Franchise Law in Indonesia

Complying with franchise law in Indonesia is essential for both franchisors and franchisees to ensure legal operation, protect rights, and maintain business integrity. Franchise law in Indonesia is primarily governed by Government Regulations No. 35 of 2024 concerning Franchise.

critical aspects of franchise law

Franchising in Indonesia is a popular business model that allows entrepreneurs to expand their brand or operate under an established business system. The process is governed by Government Regulation No. 35 of 2024 (GR 35/2024) and Ministry of Trade Regulation No. 71 of 2019 (MOT 71/2019). These regulations outline the legal framework to ensure transparency, protect intellectual property, and promote local economic growth. Below is a detailed step-by-step explanation of the franchise process in Indonesia.

Franchise is a special right owned by an individual or business entity toward a business system with predetermined criteria in order to market goods and/or services that have been proven successful and can be utilized and/or used by other parties based on Franchise Agreement.
Franchisors are individuals or business entities that grant the right to utilize and/or utilize their Franchise to the Franchisees
Franchisees are individuals or business entities granted the right by Franchisors to utilize and/or utilize Franchise owned by Franchisors

GR 35/2024 Article 1 of General Provisions

Franchise Registration Process in Indonesia

I. Franchise Criteria Requirements

At least 3 years of proven success
A unique business model, strong brand recognition, and a well-documented system that ensures franchisees can replicate the business successfully
Registered intellectual property (trademark, copyright, patents) with the Indonesian authorities before applying for franchise registration. This protects the brand and prevents legal disputes.
Franchisors are required to ensure that at least 80% of their supplies and materials are sourced locally, unless there is a valid reason to import certain items. This rule supports Indonesian businesses and strengthens the domestic economy.

II. Prepare the Franchise Offering Prospectus

The FOP documents must include several key elements, such as the business legality and history, business systems, financial statements, list of existing franchisees and numbers of outlets, rights and obligations, operational guidelines, and intellectual property details. Another important requirement is that the franchisor must provide audited financial statements for the past two years to demonstrate the business’s financial health.

III. Franchise Agreement

Business activities, area and term of Franchise Agreement for a minimum of 5 years.
A detailed description of the business system, including operational procedures, guidance, training, and marketing support.
A clear payment structure, specifying initial franchise fees, royalty payments, and advertising contributions.
Renewal and termination conditions, outlining the circumstances under which the contract may be extended or ended
Specifying Dispute resolutions measures.

The Franchise Agreement is required to be made in Bahasa Indonesia.

IV. Franchise Registry Certification Issuance

After the franchise agreement is signed, the franchisor will altogether register the business with the Ministry of Trade and obtain a Franchise Registry Certificate/Surat Tanda Pendaftaran Waralaba (STPW), which serves as the official franchise registration certificate. All of the priorly prepared documents are being submitted through the Online Single Submission (OSS) system.

FRANCHISE REGISTRY CERTIFICATE HAS PERMANENT VALIDITY
it no longer requires renewal every five years

Submission of Annual Report

This is the annual compliance required to be submitted. The annual report detailing the franchise’s business activities, financial performance, and compliance status, must be submitted by June 30 every year to the Ministry of Trade.

Displaying Franchise Logo

All franchises must display an official franchise logo provided by the Ministry of Trade at their headquarters and outlets. This logo signifies that the business is a legally registered franchise, ensuring transparency for consumers and regulatory authorities

Collaboration with Local MSMEs

Another important aspect of compliance is the promotion of collaboration with local Micro, Small, and Medium Enterprises (MSMEs). Franchisors are encouraged to partner with small businesses for supplies, services, or distribution channels, contributing to the growth of Indonesia’s domestic economy.

Avoid Non-Compliance

Failure to comply with franchise regulations can result in strict penalties: Written Reprimand/Warning, Business Suspension and STPW Revocation.

Intellectual Property Rights

Assess and protect intellectual property rights during the Franchise Registration process, ensuring compliance with Indonesian law and regulations to safeguard the value of intangible assets

our assistance to your franchise registration

Research and Preparation

Conduct thorough market research to assess the feasibility of franchising in Indonesia. Seek legal advice to understand local regulations and requirements.

Registration and Documentation

Register your franchise system with the Ministry of Trade. Prepare a comprehensive disclosure document for potential franchisees, detailing financials, fees, royalties, and the franchise agreement template.

Franchise Agreement

Draft a compliant franchise agreement that clearly defines rights, obligations, and terms for both parties. Include provisions for territory rights, support services, fees, and conditions for renewal or termination.

Compliance and Expansion

Monitor compliance with regulations and franchise agreements. Resolve disputes through mediation or arbitration if necessary. Evaluate performance for renewal and consider expanding the franchise network in Indonesia.

Ensuring compliance with these key aspects of Indonesia’s franchise law helps protect both franchisors and franchisees, promoting a fair and transparent business environment.

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