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Indonesia – E-Commerce Guidelines.

9 October, 2014

 

Legal News & Analysis – Asia Pacific – Indonesia – TMT

 

E-commerce in Indonesia is growing by leaps and bounds and this is expected to continue in the coming years. As the fourth-most populous country in the world and with a growing middle class, Indonesia is poised to become one of the most dynamic e-commerce markets in the world.

 

To enter the e-commerce business in Indonesia, investors must first decide what role they will play. Investors can act as sellers or as intermediaries, and can use another party’s platform or establish their own. No matter what role investors decide to take, they can enter the business either individually or through a limited liability company. A limited liability company is likely the best option, especially if the business is expecting significant growth. It provides certain protections for the assets of shareholders if something goes wrong with the business. Law No. 40 of 2007 regarding Limited Liability Companies (the “Company Law”) sets the requirements to establish and operate a limited liability company in Indonesia.

 
In establishing a company, investors must comply with foreign ownership restrictions under the Negative Investment List (known as the “DNI”),as governed by Presidential Regulation No. 39 of 2014.

 
Under the current DNI, electronic retailing and retailing through the post or through internet orders are 100percent closed to foreign investment.This means foreign investors cannot participate in companies engaged as sellers in e-commerce activities. There is no foreign investment restriction on acting as an intermediary.

 
Investors must also review any regulations that are relevant to the goods and services to be offered for any additional requirements or restrictions. Certainly, anything related to gambling or pornographic materials is prohibited in Indonesia and off-limits for e-commerce companies.

 
Subject to any additional requirements as referred to above, investors can commence e-commerce activities after obtaining a Trade Business License, known as an SIUP from the Ministry of Trade if they will be acting as a seller. At the moment, there are no specific registrations or other licensing requirements for e-commerce activities. However, it is possible that the Ministry of Trade or the Ministry of Communications and Informatics (“MOCI”) could issue such requirements for e-commerce activities. Investors preparing to enter the sector are advised to check the status of this matter.

 

Establish Your Website

 
To start your e-commerce business, you can use your own website or some other party’s electronic system. It is currently very popular in Indonesia to engage in e-commerce activities through social media such as Facebook and Instagram, or through other intermediaries such as Rakuten and Elevania. However, once the business grows, investors may find that having their own website will be useful in terms of easier management and better security.

 

 

Before investors can set up their own website in Indonesia, they must register the domain name. Domain names are regulated under MOCI Regulation No. 23 of 2013 regarding Domain Name Management.

 
A website is considered an “electronic system”, as referred to in Law No. 11 of 2008 regarding Electronic Systems and Transactions (“Law 11/2008”) and Government Regulation No. 82 of 2012 regarding the Implementation of Electronic Systems and Transactions (“GR 82/2012”), and thus must follow the requirements for electronic systems provided in such regulations.

 
One of the requirements for electronic systems, including websites, under GR 82/2012 isthat they provide users with at least: (i) the identity of the party providing such electronic system; (ii) detailed information on the object of any transaction, meaning that the website must provide detailed information on the objects it sells; (iii) safety information; (iv) usage procedures; (v) terms and conditions of usage; (vi) procedures to reach agreement, meaning that in terms of buying a product, the users must be provided with sufficient information on the procedure to complete a transaction; and (vii) guarantee of privacy and/or protection of personal data.

 

The system must also be equipped with features that at a minimum enable users to (i) make corrections, (ii) cancel an order, (iii) confirm or reconfirm an order or information, (iv) continue to the next activity or exit, (v) access the information conveyed in the form of a contract offer or advertisement, (vi) check the status of the transaction, whether it is successful or has failed, and (vii) read the agreement before entering into a transaction.

 
Certification is required to operate an electronic system, including a website. This certification can be in the form of a Reliability Certificate and/or Electronic Certificate that must be issued by a certification institution registered with the MOCI.

 
In addition, investors may want to register any trade names and trademarks that may be used as a domain name or for other purposes related to the website or trading activities. Such registration is necessary to receive protection under Law No. 15 of 2001 regarding Trademarks.

 

Advertisements

 
Under the Indonesian Advertising Ethics issued by the Indonesian Advertising Council(“Advertising Ethics”), in addition to general requirements applicable to advertisements, the following specific requirements apply to internet advertisements:

 
a. the advertisement must not interfere with the flexibility of people to browse the internet and interact with the relevant website, unless a prior warning has been given;

 
b. the advertisement must clearly provide the following:

(i) reasons why the recipient has been sent the advertisement;
(ii) clear and easy instructions to dismiss the advertisement;
(iii) complete address of the sender of the advertisement;
(iv) guarantee of the personal rights and confidentiality of the recipient;

 
c. interactive advertisements:

(i) must not provide more information than is needed for the transaction;
(ii) must not provide the recipient information on any matter irrelevant to a normal transaction;
(iii) must guarantee the security of the payment method used in the transaction.

