Market Setup, Franchising Regulations and JV .../media/IE Singapore... · UOB Plaza 2...

SINGAPORE OFFICE JAKARTA ASSOCIATED OFFICE

ANGELINE SUPARTO LAW CORPORATION AS ADVISORY INDONESIA

80 Raffles Place, #24-20 Telephone: (62)-(813)-8080-2109

UOB Plaza 2 (62)-8139-8888-072

Singapore 048624 Email: [email protected]

Telephone: (65) 6223 3638

Facsimile: (65) 6223 3090

Mobile: (65) 9639 9711

Email: [email protected]

*iAdvisory Seminar – 7 November 2013*

BY : Angeline Suparto (胡慎之) LLB (Hons), PCLL (HKU)

Advocate & Solicitor (Singapore)

Solicitor (Hong Kong, United Kingdom & Australia Capital Territory)

Market Setup, Franchising Regulations

and JV Considerations for F&B and

Retail in Indonesia

Regional Lawyers Singapore · Jakarta

Ms. Angeline Suparto graduated from the University of Hong

Kong in 1982 with an LL.B (Hons 2nd Upper) degree. Angeline

was awarded the Simon K.Y. Lee Medal in Laws by ranking first

in the Class of 1982 and the Bakers & McKenzie Book Prize for

obtaining a distinction in Company Law. Angeline was a part-

time demonstrator at the School of Law, University of Hong

Kong from 1982 to 1983. She obtained the Postgraduate

Certificate in Law from the University of Hong Kong in 1983 and

was admitted to the Supreme Court of Hong Kong as a Solicitor

in March 1985. She was also admitted as a Solicitor of the

Supreme Court of England in November 1988, as a Barrister &

Solicitor of the Supreme Court of the Australian Capital Territory

in December 1989 and to the Singapore Bar as an Advocate

and Solicitor in January 1991. She has been appointed as a

Commissioner for Oaths since 2001 and a Notary Public since

2006 by the Singapore Academy of Law.

INTRODUCTION

. Angeline Suparto Law Corporation

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Angeline has been advising clients on the legal aspects of investment and doing

business in Indonesia since 1985. She established Angeline Suparto & Company and

its Jakarta associated office in 2001. The name of the firm was changed to Angeline

Suparto Law Corporation in November 2011.

Working in conjunction with its Jakarta associated office, the firm specializes in

providing Indonesian legal advice, documentation and services on Market Entry into

Indonesia, Indonesian company set up, Corporate Secretarial matters for Indonesian

companies, Acquisition of Indonesian companies/businesses, Joint Venture,

Distributorship, Franchising, Real Estate/Property and Dispute Resolution matters in

Indonesia.

Angeline has spoken regularly on topics of Indonesian Law in Seminars and Forums

organized by various Government agencies, Chambers of Commerce and Business

Associations in Singapore, Hong Kong and Indonesia. Angeline is the Deputy

Chairman of the ASEAN Regional Business Group of the Singapore Manufacturing

Federation, a member of the Steering Committee of Network Indonesia, and a

Founding Member of the Singapore Chamber of Commerce, Indonesia. She is also a

member of the Hong Kong Singapore Business Association, the Singapore Chinese

Chamber of Commerce and Industry, and the Franchising and Licensing Association

(Singapore).

INTRODUCTION

Angeline Suparto Law Corporation

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1. SETTING UP A NEW F&B OR RETAIL BUSINESS

– BASIC LEGAL ISSUES TO CONSIDER


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(A) Do you need to set up a legal entity in Indonesia?

(B) Is your proposed line of business open to Foreign Direct Investment, or is it under the “Negative List”?

(C) What is the minimum amount of capital you have to put into your Indonesian company?

(D) Do you need a Local Partner (Shareholder, Director or Commissioner)?

(E) What are the Licences / Permits you need to obtain to operate your F&B or retail business in Indonesia?

