After a small decline in Indonesia’s vaping population in 2020 due to the COVID-19 pandemic, the numbers began to increase again in 2021 with 1.7m vapers reported and a market worth $239m, representing an 8 percent growth from last year. Smoking rates are declining with smokers slowly shifting to vaping, while other alternatives (e.g. heated tobacco) are slowly picking up.

This report offers a broad overview of the Indonesian market, covering everything from retail channels and market size to hardware and e-liquids. In early 2022, many foreign investors have been pursuing the vaping market in Indonesia, mostly e-cigarette enterprises. Typically, establishing an e-cigarette business in Indonesia is not as easy as it seems, especially for foreign investors. An e-cigarette that contains naturally extracted nicotine is defined as a cigarette other than a clove cigarette or conventional cigarette, which includes a cigar, cigar pipe, chewing tobacco and snuff tobacco. According to the regulation in Indonesia, the definition can be found in Article 1 par. 4 of Ministry of Industry of the Republic of Indonesia Regulation No:64/M-IND/PER/7/2014 concerning Supervisory and Control of Cigarette (“MoI Regulation No.64/2014”).

Prior to establishing an e-cigarette manufacturer, there are 5 key issues that you need to be aware of:

1. The Industrial Business Permit (“IUI”)

   IUI only can be given to a small or medium scale company with a partnership with a large scale company in the industry. Furthermore, Article 5 of MoI Regulation No.64/2014 sets the following requirement to obtain the IUI:

   • The IUI shall obtain recommendation from the Directorate General of the Ministry of Industry.
   • The application for such recommendation shall be attached with the copy of article of incorporation, tax registration number, copy of the partnership agreement with Large Scale Cigarette Manufacturer, copy of the ownership of land certificate with map of the factory, and plan for the type of cigarette and installed capacity.

2. Restriction on the additional materials

   According to Article 12 of Government Regulation No.109 of 2012 (“GR No.109/2012”) concerning Custody on the Addictive Materials in the form of Tobacco Product for Health, it is stipulated that whoever produces a tobacco product is prohibited from using additional material unless it has been scientific proven that such materials have no harm on health.

3. Limitation on Import Tobacco

   Please be informed that according to Article 2 par. 1 of Ministry of Trade of the Republic of Indonesia Regulation No. 84 of 2017 (“MoT Regulation No.84/2017”) concerning Tobacco Import, the import of tobacco is limited. Further, the limitation is based on the plan of utilization of tobacco in accordance with local availability and the non-cultivated varieties in Indonesia.

4. Obligation for the Health Warning

   The Obligation for Health Warning is regulated under the law in Indonesia. Article 114 of the Health Law stipulated that:
   “Everyone who produces or imports cigarettes into the territory of Indonesia must include a health warning.”
   
   Further, the health warning and precaution are also regulated in Article 15 to Article 24 of GR 109/2012, where in Article 19 sets that:
   “Everyone who produces and/or imports tobacco products in the form of cigarettes is obliged to include information on the content of Nicotine and Tar levels according to the test results as referred to on the label of each package with clear and easy-to-read placements.”

5. Possibilities on the Limitation on the nicotine concentrate

   According to various open public resources, the government is preparing a limitation regulation on nicotine concentrate in an e-liquid product that will be stated in the SNI and will most likely be published and implemented this year.

It is of utmost importance to know these key issues before establishing an e-cigarette manufacturer in Indonesia. Our team of corporate lawyers have extensive experience assisting foreign investors with establishing e-cigarette manufacturing and wholesale businesses in Indonesia. Schinder Law Firm has forged its reputation as the leading corporate law firm in Indonesia specialized in Foreign Direct Investment. If you have any inquiries related to e-cigarette manufacturing, please feel free to contact us at info@schinderlawfirm.com.