Newly Enacted E-Commerce Regulation

In order to protect the interests of micro, small and medium enterprises (SMEs) in Indonesia, on September 25, 2023, the Minister of Trade (“MOT”) issued Regulation No. 31 of 2023 on Business Licensing, Advertising, Guidance and Supervision of Business Actors in Trade via Electronic Systems (“Regulation 31/2023”). Regulation 31/2023 repeals and replaces the MOT Regulation No. 50 of 2020 dated November 19, 2020 (“Regulation 50/2020”).

In Regulation 31/2023 the MOT aims at addressing the concerns of offline shops that claim to be adversely impacted by e-commerce or online shops. Several provisions, particularly the requirements of business registrations under Regulation 50/2020, are retained in Regulation 31/2023. however, new provisions that elaborate further on definitions, business models, and restrictions are introduced in the newly enacted regulation.

We highlight the key changes under Regulation 31/2023 as follows.

♦ Classifications of E-commerce Business Models

Previously, under Regulation 50/2020, merchants or sellers that engaged in trading activities via electronic systems (the “Merchants”) were allowed to advertise their goods or services on social media platforms, including providing direct payment features in such platforms for online trading transactions.

Regulation 31/2023 now specifies the business models of e-commerce into the following: (i) Online Retail; (ii) Marketplace; (iii) Online Classified Advertisements; (iv) Price Comparison Platforms; (v) Daily Deals; and (vi) Social Commerce.  With Regulation 31/2023, there is a distinction between a marketplace and a social commerce platform. A marketplace is defined as a provider of facilities in which a part or the entire transaction process is in an Electronic System in the form of a commercial website or an application for Merchants to be able to place offers for goods and/or services (the “Marketplace”). Meanwhile, a social commerce platform is defined as a social media provider that provides certain features and/or facilities that enable Merchants to place offers for goods and/or services (the “Social Commerce”). Further, Regulation 31/2023 prohibits the Marketplace and the Social Commerce from acting as manufacturers.

Both the Marketplace and the Social Commerce are business models that are acknowledged under the non-exhaustive list of business models under Regulation 31/2023. However, considering the above definitions, unlike the Marketplace which may accommodate the transaction process in the platform, the Social Commerce is only allowed to facilitate promotion by way of advertising the goods and/or services and is prohibited from facilitating payment transactions in the platform.

In accordance with the above, social media platforms that fall within the definition of the Social Commerce are now prohibited from facilitating payment transactions. Regulation 31/2023 provides clear guidance that in the event that any social media platform wishes to carry out business by providing facilities, including payment transactions within its platform, such platform must first obtain the required business license as an e-commerce organizer.

♦ Requirements for Foreign E-commerce Merchants

Regulation 31/2023 further sets out additional requirements for foreign e-commerce Merchants such as the provision of evidence for compliance with standards or technical requirements and bank account numbers in addition to the identity of the foreign Merchant and proof of business license(s).

Previously, under Regulation 50/2020, foreign e-commerce was required to establish a representative office in the form of a Foreign Trade Company Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing or a “KP3A”) if it meets any of the following criteria: (i) it conducted transactions with a minimum of 1,000 consumers within one year; and/or (ii) it delivered at least 1,000 packages to consumers within one year.

Now, Regulation 31/2023 sets out another criterion in relation to such requirement, namely it has had traffic or access from at least 1% of internet users within Indonesia within a one-year period. Further, such KP3A must also obtain a business license as a foreign trade company representative (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing) in the field of e-commerce which will be issued by the Online Single Submission (OSS) Agency. A foreign e-commerce’s KP3A may not also represent more than one foreign e-commerce.

♦ Other Restrictions

Regulation 31/2023 further regulates matters related to fair competition among Merchants engaging in trading via electronic systems. Under Regulation 31/2023, e-commerce organizers are required to actively participate in preventing price manipulation practices by ensuring: (i) there is no connection or interconnection between the electronic systems used for e-commerce purposes and other electronic systems that are operated outside the e-commerce facility; and (ii) there is no misuse of user data within their electronic systems or by affiliated companies.

Furthermore, Regulation 31/2023 requires e-commerce organizers that engage in cross-border trading activities to apply a minimum Freight on Board USD100 per unit for Merchants selling imported finished goods to Indonesia. Regulation 31/2023 states that the MOT shall determine a Positive List which list will specify the imported goods allowed to be directly sold from abroad to Indonesia through e-commerce organizers.

♦ Effects on Merchants

Based on the above, we note that the key provisions introduced in Regulation 31/2023 create more rigid provisions and restrictions on the activities of the overall online platforms specifically for e-commerce organizers within social media platforms. Additionally, Regulation 31/2023 raises the minimum barrier for foreign merchants in setting prices to increase the opportunity for domestic goods, as well as to protect local merchants that are small-scale businesses, in order to compete with foreign goods and Merchants.

October 25, 2023



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