2. DIFFERENT TYPES OF BUSINESS SET-UP


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(A) 100% foreign-owned or Joint Venture Company (“PMA” Company)

(B) Local Company (non-PMA, all Indonesian Shareholders) (NB: Caveat against nominee arrangements under Indonesian law & public policy)

(C) Representative Office

(D) Trade Representative Office

3. DIFFERENT FORMS OF BUSINESS

COOPERATION


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(A) Joint Venture Agreement

(B) Collaboration/Cooperation Agreement

(C) Trademark Licence Agreement + Technical Assistance Agreement for management of F&B outlets

(D) Distributorship Agreement

(E) Franchise Agreements (Master/Area/Unit/Sub-Franchise)

4. HIGHLIGHTS OF THE PREVAILING

INVESTMENT LAW & REGULATIONS


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(A) Law No. 25 of Year 2007 on Investments

(B) The Latest Negative List 2010 (President Regulation No. 36 of 2010)

(C) Minister of Trade Regulation No. 01/M-DAG/PER/1/2012 dated 2 January 2012 concerning Delegating the Authority to Issue Investment Permits to the Head of the Indonesia Investment Coordinating Board Under the One Stop Integrated Services Framework for Investment (“MR No. 1/2012”)

(D) The BKPM Regulation No. 5/2013 on Guidelines and Procedures for Investment Applications as amended by BKPM Regulation No. 12/2013

(E) Others

5. EXAMPLES OF MAXIMUM FOREIGN SHAREHOLDING

UNDER THE LATEST 2010 NEGATIVE LIST:


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TYPE OF BUSINESS PERCENTAGE OF

FOREIGN

SHAREHOLDING

Manufacturing

Mining

Mining Services

Property Developer/Property Management

Main Distributor (Trading)

General Business Consultancy

Waste Processing

Food Processing

Oil and Gas Drilling Services

Palm Oil/Sugar Cane/Rubber Plantation

Construction Work for Buildings

Specialist Healthcare & Hospital Services

Specialist Clinics/Dental Clinics

*Please note: maximum foreign shareholding limit under the various Ministry of Energy

and Mineral Resources Regulations

Maximum 100%

Maximum

75%*/49%*

Maximum 100%*

Maximum 100%

Maximum 100%

Maximum 100%

Maximum 100%

Maximum 95%

Maximum 95%

Maximum 67%

Maximum 67%

Maximum 67%

Maximum 67%

5. EXAMPLES OF MAXIMUM FOREIGN SHAREHOLDING

UNDER THE LATEST 2010 NEGATIVE LIST:


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TYPE OF BUSINESS PERCENTAGE OF

FOREIGN

SHAREHOLDING

Mobile Network Operations/Internet/Interconnection Services

Restaurants Fitness Centres

Shipping (International or Domestic)

Language & Computer Centres

Freight Forwarding (Transportation Arrangement Service)

Retail Shop (e.g. fashion boutique, bakery outlets, car

showroom but note exception for “big” retail outlet: see

below) Private Cleaning Services

Tour Agency

Press/Newspaper Company

Maximum 65%

Maximum 51% Maximum 51%

Maximum 49%

Maximum 49%

Maximum 49%

0%

0%

0%

0%

(special treatment for investment from ASEAN countries)

Note: The Indonesian Government has announced that a revised Negative List will be issued soon.

6. INDONESIAN COMPANY- INCORPORATION PROCESS

(PMA COMPANY AND LOCAL PT COMPANY)

Deed of Establishment incorporating Articles of Association (DOE)

Apply for Letter of Domicile (LOD)

Submit DOE to Ministry of Law and Human Rights

Approval from Ministry of Law and Human Right

Apply for TDP and registration of DOE in Registry

of Companies (Ministry of Trade)

Publication of DOE in State Gazette

Apply for SIUP (Business Licence) : Not applicable for foreign investment company

Opening a bank account and deposit the issued capital into this account

Note: (1) For Foreign Investment (PMA) Company-Izin Princip and other relevant licences from BKPM

(eg Business Licence/Izin Usaha)and LKPM (Investment Activity Report) and (2) technical

licenses from other Ministries/Government Authorities.


