On 4 September 2019, the Ministry of Trade ("MOT") has just issued a Regulation of the Minister of Trade ("RMOT") No. 71 of 2019 regarding Franchising ("RMOT 71/2019"). The issuance of this RMOT 71/2019 was carried out in order to facilitate the operation of franchise and unify franchise activities into one single regulation. RMOT 71/2019 revokes the following regulations:

1. RMOT No. 53/M-DAG/PER/8/2012 of 2012 regarding Franchising;
2. RMOT No. 68/M-DAG/PER/10/2012 of 2012 regarding Franchises for Modern Store Business;
3. RMOT No. 07/M-DAG/PER/2/2013 of 2013 regarding the Development of Partnerships in Food and Beverages Franchises; dan
4. RMOT No. 60/M-DAG/PER/2013 of 2013 regarding Franchises Logo;

("Previous Regulations").

New Key Provisions

Some new key provisions under the RMOT 71/2019 are as follows:

  1. RMOT 71/2019 provides more defined explanation of the criteria of a franchise, namel
  2. It must have a Special Business Characteristic (Ciri Khas Usaha);
  3. Proven to be profitable, i.e. if the franchisor has at least 5 years of experience;
  4. Easy to be taught and applied;
  5. Ongoing support shall be available; dan
  6. The Intellectual Property Rights, as part of the franchise, has been registered or in the process of registration to the Directorate General of Intellectual Property ("DGIP"),
  7. RMOT 71/2019 obliges Franchisor, Franchisee, Sub-Franchisor and Sub-Franchisee ("Franchise Business Actors") to obtain Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba – “STPW") by applying through the Online Single Submission system;
  8. RMOT 71/2019 affirms that franchise agreement must be formed and resolved under Indonesian law and drafted in Indonesian language. In addition to this, the franchise offering prospectus must also be made in Indonesian language. If it is written in foreign language it must be officially translated into Indonesian language; dan
  9. Franchise agreement must include a provision regarding the change of franchise ownership.


Revoked Terms

The limitation number of 150 outlets for modern store and 250 outlets for food and beverage business (as stipulated in the Previous Regulations) is no longer stipulated in RMOT 71/2019; dan

The restriction to franchisors to appoint new franchisee in the same area upon the occurrence of unilateral termination of the franchise agreement (unless a “clean break” or a final and binding court decision is granted), is revoked. Thus, this can be interpreted that franchisor may appoint new franchisee in the same area although the existing franchise agreement is terminated unilaterally (without clean break or obtained court decision).


Amended Terms


RMOT 71/2019 also amend several provisions, antara lain:


1. Franchise Business Actors are now required to submit annual reports to the Director of Business Development and Distribution Performers of the MOT through the Online Single Submission system; dan
2. Amending the limitation on the use of 80% locally sourced raw materials, equipment or products. RMOT 71/2019 now only obliges Franchise Business Actors to prioritize the use of local goods and services.

Sanctions

1. Any Franchise Business Actors who does not hold a STPW may be subject to criminal sanction as stipulated in Law No. 7 of 2014 regarding Trade i.e. imprisonment of at most 4 (four) years or a tine of at most Rp10,000,000,000 (ten billion rupiah); dan
2. Any violation to the provision under the RMOT 71/2019 i.e. negligence in providing guidance to the franchisee and in reporting business activities or improper use of franchise logo may be subject to an administrative sanction i.e. written warning and revocation of STPW.


This client alert is intended to provide an overview only, thus, cannot be deemed as a legal advice. Please do not hesitate to contact us if you need a more detailed discussion and/or advice.


BRIGITTA I. RAHAYOE & PARTNERS

Emails: Brigitta I. Rahayoe brigitta@brigitta.co.id

Ahmad Fadli sebuahhmad.fadli@brigitta.co.id

Michael H. Giovanni michael.giovanni@brigitta.co.id