Are foreign franchisors treated differently to domestic franchisors?

Franchise & Licensing

Angola Small Flag Angola

Law 18/03 does not provide any difference between foreign and domestic franchisors; nonetheless, we advise that foreign franchisors, are subject to additional foreign exchange requirements with regards to the payments made by the Angolan franchisees as mentioned in 16. above. Also, it should be noted that the supply and import of goods into Angola require franchisees to be duly licensed and the need to comply with several import requirements foreseen by law.

Canada Small Flag Canada

Foreign franchisors are required to comply with applicable Canadian provincial franchise legislation to the same degree as domestic franchisors. Different tax rules may apply to foreign franchisors, however, as might import or export regulations. Additional considerations, including under corporate law, foreign investment review legislation (ie, the Investment Canada Act) and employment law, may arise depending on the structure employed by the franchisor in its expansion (eg, if the franchisor is franchising directly into Canada as opposed to establishing a Canadian corporation to act as master franchisee or distributor).

Chile Small Flag Chile

No.

Denmark Small Flag Denmark

Foreign franchisors are not and may not be treated differently from domestic franchisors.
As a member of the European Union, Denmark is committed to observe the principle of free movement of goods, persons, services and capital, and the general prohibition against discrimination on grounds of nationality. Consequently, there are no market entry restrictions or other approval requirements that apply to foreign franchisors in Denmark. This also applies to foreign franchisors from outside the EU.

However, persons who are not residents of Denmark and who have not previously been resident in Denmark for a total period of five years may only acquire title to real property in Denmark after having obtained permission from the Ministry of Justice. This also applies to companies that do not have their registered office in Denmark, such as foreign franchisors.

EU or EEA nationals may acquire an all-year dwelling in Denmark without obtaining permission from the Ministry of Justice on certain conditions. The same applies to companies established in accordance with the law of an EU or EEA Member State that have established branches or agencies in Denmark or intend to do so or plan to deliver services in Denmark.

It is a requirement that the property will serve as a necessary all-year dwelling for the acquirer or that the acquisition is a precondition for engaging in self-employed activities or providing services.

Azerbaijan Small Flag Azerbaijan

According to Article 6 of the Republic of Azerbaijan, civil rights subjects are equal. In this regard, discrimination in civil law relations is not permitted in Azerbaijan.

Egypt Small Flag Egypt

There is no difference in the treatment of a foreign franchisor and a domestic franchisor. The contract that will be executed is a consensual contract which provisions shall apply whether the franchisor is foreign or domestic.

France Small Flag France

French law does not discriminate between domestic and foreign-owned businesses.

Nevertheless, foreign franchisors may opt to use separate entities when entering the French market for reasons relating to liability and tax issues, however, such reasons are not specific to franchising.

The French Monetary and Financial Code does provide certain restrictions on foreign investments in activities involved in the exercise of public authority, or in certain sensitive business activities (i.e., trade of weapons trade, gambling), in which case investors must obtain prior authorisation from the competent ministry.

Greece Small Flag Greece

No, foreign franchisors are not treated differently to domestic franchisors.

Mexico Small Flag Mexico

Domestic and foreign franchisors are not treated differently in Mexico from a legal and practical point of view; they are equally protected and restricted under Mexican legislation. However, the lack of knowledge of the applicable domestic laws, as well as commercial and operational customs, or the lack of competent advice, could affect the entrance of a foreign franchisor into the Mexican market.

Certain activities are reserved for Mexican entities without foreign investment in their corporate capital, in accordance with the Political Constitution of the United Mexican States and the Foreign Investment Law and its Regulations, but in general, Mexico’s economy is open and the common activities in which franchises participate (such as food and restaurant industry, general retail, hospitality services, automotive industry and health-care services) are not regulated and allow participation from foreign investors without limitation. It is important to note that under the Foreign Investment Law and its Regulations, any Mexican entity with foreign investment must be recorded with the National Registry of Foreign Investments and renew such recording annually.

Foreign entities have the right to grant any type of franchise and related rights, such as master franchises, development rights, individual unit and multi-unit franchises, among others. They are also entitled to submit trademark applications to protect their industrial property rights in Mexico.

