Doing Franchise Business in Indonesia

Starting a franchise business in Indonesia as a franchisee is a good way to utilize an established brand when launching a new company. The spending power of middle class people in Indonesia have been growing to the point that franchising, both domestic and international, has expanded rapidly as a way of leading business investment and […]

Starting a franchise business in Indonesia as a franchisee is a good way to utilize an established brand when launching a new company.

The spending power of middle class people in Indonesia have been growing to the point that franchising, both domestic and international, has expanded rapidly as a way of leading business investment and sales.

Even so, the country also has an extensive and complex franchise regulatory regime, especially in terms of the number of regulations that eventually makes it difficult for those who wants to run a franchise in Indonesia.

This article outlines the requirements for franchise registration and what procedures should be taken to start your franchise business in Indonesia.

Table of contents

    Setting up a franchise business in Indonesia

    The franchisee and franchisor are the two key players in a franchised system, and in Indonesia, they can be either individual or legal entity.

    Types of Franchisor and Franchisee

    FranchisorCan be a resident or non-resident depending whether the legal entity is registered in Indonesia or not.
    Sub-franchisorA company or an individual who has given the right by the franchisor to exercise its powers, usually in a specific geographic area. Similarly to franchisor it can be a either a resident or non-resident.

    Obligations of the franchisee and franchisor

    • Franchise must use domestically produced goods and/or services for at least 80% of its raw materials, business equipment and merchandise.
    • Franchise must submit an annual report on the progress of the franchise to the authority, which issued the franchise registration certificate (Surat Tanda Pendaftaran Waralaba) by 31 March of each year.

    3 things you need to know about franchising in Indonesia

    1. There is no rule for a franchisor to do a trial before franchising or to take initial payments from franchisees
    2. There is no compulsory membership of any Indonesian businesses or organizations for franchisors or franchisees to operate or undertake business in Indonesia
    3. Both franchisor and franchisee are required to obtain STPW, and failure to do so will have some sanctions, such as a written warning for 3 times and a penalty up to a maximum of IDR 100 million

    Conditions to Form a Franchise

    The Business (known as Franchise)The Franchisor
    • Have a unique selling proposition/ specific business characteristics
    • Have written SOP on quality and service of the goods or services being sold
    • Easy to learn and applied so that it can be duplicated
    • Has been proven to generate profits
    • Must have registered Intellectual Property/Rights
    • Needs to operate the activities, which allowed as per the given license
    • Can sell supporting service or products, which not exceeds 10% from the actual given license. For example, if you have a license to sell beverages, you can sell some tumblers
    • Doesn’t necessarily need a legal entity, but there will be a higher tax implication when your franchisee is paying the royalty
    • Must have around 5 years experience in the business
    • Must have written SOP on quality and service of the goods or services being sold
    • Capable to provide continuity of support to its franchisees

    The disclosure document must be registered and the franchisor must have obtained the franchise registration certificate (Surat Tanda Pendaftaran Waralaba) before entering into a franchise agreement with an Indonesian franchisee. The actual registration usually takes up to 3 months or more to complete – but we can shorten this for you!

    How to obtain a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba/STPW)

    The table below implies both parties’ main requirement to obtain STPW. This STPW/Surat Tanda Pendaftaran Waralaba is valid for 5 years and is extendable.

    – Register the Prospect of Offer of the

    Franchise program to Ministry of Trade.

    The prospect of offer shall be legalized by Public Notary and Indonesian Embassy (Trade Attache) where the Franchisor is located.

    – Register Franchise Agreement to Ministry of Trade
    – To provide Master Franchise Agreement

    Both Prospect of Offer and Master Franchise Agreement should not be against Indonesia Law in related to Franchise business – We are here to review them for you.

    Franchise Agreement

    1. Franchisor has to provide prospect of offer on the franchise business to franchisee latest 2 weeks before signing the franchise agreement
    2. The prospect offer has to be in Bahasa Indonesia
    3. Franchise agreement should be based on Indonesian Law and in Bahasa Indonesia

    Pre-contract disclosure requirements

    The information below must be specified in the disclosure document:

    • The franchisor’s proof of identity
    • The legal documents of the franchise business
    • The franchisor’s business history
    • The franchisor’s organisational structure
    • Audited balance sheets for the last two years, except for micro and small businesses
    • The number of franchise businesses
    • A list of the franchisees
    • The rights and obligations of the franchisor and the franchisee

    As a disclosure document made by a foreign franchisor must be legalised, we also offer a legalisation service.

    Franchise business’ technical requirements

    • Both franchisor and franchisee are required to use at least 80% of the raw materials from Indonesia. By means, business equipment and merchandise in a business must be domestically produced.
    • All franchisors must co-operate with small and medium-scale companies as franchisees or suppliers to prove their capability and to meet with the franchisor’s requirements

    Keep in mind these requirements when you consider being involved in a franchise business.

    Thinking of buying a franchise business in Indonesia?

    We have got all the information you need to help you decide whether franchising is right for you.

    Becoming a franchisor may not be an automatic way to success, but with our help your business will show a proven route to rapid growth. In addition to that, Indonesia’s current laws regulating franchising are designed to protect consumers or small businesses, thus franchising remains one of the safest ways for everyone who wants to become a business owner.

    Contact us today if you are considering franchising your business or becoming a franchisee.

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