Set Up an E-Commerce Business in Indonesia
Starting an e-commerce business from scratch in Indonesia is rewarding and challenging. The process is lengthy and contains some regulatory requirements that you must fulfill.
You can start by selecting the appropriate legal structure for your e-commerce business. This could be a Limited Liability Company (PT) or a Foreign-owned Limited Liability Company (PT PMA) for foreign investors. Consider factors such as ownership requirements and capital restrictions.
Next, check the availability of your desired business name and verify it with the Ministry of Human Rights and Legal Affairs (Direktorat Jenderal Administrasi Hukum Umum). Ensure the name adheres to the naming guidelines and does not conflict with existing registered businesses.
Third, you need to determine the shareholders and directors of your company. You must have one shareholder and director for a PT. Shareholders can be individuals or corporate entities; directors must be Indonesian citizens or residents.
Steps to Registering an E-commerce Business in Indonesia
Registering an e-commerce business in Indonesia involves establishing your legal presence and complying with relevant regulations. Here are the steps to starting an e-commerce business in Indonesia:
- Deed of Establishment: Engage a notary to prepare the Deed of Establishment (Akta Pendirian) for your company. This document outlines important details such as the company name, shareholders, directors, business activities, and capital structure.
- Legal entity registration: When starting an e-commerce business you must list your company as a legal entity with the Ministry of Law and Human Rights of the Republic of Indonesia. Submit the necessary documents, including the Deed of Establishment, shareholder and director information, and other required forms.
- Tax registration: Register for tax purposes with the tax office (Direktorat Jenderal Pajak) to obtain a Taxpayer Identification Number (Nomor Pokok Wajib Pajak).
- Business licenses and permits: Check if your e-commerce business requires any specific licenses or permits. This could include an e-commerce business license (Surat Izin Usaha Perdagangan Melalui Sistem Elektronik) or other sector-specific licenses. Consult with relevant government agencies or industry-specific authorities to ensure compliance.
- Intellectual property protection: Consider protecting your brand and intellectual property rights. This could be ensured through trademark registration with the Directorate General of Intellectual Property (DGIP) if necessary.
- Compliance and reporting: Ensure ongoing compliance with Indonesian laws and regulations. This includes labor laws, consumer protection, data privacy regulations, and other relevant legislation. Fulfill reporting requirements such as annual financial statements, tax filings, and any industry-specific reporting obligations.
Types of E-commerce Companies in Indonesia
Here are some common e-commerce companies in Indonesia:
- E-commerce to business (B2B): These types of e-commerce platforms mainly cater to the needs of businesses.
- E-commerce to consumer (B2C): In this type of business model, e-commerce platforms cater to the needs of individual consumers.
- E-commerce to government: This involves catering only to the needs of the government. There are e-commerce platforms that only specialize in this.
Foreigners Opening E-commerce Companies in Indonesia
Foreigners can open e-commerce companies in Indonesia while adhering to government-specified regulations. Here’s how to start an e-commerce business in Indonesia if you are a foreigner:
- Legal structure: Foreign investors can establish a Foreign-owned Limited Liability Company (PT PMA) in Indonesia. This legal structure allows foreign ownership and is suitable for e-commerce businesses with foreign involvement.
- Investment plan: A well-strategized investment plan allows a foreign company to avoid some risks of starting an e-commerce business. Prepare an investment plan that outlines the scope of your e-commerce business, projected capital investment, employment opportunities for Indonesians, and other relevant details. This plan is typically submitted to the Investment Coordinating Board (BKPM) as part of the PT PMA establishment process.
- Minimum capital requirements: PT PMA has higher capital requirements compared to local PT companies. The minimum investment threshold may vary depending on the industry and business activities. As per existing capital investment regulations, companies establishing PT PMA should invest at least IDR 10 billion or the equivalent in other currencies.
- Investment list: After selecting the business sector, refer to the Negative Investment List and Positive Investment List to understand the items every businessperson should know. These lists outline sectors and business activities with restrictions or limitations on foreign ownership. Sectors and activities in Positive List are open to foreign investment, whereas those in Negative List are restricted.
- Obtaining approvals: Foreign investors must obtain approval from the BKPM or the relevant authorities to establish a PT PMA. This process involves submitting required documents, including the investment plan, and company establishment documents, and fulfilling other administrative procedures.
- Nominee arrangement: Foreign investors may need to engage a local nominee to fulfill certain ownership requirements, especially if the business falls within restricted sectors. It is essential to consult with legal experts or business advisors to adhere to applicable regulations while structuring nominee arrangements.
- Compliance and reporting: Ensure compliance with Indonesian laws and regulations after establishing the company. This includes adhering to tax obligations, labor regulations, e-commerce licensing requirements, data privacy laws, and other relevant regulations applicable to your e-commerce business.
