Legal Insights

Core Provisions of Goods Distribution in Indonesia: Things Foreign Brands Should Know

As Indonesia’s consumer market continues to expand, brand owners are increasingly seeking entry into the country. However, navigating the regulatory framework for appointing and operating through local distributors is essential to ensure legal compliance and smooth business activities. Indonesia’s legal framework on goods distribution is primarily governed by Government Regulation No. 29 of 2021 and Trade Ministerial Regulation No. 24 of 2021. Based on these regulations, here are 10 (ten) key things brand owners need to know when distributing their goods into the Indonesian market: 

(1) Legalized Distribution Agreements 

Arrangement with local distributors by a foreign company must be accompanied by a written agreement that is legalized by a public notary, and a certificate or legalization from the Indonesian Trade Attaché or an official of the Indonesian Representative Office in the principal’s country. Although there are no legal sanctions when this provision is violated and parties are free to choose their suitable method of engagement, it is necessary to consider other private legal consequences toward the distribution deal. 

(2) Use of Indonesian Language 

Any agreements made in Indonesia must be in the Indonesian language. If a foreign party is involved, such agreement shall be drawn up in bilingual form, namely in the Indonesian language and the national language of the foreign party and/or in the English language. 

(3) Contents of the Agreement 

Distribution agreements must contain at least: 

1. the name and full address of the parties; 

2. purpose and objectives of the agreement; 

3. agency or distributor status; 

4. type of goods; 

5. marketing area; 

6. rights and obligations of the parties; 

7. authority; 

8. agreement period; 

9. termination method; 

10. dispute resolution; 

11. applicable law; and 

12. deadline for dispute resolution. 

(4) Distributor Requirements 

Distributors who wish to conduct goods distribution are required to possess a business license as a distributor. The type of licenses may vary according to the sector in which they operate and the business’ risk level. Distributors must also have or control a permanent place of business and a registered warehouse.  

(5) Term of Distributor Appointment 

When appointing a sole distributor, the term of appointment is at least 5 (five) years with a one-time mandatory extension for another 5 (five) years. Regular distributors, on the other hand, do not require a minimum term of appointment.  

(6) Number of Appointed Distributors 

Companies may make a distribution agreement with only 1 (one) sole distributor for the same type of goods of a brand in a certain marketing area for the overall term of appointment. Alternatively, companies may appoint 1 (one) or more regular distributors for the same type of goods of a brand outside the marketing area of a sole distributor.  

(7) Distributor Registration Certificate 

Although not legally required, distributors can obtain a Registration Certificate (known as Surat Tanda Pendaftaran - ”STP”) once the distribution agreement is enforced and legalized. If more than 1 (one) sole distributor is appointed for the same type of product and brand in a specific market region, the STP is granted to the first applicant. 

(8) Reasons for Terminating an Existing Agreement 

Distribution agreements are valid until the period that is agreed upon and stated within. Agreements may be terminated prematurely if: 

1. the company is dissolved; 

2. the company stops its activities; 

3. the company goes bankrupt or insolvent; and/or 

4. agreed by both parties. 

In addition, the parties are required to include a termination clause in the agreement, which allows them the flexibility to stipulate additional termination grounds based on their mutual contractual arrangements. 

(9) Consequence of Premature Agreement Termination 

When an agreement is terminated while the distributor’s STP is still valid and is followed by the appointment of a new distributor, the new distributor can only receive a STP after the previous distributor and the principal have reached a “clean break”.  

A “clean break” signifies that the termination settlement has been completed, and that the agreement is officially at an end. 

If the “clean break” is not reached within a period of 3 (three) months after the agreement termination, the previous distributor’s STP is considered invalid, and the principal may appoint a new distributor. However, efforts to reach a “clean break” must continue to be attempted by the parties. 

If the termination of the agreement is not followed by the appointment of a new distributor, the principal is obliged to continue to supply spare parts to the previous distributor for at least 2 (two) years to maintain continuity of after-sale services to its consumers. Please note that several sectors, such as cosmetics, may have separate provisions on this matter. 

(10) Sector-Specific Requirements 

Several industry sectors may have different and/or additional distribution requirements in sector-specific regulations. For example, distributors in the cosmetics sector are required to possess a distribution permit (izin edar) from the Indonesian Food and Drug Authority. It is important to pay attention to supplemental provisions in certain sectors.  

Foreign brands seeking to enter the Indonesian market through local distributors must fully understand the legal framework governing distribution relationships to avoid compliance risks and potential disputes. This includes familiarizing themselves with the contractual requirements, registration obligations, and other specific conditions. Addressing these legal provisions from the outset will support a more stable and successful entry into the Indonesian market.