“Distribution activity can also be performed by various parties, including distributor, agent, wholesaler, and even retailer. It should be particularly noted, especially by foreign capital investment, as each might have different permits and requirements despite being similar.”
Business Actors of Distribution
According to Government Regulation Number 29 of 2021 on Organization of the Trade Sector (“PP No. 29/2021”), distribution is the activity of circulating products either directly or indirectly to the consumer. However, it is not limited to just a distributor when it comes to the party who performed the distribution activity.
Instead, this regulation further explains that various parties can also achieve distribution activity, including distributors, agents, wholesalers, and even retailers. It should be noted, especially by a foreign investor, as each might have different permits and requirements despite being similar.
By PP No. 29/2021, Wholesaler itself is a business actor of distribution that distributes products in massive amounts, usually to other business actors. On the other hand, a retailer is a business actor of distribution that distributes products directly to consumers, usually in smaller quantities.
KBLI and Foreign Capital Ownership on Distribution Business
In Indonesia, every type of business is classified into a specific code of Standard Industrial Classification, or commonly known as KBLI (Klasifikasi Baku Lapangan Usaha Indonesia). The founders would need to choose one or more specific KBLI as its business field to establish a company. The required permits and foreign investment limitation (negative list) also depend on which KBLI is chosen.
However, for the distribution of products in general, it is not classified into a specific KBLI.
It is, however, mentioned under group G – Wholesale and Retail Trade; Reparation and Maintenance of Car and Motor Bikes. The general scope of business of this KBLI group includes trading of goods either in wholesale or in retail as part of product distribution. This KBLI group is further divided into wholesale trade (including wholesale trade for available products and based on commission/agent) and retail trade (retail store and online store).
It is mostly open 100% for foreign investment for wholesale trade, except distribution, wholesale marketing, and export of fishery products, which is required to partner with the local micro, small, or medium company. As for retail trade, it is specifically reserved for a local company. However, it should be noted that specific goods (electricity and natural gas, for example) might be regulated under an entirely different KBLI group with varying requirements due to the nature of the goods. Thus, it is still recommended to run a check before choosing KBLI thoroughly.
Considering the above KBLI, a foreign distributor company will not distribute products directly to the end consumer, as they are only allowed to apply as wholesale trade and not retail (either as a distributor or as agent).
Hence, under Minister of Trade Regulation Number 24 of 2021 on Agreement for Product Distribution by Distributor or Agent (“Permendag No. 24/2021”), for foreign distribution companies to distribute products to end consumers, they need to appoint another local company as distributor/agent.
Such appointment must be in a notarized written agreement and also approved by the appointing producer.
Requirement Permits
In general, trade business sectors would require a business license called a trade business license or SIUP (Izin Usaha Perdagangan). However, with the launch of Risk-Based OSS, most trade sectors KBLI are now considered low risk and only require a Business Identification Number (NIB) as its business license.
However, it should be noted that despite both wholesale and retail trade using the same type of permit (SIUP/NIB), the two are not combinable. Thus, a company cannot run both wholesale and retail trade together at once. Furthermore, it should be noted that a foreign company is considered a big scale company in Indonesia; its business would be regarded as high risk and might require SIUP on top of NIB.
Author: Benedictus Giovanni
Gaffar & Co., an Indonesian Boutique Law Firm specializing and focusing on commercial law areas e.g. Capital Market & Financial Services.
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