Lebanon Small Flag Lebanon

Foreign and local franchisors have different obligations towards the tax authority and the commercial register. In this regard, please see the answers to questions 3 and 18 above.

China Small Flag China

Generally, there is no difference in treating foreign franchisors and domestic franchisors according to the existing laws and regulations, but tax burdens shall be different. For example, in terms of corporate income tax, the withholding tax rate for the foreign franchisors which has no office or premises established in China or the income derived or accrued without de facto relationship with the office or premises established, shall be 10% in general cases, and the corporate income tax for the domestic franchisors shall be 25% usually.

Peru Small Flag Peru

No, the Peruvian Constitution establishes that domestic and foreign investments are subject to the same conditions.

Philippines Small Flag Philippines

Apart from the general requirements which all foreign businesses in the Philippines must comply with (e.g. prohibition on foreign nationals and corporations from owning land in the Philippines, or from engaging in certain industries wholly or partly reserved to Philippine nationals/corporations), there are no local laws specifically applicable to foreign franchisors. It is only to the said extent that foreign and domestic franchisors are treated differently.

New Zealand Small Flag New Zealand

Yes, foreign franchisors must comply with all relevant legislation including the Companies Act 1993 and the Income Tax Act 2007.

Russia Small Flag Russia

No, treatment is the same indeed. International private law principles, as well as local case law or court practice, supports this fact unconditionally.

Norway Small Flag Norway

From a franchise legal perspective, foreign franchisors are not treated differently to domestic franchisors.

United States Small Flag United States

While U.S. franchise laws apply with equal force to foreign and domestic franchisors, certain requirements of U.S. franchise laws may represent hurdles for the foreign franchisor.

By way of example, the FTC Franchise Rule requires that franchisors prepare and disclose in their franchise disclosure documents audited financial statements that have been prepared in accordance with United States Generally Accepted Accounting Procedures (“GAAP”). While this requirement is intended to ensure that franchisees and state franchise examiners (who, in certain states, analyse and must pre-approve the franchise disclosure document prior to its use) are able to understand and rely upon the veracity of such financial statements, and not to particularly bias foreign franchisors, it may be difficult for a foreign franchisor to find in its own country an accountant who has knowledge of and is able to prepare compliant audited financial statements in accordance with U.S. GAAP. Also, in the event that a foreign franchisor already has audited financial statements that have been prepared in accordance with generally accepted accounting procedures in its home country, it will nevertheless have to undergo the time and expense to have a another set of audited financials prepared just for purposes of U.S. franchise law compliance (we note that, for this reason, it is often recommended that a foreign franchisor form a new U.S. entity to serve as the franchisor, and conduct an audit of such entity, rather than the existing operational foreign franchisor entity).

Further, United States law established to prevent money laundering and terrorism may impose certain additional hurdles to the foreign franchisor. For example, if a franchisor or its owners are based in a country in which the United States has imposed sanctions or such entities or individuals are on the United States Department of Treasury’s Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons List, expansion into the United States would be forbidden. Also, while not only implicated foreign transactions, foreign franchisors should note that, pursuant to the United States Bank Secrecy Act, cash transactions over $10,000 USD and wire transactions over $3,000 USD are subject to additional scrutiny, and banking institutions are also under a specific obligation to inform the Internal Revenue Service of any other suspicious activity. This sort of monitoring and reporting process is intended to deter and discover any individual trying to avoid paying tax, or any flows of money linked to illegal activity, such as crime, money laundering, or funding terrorism.

Italy Small Flag Italy

In general, foreign franchisors are not treated differently to domestic franchisors.

The only rules applicable to foreign franchisor are those contained in the Ministerial Regulation No 204 of 2 September 2005, which clarifies the information that franchisors who never established in Italy previously must provide to Italian prospective franchisees.

United Kingdom Small Flag United Kingdom

Foreign ownership and investment in the United Kingdom is subject to very few regulations. There are no general restrictions on foreign ownership of UK assets or companies and immigration rules for individuals are relatively benign.

No distinction is made between the treatment of a foreign and a domestic franchisor save in respect of taxes. For further details, please see response to question 18.

The UK does impose sanctions and embargoes against a prescribed list of countries and individuals, groups or organisations based in or connected with those countries. The UK's position is broadly in line with that of the EU and the UN.

Updated: October 15, 2019