E-COMMERCE IN INDONESIA – LEGAL CONSIDERATIONS

Jack Wiston

The e-commerce sector in Indonesia has experienced exponential growth over the past few years, making it one of the most dynamic markets in Southeast Asia. Key statistics and trends that highlight this growth include:

• Market Size and Growth Rate
  Indonesia’s e-commerce market is projected to reach USD 50 billion by 2025, driven by increasing internet penetration and a growing middle class.
• Internet Penetration
  With over 175 million internet users, Indonesia has one of the largest online populations globally. This high internet penetration is a significant factor contributing to the growth of e-commerce.
• Mobile Commerce
  A substantial portion of e-commerce transactions in Indonesia is conducted via mobile devices. The widespread use of smartphones has facilitated the rise of mobile commerce, making online shopping more accessible.
• Consumer Behaviour
  Indonesian consumers are increasingly adopting online shopping for its convenience and variety. Popular categories include fashion, electronics, beauty products, and groceries.
• Payment Methods
  The adoption of digital payment methods, such as e-wallets and online banking, has surged, providing consumers with secure and efficient payment options.

As the e-commerce landscape in Indonesia evolves, it is crucial for businesses to understand and comply with the relevant legal requirements. Key reasons for this include:

• Consumer Trust
  Compliance with legal standards enhances consumer trust and confidence in e-commerce platforms. Consumers are more likely to shop on platforms that prioritize data protection, fair advertising, and transparent return policies.
• Regulatory Compliance
  E-commerce businesses must adhere to a range of regulations, including those related to consumer protection, data privacy, advertising standards, and competition laws. Non-compliance can result in significant penalties, legal disputes, and damage to reputation.
• Market Competitiveness
  Understanding and complying with legal requirements can provide a competitive advantage. Businesses that adhere to regulations are better positioned to avoid disruptions and focus on growth.
• Protection Against Legal Risks
  Navigating the legal landscape effectively helps businesses mitigate risks associated with regulatory changes, disputes, and enforcement actions.

Regulatory Framework

1. Electronic Information and Transactions Law (UU ITE)
   The UU ITE provides the foundational legal framework for electronic transactions in Indonesia. It regulates various aspects of electronic information, transactions, and signatures, ensuring that e-commerce activities are secure and reliable.
2. Consumer Protection Law
   This law aims to protect consumers’ rights and interests in e-commerce transactions. It mandates clear and accurate information about products and services, fair advertising practices, and transparent terms and conditions.
3. Personal Data Protection Regulation
   Indonesia’s Personal Data Protection Regulation imposes stringent requirements on the collection, processing, and storage of personal data. E-commerce businesses must implement robust data protection measures to comply with these regulations and safeguard consumer data.
   For more information, read our article on PDP Law here.

Ministry of Trade Regulation No. 31 of 2023 (MoT 31/2023)

MoT 31/2023 introduces several new requirements and updates to the e-commerce regulatory framework. Some highlights include:

• New Competition Law Compliance
  Requires e-commerce operators to implement SOPs to actively prevent price manipulation and ensure fair competition. Operators must coordinate with Indonesia’s Competition Commission (KPPU) within 3 business days of any allegations of anti-competitive practices.
• Minimum Price for Imported Goods
  A minimum price of USD 100 per unit FOB (Free on Board) is set for imported goods sold directly via e-commerce platforms to protect local products and discourage low-quality imports. Certain goods may be exempt by coordination with the relevant government ministries.
• Local Product Prioritization
  Mandates prioritization of local products by both domestic and foreign e-commerce businesses.
• Social Commerce Restrictions
  Prohibits social commerce platforms from facilitating payment transactions. The platforms can only support the promotion and offer of goods and services.
• Mandatory Representative Offices for Foreign Operators
  Requires foreign e-commerce operators to establish a representative office in Indonesia if they meet certain criteria (explained below).

