Investing in Indonesia: Advertising and Marketing Sector

ICCC Policy Paper LowRes35_Page_01

By Dewi Mayangsari

Foreign parties that wish to invest in Indonesia directly must follow the rules for foreign direct investment in the relevant business sector.

The foreign investor must first establish a limited liability company (“PMA Company”) to engage in business in Indonesia. The PMA Company will be licensed by the Indonesian Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) for the purpose of permitting foreign shareholding.

The Investment License issued by the BKPM identifies the specific business activities in which the PMA Company is permitted to engage. These specific business activities are identified based on an industry classification system known as the Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”).

Some KBLI numbers are subject to a foreign shareholding limitation. Any applicable foreign shareholding limitation is set out in the Negative Investment List (Daftar Negatif Investasi or “DNI”), which is currently regulated under Presidential Regulation No. 39 of 2014.

Traditional Advertising Business

The advertising business is classified under KBLI No. 7310, which covers various advertising services (whether conducted directly or sub-contracted), as follows:

  1. advisory support services;
  2. creative production of advertising materials;
  3. media planning and buying, which covers the following activities:
    • creation and placement of advertisements in/on newspapers, magazines and tabloids, radio, television, the internet and other media;
    • creation and placement of advertising fields, such as bulletin boards, panels, posters and pictures, pamphlets, circulars, brochures and frames, window advertising, showroom designs, car and bus advertising, and the like;
    • media portrayals and the sale of space and time for a variety of advertising media requests;
    • aerial advertising and the distribution or delivery of advertising materials or product samples;
    • provision of advertising space on bulletin boards or billboards and the like; and
    • creation of a booths and similar structures and other exhibition places, and marketing campaigns and other advertising services in order to get and maintain customers, such as product promotions, point of sale marketing, mail advertising (direct mail) and marketing consultancy.

The DNI regulates that the advertising business is 100% closed to foreign investment, with an exception for investments from ASEAN countries, which is open up to 51%.

Licensing

There is no specific license required to operate an advertising business in Indonesia, but various other licenses may be required to operate related activities, as further elaborated below.

Advertisement License: To place an advertisement outdoors, an Advertisement License (Izin Reklame) is required. Please note that this excludes broadcast advertisements (television and radio), print ads (newspapers and magazines) and internet ads.

The requirements and procedures to obtain an Advertisement License are usually regulated by local governments. For example, in Jakarta the local government regulates the Advertisement License through Government of DKI Jakarta Regulation No. 9 of 2014 dated August 20, 2014 regarding Advertisement Operations (“Governor Reg 9/2014″).

Governor Reg 9/2014 defines advertisement (reklame) broadly as any goods, trademarks, logos, action tools or media presented in public to introduce, suggest, create an image or complement certain goods or services or to attract the public to certain goods, services. This covers, among others, billboards, megatrons and videotrons (digital outdoor displays), large electronic displays (LEDs), stickers and pamphlets.

Any placement of advertisements in DKI Jakarta is based on a tender or cooperation to utilize an advertisement point with the Local Government of DKI Jakarta. There shall be a lease agreement with the Local Government of DKI Jakarta and the advertisement operator that specifies the location, type and size of the advertisement and other related terms including fees. In addition to the fees, the advertisement operators shall also pay an advertisement tax as regulated under Government of DKI Jakarta Regulation No. 12 of 2011 dated December 12, 2011 regarding Advertisement Taxes.

An advertisement can be placed in an advertisement location for no more than two years as of the issuance of its Construction License for Advertisement Construction (Izin Mendirikan Bangunan – Bangunan Reklame or the “IMB-BR”) or as of the issuance of the Layout Drawing of Advertisement Construction (Gambar Tata Letak Bangunan Reklame), whichever is applicable.

Further, Governor Reg 9/2014 regulates that any writing on an advertisement must use the Latin alphabet and the Indonesian language. A foreign language may be added below the Indonesian wording, using the Latin alphabet and in text smaller than the Indonesian text.

Broadcast Advertisements.  In general, broadcasting activities are regulated under Law No. 32 of 2002 dated December 28, 2002 regarding Broadcasting (“Broadcasting Law”). Any advertisements broadcast on television and radio must comply with the Broadcasting Law and its implementing regulations.

There are several types of broadcasting entities under the Broadcasting Law, namely public, private, community and subscription broadcasting entities. Advertisements can only be broadcast by public, private and subscription broadcasting entities. Community broadcasting entities can only broadcast public service announcements (iklan layanan masyarakat).