 
Under the Advertising Ethics, various administrative sanctions from warnings to discontinuance of the advertisement may be applicable for violations of the above requirements. Criminal sanctions may also be applicable in the form of imprisonment and fines, in addition to sanctions ranging from seizure of goods to the revocation of a business license, for violations under Law No. 8 of 1999 regarding Consumer Protection (“Law 8/1999”). Even though in principle these sanctions apply to an “advertising business actor”, an e-commerce seller that uses an advertising agent to place an advertisement may also be subject to criminal sanctions as an “instructor” of the crime. Such instructor will bear the same responsibility as the actual actor of the crimes as stipulated in Article 55 of the Indonesian Criminal Code.

 

Electronic Transactions

 
The main legal issues that should be considered in relation to electronic transactions are (i) where and when such transactions are concluded, (ii) how the parties can ensure that the relevant terms and conditions are incorporated and (iii) how the parties can identify each other.

 
The question of where and when is crucial in deciding, among other things, which jurisdiction shall apply (which may have a bearing on tax issues) and the effective time of the rights and obligations between the parties.

 
In Indonesia, legally binding contracts are contracts that have satisfied the qualifications as provided under Book III, Article 1320 of the Indonesian Civil Code. Such qualifications are: (i) there must be consent of the individuals who are bound thereby; (ii) there must be capacity to conclude an agreement; (iii) there must be a specific subject; and (iv) there must be an admissible cause. These qualifications are also applicable for electronic contracts pursuant to Article 47 (2) of GR 82/2012.

 
Despite the above qualifications, which mark the civil law system adopted by Indonesia, GR 82/2012 also recognizes the offer and acceptance principle, which generally applies in countries with common law systems. Article 50 of GR 82/2012 stipulates that an electronic transaction is deemed to be concluded when there is a consensus between the parties involved, which occurs when the offer sent by a party is accepted and approved by its counterparty.

 
The terms and conditions that are incorporated in an online contract are the offers that are approved when the contract is concluded. The seller may provide the integrated contract to the buyer to confirm the terms and conditions.

 
Lastly, the question of identification can be resolved by a secured e-signature that meetscertain requirements under Law 11/2008 and GR 82/2012.

 

Consumer Protection

 
E-commerce offers the advantage of erasing time and distance, but it also carries with it unique risks not found in conventional trading activities. Most of the risk falls to consumers rather than sellers because consumers do not have the opportunity to directly inspect goods before they make a purchase. A decision to make a purchase depends 100 percent on information provided by the seller online. That is why in Indonesia the majority of the regulations governing e-commerce are geared toward consumer protection.

 
General consumer protection rules are found in Law 8/1999. Specific provisions on e-commerce can be found in other laws and regulations, including Law No. 7 of 2014 regarding Trade (“Law 7/2014”) and Law 11/2008 and its implementing regulation, GR 82/2012.

 
GR 82/2012 provides the minimum requirements for conducting electronic transactions in Indonesia as follows: (i) consideration of security, reliability and efficiency of the electronic system; (ii) storing the transaction data in the country; (iii) utilization of a national gateway if the operation involves more than one electronic system operator; and (iv) utilization of a domestic electronic system network.

 
GR 82/2012 also provides certain protections for consumers by, among other steps, requiring sellers to provide complete and correct information on the contract, the offered products and the producers of such products. It also requires contracts to be made in the Indonesian language and to contain at least the following: (i) identity of the party; (ii) object of the transaction and specifications; (iii) conditions of the transaction; (iv) price and other costs; (v) procedures for cancelation; (vi) right to return the goods and/or demand replacement goods (within a certain period of time) in the event of hidden damage to the goods that are the object of the contract; and (v) choice of governing law.

 

Law 7/2014 requires e-commerce sellers to provide detailed information that at a minimum includes (i) the identity of the company and proof that the company is legally allowed to act as a producer or distributor, (ii) technical requirements of the goods or services offered through an electronic system, (iii) price information and payment methods, and (iv) delivery methods.

 

E-Payment And E-Money

 
For sellers, payment carries the greatest risk in e-commerce transactions. Is the payment authorized? Will the seller receive payment for goods it ships to the buyer?

 
There are a variety of payment methods for electronic transactions, but credit card payments and bank transfers are the two most commonly used methods in Indonesia. Most consumers prefer bank transfers because they are reluctant to provide their credit card details. Debit cards are not commonly used because at the moment most debit cards cannot be used for online payments in Indonesia.

 
It is important to note that the above methods of payment, especially bank transfers, are preferable to sellers but risky for buyers. The risks for buyers include providing credit/debit card details to unknown sellers and trusting that the goods will be delivered on time and as promised. In current practice, it is safer for both parties to have a third-party escrow to hold the payment until the ordered goods are delivered to the buyer. There may be additional costs for the escrow but such costs are usually not significant. E-money systems such as PayPal, eCash and WebMoney are examples of widely used escrows around the world.

 
E-money is gaining in popularity as an online payment method in Indonesia. Bank Indonesia Regulation No. 11/12/PBI/2009, as amended by Bank Indonesia Regulation No. 16/8/PBI 2014 regarding E-money (“PBI 11/2009”), requires that any e-money issuer be licensed by Bank Indonesia, the country’s central bank. The issuer and seller in an e-money transaction must not be the same party.