Licensing and Permits

Operating an e-commerce business in Indonesia involves obtaining several licenses and permits to ensure compliance with local regulations. The primary licenses required include:

1. E-Commerce Trade Business License (SIUPMSE)
   The SIUPMSE (Surat Izin Usaha Perdagangan melalui Sistem Elektronik) is mandatory for both domestic and foreign e-commerce operators. This license allows businesses to conduct trade through electronic systems. This license can be obtained by submitting an application through the OSS system.
2. Trading Company Representative Office Business License (SIUP3A)
   Foreign e-commerce businesses that meet certain criteria must establish a Foreign Trade Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing) and obtain a SIUP3A. This requirement applies to businesses that have significant transactions or internet traffic in Indonesia.
3. Representative Office Requirements
   Foreign e-commerce operators must appoint a representative office if they:
   • Have transactions with at least 1,000 consumers within one year.
   • Have delivered at least 1,000 packages to consumers within one year.
   • Have traffic from or are accessed by at least 1% of internet users in Indonesia within one year.

Consumer Protection

• Product Information and Transparency
  E-commerce businesses are required to provide clear, accurate, and comprehensive information about their products. This includes details such as:
  • Product descriptions
  • Prices, including any applicable taxes and shipping costs
  • Return and refund policies
  • Warranties and guarantees
  • Manufacturer or seller information

• Fair Advertising Practices
  Advertising and marketing activities must not be deceptive or misleading. E-commerce businesses must ensure that advertisements accurately represent the products and services offered, including:
  • True and honest claims about the product’s quality, quantity, and functionality
  • Transparent discount and promotional offers
  • Disclosure of any potential risks associated with the product

• Return and Refund Policies
  Clear and fair return and refund policies must be established and communicated to consumers. These policies should cover:
  • Conditions under which returns are accepted
  • Timeframes for returns and refunds
  • Procedures for returning products and receiving refunds

• Data Privacy and Security
  E-commerce businesses must comply with data protection regulations to safeguard consumer information. This includes:
  • Obtaining explicit consent for data collection and processing
  • Implementing robust security measures to protect data from breaches
  • Providing consumers with access to their data and options to correct or delete it

Advertising and Market Regulations

E-commerce businesses must comply with various advertising and marketing regulations to ensure their promotional activities are legal and ethical. The primary regulations governing online advertising in Indonesia include:

1. Electronic Information and Transactions Law (UU ITE)
The UU ITE mandates that all electronic advertisements must be truthful, not misleading, and not violate public order or morality.

2. Consumer Protection Law
This law requires that all advertising and marketing communications be accurate and not deceive consumers. It covers:

• Misleading information: Advertisements must not contain false claims about the quality, benefits, or price of goods and services.
• Guarantees and warranties: Any claims regarding guarantees or warranties must be clearly stated and adhered to.
• Risk disclosure: Advertisements must disclose any risks associated with the use of the products or services.

3. Ministry of Trade Regulation No. 31 of 2023 (MoT 31/2023)
This regulation introduces specific requirements for e-commerce advertising, including:

• Transparency: Advertisements must clearly state all terms and conditions of offers and promotions.
• Prohibition of deceptive practices: Businesses must avoid advertising practices that can mislead or deceive consumers, such as false discount claims or hidden fees.

Fintech Integration

The integration of fintech solutions such as paylater services into e-commerce platforms has become increasingly popular, offering consumers more flexible payment options and enhancing the shopping experience. However, it also brings specific legal considerations that businesses must address to ensure compliance and mitigate risks. 

1. Regulatory Compliance
E-commerce businesses integrating fintech solutions must comply with various financial regulations, including:

• Bank Indonesia Regulations: As the central bank, Bank Indonesia oversees payment systems and digital financial services. Businesses must adhere to regulations on electronic money (e-money), payment gateways, and digital wallets.
• Otoritas Jasa Keuangan (OJK) Regulations: The Financial Services Authority (OJK) regulates financial technology (fintech) companies, ensuring they meet standards for consumer protection, transparency, and data security.

2. Licensing Requirements
Businesses offering paylater services or other fintech solutions must obtain the necessary licenses. This includes:

• Payment System License: Required for businesses operating payment gateways or e-money services.
• Lending License: Necessary for fintech companies providing credit or loan services, including paylater options.

3. Consumer Protection
Fintech solutions must ensure robust consumer protection measures, including:

• Transparent Terms and Conditions: Clearly disclose the terms of service, fees, interest rates, and repayment schedules.
• Data Privacy: Protect consumer data in accordance with data protection laws, ensuring secure handling and storage of personal and financial information.
• Fair Lending Practices: Avoid predatory lending practices and ensure consumers fully understand the financial implications of using paylater services.
• For more insights, check out our article on Paylater here.

If you need assistance with navigating the legal aspects of your e-commerce business, contact us today for a consultation.