Franchising In Indonesia: A Brief Overview ( IP Update 04-2011 )

Franchise can be understood as a special right held by an individual or business entity based on a Franchise Agreement, on a business system, where its special characteristics is the marketing of certain goods and or services, which has been proven successful and beneficial for utilization by others. Franchise may therefore also be referred as a Written Agreement executed between a Franchisor and Franchisee, who may respectively be an entity or individual.

Since generally franchise business arrangements often involve at certain degree licensing schemes of one or more intellectual property rights, especially patent and/or trademarks, therefore franchise can also be regarded as one of the most common and important examples for IPR commercialization.

In Indonesia, Franchise Agreement may be made between foreign Franchisor/Sub-Franchisor and a local Franchisee/Sub-Franchisee. In other case, it may also be entered between local Franchisor/Sub-Franchisor and Franchisee/Sub-Franchisee.

Regulations for franchise registration in Indonesia are stipulated in the Decree of the Minister of Trade of the Republic of Indonesia No. 31/M-DAG/PER/8/2008 regarding Franchising. The Decree stipulates the obligation of foreign Franchisor to obtain a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba/STPW) by providing a prospectus regarding its business. The Decree also stipulates the obligation of a Franchisee to obtain a Franchise Registration Certificate by submitting the related Franchise Agreement for registration at the Department of Trade cq. the authorized Official for the issuance of Franchise Registration Certificate.

In order to apply for a Franchise Registration Certificate, it is necessary to complete the documents required and fill out the necessary forms, which may be found attached to the Decree referred above. For a foreign Franchisor and Franchisee, examples of required documents are as hereunder.

Requirements for obtaining Franchise Registration Certificate involving Foreign Franchisor:

  1. Copy of Prospectus regarding the offered franchise business
  2. Copy of document reflecting the Franchisor business legality

Requirements for obtaining Franchise Registration Certificate involving Foreign Franchisee:

  1. Copy of Technical Permit
  2. Copy of Prospectus regarding the offered Franchise business from the Franchisor
  3. Copy of Franchise Agreement
  4. Copy of Company Registration Certificate
  5. Copy of Franchise Registration Certificate of the Franchisor
  6. Copy of the Company’s Article of Association and/or Changes thereof, which has been legalized by the Authorized Body
  7. Copy of IPR Application/Registration Certificate
  8. Copy of Identity of the Owner/Person in Charge in the Company

A complete application for Franchise Registration Certificate shall be processed at the latest within 3 (three) working days as of the receipt date of the complete application, and the Authority shall then issue the Franchise Registration Certificate. In the case that an application is deemed incomplete or incorrect, the application shall be rejected, and the Applicant may re-apply upon reviewing or completing the application as required.

Foreign Franchisor/Franchisee, who is running its business in Indonesia without holding the relevant Franchise Registration Certificate shall be warned in writing and subject to a maximum fine of Rp. 100.000.000,- (one hundred million rupiah).