Take Note OTT Players : Play By The Rules

One of the biggest news in the OTT market in Indonesia in the early 2016 was the Telkom-Netflix kerfluffle, which ended in the state-owned operator actually blocking of the Internet TV Network giant. The conflict between the two top players representing the two colliding industries is just one big case out of the many overlooking the developing market. What happens after is one big question: Are OTT Players safe to operate in Indonesia? Giant corporate entities might have the resources to take the blow (Netflix) or play nice with the Government (Uber) but not all OTT players have cash to spare if the unthinkable scenario happens.

No fear. With 53 million active Internet users growing every day, blocking all OTT players like what China did is definitely out of the question for Indonesia. However, OTT players are encouraged to pay attention to the business culture in Indonesia, and to help them do it, the Ministry of Information and Communication  has issued a Circular Letter, underlining the guidelines for OTT players to stay within the legal tracks in Indonesia. Therefore, cases like the Netflix Block can be avoided in the future.

Circular Letter No. 3 of 2016 on Application and Content Provider Services through Internet (Over The Top) is issued by the Ministry on 31 March 2016, and refers to the prevailing laws and regulations in Indonesia. The letter is not actually a Ministerial Regulation, however it provides the early guidelines to help OTT Players get compliant before the official regulation is released.

Here are the important things OTT players need to know from Circular Letter No. 3 of 2016 :

A. Definition of OTT

In order to define business players more clearly, the Circular Letter classifies OTT based on the business activities they do, as follows:

1. Application Services via Internet, the utilization of telecommunication services using IP-based telecommunication network which facilitates communication services in the form of short messages, voice calls, video calls, chatting, financial and commercial transaction, data storage and withdrawal, gaming, social media and its derivatives.

Examples: Whatsapp, LINE, Viber.

2. Content Services via Internet, providing all forms of digital information consisting of letters, words, voice, pictures, animation, music, video, films, game, or combination of parts or all of the elements mentioned above, including in the form of streaming or download, using telecommunication services with IP-based telecommunication network.

Examples: Netflix, Hulu, Spotify.

B. Must Pay Taxes (Yes, including Foreign OTT Players)

The concerns of the Indonesian Government regarding OTT Players boils down to one main issue: the taxability of OTT Players. It is not enough for OTT Players to just pay income taxes, but their business entities (both local and foreigners) must exist in the form that is taxable. In short, all OTT Players, App Operators, Content Providers must be Indonesian Tax Subjects.

Please be informed that Foreign entities in the form of BUT (Badan Usaha Tetap, en: Permanent Establishment) will also receive NPWP to file their taxes with, with the NPWP registered address stipulated by the General of Taxes in accordance with the real situation. The tax obligation opens up 2 (two) options for foreign OTT Players: either invest and establish a PT PMA, or open up one of the Permanent Business Establishment.  And they better do it quick, since tax registration will take some time to complete.

C. Must Use Indonesian IP Address

Both local and foreign OTT Players must use Indonesia-based IP Address to provide their content and application. There are plenty of IP Address providers in Indonesia, so it should be an easy requirement to follow.

D. Must Use National Payment Gateways established in Indonesia

All financial and commercial transactions conducted via OTT Players services must use the National Payment Gateway, which must be in the form of an Indonesian Legal Entity. It is easy to spot an Indonesian Legal Entity: the business is either in the form of a Local PT or a PT PMA. However, until December 2015 the National Payment Gateway is still under construction. It is advised for OTT Players to consult with the Central Bank (Bank Indonesia) to work out the best Payment Gateway to use for each OTT Player situation.

E. Must Have Sufficient Data Security and Content Filtering

All OTT Players in Indonesia must follow the prevailing laws and regulations about Data Security, Filtering Content, and Sensor Mechanism. This is where understanding and respecting the culture of Indonesia comes into play: while there is currently no set regulation regarding the 3 (three) matters above, if you are willing to understand topics sensitive in the Indonesian culture, it is easier to filter your content and stay online.

F. Must Have All T&C, Disclaimer and Policy in Bahasa Indonesia

It is important for OTT Players, especially foreign players, to ensure that all their content and application are available in Bahasa Indonesia. This is pursuant to Law No. 24 of 2009 on National Flag, Language, Emblem and Anthem.

G. Must Comply with Prevailing Laws and Regulations

OTT Players must comply with all prevailing laws and regulations in Indonesia, including but not limited to laws and regulations concerning Antitrust, Trading, Consumer Protection, IP Rights, Film and Advertising, Anti-pornography, Anti-terrorism, Tax, and all other laws and regulations. This also includes regulations about prohibited content in Indonesia.

The best way to ensure that your content or application complies with the above mentioned law is to invest in a thorough due diligence by law firms or corporate legal services firms.

In conclusion, the Indonesian Government is still in the process of creating a comprehensive regulation to create a better business culture for OTT services in Indonesia. However, the absence of a concrete regulation should not deter OTT Players to enter and invest in the lucrative market. The Circular Letter No. 3 of 2016 is an effort by the Ministry of Communication and Information to provide a guideline to help OTT Players prepare themselves for the new regulation, to avoid chaos and conflict once the regulation is issued.



SMART Legal Consulting is an Indonesian Corporate Legal Services firm. We assist entrepreneurs to ensure legal compliance of their business in Indonesia. Our connections and experience with legal experts in various business sectors make us the partner you need to move your business forward.

If you have any questions about Online Content and Application, or require further consultation and assistance, you can arrange a meeting with SMART Legal Consulting at:

E:  info@smartcolaw.com

H: +62821-1234-1235

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