International franchisors are increasing looking at Indonesia as an attractive market in which to establish their brand. The MOIT are finalising new draft legislation which is likely to impact the structure of franchise deals.
Indonesian law currently contains specific franchise regulations and technical guidelines which require franchisors to: (i) issue a detailed translated disclosure document to their franchisees; and (ii) register themselves as a franchisor, prior to signing the franchise agreement. These regulations apply to any commercial relationship, which exhibits the typical characteristics of a franchise. Changing the name of the legal document to a "distribution agreement" or attempting to label the relationship as a retail or distribution arrangement will not circumvent these regulations.
The disclosure and registration regime has been in place for a number of years and is administered by the Ministry of Trade and Industry (MOIT).
The MOIT is currently in the process of finalising a new draft regulation which, if passed, is likely to impact upon the structure of franchise deals. The key points currently under discussion within the MOIT include the following:
- a limitation on the number of outlets that a franchisee may operate; and
- a requirement for franchisees to appoint sub franchisees should this limitation be exceeded.
It is our understanding that the MOIT has placed all new registrations of franchisors on hold until the content of the draft regulation has been finalised. Applications to register disclosure documents have been, to date, unaffected by these discussions.
Indonesia is an exciting emerging market for foreign franchisors. However, before entering the market, it is important that franchisors structure their deals appropriately. So as to comply with the applicable regulations, and also follow the latest disclosure and registration requirements.