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Franchising in Indonesia

Franchising in Indonesia is governed by legislation that only came into place in 1997 by the passing of Government Regulation No. 16/1997, this piece of legislation was then supplemented by the Minister of Industry and Trade Decree No. 259/MPP/Kep/7/1997.

In the Government Regulations, franchising has been defined as an agreement where a party (the franchisee) is granted a right to use and/or to make use of intellectual property rights or inventions or other rights owned by the other party (the franchisor) in return for payment to be determined by the franchisor.

The Franchise Law requires that the franchise agreement as well as certain information such as a profit and loss statement for the past two years, experience and details of past and current arrangements, details of proposed technical assistance, intellectual property rights and evidence of the identity of the franchisor be disclosed and registered with the Minister of Industry and Trade.

In addition to those specific requirements, the franchise agreement has to be in the Indonesian language and the franchise has to be governed by Indonesian law. An English translation of the franchise agreement can be attached but it is compulsory to register the Indonesian language version. In addition the minimum duration of the franchise agreement is 5 years

The Decree also stipulates that the franchisor has to give the franchisee financial, bookkeeping and marketing assistance as well as work guidelines. In general, franchising may be conducted in all major cities or areas but there are some provisions about the establishment of the franchises regarding the criteria for safeguarding local business. Therefore, medium and large-scale franchises may be only located in modern markets and/or in particular areas/cities, with the approval of the Minister or other authorized official.

In the case of a foreign franchisor, it would have to meet the legal requirements of its country of origin and the relevant documents related thereto have to be legalized by the relevant foreign authority and attested by the Indonesian consulate in the franchisor’s country.

The Minister of Trade and Industry will issue a Franchise Business Registration Certificate known as the Surat Tanda Pendaftaran Usaha Waralaba or STPUW once the franchisee/sub-franchisee has registered the franchise agreement with the Minister of Industry and Trade. The registration must be within 30 days from the effective date of the franchise agreement as if not, this could lead to the revocation of the business license of the franchisee/sub-franchisee.

In the case of a foreign franchisor, the Minister of Industry and Trade will have the Director General of Domestic Trade issue the STPUW.

Finally, a franchise will be deregistered once the Minister of Trade and Industry has received a written statement by both the franchisor and franchisee that the franchise has come to an end and that all obligations between the two parties have been settled.

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