Franchise Business Laws in Indonesia: What’s New?

New Franchise Business Regulations in Indonesia Explained

  • InCorp Editorial Team
  • 20 February 2025
  • 7 minutes reading time

The franchise business model offers entrepreneurs a great way to start a business with less risk. By working with established brands, franchisees can access proven business plans, brand recognition, and ongoing support.  

This business model is popular among people who want to learn how to navigate business without starting from scratch. Let’s look at how franchise businesses operate, their effects in Indonesia, and why they are a good option for future business owners. 

Understanding Franchise Business in Indonesia 

A franchise business is a model in which an individual or a group (franchisee) is granted the right to operate under an established brand or company (franchisor).  

The franchisee uses the brand name, business processes, and operational guidelines. This model allows for quick scaling while reducing risks for both parties. However, royalty payments or fees in return are usually common in this practice. 

Key Features of Franchising in Indonesia 

  • Franchises have a proven business model, reducing uncertainties for new business operators. 
  • Franchisors assist with training, operational processes, and marketing strategies, ensuring franchisees are well-equipped. 
  • Established brand recognition allows franchisees to gain more customer trust and acceptance. 
  • Registered trademarks and intellectual property safeguard the interests of all parties involved. 

Indonesia is attractive for franchisors and franchisees due to its adaptable franchise types and growing industries.  Indonesia’s franchise market offers diverse opportunities, driven by four main franchise types and thriving industry sectors. Here’s a combined look: 

4 Types of Franchises in Indonesia 

Franchise businesses in Indonesia operate under four primary categories, offering varied levels of involvement and control for both franchisors and franchisees: 

Category Description 
Product Distribution Franchises Focus on distributing goods, like automotive dealerships or beverage brands. 
Business Format Franchises The most common type covers food chains, retail outlets, and more, using a franchisor’s complete system.  
Manufacturing Franchises Franchisees produce goods under the franchisor’s brand, which is familiar in industries like clothing or beverages. 
Management Franchises Provide expertise in operations and management, often seen in logistics or consultancy services. 

Indonesia’s franchise market offers opportunities across various sectors. Each industry has unique strengths and growth potential, appealing to local and foreign investors. Here are the key sectors driving the franchise landscape in the country: 

  • Food and Beverage (F&B): Fast food, coffee shops, and local cuisine dominate over 60% of the franchise market. Brands like Kopi Kenangan thrive on Indonesia’s love for affordable, quick-service dining. 
  • Retail: Convenience stores such as Indomaret and Alfamart lead the market, expanding into smaller cities. Global brands like Circle K focus on urban convenience with 24/7 operations. 
  • Education: Language schools (Kumon, English First) and tech-focused institutions are booming due to the rising demand for learning opportunities. 
  • Health and Wellness: Fitness centers (Gold’s Gym), spas, and beauty salons are popular among Indonesia’s middle and upper classes, prioritizing wellness. 
  • Services: Logistics franchises like JNE and TIKI benefit from e-commerce growth, modernizing delivery systems with tech solutions. 
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How Does the Franchisor Generate Revenue? 

Franchise Business Laws in Indonesia: What’s New?

Franchisors generate revenue through various streams tied to their franchise operations. By establishing multiple revenue streams, franchisors benefit from their franchisees’ success while supporting them in achieving profitability. 

  • Franchisors charge a one-time fee to grant franchise rights, which covers training, branding, and initial support. 
  • Franchisees pay ongoing royalties using the franchisor’s brand and systems, usually as a percentage of their gross revenue. 
  • Many franchisors sell products or services directly to franchisees, earning additional income from supply chain operations. 
  • Franchisees contribute to national or regional marketing funds, often managed by the franchisor. 

New Regulation of Franchise Business Laws in Indonesia 

On September 2, 2024, the Indonesian Government implemented Government Regulation No. 35 of 2024 (GR 35/2024), replacing the previous regulation (GR 42/2007).  

