Guide to Starting a Franchise in Indonesia

Franchising offers entrepreneurs the opportunity to leverage established brands and their proven business systems. This article will guide you through the process of setting up a franchise in Indonesia, including recent regulatory changes, and key considerations for foreign investors.

Overview of Operating a Franchise in Indonesia

How does franchising work in Indonesia?

Franchising in Indonesia involves two key players: the franchisor (the brand owner) and the franchisee (the business operator). Both parties, referred to as Franchise Actors, can be individuals or legal entities. 

A franchise refers to the business model where the franchisor grants rights to a franchisee to operate a business using its brand, trademark, and business systems. Unlike setting up a business from scratch, franchising provides a ready-made business plan, operational guidelines, training, and support from the parent company. This significantly reduces the risks associated with launching a new business.

Key features of a franchise in Indonesia:

• A proven business model minimizing risk.
• Support from the franchisor including training, operational guidance, and marketing assistance.
• Brand recognition from an established reputation can lead to quicker market acceptance. 
• Registered intellectual property rights for protection.

Standard Requirements for Foreign Investors

Indonesia’s franchise regulations were updated in September 2024, with an emphasis on compliance and transparency. If you are looking to expand your franchise into the Indonesian market, then you will need to ensure compliance with the updated requirements:

• An established legal entity: For foreign franchisers, this generally entails setting up a foreign-owned limited liability company (PT PMA) while local Indonesian franchisees can own a local PT company.

• Intellectual Property Rights: Trademarks and other intellectual property rights must be acquired through the Ministry of Trade before applying for STPW via the Online Single Submissions (OSS) system.
• Franchise Registration Certificate (STPW): Mandatory for franchise actors, also issued by the Ministry of Trade through the OSS system.
• Franchise Disclosure Document (FDD): Must be prepared by the franchisor in Indonesian, detailing the franchisor’s business and operational systems. This is to also ensure transparency for the franchisee.
• Audited financial statements: Must demonstrate profitability for at least two consecutive years through certified financial records.
• Certificate of franchise business continuity: Issued by the Indonesian Trade Attaché or Indonesian Representative Office in the country of origin to certify legal ongoing operations.
• Local Sourcing Compliance: Proof of compliance for sourcing at least 80% of raw materials, business equipment, and merchandise domestically.

It’s also worth noting that:

• A foreign franchisor does not need to set up a new company in Indonesia, but franchisees operating the business in Indonesia will need to set up their own legal entity to obtain their STPWs.
• Capital requirements for foreign-owned franchises need to meet the minimum capital requirements for PT PMAs which is IDR 2.5 billion, approximately USD 150,000. 
• The STPW is now valid until revoked (as opposed to the previous 5 year-expiry).

Establishing a franchise in Indonesia can be a layered process and requires careful coordination with local authorities to ensure compliance with every article of submission. Emerhub’s local experts can help you ensure that your franchise is legally set up, as well as provide key insights into the country’s recent compliance regulation changes.

Popular Industry Sectors for Franchising in Indonesia

Indonesia’s franchise market is diverse, with specific industries showing rapid growth or having more suitable business structures. Below is an overview of popular franchise sectors in the country for foreign investors:

1. Food and Beverage

• Dominates the franchise sector with over 60% of franchises and includes businesses such as fast food chains, coffee shops, and local cuisine.
• Most franchises like Kopi Kenangan, a local brand that achieved unicorn status with over 850+ outlets across the country, benefit from affordable, quick-service concepts, and specialty menus and services.

2. Retail

• Particularly convenience stores and specialty goods shops that are rapidly expanding into tier 2 and 3 cities in Indonesia.
• Local brands like Indomaret and Alfamaret have a duopoly in the minimarket sector, with over 20,000+ outlets combined while international brands like Circle K stand out by offering 24/7 operations and fresh food.

3. Education

• Includes language schools, tutoring centers, and early childhood education.
• Kumon and English First (EF) have long-established strong presences that leverage blended learning models, while new entrants like coding schools for children (i.e. Algoritma) are gaining traction due to a growing demand for tech education.

4. Health and Wellness

• Fitness centers, spas, and beauty salons.
• Gold’s Gym is an American fitness chain that leverages mid-range to premium wellness experiences.

5. Services

• Prime examples are logistics, and business support services like JNE and TIKI that are driven by e-commerce expansion.
• JNE and TIKI are local logistics service providers that modernized traditional delivery and logistics services by integrating tech solutions into their operations.

Keep in mind that every industry poses unique challenges and advantages, making it essential for you to evaluate your market strategy carefully. Emerhub can walk you through feasibility prospects for your intended business in Indonesia to ensure your franchise activities align with Indonesian consumer preferences and local regulations.

Setting Up a Foreign-Run Business Franchise in Indonesia 

Mandatory Conditions When Forming a Franchise

For franchisors to be eligible to register their business, they must provide clear frameworks of agreements with transparent terms and operational plans. For example, franchise agreements must stipulate provisions for compensating franchisees if the franchisor discontinues operations. 

All parties involved within a franchise in Indonesia must abide by specific requirements to ensure that the business model operates legally. Below you will find an overview of the main responsibilities and best practices for ensuring compliance with local regulations: 

The Business (known as Franchise)	The Franchisor	The Franchisee
– Have a unique selling proposition/specific business characteristics. – Provide written SOP on quality and service of goods or services being sold. – Provide easy-to-learn and apply guidelines and SOPs. – Offer and demonstrate continuous support.	– Must ensure a smooth transfer of all USPs.  – Must develop and provide the SOPs for franchisees. – Foreign franchisors don’t necessarily need to set up a PT PMA in Indonesia but they must have a legal entity in the country of origin.	– Must ensure all terms, conditions, and regulations are clearly stipulated. – Utilize support systems provided by the franchisor. – Ensure sufficient capital to invest and operate the franchise. – Must set up a local PT or PT PMA company.

How to Set Up a Franchise in Indonesia

The application process for setting up a franchise in Indonesia involves several key steps for both the franchisor and franchisee. Emerhub can assist your franchise establishment through our comprehensive company registration service. Key steps of this process include:

1. Setting up a legal entity for your franchise.
2. Securing all Intellectual Property Rights including trademarks, patents, and copyrights with the DGIP.
3. Acquiring the certificate of registration (STPW) from the Ministry of Trade.
4. Applying for all compulsory licenses and permits.
5. Ensure ongoing compliance with taxes, logistics, and even hiring.

From verifying mandatory requirements and licenses to coordinating official communications with corresponding local authorities, our team of local experts is well-equipped to handle the entire application process for you. We can also facilitate ongoing compliance throughout your operations in Indonesia.

Planning to establish a franchise in Indonesia? Fill out the form below to kickstart the application process with one of our local experts!