Discusses opportunities for U.S. franchisers and legal requirements in the market.
Last Published: 2/4/2019

Franchises facilitate the transfer of know-how and managerial expertise to the franchisee companies while simultaneously allowing the franchiser to quickly establish a presence in the country. Under a typical franchising agreement, the franchiser receives royalties and fees as stipulated in the contract. In exchange, the franchisee has the right to use and manufacture copyrighted, patented or service-marked materials identifying the enterprise.  The franchiser typically provides training and organizational guidance in return for a guarantee that the franchisee will follow these operational directions.

There are two regulations that are of interest to U.S. firms interested in establishing or expanding a franchise in Indonesia.  Ministry of Trade Regulations No. 57 and 58 of 2014 define the requirements and procedures for a franchisor to obtain a STPW (Surat Tanda Pendaftaran Waralaba or Franchise Registration Certificate). Before entering an agreement with  a  franchisee,  a  franchisor  in  Indonesia  must  register  a  franchise prospectus with the Ministry of Trade to obtain the STPW.   According to this regulation, instead of directly registering the franchise prospectus, a franchisor must first submit a copy of its draft master franchise agreement.

These regulations also prohibit franchisors from appointing franchisees with whom they already have a relationship in order to provide opportunities for new franchisees and to prevent one group from gaining a monopoly. In the event a franchise agreement is terminated unilaterally by the franchisor before the expiration of the agreement term, the franchisor cannot appoint a new franchisee for the same area until both parties reach an agreement or until there is a legally binding court verdict.

Under the  franchise regulation,  franchisors and  franchisees  may only engage   in  business  activities  as  specified  in  their  business  licenses.  The regulations require franchises to use local components for at least 80% of their raw materials, business equipment and merchandise.  In certain cases, the Ministry of Trade may issue a permit to a company to use domestically-produced goods and/or services equating to less than 80% of the raw materials, business equipment and merchandise based upon a recommendation by the ministry’s appointed “assessment team.”  The regulation also states that franchisors should select local small- and medium-sized businesses as franchisees or suppliers if they fulfill the requirements established by the franchisors.  The regulation limits the number of company-owned outlets operated by franchisors to 150 outlets for “modern stores” such as minimarkets, supermarkets, department stores, hypermarkets and wholesalers, and 250 outlets for restaurants and cafes. 

For more information on franchising regulations in Indonesia, please contact:

Directorate of Trade Development
Directorate General for Domestic Trade
Ministry of Industry and Trade
Jl. M.I. Ridwan Rais No. 5
Jakarta 10110
Tel: (62-21) 3858171 Ext. 1137
Fax: (62-21) 23528531
Website: www.kemendag.go.id/en

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.