There is no specific advertising license required to broadcast an advertisement by television or radio. Such activity is covered in the broadcasting license of the relevant broadcasting entity. All legal responsibilities associated with broadcast advertising are borne by the relevant broadcasting entities that broadcast the advertisements.

Broadcasting activities are classified under separate KBLI numbers with various foreign investment restrictions, as follows:

  1. Private broadcasting, including subscription (pay) broadcasting: KBLI Numbers 60102 and 60202. This is 100% closed for foreign investment, unless such foreign investment is for business development, which may be open up to 20% foreign investment in accordance with the Broadcasting Law and its implementing regulations;
  2. Community broadcasting: KBLI Numbers 60102 and 60202. Reserved for micro, small and medium businesses and cooperatives; and
  3. Public broadcasting: KBLI Numbers 60101 and 60201, monopolized by Radio Republik Indonesia, Televisi Republik Indonesia and Local Public Broadcasting Entities (Lembaga Penyiaran Publik Lokal or “LPPL”).

We note that a PMA Company may also want to engage in the production of advertisement films. Note that film production, including the production of advertisement films, is classified under a separate KBLI from advertising, namely KBLI No. 59112. Film production is currently 100% closed to foreign investment.

Print Advertisements. If an advertisement is published in print media such as newspapers and magazines, the advertisement will be subject to the laws and regulations applicable for print media activities, namely Law No. 40 of 1999 dated September 23, 1999 regarding the Press and its implementing regulations.

Similar to broadcast advertisements, there is no specific license required to submit an advertisement for publishing in the print media. The publisher of the newspaper/magazine that publishes the advertisement will assume responsibility for the advertisement.

Press activities are classified under KBLI Number 58130 and are currently 100% closed to foreign investment.

Internet Advertisements.  If the advertisement is to be published through the internet, the provisions of Law No. 11 of 2008 dated April 21, 2008 regarding Electronic Information and Transactions and its implementing regulations must be taken into consideration. These provisions require, among other things, that the ad convey correct information to consumers to avoid misleading content. However, responsibility for the content (as further discussed below) shall be borne by the electronic system operator that manage the electronic system where the ad is posted, unless the operator only acts as an intermediary, in which case the party that posts the ad online is responsible for its content.

Content

Advertising Ethics. In creating or publishing an advertisement, a PMA Company is subject to Indonesian Advertising Ethics (“Advertising Ethics”). Pursuant to the Advertising Ethics, an “advertisement” is defined as a marketing communication message or public communication regarding a product that is delivered through the media, funded by a known initiator and shown to the public.

Under the Advertising Ethics, the Indonesian Advertising Board and any advertising association to which the advertisement business actor is a member may impose the following administrative sanctions for violations of the Advertising Ethics:

  1. warnings, up to two times;
  2. discontinuance of the advertisement.

Criminal sanctions are also applicable under Law No. 8 of 1999 regarding Consumer Protection (“Consumer Protection Law”). Article 17 paragraph (1) point f of the Consumer Protection Law stipulates that advertising business actors must not violate the Advertising Ethics or regulations, the violation of which shall be punishable by a maximum of two years in prison or a maximum fine of Rp 500 million (Article 62 paragraph (2) of the Consumer Protection Law). The following additional sanctions can also be imposed by the courts under Article 63 of the Consumer Protection Law:

  1. seizure of certain goods;
  2. announcement of the court’s decision;
  3. compensation;
  4. discontinuation of certain activities that cause losses to consumers;
  5. obligation to withdraw the distributed goods; or
  6. revocation of the business license.

Consumer Protection.  The Consumer Protection Law stipulates that business actors are obligated to provide correct, clear and  honest  information  with  regard to  the condition of goods and the warranty for such goods  and/or  services,  and  provide an explanation on the use, repair and maintenance of the goods and/or services.

In offering goods and/or services for trade, business actors are prohibited from advertising or providing incorrect or misleading statements regarding the following matters:

  1. the price or rate of a certain good and/or service;
  2. the use of the goods and/or services;
  3. the condition, warranty, guarantee, rights or compensation for the goods and/or services;
  4. discounts or prizes offered;
  5. any danger associated with the use of the goods and/or services.

Business actors are also prohibited from advertising special prices or rates for goods and/or services if they do not intend to offer those special prices or rates during the advertising period or in the numbers to be advertised. Furthermore, business actors are prohibited from advertising health equipment and health services by promising prizes in the form of other goods and/or services.

Broadcast Advertisements. As broadcast material, television and radio advertisements are subject to various specific broadcasting requirements as follows. It is important for the PMA Company to note these requirements as they will help determine whether broadcasting entities can or will broadcast an advertisement.

