Indonesia seeks to regulate online commerce

The Indonesian Ministry of Trade recently circulated a draft regulation directed at e-commerce businesses to be called the Government Regulation on Trade Transactions through Electronic Systems.

This proposed regulation attempts to regulate sellers of goods or services using electronic systems to facilitate sale transactions. Under the draft regulation, a  seller must secure the following licenses from the Ministry:

a. Registration Certificate as an E-Commerce Business;

b. Special business license for trading through electronic systems if a seller uses its own electronic system to sell their goods/services; and/or
c. Business license if the seller is a foreign seller.

On first look, companies such as Amazon will need to comply by setting up an incorporated vehicle in Indonesia, when the regulations come into force.

Under the regulation, any seller who executes a transaction with an Indonesian customer is deemed to be performing business in Indonesia notwithstanding their location.  This enables the court to have jurisdiction over any claim that a e-commerce customer may wish to bring within Indonesia. It is unclear if parties can contract out of this by agreeing to arbitration as alternative dispute resolution outside Indonesia. In any event historically this has been difficult.

The proposed regulation also attempts to regulate online intermediaries (EBay could arguably fall under this). Although the regulations require such businesses to be conducted through  locally incorporated entities with majority shares in the hands of local parties, the regulation also acknowledges a foreign entity providing such a service. Some clarification is needed on how the regulation applies to foreign intermediaries that do not have presence in Indonesia.

This could be part of a general policy to drive more FDI into Indonesia. It is unclear if the Indonesian government has thought through particularly how it would apply to thousands of individuals who peddle their wares and services on the internet including through Facebook and blog pages.  But whatever the reasons, what is clear is that doing online business with in Indonesia's fast growing digital community is getting more comlex. 

The government also need to address how this draft trade ministry regulation relates to another set of draft regulation from ministry of telecommunication on locating data centers in Indonesia. Law No. 11 of 2008 concerning Electronic Information and Transactions provides that electronic system operators for public are to situate their data centers in Indonesia - the implication of this is that internet firms such as Facebook and Twitter may need to situate data centers in Indonesia when the telecommunication industry implementing regulations comes into force. This is still not yet implemented because the Ministry of Communication is still deliberating on the draft implementing regulations that have been in circulation since 2013.

Foreign internet businesses are in no hurry to situate their data centers in Indonesia because of the reliability issue with local infrastructure and the uncertain legal framework.