Indonesian authorities recently passed a new law on the regulation of E-Comme...

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Indonesia Implements E-Commerce Regulations

November 27, 2019
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OrionW

Indonesia adopted government regulation No. 80 on 25 November 2019 to deal with trading through electronic systems (the Regulation), which may have a significant impact on foreign E-commerce providers.  The Regulation imposes potentially onerous requirements such as business licensing, prioritisation of domestic Indonesian products, consumer protection, technical requirements, recordkeeping, responsibility for negative content, and advertising regulations.  The Regulation commences with immediate effect and provides a two-year transitional period for affected parties to come into full compliance.

Scope of the Regulation

The Regulation applies to all parties that carry out E-commerce goods or services business activities (Business Actors).  Business Actors may include any individual or entity, whether legal or non-legal, or domestic or foreign.

The Regulation classifies Business Actors into three categories:

  1. Merchants;
  2. Operators that enable e-commerce transactions such as online marketplaces, platforms, advertisements or daily deals; and
  3. Intermediary service operators that provide indirect services such as search engines and social media services.

Business Actors do not include individuals selling goods or services otherwise than for a commercial purpose.

Key Implications of the Regulation for Business Actors

Local Representative / Permanent Establishment / TaxationThe most significant impact of the Regulation on foreign Business Actors is an expansion of the ‘permanent establishment’ concept of tax law.

Under the Regulation, foreign Business Actors need not have an actual physical presence in Indonesia to be recognised as physically present in Indonesia if they meet threshold criteria such as the number of transactions, transaction value, number of shipped packages, and/or the amount of traffic or access.  The criteria thresholds will be promulgated by the Indonesian government in a separate regulation.

Foreign Business Actors deemed physically present in Indonesia must appoint a local representative empowered to act on its behalf and may be treated as a permanent establishment for tax purposes, which could subject them to Value Added Tax, withholding tax and other applicable Indonesian taxes.

Business Licence Business Actors are required to obtain a business licence to conduct E-commerce business activities.  Exemptions are provided to intermediary service operators if the operator is not directly involved in the contractual relationships with the involved parties, or not a direct beneficiary of an E-commerce business transaction.

Prioritisation of Domestic-Indonesian Products – The Regulation obliges Business Actors to prioritise trade in goods or services from domestic production, help improve the competitiveness of domestic goods or services and assist other government programs.  Domestic Business Actors are additionally required to provide promotional space for goods or service produced by Indonesians.  

Consumer Protection – Business Actors must protect the rights of customers in accordance with prevailing consumer protection and anti-competition laws and must establish a platform for consumer complaints.  

Recordkeeping Requirements – Business Actors are required to keep records related to financial transactions for 10 years and other non-financial related records for 5 years starting from the day the information was obtained.

Personal Data Protection – Business Actors must store and use personal data according to personal data protection standards such as the General Data Protection Regulation of the European Union or APEC Privacy Frameworks.  In addition, the Regulation prohibits cross border transfer of personal data except for countries with at least the same level of data protection standards as Indonesia as declared by the Indonesian Ministry of Trade.

Responsibility for Negative Content – Certain Business Actors are responsible for consequences of negative content on their E-commerce platforms unless the negative content is removed quickly after becoming aware of it.  This places an obligation on parties to be proactive in moderating user-generated content.  Operators that are mere conduits of information, search engine operators and operators only storing data temporarily or for hosting purposes will be exempted from this requirement.

Advertising Regulations – Electronic advertisements must comply with prevailing broadcasting, personal data protection, consumer protect and anti-competition laws.

Sanctions

Business Actors in violation of provisions under the Regulation may incur administrative sanctions such as:

  1. written warning letters;
  2. inclusion on a priority list for monitoring purposes;
  3. blacklisting;
  4. temporary suspension; or
  5. revocation of licence.

Further provisions in relation to the Regulation are expected to be released in due course.  In that regard, affected Business Actors are encouraged keep abreast of the developments concerning any clarifications or regulatory enforcement of the Regulation.

For More Information

OrionW regularly advises clients on payment services regulation and licensing matters.  If you require assistance or if you have questions about the article, please contact us at fintech@orionw.com.

Disclaimer: This article is for general information only and does not constitute legal advice.

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