper consent. In addition, any provider should offer clear options for consumers to exit electronic advertisements using "close" or "skip" buttons for their convenience (Article 28 of MoTR 31/2023).

Fair Competition

One of the main objectives of MoTR 31/2023 is to provide fairness to business competition in Indonesia. In this context, any platform providers must ensure that no unfair competition practices during the commencement of such e-commerce activity. According to Article 13 of MoTR 31/2023, to prevent any occurrence of unfair business competition, the providers are obligated to:

  1. Providing equal business activity for other merchants;
  2. (ii) Ensuring that the pricing of goods and/or services remains free from manipulation either directly or indirectly.

In the event of any allegations regarding such unfair competition practices, the provider is required to promptly coordinate with the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or "KPPU") (Article 13 of MoTR 31/2023).

Prioritizing the Local Goods and/or Services

MoTR 31/2023 also requires business actors to endorse local goods and services, improve their competitiveness, and obliges both local and foreign platform providers to provide opportunities for these local goods and services. The initiative could be conducted by:

  1. Prioritizing domestically produced goods and/or services;
  2. Enhancing the competitiveness of domestically produced goods and/or services; and
  3. Providing promotional spaces for domestic products, such as education, workshops, exhibitions, and other activities that lead to improving the potential domestic products.

(Article 32 of MoTR 31/2023)

Not only providing the mandatory initiative applicable for the business actors, but the government also provided the necessary activity that may be used by the business actors to be able to prioritize the local goods and/or services, such as:

  1. Business meetings, trade forums, aggregation of goods, and local trade missions or any other type of mission whether conducted offline and online; and/or
  2. Efforts to enhance market access for micro and small businesses.

5. Sanctions

Violation of the provision under MoTR 31/2023 will be subject to administrative sanctions in the form of:

  1. Written warning;
  2. Inclusion in the priority supervision list;
  3. Inclusion in the blacklist;
  4. Temporary suspension of local and/or foreign e-commerce providers' activities; and/or
  5. Revocation of the business license.

In addition to the administrative sanctions, the government may also impose applicable administrative sanctions for the non-performance of business licensing requirements, in the form of written warnings, and up to 3 (three) times each within 14 calendar days from the date of the previous warning letter.

If the business actor continues the violating the business licensing requirement after receiving three written warnings, it could be included in the blacklist and face temporary blocking of its e-commerce activities.

Considering the elaboration, we note that these administrative sanctions follow a progressive enforcement system. This means that if the initial written warnings are ignored, the sanctions will be escalated to more severe measures.

(Article 50 of MoTR 31/2023)

Concluding Remarks

The enactment of MoTR 31/2023 is a response to the constantly evolving landscape of trading activities through the electronic system in Indonesia. Recent developments, such as the case involving the well-known social commerce platform, have prompted the government to prioritize fair competition and consumer protection when regulating trade activities through the electronic system in Indonesia. The main principles of fair competition and consumer protection stand as the central reasons for effecting this regulation in the first place. Furthermore, the incorporation of new business models reflects the adaptability of this regulation to the dynamic e-commerce environment in Indonesia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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