Strengthening the Franchise Industry: Understanding the Changes in Indonesia’s GR 35/2024
October 21, 2024
Originally published in ACTIO E-Magazine Edition 25 (December 2024). Law as of December 2024.
In Brief
Three years of profitable operation is now enough to franchise an Indonesian brand. GR 35/2024 also clarifies the STPW as a franchise business licence and strengthens protections for MSMEs, with clear sanctions under the MSME Law.
Key Takeaways
- A business may now be franchised after three years of profitable operation, down from five years under the old rule.
- GR 35/2024 clarifies the STPW’s role as a franchise business licence: the STPW is mandatory before a franchise can be operated, and without the STPW no franchise can be run.
- The rules benefit both franchisees and franchisors by allowing businesses to franchise sooner and access more brands.
- Strengthening MSMEs remains central: franchisor and franchisee must use at least 80% domestic goods and services where available, with sanctions under the MSME Law.
- An operator’s franchise business must be reported through the OSS system at least once a year to maintain transparency and accountability.
A New Chapter for Franchises
Franchising has been a driving force in Indonesia’s economy, with over 200 international and local brands across the fast-food, retail and service sectors.
Regulatory evolution has been significant: since the issuance of PP 16/1997 on Franchising, the sector has been guided by regulations including Permendag 12/2006 and PP 42/2007 on Franchising (“GR 42/2007”).
After 17 years, GR 35/2024 introduces a new framework for franchising and replaces GR 42/2007. The new Government Regulation No. 35 of 2024 on Franchising (“GR 35/2024”) took effect on 1 September 2024, replacing and revoking GR 42/2007 after several decades of reliance on the old regulation and its implementing rules.
What Is Simpler for Franchisors?
One of the key aims of GR 35/2024 is to provide a clearer path for businesses to franchise. To franchise a business, a franchisor must submit a request for the Registration Certificate of Franchise Offering Prospectus (“STPW”) to the Minister of Trade through the Online Single Submission (OSS) system. The STPW certifies that the franchise prospectus has been registered. A franchisor must register its offering prospectus before offering a franchise.
One key improvement is to shorten the franchising track-record requirement. Under GR 42/2007, a business had to run its outlets profitably for five years before it could be franchised; under GR 35/2024, that period is shortened to three years. According to the Ministry of Trade, the goal is to allow young businesses with three years of successful operation to expand more quickly and foster growth in Indonesia’s franchise industry.
Support For MSMES
GR 35/2024 also provides more certainty for franchisors and franchisees by allowing franchise registration for businesses already operating, with a clear and predictable process for the STPW.
The STPW now functions as a business licence: anyone may register a prospectus for franchise operations, but they may only carry out franchise activities with an STPW. This ensures that only franchisors with the required standard are qualified to operate.
Reporting through the OSS System
Under GR 35/2024, a franchise business operator must be reported through the OSS system at least once a year. This helps maintain transparency and accountability in the sector while setting the standard and ensuring the continuation of the franchise business.
For foreign franchisors and franchisees, there are facilitation measures that simplify and clarify the procedures for licence renewals. These include a precise deadline for renewing or closing a franchise’s STPW. In the event of a dispute, GR 35/2024 provides a path for dispute resolution through the trade authorities, offering a structured process for all parties involved.
FAQ
What does GR 35/2024 change for franchisors?
It reduces the franchising track record from five to three years, clarifies that the STPW operates as a franchise business licence, and simplifies registration, renewal and closure via the OSS system.
What is an STPW?
The STPW is the Registration Certificate of Franchise Offering Prospectus, obtained through the OSS system. It certifies that the prospectus has been registered, and without it a franchisor may not run a franchise.
Does GR 35/2024 affect MSME protection?
Yes. Franchisors and franchisees must use at least 80% domestic goods and services where available, and the MSME Law provides sanctions.
What happens when a dispute arises?
GR 35/2024 provides a path for dispute resolution through the trade authorities, with a structured process for all parties involved.
Who must report through the OSS system?
The franchise business operator must be reported through the OSS system at least once a year to maintain transparency and accountability.
Conclusion
GR 35/2024 is a significant step forward for the Indonesian franchise industry. By simplifying registration, shortening the track record from five to three years and strengthening the protection of MSMEs, the regulation aims to create a more transparent, efficient and accessible franchising system for both local and international brands. For franchise industry players in Indonesia, it is an exciting development that could lead to faster growth and more affordable options for businesses.
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