 
Further regulations on e-money can be found in PBI 11/2009 and Circular Letter of Bank Indonesia No. 16/11/DKSP. This Circular Letter requires e-money to have a monetary value that shall be previously deposited with the e-money issuer. This provision clearly excludes crypto currencies such as bitcoin, peercoin and namecoin from the e-money definition under Indonesian law. Hence, the use of crypto currencies is currently not recognized in Indonesia, but neither is their use prohibited. Crypto currencies in practice are deemed as commodities and the use of them depends on the trust of the users in the value of these systems.

 

Taxation

 
There is no specific tax for e-commerce in Indonesia. Any profit gained from e-commerce sales will be taxed under the general taxation rules applicable in Indonesia.

 
Personal Data

 
GR 82/2012 provides certain protections for personal data. Keeping the confidentiality, integrity and availability of personal data is one of the obligations of the operator of an electronic system. The operator must ensure that personal data is gathered and used only with the consent of the owner of such personal data, unless required otherwise by the prevailing laws and regulations of Indonesia. The use and disclosure of personal data must be approved by its owner and be in accordance with the initial purpose of the gathering of such personal data. Individuals must be notified of any breach in the protection of their personal data.

 
Dispute Resolution

 
Article 18 (2) of Law 11/2008 stipulates that parties are authorized to choose the applicable law for international electronic transactions they enter into. Paragraph (4) of the same article stipulates that the parties are authorized to choose a method and forum for dispute resolution. They can choose to resolve disputes through the courts, arbitration or through analternative dispute resolution forum that is authorized to handle disputes that may arise from international electronic transactions.

 
Should the parties not specify an applicable law or dispute resolution forum for the transaction the principles of International Civil Law shall apply.

 

Sanctions And Cybercrimes

 
Law 7/2014 provides that any violation to the e-commerce requirements under such law is subject to the revocation of the seller’s license. GR 82/2012 provides that any violation of the e-commerce requirements under GR 82/2012 is subject to administrative sanctions in the form of written warnings, administrative fines, suspension and/or deregistration from the MOCI’s register. There are no criminal sanctions imposed for violations of Law 7/2014 or GR 82/2012.

 
However, Law 11/2008 details certain actions that are considered as cybercrimes and which are subject to criminal sanctions. These sanctions include prison sentences of six to twelve years and fines of IDR 1bn to IDR 12bn (approximately USD 82k to 983k at current exchange rates). Such actions include the distribution, transmission and provision of access to electronic information and/or electronic documents whose contents are in violation of decency standards in Indonesia. This includes materials that are connected to gambling or that may incite hatred or hostility, or which contain insults, threats or defamatory claims. Providing false and misleading information that may result in losses to consumers in electronic transactions is also prohibited. Other actions that fall under the heading of cybercrimes include hacking, tapping and unlawful linking.

 

Future Of E-Commerce In Indonesia

 
There are questions about the future direction of e-commerce in Indonesia, particularly with the Government’s decision to close the online retail business to foreign investors under the new Negative Investment List. This decision may support Indonesian online retailers, many of them individuals and small players. It could also harm the overall competitiveness of the Indonesian e-commerce market and stem its growth by keeping out foreign investors, which will ultimately disadvantage consumers.

 
In a perfectly competitive e-commerce market, the players would compete to provide the best service to consumers. The more protection e-commerce companies provide consumers, the more consumers will trust and use their services and the more profitable the companies will be.

 
Indonesian e-commerce players will, in theory, still have to compete with foreign players who are obviously not impacted by the DNI. In practice, however, there is really no competition because if an Indonesian e-commerce company offers the same product as an overseas company, consumers are likely to choose the Indonesian company because of the much cheaper delivery costs as opposed to having to ship the product from overseas.

 
Indonesia’s e-commerce industry, with or without foreign investment, is experiencing steady growth. This will ultimately benefit consumers as more companies enter the fray and compete on price, service and selection.

 

Relevant Laws And Regulations

 

  • Law No. 40 of 2007 regarding Limited Liability Companies (the “CompanyLaw”)
  • Presidential Regulation No. 39 of 2014 regarding the Negative Investment List
  • Minister of Communication and Informatics Regulation No. 23 of 2013 regarding Domain Name Management
  • Law No. 11 of 2008 regarding Electronic Systems and Transactions 
  • Government Regulation No. 82 of 2012 regarding Implementation of Electronic Systems and Transactions
  • Law No. 15 of 2001 regarding Trademarks
  • Law No. 8 of 1999 regarding Consumer Protection
  • Law No. 7 of 2014 regarding Trade
  • Bank Indonesia Regulation No. 11/12/PBI/2009, as amended by Bank Indonesia Regulation No. 16/8/PBI 2014 regarding E-money
  • Circular Letter of Bank Indonesia No. 16/11/DKSP Year 2014 regarding E-moneyOperations

 

SSEK

 

For further information, please contact:

 

Soewito Suhardiman Eddymurthy Kardono
ssek@ssek.com.

 

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