Indonesia’s current regulations on franchises, as stipulated under Government Regulation No. 35/2024 on Franchising and its implementing regulation, Ministry of Trade (MOT) Regulation No. 71/2019 regarding Implementation of Franchising, highlight fundamental changes in franchise registration. These changes have introduced additional complexities and challenges in the franchise registration procedure, making it more difficult for franchise owners to navigate the process.
New procedure
Franchise applications are still submitted through the Online Single Submission (OSS) portal of the Capital Investment Coordinating Board (BKPM). However, the new procedure requires each applicant, including foreign franchisors, to have an OSS account and a business registration number (NIB) issued by BKPM. An application for franchise registration must be submitted under the applicant’s own account—submissions can no longer be made through the account of a consultant.
Once a franchise application is submitted, the authority will distribute the submission to the MOT—the authorized ministry for franchise registration. Any notification or decision upon the registration made by the MOT will be available in the OSS system. Applicants should regularly monitor the status of the franchise application because no notifications will be sent to applicants to alert them of any deficiency.
Here is the summary of the new procedure for franchisors:
Notable Requirements
The disclosure document, or prospectus, is the key focus for the MOT in examining a franchise registration for a franchisor. This document is subject to thorough scrutiny by the MOT to ensure that all mandatory information meets the requirements set in the franchise regulations.
The current regulations specifically require that the mandatory clause “business system” in the prospectus cover operational standards and procedures, which should include human resource management, administration, operational management, standard operating methods, business location selection, business premises design, employee requirements, and marketing strategies.
Other clauses that are equally important to pay attention to are:
- Identity of the franchisor: The identity should be in line with the IP owner. If not, a license agreement will be required.
- Business legality of the franchisor: The business license must be attached to the prospectus.
- Profit statements for the last two years: Audited financial report showing profit and loss.
Impact
The requirement for franchisors and franchisees to have an OSS account introduces additional steps and expenses in the franchise registration process. This requirement can be particularly burdensome for franchise business actors, as franchise registration is often facilitated by third parties, such as consultants. The new regulation mandates that the registration be submitted under the franchisor’s own account, which can be especially challenging for franchisees located overseas.
Ideally, creating an OSS account would be an option rather than a compulsion—this would ease the registration process for franchise business owners. Additionally, the OSS system should be made easier to navigate.
Nonetheless, the requirements stand for now, and business operators should take note of the additional steps that apply to them.
