Client Alert: Important Updates in Indonesian Franchising – Government Regulation No. 35/2024

The Indonesian government recently introduced a new regulation on franchising, eg. Government Regulation No. 35 of 2024 (“GR 35/2024”), which took effect on September 2, 2024. Replacing the previous regulation, this new regulation aims to modernize the franchising landscape in Indonesia, fostering fairness and strengthening partnerships, particularly for micro, small, and medium enterprises (MSMEs).

Key Changes

Franchise Criteria

One of the most notable adjustments is the modification of criteria for franchisors. Previously, franchisors were required to have a minimum of five years of business experience to be considered as "profitable business." Under the new regulation, this requirement has been reduced to three years of franchised business operation, making it easier for franchisors to enter the Indonesian market and create business expansion.

Offering Prospectus

GR 35/2024 expands the mandatory content in the franchise offering prospectus that must be provided to franchisees. Key updates include:

1. Business System: Franchisors are now required to present a comprehensive standard operating procedure (SOP) outlining their business operations, including marketing strategies and employee requirements. This addition, absent in the previous regulation, aims to ensure that franchisors provide a clear and structured framework for their operations
2. Intellectual Property Certificate: Franchisors are required to have their intellectual property registered/recorded with the Directorate General of Intellectual Property (DGIP). This requirement reinforces the legal foundation for franchises operating in Indonesia.

These changes reflect a more structured approach, enhancing both legal and operational clarity while fostering a welcoming environment for new entrants in the market. Importantly, these new requirements mark a significant shift from the previous regulation, providing franchisors with the tools necessary to operate effectively in Indonesia.

Franchise Agreement

GR 35/2024 introduces additional provisions that must be incorporated into franchise agreement. Key updates include:

1. Clear business system requirements;
2. Guarantees regarding compensation or rights to the franchise in the event of operational cessation;
3. Commitments from franchisors to uphold their obligations; and
4. Specifications concerning the number of outlets managed by franchisees.

These provisions aim to safeguard franchisee rights and ensure continuity of business operations.

Streamlined Registration Process

The regulation simplifies the application process for the Franchise Registration Certificate (STPW), which will now be conducted through the Online Single Submission (OSS) system, facilitating a more efficient registration process.

Franchise Logo Requirement

Franchise operators are required to display their franchise logo prominently at their business premises. Non-compliance may result in administrative sanctions, including warnings or temporary suspensions of business activities.

Summary

GR 35/2024 brings notable improvements to Indonesia's franchising landscape, creating a clearer and more structured environment for both franchisors and franchisees. These updates not only clarify what’s expected operationally but also strengthen protections for everyone involved in the franchising sector.

If you have any questions or seek further clarification on how GR 35/2024 may impact your franchise operations, please feel free to reach out to us. We are dedicated to supporting you in adapting to this evolving landscape and ensuring your continued success.