This update responded to franchise business changes and provided clear legal guidelines. It ensures fairness, especially for micro, small, and medium enterprises (MSMEs). Below are the significant changes brought by GR 35/2024: 

Broader Definition of Franchise Organizers 

The regulation expands the categories of franchise participants to include: 

  • Domestic and Foreign Franchisors: Individuals or entities granting franchise rights. 
  • Domestic and Foreign Franchisees: Individuals or entities granted franchise rights. 
  • Advanced Franchisors: Franchisees are authorized to appoint others as franchise operators. 
  • Advanced Franchisees: Entities operating under an Advanced Franchisor’s rights. 

Clear Franchise Criteria 

To qualify as a franchise, businesses must meet updated criteria, which include: 

  • Business System: Must provide a written, comprehensive system covering operations, marketing, HR, and SOPs. 
  • Proven Profitability: Businesses must have operated for at least three years and have financial statements showing consistent revenue. MSMEs are exempt from providing audited statements. 
  • Registered Intellectual Property: Trademarks and patents must be registered and directly tied to the franchise. 
  • Continuous Support: Franchisors must provide ongoing support, including training, marketing, and
  • operational assistance. 

Franchise Prospectus Requirements 

Franchisors must present a detailed Franchise Prospectus at least 14 days before signing any agreement. The prospectus must include: 

  • Business and legal details. 
  • Financial statements for the past two years. 
  • Franchise system overview and outlet numbers. 
  • Intellectual property documentation. 

Enhanced Franchise Agreements 

Agreements must comply with Indonesian law and include mandatory clauses such as: 

  • Business system details. 
  • Provisions for transferring rights if the franchisor ceases operations. 
  • Guarantees of continued support from the franchisor. 
  • Number of outlets managed by the franchisee. 

Optional clauses allow franchisees to appoint Advanced Franchisees, enabling more flexible business expansion. 

Franchise Registration Letter (STPW) 

All franchise organizers must obtain a Surat Tanda Pendaftaran Waralaba (STPW) to operate legally. Requirements include: 

  • Franchisors must register through the OSS system before any agreement. 
  • Franchisees must obtain their STPW before starting operations. 
  • Foreign franchisors must have a legalized business license and a continuity certificate issued by the Indonesian Trade Attaché or Embassy. 

Each franchise must display an official logo issued by the Ministry of Trade at all branches and headquarters. Non-compliance may result in sanctions, including license revocation. 

Prioritization of Domestic Products 

Franchisors and franchisees must prioritize using locally produced goods and services. Collaborations with MSMEs as suppliers are encouraged to support the local economy. MSMEs meeting franchisor standards can also become franchisees. 

The Advantages of Opening a Franchise Business in Indonesia 

Due to its dynamic market and supportive economic policies, Indonesia offers a fertile environment for franchise businesses. Here are some key benefits: 

  • Franchises reduce risks by providing a tested system, operational guidelines, and established branding. 
  • The country’s growing middle class ensures high demand for products and services, accelerating business growth. 
  • GR 35/2024 policy streamlines licensing and promotes fair business practices. 
  • Indonesia’s large population creates vast opportunities for franchisors and franchisees. 
  • Collaborating with MSMEs under government mandates can reduce costs and improve local market penetration. 

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Start Your Franchise Business with InCorp 

Indonesia’s franchise business market presents vast opportunities, supported by clear regulations and a thriving economy. The updated Government Regulation No. 35 of 2024 ensures a balanced and transparent system for franchisors and franchisees, fostering growth for local and international investors. 

However, meeting these regulatory requirements can be challenging without the right expertise. This is where InCorp Indonesia (an Ascentium Company) can help: 

  • Company Registration: Simplify the process of establishing your franchise in Indonesia with expert guidance on legal setup and documentation. 
  • Business Process Outsourcing: Focus on growing your franchise while outsourcing administrative, payroll, and operational tasks to professionals. 

Fill out the form below to ensure your franchise operates smoothly and complies with Indonesian regulations. 

Daris Salam

COO Indonesia at InCorp Indonesia

With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.

Get in touch with us.

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Frequent Asked Questions

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.