Indonesia’s Ministry of Trade has recently introduced new e-commerce regulations under MoT Regulation No. 31/2023 (“MOTR 31/2023”). This was meant to replace MOT Regulation No. 50/2020 (“MOTR 50/2020”). The spirit of these new rules is to protect local small and medium-sized enterprises in Indonesia, as the government views that foreign e-commerce merchants will adversely impact the growth of SMEs in Indonesia. This new regulation places significant new restrictions on the activities of foreign merchants and e-commerce operators.
I. Who will be affected?
The new regulation, MOTR 31/2023, impacts two main groups: Trading Activities Through Electronic Systems (Perdagangan Melalui Sistem Elektronik – “PMSE”) and Trading Organizers Through Electronic Systems (Penyelenggara Perdagangan Melalui Sistem Elektronik – “PPMSE”).
- PMSE is trade wherein transactions are conducted through a sequence of electronic equipment and procedures. This includes all online trade activities, similar to regular trade but conducted digitally. Just like any other trade, PMSE also engages in commercial activities that involve merchants and consumers.
- PPMSEs are e-commerce players which provide a platform to facilitate the electronic communication/transaction used in PMSE. PPMSE, in this regard, includes a broad range of platform providers
In simpler terms, MOTR 31/2023 affects merchants engaged in trading online (PMSE), whether they operate through their own system or rely on third party platform providers. It also covers e-commerce platform providers themselves (PPMSE).
II. Key changes you should know
1. Introduces new business models previously unrecognized
MOTR 50/2020 only recognized the term PPMSE, defining it as a business actor which provides electronic communication facilities utilized for trade transactions. In MOTR 31/2023, the Government specified the scope of the PPMSE business model, including:
- Online retail: merchants who conduct e-commerce through a commercial website or application that they create, manage, and/or own.
- Online marketplaces: platforms where merchants can place offers for goods and/or services.
- Online classified advertising services: platforms that brings together sellers and buyers, where their transactions occur outside the platform.
- Price comparison services: websites or apps that compare prices of goods and services from different sellers.
- Daily deals: platforms selling discount coupons and other convenient payment options for consumers to use when purchasing goods and services from other businesses.
- Social commerce: social media provider that provides certain features, menus and/or facilities that enable merchants to place offers for goods and/or services.
2. Requirements for foreign e-commerce platform operators (PPMSE)
2.1 More types of PPMSEs to be subject to local registration
Under the previous regulation (MOTR 50/2020), foreign e-commerce operators were subject to Indonesian e-commerce regulations and had to establish a representative office in Indonesia if they fulfilled any of these criteria:
- They annually transact with at least 1,000 consumers in Indonesia.
- They annually deliver at least 1,000 packages to consumers in Indonesia.
MOTR 31/2023 expands the threshold by adding one more alternative criterion, namely traffic to the operator (presumably website/platform) constitutes at least 1% of total local internet traffic in Indonesia within a one-year period.
This third criterion seems to be designed to cover social media websites/platforms that are not engaged in sale transactions with Indonesian consumers or package deliveries to Indonesian consumers. Due to the expansion of the threshold, foreign platform providers now have to appoint representative office, even if they only have 1% traffic of domestic internet users in Indonesia’s Jurisdiction.
The representative office must obtain a Business License for 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 Agency.
2.2 Limitation and/or prohibition for certain business model
2.2.1 Prohibition of payment transactions on “social e-commerce” platforms
MOTR 31/2023 bans social commerce platforms from “facilitating payment transactions in their electronic systems.” This prohibition may be read broadly as prohibiting platforms with social media features from providing billing, collection and other payment-related services, as well as prohibiting them from offering e-money services to merchants that offer products in their services.
As a result, TikTok had been forced to close its relatively new e-commerce service, TikTok Shop, in compliance with this new regulation. Combining this with MOTR 31/2023’s definition of social commerce, these platforms must keep their e-commerce functions separate from their social media functions.
2.2.2 Prohibition of market place and/or social commerce platforms acting as manufacturers
MOTR 31/2023 prohibits online marketplaces and social commerce operators from “acting as manufacturers in accordance with laws and regulations on the distribution of goods.” This requires that market place and social commerce shall only act as an intermediary between sellers and buyers, and not as a manufacturer of the goods being sold.
This seems to refer to Indonesian domestic trading regulations that generally prohibits manufacturers from distributing goods directly to consumers, requiring them to sell their products through multiple layers of resellers, including a retailer.
This prohibition requires some clarification. At this point, this rule does not stop online retailers from selling their own branded products, as long as they buy these products from suppliers and don’t manufacture them themselves, since these retailers are licensed as sellers, not manufacturers.
3. Requirements for foreign e-commerce merchants
3.1 Minimum price limit applies to sales by foreign merchants through PPMSE
There is a minimum price (Freight on Board – FOB) of USD $100 per unit for finished goods from overseas which are directly sold by Merchants to Indonesia through cross border e-commerce platforms. In the past, there was no such minimum price requirement. This requirement seems to be put in place to prevent merchants who sell finished goods from other countries from competing with local small businesses that sell inexpensive items.
3.2 Foreign Merchants Must Provide Information to Local Platforms
If you’re trading on Indonesian platforms like “Blibli” or “Bukalapak”, you must now provide certain information. Under MOTR 31/2023, foreign merchants who carry out PMSE activities at PPMSE which provides facilities for overseas merchants, are required to submit the following information and documents to the domestic PPMSE which provides facilities for the overseas merchant in question, namely:
- Identity of the foreign Merchant in the form of name and address of the country of origin of the foreign Merchant;
- A business license issued by an authorized institution in the country of origin which is legalized by:
- the competent authority for countries participating in the Convention on the Abolition of Legalization Requirements for Foreign Public Documents; or
- representative officials of the Republic of Indonesia in the country of origin for countries not party to the Convention on the Elimination of Legalization Requirements for Foreign Public Documents.
- Proof of compliance with required standards or technical requirements for Goods and/or Services;
- Bank account number used for transactions.
3.3 Mandatory standardization of imported goods
Previously, MOTR 50/2020 did not require foreign merchants selling on Indonesian platforms to obtain product standardization for their imported goods. However, under the new MOTR 31/2023, foreign merchants must now meet product standards for their goods. These standards include:
- fulfilment of the Indonesian National Standard (“SNI”) or other technical requirements for goods and/or services towards which SNI or other technical requirements are mandatorily applied pursuant to the applicable laws and regulations;
- fulfilment of standards or technical requirements in the origin country for goods and/or services which have not been certified with SNI or mandatory technical requirements; and
- halal certificate for goods and/or services wherein a halal certificate is required based on the applicable laws and regulations.
III. Expert Legal Guidance for Seamless Compliance in Indonesia
Understanding and complying with Indonesia’s new e-commerce regulations, especially the complexities of MOTR 31/2023, can be challenging for foreign SMEs. Ensuring compliance is crucial to avoid penalties and continue operating smoothly in the Indonesian market.
At Trustiics, our experienced Indonesian lawyers are here to guide you through every aspect of these regulations. They provide tailored legal advice and support, ensuring your business meets all requirements. Visit Trustiics today to connect with top legal experts who can help you navigate these changes and safeguard your business interests in Indonesia.
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