Developing or expanding your franchise business in Indonesia?

Legal News
The recently enacted franchise legislation in Indonesia imposes new requirements on franchisors seeking to develop or expand a franchise in Indonesia, including requirements which must be fulfilled prior to commencing franchise activities in Indonesia. Non-compliance may result in serious consequences such as temporary suspension of business activities or revocation of the franchise registration.

On 2 September 2024, the Indonesian government introduced and implemented Government Regulation No. 35 of 2024 concerning Franchises (GR 35/2024). This replaced the former Government Regulation No. 42 of 2007 (GR 42/2007). However, it did not replace the Ministry of Trade Regulation No. 71 of 2019 (MOT 71/2019) which served as the implementing regulation of GR 42/2007.

Under the new franchise legislation, a franchise is defined as a special right owned by a person or company to a business system with predetermined criteria for marketing goods and/or services that has proven to be successful and can be exploited and/or used by other parties on the basis of a franchise agreement.

Below is a highlight of the key points from the new franchise legislation:

  • The franchisor must obtain an STPW (franchise registration) before entering into a franchise agreement. To apply for the STPW, the franchisor must submit , the prospectus (disclosure document), among others, which is also to be shared with the franchisee prior to signing the franchise agreement. Likewise, the franchisee must also obtain an STPW before beginning to operate the franchised business.
  • A comprehensive business system must be established with clear operational standards and procedures, covering key areas such as human resource management, administration, operational management, business location selection, premises design, employee requirements, and marketing strategies. 
  • The franchise business must already be profitable, proven by at least three consecutive years of operation and audited financial statements from the preceding two years showing a profit.
  • The franchise business must have registered all relevant intellectual property rights. This could potentially delay the franchisor being able to expand its franchise into Indonesia as franchisors can no longer apply for an STPW with intellectual property rights pending registration. 
  • The franchisor must provide ongoing support to the franchisee, including training, operational management, promotion, research, market development, and other forms of coaching.
  • The franchisor must guarantee the franchisee compensation and/or grant of rights over the franchise in case the franchisor ceases its business activities in Indonesia. 
  • Franchise businesses are required to use a logo clearly including "WARALABA INDONESIA" among other elements. This logo must be visibly displayed in a prominent location at each franchise outlet, and if the franchisor has a head office in Indonesia, it should also be placed in a prominent location there. 
  • Franchisors must prioritise the use of domestically produced goods and services and the processing of raw materials within the country as part of their franchise operations. 
  • Failure to meet the requirements and provisions may lead to administrative sanctions. These sanctions include written warnings, suspension or restriction of business activities, and the revocation of an STPW.

We note that the new franchise legislation does not set out a transitional period to ensure compliance with the new rules. Consequently, it is essential for franchise businesses seeking to expand into Indonesia, or already operating there, to be aware of and comply with the new legislation.

Please contact Plesner's Franchising and Global Expansion team if you would like to know more or if you would like to discuss your expansion plans into Indonesia.

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