Regulation for E-commerce Businesses With Less Than IDR 100 Billion Investment
Here are some regulations on how to start a successful e-commerce business in Indonesia:
Get a domicile letter
To register your e-commerce business, you will have to get a domicile letter from the local government of the principal place of your business.
Obtain a tax ID
You will need a tax ID to operate an e-commerce business in Indonesia. The domicile letter is a required document for creating a tax card. The local tax office will provide a tax number (NPWP) and a tax card.
Submit your application online to the Minister of Law and Human Rights
Complete the online application and register your e-commerce business with the Minister of Law and Human Rights. You have to submit the online registration application along with the domicile letter and tax card. Remember to have your bank statement and a transaction statement.
Getting SIUP and TDP
After registering with the Ministry of Law and Human Rights, you receive SIUP (permanent business trading license) and TDP (company registration certificate). You can receive both of them after submitting all of the prerequisites and papers to the region’s one-stop-service office.
Register with the Ministry of Manpower
Companies with more than ten employees with a minimum wage of IDR 1 million are required to register with the Ministry of Manpower. After this, you are now required to provide your employees with work insurance and health insurance.
Setting up your e-commerce business legally
After complying with all these rules and regulatory requirements, you can set up and run your e-commerce business legally.
Pre-registration Considerations for E-commerce Business in Indonesia
Before you proceed with the registration process, you must fulfill the following legal requirements:
Incorporating your e-commerce business in Indonesia
Incorporating a company in Indonesia requires obtaining a Tax Identification Number (NPWP) and an Identification Number to Operate (NIB). The local tax office issues the NPWP; to acquire it, your business must have a valid address in Indonesia.
Acquiring an electronic system provider (PSE) license
In Indonesia, if you are planning to operate an e-commerce platform or provide electronic system services, you may need to obtain an Electronic System Provider (PSE) license. Here are the general steps involved in acquiring a PSE license:
- Understand the requirements: Familiarize yourself with the regulations and requirements set by the Ministry of Communication and Informatics (Kominfo) regarding PSE licenses. These requirements may include specific criteria related to data security, infrastructure, and operational standards.
- Prepare the necessary documents: Gather the required documents for the license application. This typically includes company registration documents, business plans, organization structure, technical specifications of your electronic system, data protection policy, and financial statements.
- Submit the application: Prepare and submit the license application to Kominfo. This can be done online through Online Single Submission (OSS) system. The application should include all the required documents, compliance assessment reports, and any other supporting materials specified in the application guidelines.
- Risk evaluation: Kominfo will review your application and assess the compliance of your electronic system with the applicable regulations. The business is then classified into different risk categories:
- Low risk business
- Medium risk business
- High risk business
Based on the risk level, you need a permit for seamless operations:
- Business with low risk requires NIB
- Businesses with medium risk require NIB and Standard Certification
- Businesses with high risk require NIB and permit issued by the Central or State government
- Issuance of license: Once your application is approved, you will receive the PSE license from Kominfo. The license will specify the scope of services you are authorized to provide. It will also mention any additional conditions or restrictions.
Business Classifications for E-commerce Businesses in Indonesia
In Indonesia, e-commerce businesses are typically classified into various categories. This is based on the nature of operations and the products or services you offer. Here are some common classifications for e-commerce businesses in Indonesia:
- Business-to-Consumer (B2C):
B2C e-commerce businesses sell products or services directly to customers. They typically operate online marketplaces or standalone e-commerce platforms. Here, consumers can browse and purchase items.
For example, food delivery services such as GoFood, GrabFood and ShopeeFood are B2C e-commerce platforms that provide online food delivery services. These have gained significant popularity in Indonesia.
- Consumer-to-Consumer (C2C):
C2C e-commerce platforms facilitate transactions between individual consumers. These platforms provide a marketplace for individuals to sell new or used products directly to other consumers. Popular C2C platforms in Indonesia include Tokopedia, Shopee, and Bukalapak.
- Business-to-Business (B2B):
B2B e-commerce businesses cater to the needs of other businesses. They provide online platforms or services that enable businesses to conduct transactions, source products, and collaborate with suppliers or distributors. B2B e-commerce platforms often offer bulk purchasing options and tailored services for corporate customers.
For example, e-commerce platforms specializing in fashion and lifestyle products offer a wide range of clothing, accessories, beauty products, and home decor items. Companies can utilize these online fashion and lifestyle platforms to buy products in bulk to gift their employees.
There has been a drastic increase in the number of consumers in Indonesia, supporting the e-commerce industry’s growth. Due to this, the e-commerce market in Indonesia is expected to generate $52.93 billion in revenue by 2023. The government in Indonesia has recognized the potential of the e-commerce industry and has taken significant measures to facilitate growth.
Furthermore, the pandemic has influenced the growth of e-commerce in Indonesia as more people started resorting to online buying and selling. E-commerce enterprises have a lot of room to grow in the current economy, making them a great alternative for aspiring business owner.