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September 26, 2024

Indonesia Issues New Franchise Regulation

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Indonesia enacted a new franchise regulation, Government Regulation No. 35 of 2024 on Franchising (“GR 35/2024”), on September 2, 2024.

Franchising in Indonesia was previously governed by Government Regulation No. 42 of 2007 on Franchising (“GR 42/2007”), along with an implementing regulation, Ministry of Trade Regulation No. 71 of 2019 regarding Implementation of Franchising (“MOT Regulation 71/2019”).

This new regulation repeals GR 42/2007. However, MOT Regulation No. 71/2019 remains in effect until a new MOT regulation can be enacted.

The new franchise regulation contains several amendments and provides more detailed requirements to complement MOT Regulation No. 71/2019.

Comparison of GR 35/2024 to GR 42/2007

  • Minimum years of business operation. The new regulation reduces the minimum duration that a franchise registration applicant must have been operating from five years to three years.
  • Intellectual property (IP) status. Any relevant IP must now be registered before a franchise registration application can be submitted. This is a change from the previous regulations, under which it was possible to obtain a franchise registration (STPW) while an IP application was still pending, and if the IP application could not be registered, the STPW would be canceled.
  • Registration requirements for foreign franchisors. Under the new regulation, foreign franchisors must provide a legalized or apostilled business permit document from the country of origin in addition to the previously required franchise offering prospectus and statement letter from the relevant Indonesian authority.
  • Administrative sanctions. The new regulation has adjusted the three escalating stages of administrative sanctions to (1) two warning letters, (2) a 14-day suspension from business activities, and (3) STPW revocation. This varies from the three stages under the previous regulation (three warning letters, fine, and STPW revocation). The new regulation also expands the list of noncompliant actions that are subject to these administrative sanctions. In addition to the regulatory obligations detailed in the previous regulation, failure to use the proper franchise logo and failure to submit activity reports are now also punishable by these administrative sanctions.
  • Types of franchise organizers. The new regulation expands the categories of franchise organizers (i.e., the main parties to a franchise business arrangement) from two (franchisor and franchisee) to eight, including subfranchisors and subfranchisees for both foreign and local franchises.
  • Franchise registration (STPW) validity. The new regulation specifies conditions for STPW invalidity (e.g., termination of agreement, business cessation, IP expiration), and there is no longer a need to renew the STPW every five years. Under the previous regulation, STPW validity was limited to five years (renewable).

Notwithstanding these changes and updates, the core structure of Indonesia’s franchise regulations remains similar. In addition, many of the new provisions in GR 35/2024 had already been adopted in the aforementioned MOT Regulation 71/2019.

Implications

GR 35/2024 streamlines some processes (e.g., no longer requiring STPW renewal every five years) and tightens some requirements (e.g., regarding IP registration). It also provides more detailed categorization of franchise organizers and clearer sanction procedures, potentially aiming for a more structured and comprehensive regulatory framework.

These changes are designed to enhance the regulatory framework, ensuring a more compliant and robust franchise industry. This new regulation reflects the government’s commitment to fostering the growth of franchises, which continue to make significant contributions to the Indonesian economy.

For more details on GR 35/2024, or on any aspect of franchising in Indonesia, please contact Tilleke & Gibbins at [email protected].

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