Market Setup, Franchising Regulations and JV Considerations for F&B and Retail in Indonesia

Transcription

1 Market Setup, Franchising Regulations and JV Considerations for F&B and Retail in Indonesia BY : Angeline Suparto ( 胡 慎 之 ) LLB (Hons), PCLL (HKU) Advocate & Solicitor (Singapore) Solicitor (Hong Kong, United Kingdom & Australia Capital Territory) SINGAPORE OFFICE JAKARTA ASSOCIATED OFFICE ANGELINE SUPARTO LAW CORPORATION AS ADVISORY INDONESIA 80 Raffles Place, #24-20 Telephone: (62)-(813) UOB Plaza 2 (62) Singapore [email protected] Telephone: (65) Facsimile: (65) Mobile: (65) [email protected] Regional Lawyers Singapore Jakarta *iadvisory Seminar 7 November 2013*

2 INTRODUCTION 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 parttime demonstrator at the School of Law, University of Hong Kong from 1982 to 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 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 She has been appointed as a Commissioner for Oaths since 2001 and a Notary Public since 2006 by the Singapore Academy of Law.. 2

3 INTRODUCTION Angeline has been advising clients on the legal aspects of investment and doing business in Indonesia since She established Angeline Suparto & Company and its Jakarta associated office in The name of the firm was changed to Angeline Suparto Law Corporation in November 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). 3

4 1. SETTING UP A NEW F&B OR RETAIL BUSINESS BASIC LEGAL ISSUES TO CONSIDER (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? 4

5 2. DIFFERENT TYPES OF BUSINESS SET-UP (A) (B) (C) (D) 100% foreign-owned or Joint Venture Company ( PMA Company) Local Company (non-pma, all Indonesian Shareholders) (NB: Caveat against nominee arrangements under Indonesian law & public policy) Representative Office Trade Representative Office 5

6 3. DIFFERENT FORMS OF BUSINESS COOPERATION (A) (B) (C) (D) (E) Joint Venture Agreement Collaboration/Cooperation Agreement Trademark Licence Agreement + Technical Assistance Agreement for management of F&B outlets Distributorship Agreement Franchise Agreements (Master/Area/Unit/Sub-Franchise) 6

7 4. HIGHLIGHTS OF THE PREVAILING INVESTMENT LAW & REGULATIONS (A) (B) (C) (D) (E) Law No. 25 of Year 2007 on Investments The Latest Negative List 2010 (President Regulation No. 36 of 2010) 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 ) The BKPM Regulation No. 5/2013 on Guidelines and Procedures for Investment Applications as amended by BKPM Regulation No. 12/2013 Others 7

8 5. EXAMPLES OF MAXIMUM FOREIGN SHAREHOLDING UNDER THE LATEST 2010 NEGATIVE LIST: 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% 8

9 5. EXAMPLES OF MAXIMUM FOREIGN SHAREHOLDING UNDER THE LATEST 2010 NEGATIVE LIST: 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. 9

10 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 Tax Registration Number (NPWP) and Tax Registration Certificate (SKT) Apply for SIUP (Business Licence) : Not applicable for foreign investment company Apply for TDP and registration of DOE in Registry of Companies (Ministry of Trade) Opening a bank account and deposit the issued capital into this account Publication of DOE in State Gazette 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. 10

11 7. COMPANY ORGANS OF AN INDONESIAN COMPANY BOARD OF DIRECTORS (Anggota Direksi) Executive Management Responsibility Supervise / Monitor BOARD OF COMMISSIONERS (Dewan Komisaris) Supervisory Board Foreign Investment Company or Local Company (Perseroan Terbatas) SHAREHOLDERS (Pemegang Saham) 11

12 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 12

13 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) 13

14 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). 14

15 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) (iii) 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. 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 15

16 9. FRANCHISING IN INDONESIA (Con t) (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 16

17 9. FRANCHISING IN INDONESIA (Con t) (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. 17

18 9. FRANCHISING IN INDONESIA (Con t) (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) 18

19 9. FRANCHISING IN INDONESIA (Con t) (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. 19

20 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 20

21 10. BUYING AND LEASING PROPERTY IN 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 21

22 10. BUYING AND LEASING PROPERTY IN 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 22

23 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.) 23

24 CASE STUDY 1 : IMPORTANCE OF IPR PROTECTION (A) Trademark Registration (B) Trademark Infringement (i) Opposition Proceedings (ii) Cancellation Action in Commercial Court (iii) Trademark Infringement Action (C) Need for License Agreement 24

25 CASE STUDY 2 : MANAGEMENT MODULE (RESTAURANT) Singapore Holding Company Master License Agreement 100% Sub-License Agreement & Technical Assistance Agreement Singapore SPV Indo Partner Singapore Indonesia Owns and Operates Restaurant 1 Restaurant 2 etc. 25

26 CASE STUDY 3 : JV STRUCTURE (1) FOR RESTAURANT Singapore Holding Company Master License Agreement Sub-License Agreement & Technical Assistance Agreement Singapore SPV 51% JVC 99% Joint Venture Agreement Indonesian Partner 49% 2 nd Shareholder 1% Singapore Indonesia Operating Subsidiary 1 Restaurant 1 Owns and Operates Operating Subsidiary 2 etc. Owns and Operates Restaurant 2 etc. 26

27 CASE STUDY 4 : JV STRUCTURE (2) FOR RESTAURANT Master License Agreement Singapore Holding Company Singapore SPV 51% Joint Venture Agreement Singapore Sub-License Agreement & Technical Assistance Agreement Indonesian Partner 49% Indonesia JVC Owns and Operates Restaurant 1 Restaurant 3 etc. Restaurant 2 27

28 CASE STUDY 5 : FRANCHISE STRUCTURE US Master Franchisor Singapore Co A Singapore Co B Master Franchise Agreement 99% 1% PMA Co (must own 1 outlet) Overseas Indonesia Sub-Franchise Agreement Sub-Franchisee 1 Sub-Franchise Agreement Sub-Franchisee 2 Sub-Franchise Agreement Sub-Franchisee 3 etc. Owns and Operates Owns and Operates Owns and Operates Franchised Outlet 1 Franchised Outlet 2 Franchised Outlet 3 etc. 28

29 CASE STUDY 6 Note : This structure is not allowed under the current franchise law and regulations. Singapore Co A Singapore Co B Master Franchise Agreement 99% 1% PMA Co Sub-Franchisee Sub-Franchise Agreement Singapore Indonesia Owns and Operates Franchised Outlet 29

30 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. 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 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. For further information, Please contact Ms Angeline Suparto or Mr Patrick Tuah at: Telephone: (65) Mobile: (65) , (65) , (62) , (62) [email protected] 30