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Apply for Tax Registration Number (NPWP) and Tax Registration

Certificate (SKT)

7. COMPANY ORGANS OF AN INDONESIAN

COMPANY

BOARD OF DIRECTORS

(Anggota Direksi)

• Executive Management Responsibility

BOARD OF COMMISSIONERS

(Dewan Komisaris)

• Supervisory Board

Foreign Investment Company or

Local Company

(Perseroan Terbatas)

SHAREHOLDERS

(Pemegang Saham)

Supervise / Monitor


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8. WAYS TO ENTER THE RETAIL SECTOR IN

INDONESIA

(A) Via Direct Investment

(i) Maximum 51% shareholding for foreign investors

• Restaurant / F&B Outlet

(ii) 100% open for foreign direct investment with minimum floor area

above 2,000sqm

Examples:

• Supermarkets / Hypermarkets

• Department Stores

• Furniture Showroom


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8. WAYS TO ENTER THE RETAIL SECTOR IN

INDONESIA (Con’t)

(B) Via other Forms of Commercial Agreement / Arrangements

(i) Technical Assistance Agreement

(ii) Licence Agreement (re: Intellectual Property Rights).

(C) Via Franchising By appointing an Indonesian franchisee (including a foreign investment / PMA Company but note restrictions on group franchising arrangement)


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9. FRANCHISING IN INDONESIA

(A) The correct legal structure for franchising into Indonesia

(i) Singapore standard Franchise Agreement cannot be used in Indonesia.

(ii) All Franchise Agreements for use in Indonesia must be governed by Indonesian Law written in Bahasa Indonesia (in addition to English) and contain minimum provisions prescribed by the Franchise Regulations.

(iii) Before a Singapore company can franchise its business into Indonesia, the business must fulfil certain criteria including a proven track record of profitability for the last 2 years, or an average profitability for the last 5 years, as shown by the audited financial statements of the Franchisor. Hence, it would not be possible to incorporate a new company (either in Singapore or Indonesia) as a Special Purpose Vehicle to act as the Franchisor in Indonesia. The Franchisor must therefore have owned and operated at least one outlet which meets the above profitability requirement (but note the possibility of submitting an explanatory letter to the new Evaluation Team).

(iv) In addition, the trademark of the Franchisor to be used in the franchised business must have been registered in Indonesia, or at least, the application for registration has been submitted to the Trademark Office in Indonesia (but note risks involved).


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9. FRANCHISING IN INDONESIA (Con’t)

(B) Conditions to be Satisfied prior to Signing of the Franchise Agreement and Commencement of the Franchised Business

(i) Prior to entering into the Franchise Agreement with the prospective Franchisee, the

Franchisor must provide its Prospectus as well as the draft Franchise Agreement to the prospective Franchisee at least 2 weeks before signing.

(ii) In addition, the Franchisor is obliged to register its Prospectus (translated into Bahasa Indonesia and legalized by the Indonesian Embassy) with the Department of Trade in Indonesia, in order to obtain the Franchisor’s Registration Certificate, before it can enter into the Franchise Agreement with the Franchisee.

(iii) Before the franchised outlet can commence business, the Franchisee must obtain the Franchisee Registration Certificate by submitting the signed Franchise Agreement to the Ministry of Trade for registration.

(C) Highlights of a Typical Indonesian Franchise Agreement (i) Obligations of Franchisor (NB: Fostering and Supervision) (ii) Obligations of Franchisee/Annual Reporting to Department of Trade. (iii) Franchise Agreement may allow Franchisee to sub-franchise to third parties, provided

that Franchisee operates at least one franchise outlet. (iv) Termination of Franchise Agreement/Clean Break Letter or final court decision


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(D) New Franchise Regulation The Ministry of Trade has issued Regulation No. 53/2012 on the Implementation of Franchising dated 24 August 2012, revoking the previous regulation under Regulation No. 31/2008. The important changes are as follows:

(i) No Group Franchise Arrangements

Franchisors are prohibited from appointing franchisees that have a direct or indirect

controlling or subordinate relationship with them (e.g. subsidiary, affiliate, or parent

company). Franchisor’s control over franchisee can only be achieved through

contractual arrangements.

