Indonesia’s franchising landscape is undergoing significant changes with the issuance of Government Regulation No. 35 of 2024 on Franchising (“GR 35/2024”), which replaces the long-established Government Regulation No. 42 of 2007 (“GR 42/2007”). GR 35/2024 introduces new provisions to strengthen franchise regulations in Indonesia and to align franchise business practices with current market dynamics. This newsletter provides an overview of the key updates that businesses need to be aware:
- Criteria for a Franchise
GR 35/2024 aims to balance the need for franchisee protection while encouraging growth opportunities for franchise businesses. To achieve this, GR 35/2024 introduces key changes in the criteria for qualifying as a franchise.Track Record of Profitability: Under the new regulation, a franchise must demonstrate profitability over a minimum of three consecutive years, a reduction from the previous five-year requirement under GR 42/2007. This adjustment is intended to create more opportunities for franchise expansion without compromising on business viability.Strengthened Intellectual Property (IP) Requirements: GR 35/2024 mandates that all intellectual property assets—such as trademarks, logos, and proprietary systems—must be fully registered and recorded in Indonesia before they can be franchised. This is a significant shift from GR 42/2007, which permitted franchises to proceed even if their IP registrations were still in progress. While this stricter requirement underscores GR 35/2024’s commitment to strengthening brand protection, it may also create challenges for businesses. Given the lengthy process of IP registration in Indonesia, this requirement could delay companies from franchising their products or services, potentially hindering market expansion.
- Validity Period of Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba– “STPW”)
GR 35/2024 introduces a significant simplification by removing the explicit five-year validity limit previously mandated by GR 42/2007. Under the new regulation, the STPW is now valid indefinitely, as long as the franchise business remains operational, and the relevant intellectual property is registered. This change reduces administrative burdens, enabling franchises to focus on long-term growth without the need for frequent renewals.
- Enhanced Franchise Offering Prospectus Requirements
To provide greater transparency and certainty for prospective franchisees, GR 35/2024 expands on the information required in the Franchise Offering Prospectus. In addition to the foundational details outlined in GR 42/2007, such as the franchisor’s identity, business legality, and the rights and obligations of both franchisor and franchisee, GR 35/2024 mandates additional disclosures, including a comprehensive description of the business system used to operate the franchise, such as marketing strategy, human resource management, and standard operating procedures. Moreover, the prospectus must include the intellectual property certificate, ensuring that the IP is fully registered or recorded.
- Sanctions for Non-compliance
Under GR 42/2007, non-compliance with regulatory provisions could result in administrative sanctions, including written warnings, fines, or the revocation of the STPW. GR 35/2024 generally removes fines from the list of sanctions but retains other form of sanctions.
Business actors must also anticipate the possibility of new implementing regulations based on GR 35/2024 to amend or replace the Minister of Trade Regulation No. 71 of 2019 on Franchise Activities as the implementing regulation of GR 42/2007, which is still valid as of the date of this newsletter. Understanding the whole context is essential for franchise success in Indonesia.