Thinking of franchising your brand? The law wants proof first.
Franchising looks like the fast lane: other people's capital, other people's managers, your brand on more doors. Indonesian law, however, treats a franchise as something you must earn the right to sell - and since September 2024, the rules are codified in Government Regulation No. 35 of 2024 (PP 35/2024), which replaced the 2007 regime.
You cannot legally franchise a concept in Indonesia until the business itself has proven it deserves to be copied.
What the regulation actually requires
To offer a franchise, your business must meet the waralaba criteria - and the profitability test is specific. The business must have operated for at least three consecutive years, and you must show financial statements for the last two years that demonstrate a profit, audited by a public accountant with an unqualified opinion. (Micro and small enterprises are exempt from the audit requirement, not from the profitability itself.)
A popular version of this rule says you need "three profitable branches." That's a myth worth killing: the regulation counts years, not branches. One outlet that has made money for three straight years can qualify; ten outlets opened last year cannot.
Beyond the track record, PP 35/2024 expects a franchise to have a documented business system - written SOPs a franchisee can follow - registered intellectual property (at minimum your trademark), and a genuine commitment to support franchisees with training and guidance. You must also register a franchise prospectus before offering, and hold a Surat Tanda Pendaftaran Waralaba (STPW) - the registration that makes the whole arrangement legal. One newer wrinkle: franchisors are now required to work with Indonesian MSMEs as suppliers where quality standards allow.
Is non-compliance criminal?
You'll hear it said that franchising without the paperwork is pidana - a criminal offence. As far as the franchise regulation goes, that's not accurate. Sanctions under PP 35/2024 and its implementing rules are administrative: written warnings, fines, suspension, and ultimately revocation of business licensing. Using the word "franchise", the logo, or the trappings of one without an STPW draws the same administrative track.
That is not a reason to relax. Administrative sanctions can still stop your expansion cold - and if a franchise was sold on numbers that were never real, ordinary criminal law on fraud is always available to an angry franchisee's lawyer. The regulation isn't what sends people to court; the misrepresentation is.
What this means if you're two years in
If your concept is younger than three years, the law has effectively scheduled your homework: run the business well, keep clean audited books, register your trademark now (it takes longer than you think), and write the operating system down as you go. Do that, and when year three closes you're not starting the franchise journey - you're finishing it.