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Uncertainty remains for e-commerce firms
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Illustration of e-commerce. (Shutterstock/William Potter)
T
he Finance Ministry last week revoked the regulation on taxation of e-commerce companies because of many criticisms from digital companies, but that policy measure is not enough. Uncertainties still exist when it comes to investing in Indonesian e-commerce companies.
One salient issue is clarity on majority ownership by foreign investors. Under Presidential Regulation No. 44/2016 on the list of business fields that are closed or open to investment, foreign investors can have a majority stake in e-commerce companies under certain conditions. The requirements, however, are open to interpretation, which could cause uncertainty.
Foreign investors intending to invest in Indonesia are required by law to set up a foreign direct investment company (PMA) and must fulfill several requirements as regards minimum paid-up capital, minimum investment and restrictions on foreign share ownership, along with several other conditions.
In the context of e-commerce, the regulation essentially stated that e-commerce companies — providers or facilitators of trade through electronic systems, including online marketplaces, daily deals, price grabber and online classified ads — are open to foreign investment. It further provides that if the business’s investment value is less than Rp 100 billion (US$7 million), then a foreign investor may hold a maximum 49 percent shares in a PMA. Logically, this means that if the investment value is Rp 100 billion or more, the foreign shareholder in an e-commerce PMA can hold majority stakes.
But the real issue here is what is meant by “investment”. The Presidential Regulation does not provide a definition, but if we look at the standardized report that PMAs periodically submit to the Investment Coordinating Board (BKPM), one would conclude that investment refers to the monies that PMAs would spend as fixed and working capital.
Fixed capital includes land and buildings, while working capital covers operational expenses, including overhead costs.
As for the investment funds, they originate from equity (paid-up capital) and loans and/or debts. So, in a nutshell, investment originates from equity (capital) and loans and/or debts, and its value derives from how much has been realized for fixed and working capitals.
