A Legal Guide to Setting Up a Franchise Business in Indonesia

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Franchising has become an increasingly popular business model in Indonesia, offering a practical avenue for business expansion and market entry through the replication of proven business concepts and established brands. The Indonesian government regulates franchising activities through Government Regulation No. 35 of 2024 regarding Franchise ("GR 35/2024").

This ARMA Update will provide a concise overview of the key legal and regulatory considerations for establishing a franchise business in Indonesia, including the essential requirements, registration procedures, and ongoing compliance obligations applicable to franchising arrangements.

Eligible Parties to Operate a Franchise (“Franchise Operators”)

In general, a franchise structure involves a Franchisor^[1] and the appointed Franchisee^[2], both of which may be domiciled in Indonesia or abroad. However, in certain arrangements, a Franchisee may be appointed with the right to further grant franchises to other parties. In such cases, the Franchisee acting in this capacity is referred to as a Sub-franchisor (Pemberi Waralaba Lanjutan), while the receiving party is referred to as a Sub-franchisee (Penerima Waralaba Lanjutan). Similar to Franchisors and Franchisees, both sub-franchisors and sub-franchisees may be domestic or foreign parties.

We set out below a simplified illustration of these franchise structures.

Structure I:

Structure II:

Franchise Criteria

Franchisors and Sub-franchisors, in carrying out franchise activities in Indonesia, are required to satisfy the applicable franchise criteria. Such criteria include:^[3]

1. having an established business system;
2. a business that has demonstrated profitability;
3. ownership of recorded or registered intellectual property rights; and
4. the provision of continuous support by the franchisor and/or sub-franchisor to the franchisee and/or sub-franchisee.

For a more detailed discussion on these criteria, please refer to our previous ARMA Update: New Franchise Regulation under Government Regulation No. 35 of 2024

Franchise Flow

Steps	Remarks
Franchise Prospectus (Prospektus Penawaran Waralaba)[4]	Franchisors or Sub-franchisors are required to provide the Franchise Prospectus to prospective franchisees or sub-franchisees at the latest 14 (fourteen) calendar days prior to the execution of the Franchise Agreement.
Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba – "STPW") of Franchisor or Sub-franchisor[5]	STPW must be obtained by the Franchisor or Sub-franchisor prior to the execution of the Franchise Agreement. In applying for the STPW, the applicant is required to submit, among others, evidence of the Franchise Prospectus. In the case where the STPW application is submitted by a foreign Franchisor or Sub-franchisor, the Franchise Prospectus must be accompanied by: a business license issued by the competent authority in the country of origin, which must be legalized by: the authorized authority, for countries that are parties to the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (Konvensi Penghapusan Persyaratan Legalisasi terhadap Dokumen Publik Asing) ("Convention"); or an official of the Republic of Indonesia's representative office in the country of origin, for countries that are not parties to the Convention; and a letter confirming the continuity of the franchise business issued by the Indonesian Trade Attaché (Atase Perdagangan Republik Indonesia) or an official of the Republic of Indonesia's representative office in the country of origin of the foreign Franchisor.
Franchise Agreement[6]	Franchise activities are carried out based on a Franchise Agreement entered into between: (a) a Franchisor and a Franchisee; or (b) a Sub-franchisor and a Sub-franchisee, each having equal legal standing and subject to Indonesian law. The Franchise Agreement between a Franchisor and a Franchisee may also include provisions granting the Franchisee the right to appoint Sub-franchisees.
STPW of Franchisee[7]	Franchisees and sub-franchisees are required to apply for an STPW by completing the registration form as a Franchisee or sub-franchisee and submitting the relevant Franchise Agreement. In the case of a franchisee deriving from a foreign franchise, the STPW application must also be accompanied by the STPW of the foreign franchisor.
Commencement of Business

Obligation to Use the Franchise Logo

Franchise Operators that have obtained an STPW are required to use the Franchise Logo issued by the Minister of Trade, which must be displayed in a visible and easily accessible location at each franchise outlet.^[8]

Failure to comply with this requirement may result in administrative sanctions in the form of: (a) a written warning; (b) temporary suspension of business activities; and/or (c) revocation of the STPW.

Use of Domestic Products ^[9]

Franchise Operators	Obligations
Franchisor and Sub-Franchisor (except for foreign Franchisors)	Must prioritize the use of domestically produced goods and/or services. Must cooperate with local Micro, Small, and Medium Enterprises ("MSMEs") as suppliers of goods and/or services. Must provide opportunities for local MSMEs to become Franchisees, subject to the requirements set by the Franchisor and/or Sub-franchisor.
Franchisee and Sub-Franchisee	Must prioritize the use of domestically produced goods and/or services, provided that such goods and/or services meet the quality standards stipulated in writing by the Franchisor and/or sub-franchisor. Must cooperate with local MSMEs as suppliers of goods and/or services, provided that they meet the requirements set by the Franchisor and/or Sub-franchisor.

All Franchise Operators are encouraged to use locally processed raw materials where possible.

Reporting Obligations

All Franchise Operators are required to submit an annual franchise business activity report through the Online Single Submission ("OSS") System no later than 30 June of the following year. Such report must include:^[10]

1. the number of franchisees or sub-franchisees;
2. the number of outlets;
3. financial statements, including the balance sheet and profit and loss statement;
4. revenue (omzet);
5. the amount of fees or royalties (jumlah imbalan);
6. information regarding the processing of raw materials in Indonesia;
7. information regarding the sourcing of raw materials in Indonesia;
8. the number of employees;
9. the status of intellectual property protection; and
10. the form of continuous support provided to Franchisees or Sub-franchisees.

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1. Article 1 paragraph (2) of GR 35/2024 defines a Franchisor as an individual or business entity that grants the right to utilize and/or use its franchise to a Franchisee. ↩
2. Article 1 paragraph (3) of GR 35/2024 defines a Franchisee as an individual or business entity that is granted the right by the Franchisor to utilize and/or use the franchise owned by the Franchisor. ↩
3. Article 4 paragraph (2) of GR 35/2024. ↩
4. Article 5 of GR 35/2024. ↩
5. Article 13 of GR 35/2024. ↩
6. Article 6 of GR 35/2024. ↩
7. Article 14 of GR 35/2024. ↩
8. Article 23 jo. Article 21 of GR 35/2024. ↩
9. Article 27 of GR 35/2024. ↩
10. Article 28 of GR 35/2024. ↩

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

In this article

1. General Overview
2. Maximum Limit of Economic Benefits
3. Repayment Capacity Analysis
4. Miscellaneous

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