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Simplification and Ease of Doing Business in Franchise Regulation in Indonesia 2024
by Setyawati Fitrianggraeni, Tanya Widjaja Kusuma, Taufik Nuariansyah and Febriana Dwi Hapsari*
The development of businesses and enterprises today is something that cannot be avoided by anyone, including the Government. Data from the Ministry of Trade shows the growth of Indonesian franchises by 5% from 2023. As of 6 May 2024, domestic franchisors recorded 145 Franchise Registration Certificates/Surat Tanda Pendaftaran Waralaba (STPW). This number is greater than the number of overseas franchisors of 141 STPWs.
To adjust the development of the business world, legal needs and the dynamics of business activities, especially the franchise business, the Government issued Government Regulation of the Republic of Indonesia Number 35 Year 2024 on Franchising (‘GR 35/2024’) to replace Government Regulation of the Republic of Indonesia Number 42 Year 2007 on Franchising (‘GR 42/2007’).
The Government pays special attention to the franchise industry in Indonesia by providing ease of doing business for franchise business actors. In addition, in this GR 35/2024, the government re-regulates franchise business actors to be able to realize business justice, legal certainty and business partnerships between franchisors and Micro, Small and Medium Enterprises (‘MSMEs’).
GR 35/2024 has provided a firmer and clearer definition for franchise operators, namely: a. Domestic Franchisors b. Domestic Franchisee c. Domestic Continuing Franchisor d. Domestic Advanced Franchisee e. Overseas Franchisor f. Overseas Franchisee g. Overseas Continuing Franchisor h. Overseas Advanced Franchisee
A. Simplification and Ease for Franchise Operators
GR 35/2024 provides simplification in fulfilling the criteria for a business to be franchised by Franchisors and Continuing Franchisors.
The main point in the simplified franchise criteria in GR 35/2024 is that the profitable business criteria of a franchise is proven by the fact that the business has been running for at least 3 (three) consecutive years and there are financial statements for the last 2 (two) years that show a profit and have been audited by a public accountant with an unqualified opinion. This provision simplifies the previous criteria in GR 42/2007 where the franchisor has business experience of at least 5 (five) years.
The convenience for franchisors in running their business is the validity period of the Franchise Registration Certificate (‘STPW’). GR 35/2024 emphasizes the STPW as a business license for Franchisors, Continuing Franchisors, Franchisees, and Continuing Franchisees by not regulating the period of validity of the STPW. However, GR 35/2024 regulates matters that cause the STPW to expire. It’s important to note that the STPW is defined as a business license and can be obtained through OSS.
B. Business Certainty and Fairness for Franchise Operators and MSMEs
In compliance with the purpose of this regulation, the Government provides certainty and fairness for Franchise Operators and MSMEs in conducting their business.
The Government emphasizes fairness in the Franchising business by regulating forms of ongoing support between Franchisors and Franchisees.[1]
Strengthening the MSMEs’ role in the franchise industry is also further regulated in GR 35/2024 by emphasizing the importance of prioritizing domestically produced products and services. GR 35/2024 requires Franchise Operators to cooperate with MSME businesses as suppliers of goods or services if they meet the quality requirements set in writing by the franchisor.[2]
GR 35/2024 ensures that no individual or business can use the term “Franchise” in their name or activities without an STPW.[3] Furthermore, other than the franchisor, any person or business entity is prohibited from using and/or misusing the franchise logo without permission.[4]
C. Franchise Reporting in the OSS System
Regarding the Reporting for each Franchise, based on Article 28 of GR 35/2024, domestic Franchisors, Continuing Franchisors from overseas Franchises, Continuing Franchisors from domestic Franchises, and Franchisees from overseas Franchises are required to submit reports on Franchising business activities to the Minister through the OSS System.
Franchisees from domestic Franchises, Continuing Franchisees from overseas Franchises, and Continuing Franchisees from domestic Franchises are required to submit reports on Franchising business activities to the head of the agency in charge of trade in the Special Capital Region of Jakarta Province or local regencies/cities, or the Head of the Authority of IbuKota Nusantara through the OSS System.
*Setyawati Fitrianggraeni is the Managing Partner at Anggraeni and Partners in Indonesia. She is also an Assistant Professor at the Faculty of Law, University of Indonesia, and is currently undertaking a PhD at the World Maritime University in Malmo, Sweden. Additionally, Tanya Widjaja Kusuma is the managing associate of the Legal Governance and Compliance Practice Group. Taufik Nuariansyah holds the position of Associate in the Advisory and Commercial Transactions Practice Group, and Febriana Dwi Hapsari specializes in licensing and permits.
References
[1] Article 7 & Article 8 of Government Regulation of the Republic of Indonesia Number 35 Year 2024 concerning Franchising (GR 35/2024)
[2] Article 26 of Government Regulation of the Republic of Indonesia Number 35 Year 2024 concerning Franchising (GR 35/2024)
[3] Article 37 of Government Regulation of the Republic of Indonesia Number 35 Year 2024 concerning Franchising (GR 35/2024)
[4] Article 38 of Government Regulation of the Republic of Indonesia Number 35 Year 2024 concerning Franchising (GR 35/2024)
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Anggraeni and Partners, an Indonesian law practice with a worldwide vision, provides comprehensive legal solutions using forward-thinking strategies. We help clients manage legal risk and resolve disputes on admiralty and maritime law, complicated energy and commercial issues, arbitration and litigation, tortious claims handling, and cyber tech law.
S.F. Anggraeni
Managing Partner
Tanya Widjaja Kusumah
Managing Associate
Taufik Nuariansyah
Associate
Febriana Dwi Hapsari
License Specialist
