Indonesia

• Author: Lia Alizia - Reagan Roy - Rick Beckmann - Emir Pohan
• Pages: 216-235

216 International Franchise Sales Laws

Indonesia

I. What Is a Franchise?

A. Scope of Law

Franchising in Indonesia is governed by Government Regulation No. 42 of 2007 (GR

42), issued and effective on July 23, 2007. The implementing regulation of GR 42 is

Regulation of the Minister of Trade No.53/M-DAG/PER/8/2012, dated August 24,

2012 (Regulation 53) as amended by Regulation of the Minister of Trade No. 57/M-

DAG/PER/9/2014 (Regulation 57), which revoked the previous implementing regula-

tion issued on August 21, 2008. The Ministry of Trade (MOT) (formerly the Department

of Trade) is the governmental agency that administers Regulation 53.

Similar to the previous regulation, under Regulation 53, a “franchise” is defined

as “an exclusive right owned by individuals or business entities of a business sys-

tem with unique business characteristics in the framework of marketing goods and/

or services which have been proven successful and can be utilized and/or used by

other parties on the basis of franchise agreements.” (See Regulation 53, Article

1(1).) Regulation 53 further provides for the criteria of a “franchise “as:

a. Having unique business characteristics;

b. Being already proven profitable, which refers to the experience of the

franchisor of more or less 5 years;

c. Having a written standard of offered service and of goods/services;

d. Being easy to teach and apply;

e. Having continuous support;

f. Having registered intellectual property rights.

Regulation 53 defines a “franchise agreement” as “a written agreement between

a franchisor and a franchisee.” (See Regulation 53, Article 1(7).)

A “Franchisor” is defined as “an individual or a business entity providing the

right to utilize and/or use the right over the franchise owned by the franchisor to the

franchisee.” (See Regulation 53, Article 1(2).) Under Regulation 53, a “Franchisee”

is defined as “an individual or a business entity that is given the right by the franchisor

to utilize and/or use the right over the franchise owned by the franchisor.” (See

Regulation 53, Article 1(3).)

With regard to the intellectual property rights, GR 42 also stipulates that, to meet

the franchise criteria as mentioned above, intellectual property rights which are still

pending registration can be considered as “registered” (see the elucidation of GR

42, Article 3(f)).

According to Indonesian news reports, the Ministry plans to amend the current

franchise regulations in order to improve the franchise and economic climate. How-

ever, no further news has been released as to which provisions will be amended or

how.

Indonesia 217

B. Applicability to Master Franchising

Regulation 53 also defines two other terms important in this context: “subsequent

Franchisor” and “subsequent Franchisee.” A “subsequent Franchisor” is defined as

“an individual or a business entity that obtained the rights from the Franchisor to

utilize and/or use the franchise owned by the Franchisor to appoint a subsequent

Franchisee.” (See Regulation 53, Article 1(4).) As such, a subsequent Franchisor is

analogous to what would be referred to in the United States as a “Master Franchi-

see.” Regulation 53 defines a “subsequent Franchisee” as “an individual or a busi-

ness entity receiving the right to utilize and/or use the right over the franchise from

the subsequent franchisor.” (See Regulation 53, Article 1(5).) Subsequent Franchi-

sees in Indonesia are thus analogous to the parties who would be referred to as

“Sub-franchisees” in the U.S. context.

C. Exemptions

Neither GR 42 nor Regulation 53 provides for any exemptions, exclusions, or ex-

ceptions as to what is considered a franchise. For example, partnership relation-

ships, trademark licenses, wholesale distribution arrangements, and credit card

services are not necessarily excluded from the scope of GR 42 or Regulation 53.

Likewise, there are no exemptions relating to specific sectors or industries, such as

automotive or petroleum dealers.

D. Discretion of Regulatory Authorities

GR 42 and Regulation 53 do not explicitly grant MOT officials the right to deter-

mine whether any particular agreement or arrangement constitutes a franchise.

E. Jurisdiction

Regulation 53 contains no explicit jurisdictional statement. Local practice indicates,

however, that the provisions of Regulation 53 apply to a sale or offer to sell a

franchise that occurs in Indonesia, or is made to citizens of Indonesia, or is for a

franchised business to be operated in Indonesia. Regulation 53 does not apply to

the offer or sale of a franchise originating in Indonesia to citizens of a foreign

country (or Indonesian citizens) for a franchised business to be operated outside of

Indonesia.

II. Who Must Provide Disclosure?

A. Franchisor

Under GR 42 and Regulation 53, the Franchisor is obligated to provide pre-sale

disclosure to prospective Franchisees, no later than two weeks prior to the execu-

tion of a franchise agreement (see Regulation 53, Article 4(1)).