New regulation for OTT activities in Indonesia

Indonesia’s Minister of Communication and Informatics (MoCI) recently organized a discussion on a draft regulation concerning over the top (OTT) applications and content, in which HPRP had the honour of participating. As OTT services include most app platforms and content services platforms that use the internet in providing services, the regulation will impact most internet business players.

E-commerce, fintech, online games and social media will all be deemed OTT for the purposes of this regulation. However, the regulation will only apply to OTT providers conducting activities in Indonesia through Indonesian internet access and earning income from OTT users in Indonesia via, among others, sales and marketing, advertising, customer databases, and/or electronic transactions through OTT services.

Tax collection

The regulation’s aims are to increase taxes collected from online activities and create a level playing field for local and foreign OTT providers. Foreign OTT providers need at least a permanent establishment in Indonesia.

Foreign OTT providers must register their services before providing services by submitting an Indonesian tax ID number, details of services, and a contact centre. If a foreign OTT has established a foreign investment company in Indonesia, it must submit its principle licence or permanent business licence issued by the Indonesian Investment Co-ordinating Board. The MoCI will review documents submitted and issue a proof of registration.

In OTT operations in Indonesia, certain activities must be conducted in Indonesian territory, including signing contracts, delivering services, and payment for services. Hopefully, this will do away with disputes where legally a transaction has occurred, and the Indonesian government will have the authority to collect tax on online transactions.

All OTT players who earn income from the Indonesian market should consult their tax and legal advisers to structure their transactions to minimize negative impacts and maximize their operations in Indonesia.

Al Hakim Hanafiah is a partner at HPRP Lawyers and Mika Isac Kriyasa is a senior associate with the firm