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A significant new Ministry of Trade regulation introduces new requirements and restrictions for both onshore and offshore e-commerce businesses offering goods and services to customers in Indonesia. These include a minimum price for imported goods and a prohibition on social commerce platforms facilitating payment transactions.
Indonesia’s Ministry of Trade (MOT) recently issued Regulation No. 31 of 2023 on Business Licensing, Advertising, Guidance and Supervision of Business Players Trading through Electronic Systems (E-commerce) (MOT 31/2023). The new regulation came into effect on 26 September 2023 and replaces MOT Regulation No. 50 of 2020 on the same subject (MOT 50/2020).
Like MOT 50/2020, MOT 31/2023 essentially regulates Indonesia's e-commerce business (Perdagangan Melalui Sistem Elektronik or PMSE). It covers business licensing, consumer protection (including labelling requirements), advertising guidelines, competition law aspects, local content requirements, and protection for micro, small and medium enterprises (MSME).
While MOT 50/2020 took effect six months after its enactment, giving businesses time to adjust to the new requirements, its replacement came into effect immediately.
In a press conference on 27 September (just one day after the enactment of MOT 31/2023), the MOT announced that the new regulation aims to create an e-commerce ecosystem that is fair, healthy, and beneficial, taking into account dynamic technological developments, the need to support MSMEs and local e-commerce business players, and to enhance consumer protection.
As mentioned above, MOT 31/2023 applies to onshore and offshore e-commerce operators (Penyelenggara PMSE or PPMSE). It expressly provides examples of the business models of e-commerce operators to which it applies, as explained below.
E-COMMERCE OPERATORS (PPSMEs)
The following business models are expressly categorised as e-commerce operators that fall within the scope of MOT 31/2023:
- Online Retail – Merchants engaging in e-commerce using a commercial website or application that they created, manage and/or own.
- Marketplace (Lokapasar) – Providers of part of or the entire transaction process of an electronic system in the form of a commercial website or application that is a forum for merchants to offer goods and/or services.
- Online Classified Ads (Iklan Baris) – Media used to operate electronic systems in the form of commercial websites or applications, allowing meetings of buyers and sellers where the entire transaction process occurs outside the website or application.
- Price Comparison Platform – Media used to operate electronic systems in the form of commercial websites or applications that display comparisons of the prices of goods and/or services sold on other websites or applications.
- Daily Deals – Media used to operate electronic systems in the form of commercial websites or applications, taking the form of the sale of discount coupons and/or other facilities that can be used by consumers to pay for goods and services from other business players.
- Social Commerce – Social media operators that provide features, menus and facilities allowing merchants to offer goods and services. The term “social media” is defined as a site or application that allows users to create and share content or be involved in a social network.
We summarise below seven key takeaways from MOT 31/2023.
1. Minimum price of imported goods directly sold via e-commerce set at US$100 (FOB) per unit
E-commerce operators carrying out cross-border e-commerce (eg importing goods into Indonesia) must set a minimum price of US$100 per unit FOB (Freight on Board) for finished goods sold directly from outside Indonesia into Indonesia on their platforms. The MOT may exempt certain goods from this minimum price requirement in coordination with relevant government ministries and agencies.
2. New competition law compliance requirements for e-commerce operators
- E-commerce operators must play an active role in providing equal business opportunities to merchants and in ensuring that prices of goods and/or services are free from direct or indirect manipulation practices.
- E-commerce operators must apply standard operating procedures (SOP) to supervise, avoid and handle any form of direct or indirect anticompetitive and/or price manipulation practices.
- In implementing these SOP, e-commerce operators must ensure:
- there is no connection or interconnection between the electronic system used for e-commerce and any other electronic system;
- there is no misuse of control over user data in its electronic system to benefit the e-commerce operators or their respective affiliates.
- Upon any allegation of anticompetitive practices between merchants and/or price manipulation, whether direct or indirect, e-commerce operators must coordinate with Indonesia’s Competition Commission (Komisi Pengawas Persaingan Usaha or KPPU) within three business days after the allegation becomes known by or is reported to the relevant e-commerce operator.
3. Minimum information and labelling requirements for consumer protection
- All merchants (both onshore and offshore) must display evidence of compliance with the goods and/or service standard certifications applicable to their products, such as Indonesian National Standard (Standar Nasional Indonesia or SNI) registration or certification numbers, Halal certificates, and Food and Drug Product (BPOM) registrations.
- Offshore merchants carrying out e-commerce through onshore e-commerce operators must provide certain information to the e-commerce operators. Onshore e-commerce operators are in turn under an obligation to facilitate compliance by offshore merchants with the requirement set out in (a) above.
- Offshore merchants must also display information on their goods and services in the Indonesian language that is easy to understand, including information on the country of origin.
4. Restrictions on Marketplace and Social Commerce Operators
- Marketplace and/or Social Commerce operators are prohibited from acting as producers (manufacturers), in line with the applicable laws and regulations on distribution of goods.
- Social Commerce operators are prohibited from facilitating payment transactions on their electronic systems. MOT 31/2023 does not provide further guidance on what constitute “payment transaction facilitation” but at its press conference, the MOT emphasised that Social Commerce operators are only permitted to facilitate offers or the promotion of goods and services.
5. Prioritisation of Indonesian products
MOT 31/2023 requires business players to prioritise local products, which may be carried out through (among others) 'Goods Aggregation' (Agregasi Barang). Goods Aggregation is defined as an activity process covering repackaging, management assistance, warehousing and other activities causing merchants to not send their goods directly to consumers, which has in practice been carried out by some of the e-commerce players.
6. Offshore e-commerce operators registration
- Similar to the position under MOT 50/2020, offshore e-commerce operators that meet certain criteria should appoint representatives in Indonesia to act on their behalf. This requires them to establish a Foreign Trade Representative Office in E-Commerce (Kantor Perwakilan Perusahaan Perdagangan Asing di bidang Perdagangan melalui Sistem Elektronik or PMSE KP3A) and obtain a Trading Company Representative Office Business Licence (Surat Izin Usaha Perwakilan Perusahaan Perdagangan or SIUPPP).
- MOT 31/2023 introduces a new criterion that triggers the registration requirement, as shown below:
- having transactions with at least 1,000 consumers within one year;
- having delivered at least 1,000 packages to consumers within one year; and/or
- having traffic of, or being accessed by, at least 1 percent of internet users in Indonesia within one year (new criterion).
7. Specific E-commerce KBLIs
For business registration in Indonesia, the following business lines (KBLI codes) are now specifically required to be used for e-commerce related business:
- KBLI for retail through post or internet order (KBLI code 4791) is applicable to business licences of domestic merchants that only carry out online sales through electronic systems.
- KBLI for web portal or digital platform for commercial purposes (KBLI code 63122) is applicable to business licences of domestic e-commerce operators.
MOT 31/2023 also requires e-commerce operators to actively ensure compliance with business licensing requirements by onshore and offshore merchants, as prescribed in the regulation.
The interpretation, implementation and enforcement of MOT 31/2023 in practice remains to be seen, and we are monitoring this closely.
Please reach out us if you have any questions on how this might affect your business in Indonesia.