(ii) Franchise termination

If a franchise agreement is terminated prior to its expiration, a franchisor may not appoint

a new franchisee for the same area unless the parties have reached an agreement

settling all matters between them and either (i) a "clean break" agreement is issued to

certify that there are no outstanding obligations or liabilities; or (ii) there is a final and

binding court decision determining any dispute between the parties


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(iii) Special franchise logo

Registered franchisors and franchisees are obliged to use the franchise logo, the

specification and procedure of which will be governed by a separate ministerial

regulation.

(iv) Local Content Requirement

The New Regulation now requires the franchisee to use at least 80% Indonesian made

raw materials and/or inventory. An exemption from this requirement may be granted by

the Minister of Trade upon recommendation from the Evaluation Team.

(v) SME Involvement

Franchisors are required to appoint small and medium Indonesian enterprises as

franchisees or the suppliers to the franchised outlets, provided that they are able to

meet the franchisor’s criteria.


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(vi) Franchised business activities

A franchised business must operate in accordance with the franchisee registration

certificate granted to the Franchisee and can only sell other goods (which supports its core business) provided that such other goods do not exceed 10% of the total goods sold.

(vii) Restrictions on maximum number of franchised outlets

a) up to 250 outlets for F&B sector (Ministry of Trade Regulation No. 7/2013)

b) up to 150 outlets for modern / convenience stores (Ministry of Trade Regulation

No.68/2012)


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(viii) Franchise Registration The current procedures for obtaining the Franchisor Registration Certificate (STPW) are

as follows: a) The applicant may be required to make a presentation to the Evaluation Team to obtain a

registration recommendation.

b) A franchise prospectus in a language other than Bahasa Indonesia must be officially translated and submitted with the franchise agreement.

c) Except for small and medium franchisors, the franchisor’s financial statements (for 2 years) must be audited by a public accountant.

d) Total number of outlets must be specified together with the compositions of employment and inventory / food / ingredients.

e) Results of STPW application will be issued within 2 days of receipt of complete application and supporting documents

Compliance with the New Regulation is not required for currently registered franchise agreements which are valid until their expiration date, but is required for a renewal of the existing registration or if there is any expansion of the franchised business.



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10. BUYING AND LEASING PROPERTY IN

INDONESIA

(A) Different Types of Land Title

• Hak Milik (“HM”) – Freehold Ownership Right (cannot be legally owned by the

PMA Company)

• Hak Guna Usaha (“HGU”) – Right to Cultivate (max. 95 years)

• Hak Guna Bangunan (“HGB”) – Right to Build (max. 80 years)

• Hak Pakai (“HP”) – Right to Use (max. 70 years)

• Hak Milik atas Satuan Rumah Susun (”HMSRS”) – Strata Title

• HPL (Right to Manage) – e.g. HGB or HP on HPL land

• Hak Guna Bangunan over Hak Milik

• Hak Pakai over Hak Milik

• Hak Sewa – Contractual Right to Lease (not a registered proprietary interest)

(B) Extension of Land Title

• Time frame


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INDONESIA (Con’t)

(C) Procedures on Purchase of Property

• Land Title Search

• Binding Sale and Purchase Agreement

• Akte Jual Beli (Transfer Deed)

• Balik Nama at Land Office (Registration of Change of Ownership)

• Spousal Consent or Deed of Separation of Assets

(D) Conversion of Land Title

• From Hak Milik to Hak Guna Bangunan.