Local Content: Joint Regulation of Minister of Communications and Informatics and Minister of Culture and Tourism Numbers 20/PER/M.KOMINFO/5/2008 and PB.32/PW.204/MKP/2008 TAHUN 2008 dated May 30, 2008 regarding Utilization of Local Resources in Advertisement Film Productions that Are Broadcast and Presented in Indonesia (“Joint Regulation”) requires the production of any advertisement in the form of film to use local resources. What that means in essence is that the recording and editing must be done in Indonesian territory. There is an exception for any production, recording and editing that it is still not possible to perform in Indonesia. To be eligible for this exception, the broadcasting entity must apply for an Exempted Production Registry Certificate (Tanda Pendaftaran Produksi Pengecualian) from the Director General of Cultural Value of Art and Film, part of the Ministry of Culture and Tourism. The broadcasting of any advertisements that are produced with such Exempted Production Registry Certificate must be reported to the Director General of Communication Mediums and Dissemination of Information.

KPI Rules: As broadcast material, advertisements must comply with the requirements of the Indonesian Broadcasting Commission (Komisi Penyiaran Indonesia or “KPI”), namely the Broadcasting Code of Conduct (Pedoman Perilaku Penyiaran or “P3”) and Broadcasting Program Standards (Standar Program Siaran or “SPS”).

Censorship: Prior to its broadcasting or presentation, any advertisement film must obtain a Censorship Pass Certificate (Surat Tanda Lulus Sensor) from the Film Censorship Institution (Lembaga Sensor Film or “LSF”).

Movie Advertisement: If the advertisement is made to promote a movie it must also comply with the requirements of Law No. 33 of 2009 dated October 8, 2009 regarding Film and its implementing regulations.

Print Advertisements. The Press Law regulates that any advertisements must not contain the following content:

  1. defamation of any religion or any material that could disturb inter-religions harmony or is contrary to public decency;
  2. alcohol, narcotics or any other addictive materials in accordance with the prevailing laws;
  3. depiction of cigarettes and/or the consumption of cigarettes.

Internet Advertisements. Internet advertisements are acknowledged in the Advertising Ethics under “New Media” (section III.A.4.5). Pursuant to the Advertising Ethics, an internet advertisement must meet the following requirements:

  • it must not hinder the ability of people to browse the internet or interact with the relevant website, unless a prior warning has been given;
  • it must clearly provide the following:
    • the reason the recipient has been sent the advertisement;
    • clear and simple instructions to discontinue the advertisement;
    • complete address of the sender of the advertisement;
    • a guarantee of the personal rights and confidentiality of the recipient;
  • for interactive advertisements:
    • they must not provide more information than is needed for the transaction;
    • they must not provide information on the recipient for any matter irrelevant to a normal transaction;
    • they must guarantee the security of the payment method used in the transaction.

Intellectual Property Rights (“IPR”). An advertisement may contain various IPR content such as trademark and copyright. A PMA Company must consider IPR ownership in an advertisement to ensure it does not infringe on the IPR of any party.

Marketing Services

We note that apart from the above traditional advertising services, there are also companies that engage in marketing, public relations and other communication services that do not deal with advertisement work and/or media planning and buying. These services are classified under KBLI No. 70209 (other management consultation activities), which covers advisory, assistance and business operational services, as well as organizational management matters as follows:

  1. strategic and organizational planning;
  2. financial decisions;
  3. marketing objectives and policy;
  4. planning and execution of human resources policy;
  5. production scheduling and control;
  6. public relations;
  7. lobbying;
  8. various management functions;
  9. etc.

Please note that KBLI No. 70209 does not cover market research or polling activities that may also be conducted by a marketing consultancy company. These activities are classified under KBLI No. 73200, which covers any research on potential markets, a product’s acceptance in the market and consumer habits and behavior in relation to the promotion and development of new products. KBLI No. 73200 also covers public opinion research on political, economic and social issues.

Foreign Investment Restrictions

In general, KBLI No. 70209 is 100% open for foreign investment, except for horticulture development consultancy services, which are only 30% open for foreign investment, and hospital management and business consultancy services and/or management services, which are only 67% open for foreign investment. Marketing consultancy services are 100% open for foreign investment.

The market research and polling activities classified under KBLI No. 73200 are 100% closed for foreign investment, unless the foreign investment comes from an ASEAN country, then the activities are 51% open for foreign investment.

Licensing

There is no specific operating license required for marketing consultancy services other than the Investment License from the BKPM.

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