E-COMMERCE BUSINESS: ONE OF THE MOST ATTRACTIVE INVESTMENT SECTORS IN INDONESIA

Introduction

There is plenty of room for growth in Indonesia’s e-commerce sector. It currently accounts for at least USD 8 billion of consumer spending per year and it is expected to expand at an impressive compound annual growth rate of 34.6 percent in 2021 [1], driven by increasing use of the internet, smartphones, and ongoing trend of steady gross domestic product growth.
Online travel industry is by far Indonesia’s most popular e-commerce market category, dominating 58.9 percent of the e-commerce market [2], followed by clothing and apparel as the second most popular e-commerce category, taking 14.6 percent slice of the domestic e-commerce market [3].
Local online platforms, for example, Lazada, Tokopedia and Bukalapak are the websites that generate the most traffic in terms of number of visitors [4]. This is expected to change as international merchants, particularly online shopping giants such as, Amazon, Alibaba and JD.com all have plans to target their expansion to Indonesia [5].
To provide more certainty to the rapid growth of Indonesia’s internet and electronic-based trading activities (“E-Commerce”), in late November 2019, the Indonesian Government, issued the first specific Indonesia E-commerce regulation No. 80 of 2019 Trade through Electronic Systems (“GR 80/2019”). Upon years of discussion, GR 80/2019 came into force on 25 November 2019 with 2 years transition period, to allow E-Commerce business practitioners to adjust to the regulation.
GR 80/2019 aims to provide a comprehensive guideline for E-Commerce practices in Indonesia, including guidelines in connection with licensing requirements, procedures applicable to E-Commerce service providers, implementation of E-Commerce business, consumer protection and personal-data protection.This journal will discuss some of the notable provisions under the GR 80/2019.

Parties Involved in E-commerce

Pursuant to the GR 80/2019, “Business Practitioners” (both in Indonesia and outside of Indonesia), consumers, individuals and government institutions may engage in E-Commerce activities. Business Practitioners are categorized as follows:

Merchants (sellers)

individuals or business entities that offer goods and/services via their own electronic system or electronic system provided by E-Commerce operators (in either Indonesia or overseas).Sellers who only sell their goods and/or services on a temporary basis for non-commercial purposes do not fall under the definition of “Merchants” under GR 80/2019.

E-Commerce Operators

individuals, business entities or government agencies providing electronic communication facilities to facilite E-Commerce transactions in different business models, including online retailing, marketplaces, online classified advertisements, and price comparison platforms.E-Commerce Operators are required to use certified electronic systems.

Intermediary Service Operators

individuals or business entities providing search engine services, permanent information storage space (hosting) services and temporary information storage space (caching) services.

Foreign Parties

GR 80/2019 also applies to “Foreign Business Practitioners” who are actively engage in E-Commerce activities in Indonesia.
Foreign Business Practitioners is defined broadly in the regulation and they include foreign individuals or business entities incorporated and located outside of Indonesia conducting E-Commerce activities in Indonesia. This helped clarify the scope of the regulation for Foreign Business Practitioners, as it was unclear before the issuance of GR 80/2019 whether Foreign Business Practitioners conducting E-Commerce activities in Indonesia from overseas are subject to Indonesian laws and regulations.
Subject to certain thresholds, Foreign Business Practitioners that actively conduct E-Commerce activities with consumers in Indonesia are deemed physically present in Indonesia and conducting business activities in Indonesia.The thresholds currently relate to: (i) number of transactions, (ii) transaction value, (iii) number of shipped packages, and/or (iv) volume of traffic or number of users. Such thresholds will be further clarified and decided pursuant to ministerial regulation which is expected to be issued in the near future.Consequently, Foreign Business Practitioners falling under any of the thresholds must appoint an Indonesian representative to act on its behalf.

E-Commerce Scheme

Possible E-commerce schemes recognized under the regulation are: (i) between Business Practitioners; (ii) between Business Practitioners and consumers; (iii) between individuals; and (iv) between government agencies and Business Practitioners.

Licensing Requirements

E-commerce Business Practitioners (in Indonesia or overseas), must have a specific business license to carry out E-Commerce activities.This requirement does not apply to Intermediary Service Operators if:

(i) they are not direct beneficiaries of an E-Commerce transaction; or
(ii) they are not directly involved in an E-Commerce contractual relation with the parties involved.

Interestingly, GR 80/2019 requires all Business Practitioners, either individuals or entities, to obtain a business license to carry out E-Commerce activities in Indonesia, which could be an issue for individuals and Small, Micro and Medium Enterprises (SMEs) engaging in E-Commerce in Indonesia.　
E-Commerce parties are also subject to some additional requirements, including: (i) taxation; (ii) export/import regulations, (iii) electronic information and transactions, for any international E-Commerce activities related; and (iv) security clearance from the authorized institutions, if the E-Commerce activities involve goods/services which may potentially disturb national security (e.g. cryptography-related products or products used for monitoring and/or surveillance purposes).

Consumer Protection Obligation

One of the obligations of E-Commerce Business Practitioners highlighted in this regulation is the consumer rights protection obligations. E-Commerce Business Practitioners are required to provide consumer complaints services which should encompass certain criteria under the regulation. Consumers may also report any losses/damages incurred as a result of E-Commerce activities.

Personal Data Protection

In terms of personal data protection, Business Practitioners that acquire personal data from individuals are deemed responsible for the use and storage of such personal data, and must also take into consideration the standards applicable under the European Union's General Data Protection Regulation and the APEC Privacy Frameworks.
GR 80/2019 also restricts any personal data transfer overseas, unless the receiving country has the same level of personal data standards and protection as Indonesia as deemed by the Indonesian Ministry of Trade.

Remarks

Implementation of GR 80/2019, including business license requirements and the fulfillment of the requirements by Foreign Business Practitioners is still subject to implementing regulations of GR 80/2019. Parties involving in E-Commerce business should stay alert to further development as well as the market behavior prior to the issuance of such implementing regulation.

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[1] https://kr-asia.com/three-trends-in-indonesias-e-commerce-sector-as-told-by-redseer.

[2]J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista & EDC analysis.

[3]J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista & EDC analysis.

[4] Aseanup.com, June 2018. ‘Top 10 e-commerce sites in Indonesia 2018.’ Accessed March 2019.

[5] InvestorPlace.com, February 2019. ‘JD.com Stock Set for a Long-Term Boost From Focus on Indonesia.’ Accessed March 2019.

The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.