• Pros and Cons


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INDONESIA (Con’t)

(E) Lease Agreement

• Verification of title of Landlord

• Mortgagee’s Consent

• Spousal Consent

• Timing /Letter of Intent

(F) Other Matters to take note of

• National Land Agency (BPN) – regulates land matters other than forestry and mining

• Hak Tanggungan (Mortgage)

• Fiduciary Security

• Power of Attorney (Surat Kuasa)

• Multiple Inheritance / Adat Law / Land Clearance

• Special Structures / Arrangements


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11. AVOIDING COMMON LEGAL PITFALLS WHEN

DOING BUSINESS IN INDONESIA

(A) Hearsay versus Proper Verification and Independent Legal Advice

(B) Avoid Misunderstanding or Mismatch of Expectations; hence need proper documentation from Day One.

(C) Other relevant issues such as:

(i) Manpower Law Issues (ii) Regional Autonomy Issues (iii) Language of Indonesian Agreements (iv) Understanding the Culture

(D) Unenforceability of nominee arrangements (shares/land etc.)


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(A) Trademark Registration

(B) Trademark Infringement

(i) Opposition Proceedings

(ii) Cancellation Action in Commercial Court

(iii) Trademark Infringement Action

(C) Need for License Agreement

CASE STUDY 1 : IMPORTANCE OF IPR PROTECTION


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CASE STUDY 2 : MANAGEMENT MODULE (RESTAURANT)


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Singapore Holding Company

Singapore SPV

Indo Partner

Sub-License Agreement &

Technical Assistance Agreement

Master License

Agreement

Restaurant 1 Restaurant 2 etc.

Singapore

Indonesia

Owns and Operates

100%


Singapore SPV

JVC

Indonesian Partner

Operating Subsidiary 1

Joint Venture Agreement

Master License

Agreement

CASE STUDY 3 : JV STRUCTURE (1) FOR RESTAURANT

49%


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Sub-License Agreement &

Technical Assistance

Agreement

Operating Subsidiary 2 etc.

Singapore

Indonesia


99%

2nd Shareholder

1%

51%

Owns and Operates Owns and Operates

CASE STUDY 4 : JV STRUCTURE (2) FOR RESTAURANT


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Singapore SPV

JVC

Indonesian Partner

Joint Venture Agreement

Master License

Agreement

51%

49%

Sub-License Agreement

& Technical Assistance

Agreement


Restaurant 2

Singapore

Indonesia

Owns and Operates

CASE STUDY 5 : FRANCHISE STRUCTURE

US Master Franchisor Singapore Co A Singapore Co B

PMA Co

(must own 1 outlet)

99% 1%

Sub-Franchisee 1

Sub-Franchise

Agreement

Franchised

Outlet 1

Franchised

Outlet 2

Franchised

Outlet 3 etc.

Sub-Franchise

Agreement Sub-Franchise

Agreement

Master

Franchise

Agreement


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Overseas

Indonesia

Owns and Operates Owns and Operates Owns and Operates

Sub-Franchisee 2

Sub-Franchisee 3 etc.

CASE STUDY 6

Singapore Co A Singapore Co B

PMA Co

99% 1% Master

Franchise

Agreement

Note : This structure is not allowed under the current franchise law and

regulations.


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Singapore

Indonesia

Sub-Franchisee

Franchised

Outlet

Owns and Operates

Sub-Franchise

Agreement

THANK YOU.

This presentation contains only general information and is not a substitute for professional advice or

service, nor should it be used as a basis for any decision or action that may affect your business or

otherwise. Before undertaking any such action, you should consult a qualified professional adviser.

Angeline Suparto Law Corporation is not responsible for any loss whatsoever sustained by

anyone who relies (solely or in part) on this presentation.

All material in this presentation is the property of Angeline Suparto Law Corporation which is

protected by intellectual property law. Reproduction or retransmission, in whole or in part, in any

form, is prohibited unless with the prior written consent of Angeline Suparto Law Corporation.

For further information,

Please contact Ms Angeline Suparto or Mr Patrick Tuah at:


Telephone: (65) 6223 3638

Mobile: (65) 9639 9711, (65) 9650 4109, (62) 813 8080 2109, (62) 8139 8888 072

Email: [email protected]


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mailto:[email protected]

Market Setup, Franchising Regulations and JV .../media/IE Singapore... · UOB Plaza 2...

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