Establishing E-commerce company in Indonesia

Starting an E-commerce company in Indonesia used to be in a legal grey area. Despite the uncertainty, e-commerce has been a very popular industry among both local and foreign companies. In May 2016, Indonesia finally liberalised portions of the foreign ownership on E-commerce companies under the terms of its agreement with the DNI (Negative Investment List), […]

Starting an E-commerce company in Indonesia used to be in a legal grey area. Despite the uncertainty, e-commerce has been a very popular industry among both local and foreign companies.

In May 2016, Indonesia finally liberalised portions of the foreign ownership on E-commerce companies under the terms of its agreement with the DNI (Negative Investment List), a list of business sectors that are to be exempted from foreign ownership.

According to the latest DNI, e-commerce companies are allowed to have up to 100% foreign ownership but under certain conditions.

This article provides an overview of the new regulation and outlining Emerhub’s role in helping foreigners in governing 100% foreign ownership in the E-commerce company in Indonesia.

Table of contents

    E-commerce regulations in Indonesia

    Government Regulation No. 17 of 2013 on The Implementation of the Law of the Republic Indonesia No. 20 of 2008 on Micro, Small and Medium Business is made to utilise Usaha Mikro Kecil dan Menengah/ UMKM (Micro, Small, and Medium Enterprises).

    Criteria for each type of business activity under Article 6 of UMKM Law are as table below.

    Type of Business Activity

    Criteria

    Micro

    ·         Have maximum net assets of IDR 50,000,000, not    including the land and building for business; or

    ·         Have maximum annual sales revenue of IDR 300,000,000

    Small

    ·         Have net assets of more than IDR 50,000,000 up to IDR 500,000,000, not including the land and the building for business; or

    ·         Have annual sales revenue of more than IDR 300,000,000 up to IDR 2,500,000,000

    Medium

    ·         Have net assets of more than IDR 500,000,000 up to IDR 10,000,000,000, not including the land and building for business; or

    ·         Have annual sales of revenue more than IDR 2,500,000,000 up to IDR 50,000,000,000

    Presidential Decree No. 44/2016, which was issued in May 2016 to support the utilisation of UMKM, replaces the previous 2014 DNI (Negative Investment List) and reflects a trend of liberalisation of online trading policy in Indonesia.

    Below is the summary of the newly issued negative investment list (DNI).

    SectorType of BusinessKBLIPrevious Investment RuleCurrent Investment Rule
    TradeOnline Retail (retail via mail order houses or via the internet)47911,

    47912,

    47913,

    47914,

    47919

    100% local capital

    Raise to maximum 100% foreign capital ownership with limitation of partnership requirement

    Foreign investors partnership arrangement

    Partnership is a way for BKPM to utilize the Micro, Small and Medium Business.

    In Article 11 of Government Regulation No.17/2013, Partnership is a process of transferring skills in the field of production and process, marketing, financing, human resources and technology in accordance with the Partnership system.

    However, in Article 12 Government Regulation No.17 of 2013, large business is not allowed to own or control their UMKM Partners, and the same goes to medium to its micro and small business partners.

    The partnership arrangement below shows a larger business has exclusive right and has more control of the business compared to the SMEs.

    In the franchising for example, large business plays the role as franchisor and the UMKM as the franchisee. This means, the medium enterprise will give micro and small business the right to use its goods and services as prescribed and act as a representative to the medium enterprise.

    Partnerships by type

    Contribution within the business

    Large enterprise

    Role of SMEs

    The inti- plasma

    CorePlasma
    Sub-contract

    Contractor

    Sub-contractor

    Franchising

    Franchisor

    Franchisee

    General Trade

    Receiver of goods

    Supplier

    Distribution and agents

    Give right to UMKM to sell their goods and services

    Distribute larger business’ goods and services

    Profit sharing

    Own and fund the business

    Run the business

    Operational cooperation

    Run a temporary business until the work’s completed

    Joint venture

    UMKM to engage in a partnership with foreign medium/ large business by establishing a new company.

    Learn more about setting up a joint venture with an Indonesian company

    Outsourcing

    (Penyumberluaran)

    UMKM to engage partnership with a foreign medium/ large business by outsourcing- doing a part of business activity which is not their main business activity

    Other than the partnerships mentioned above, UMKM could do other kinds of partnership, such as setting up a PMA for as long as it did not violate the Government Regulation and the UMKM holds the proof of business license in Indonesia.

    Emerhub’s core service provides any foreign investors to make a partnership agreement with us. As we specialize in assisting companies’ licensing, legal and compliance, our agents will easily help you understand and proceeding with 100% foreign ownership E-commerce company in Indonesia.

    We also work as your consultants through every stage, providing you with assistance and regular reporting to make sure you are in the line with Indonesia’s business compliance.

    Size of E-commerce market in Indonesia

    E-commerce company in Indonesia has exploded over the past couple of years with the highest number of active internet users (74.6 million) compared to other ASEAN countries, and 8.7 million online shoppers with the amount of transaction of US$4.89 billion in early 2016.

    Being the 4th most populous country in the world, the country’s Internet users is predicted to rise to 102.8 million users by the end of 2016.

    Nielsen Media Research provides statistic on the most popular E-commerce categories in Indonesia, not surprisingly, are non-consumable—durables and entertainment-related products. Spending intentions for each have risen at a double-digit or near double-digit percentage-point rates since 2014.

     

    Untitledd

    The chart below is showing Indonesia E-commerce sales that have increase by USD 0.93 billion since 2015 to early 2016.

    Untitled copy

    Source: MicroAd Indonesia, a Digital Marketing Agency based in Tokyo

    How to proceed with the registration on the 100% foreign ownership in E-commerce Company in Indonesia

    You can directly proceed with 100% foreign ownership in E-commerce Company by registering your company with us.

    Emerhub will also provide a valid business license to prove we are classified as SME and have the right business license to operate in Indonesia.

    Your partnership with us shall be in a form of written agreement which covers at least, but not limited to :

    1. Business activities
    2. Rights and responsibilities of each parties
    3. Development plan
    4. Time/ validity
    5. Dispute settlement

    As you proceed the registration with us, we will guide you in establishing an E-commerce company in Indonesia, starting from procedures for company registration, setting up payment gateway and keeping up your company in compliance with Indonesia’s business and government requirements.

    Partner with us today, by scheduling a meeting or email us [email protected]

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