With the publishing of the Regulation of the Minister or Trade, No. 12 of 2006 dated March 29, 2006, Indonesia clarified the procedures for being granted a Franchise Business Registration Certificate. These Franchise Certificates, or STUPW, are required in order to conduct business in Indonesia as a Franchisor or a Franchisee (including Master Franchisees and Sub-Franchisees).
A Franchise is a business relationship in which the Franchisor has developed and owns intellectual property, inventions or special characteristics of business and offers them along with operational support to a Franchisee who operates the same business under the same name. In Indonesia, the Franchisor may be either a foreign or a domestic company.
Franchises must be based upon a written agreement, or Franchise Agreement. These agreements, between the Franchisee and the Franchisor must be governed by Indonesian law. If desired the Franchisor may designate a Master Franchisee who not only operates a franchise business of its own, but also has the authority to establish Sub-Franchisees. The main Franchise Agreement must have an initial term of at least ten years, while each Sub-Franchisee must be granted permission to operate for at least five years.
However, in order to operate a Franchise in Indonesia, the Franchisees must register for and maintain a valid STUPW. Franchisees who receive their Franchise from an Indonesian Franchisor, as well as all Sub-Franchisees, may obtain an STUPW from the appropriate Heads of Services with their local government. If a Franchise is derived from a foreign Franchisor, the STUPW must be filed with the Director General of Domestic Trade in the Department of Trade.
The registration process must be started by the filing of an application with the appropriate Heads of Service or the Department of Trade within thirty days of the effective date of the underlying Franchise Agreement. The process is not intended to be lengthy. In fact, no later than five working days after filing an application, the authorities must either issue the STUPW or send a letter of refusal with reasons for the denial. Any application that has been denied may be refilled once the discrepancies have been corrected. The STUPW is valid for five years.
The regulation also requires Franchisors to give priority to small and medium size businesses in the local region when considering Franchisees or Sub-Franchisees. Additionally, if the Master Franchisee and Sub-Franchisees are not small or medium size enterprises, then the Franchisor and Master Franchisee must give priority to local small and medium businesses as the suppliers of goods and services.
Franchises already operating in Indonesia must make any necessary adjustments to comply with this new regulation and file for an STUPW by March 29, 2007. The regulation also contains reporting requirements and filing instructions for all involved in the Franchise business. With this new regulation it is hoped that Franchises, both foreign and domestic, will continue to flourish in Indonesia.