Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and/or how much interest can be charged?
Franchise & Licensing
As a rule, every payment undertaken between Angolan entities and foreigners in connection with a contract and / or which involve transfer of funds in / out of the country, are subject to foreign exchange laws and regulations in Angola. In case of royalties paid by Angolan franchisees to foreign franchisors, we confirm this would be qualified as "current invisible operations” (“operações de invisíveis correntes”), which, usually do not require to be licensed by the Angolan National Bank (“Banco Nacional de Angola – BNA”), provided that the amount involved does not exceed the equivalent in national currency to AKZ 100,000,000 (taking as reference a period of 12 months). Nonetheless, we advise that several documents need to be submitted to the commercial bank for purposes of having the payments properly undertaken by the Angolan commercial bank.
With regards to how much interest can be charged, we advise that foreign exchange laws do not provide any limitations thereof, however, when the interest rate charged seems to be unreasonable or out of ordinary, considering Angolan standards, this could eventually delay the payment of the original invoices and be subject to additional approvals.
Foreign franchisors seeking to expand into Canada should consult with Canadian tax experts, including with respect to Canadian income tax that may be exigible if the franchisor is found to be carrying on business in Canada. Apart from income tax, fee and royalty payments made by franchisees are generally regarded as being made in respect of services provided by the franchisor in Canada, and so are generally subject to Canadian federal and provincial sales, goods and services, or ‘harmonized sales’ taxes. Where such payments are made to an offshore franchisor, the franchisee is required to withhold and remit to the Canadian federal government withholding tax (ie, as a proxy for the income tax that the franchisor would be required to pay on such amounts if it were resident in Canada). The amount of such withholding tax is generally 25%, subject to reduction by any tax treaty in place between Canada and the franchisor’s home country.
The Criminal Code of Canada prohibits any interest rate exceeding 60% per annum.
The interest rate applied could always be challenged and held invalid in Chile if such interest rate would exceed the then maximum conventional interest rate determined periodically by the Central (Reserve) Bank of Chile.
No specific restrictions apply. However, charging of royalties pursuant to the franchise agreement must in general be fair and within the scope of Section 36 of the Contracts Act.
There are no strict regulations regarding royalties, however given royalty amount could be measured against average market rate by the Ministry of Taxes of the Republic of Azerbaijan.
Payment of royalty to foreign entities is regulated under Law No. 88 of 2003 promulgating the Law of the Central Bank, The Banking Sector and Money and its Executive Regulations (“CBE Law”). CBE Law in Article (111) states that “Every natural or legal person may maintain all the foreign currencies transferred thereto, or owned or possessed thereby. Said person shall have the right to conduct any foreign currency transaction, including inward and outward transfers, and local dealing, providing these transactions shall be made via the banks authorized for dealing in foreign currencies. The natural or legal person may also deal in foreign currencies via the entities authorized to conduct such dealings according to the provisions of this Law, as defined in its Executive Regulations…etc.”).
In addition, Article (42) of the Executive Regulations indicates that it is permitted to sell and/or purchase goods and services using foreign currency as long as this is mentioned in the agreement concluded with the foreign entity and provided that dealing shall be made through one of the authorised banks permitted to deal in foreign currency.
The payment will be subject to tax at the rate of 20%, this amount is withheld at the source, as mentioned under Article (56) of the Income Tax Law No. 91 of 2005 which states that “Tax at the rate of 20% is due on amounts, paid by owners of individual firms, legal persons residing in Egypt and non-resident bodies which have permanent establishment in Egypt, to non-residents in Egypt, without deducting any costs from them. Said amounts include the following:
1- Yields and Interests.
2- Royalties, and etc…”
As for the interest, if the franchisee has delayed payment of the due royalty and considering that the franchise agreement is a commercial transaction, the delayed payment will be subject to either of: i) if there is no agreement in the contract, the provision of Article (50) of the Egyptian Commercial Law shall apply which indicates that the rate shall be the rate announced by the Central Bank of Egypt, or ii) if the parties agreed upon a certain interest rate in the contract, it shall be applied as long as it doesn’t exceed the rate announced by the Central Bank of Egypt.
See question 18 below with respect to taxation of royalties.
Also relevant is Article L. 420-2, which prohibits discriminatory conditions of sale.
There are no specific laws and regulations regarding the payment of royalties agreed between the parties; the general rules of the Greek Civil Code would apply. The parties are free to agree on the nature and amount of fees.
Interest can be charged on overdue payments, provided that the interest rate does not exceed the maximum interest rates set by the Bank of Greece.
In principle, there are no laws or regulations which would affect the nature or payment of royalties to a foreign franchisor. However, as further explained in the response to question 18 below, according to the Mexican Monetary Law, the payment of royalties may be agreed in any currency, in the understanding that if such payment is made within Mexican territory, the debtor (franchisee) may decide to make such payment in Mexican Pesos.
Regarding the interests that may be charged, these will be paid as a default for late payments, which interest rate will be in the amount agreed upon by the parties in accordance to the freedom principle. However, it is important to set such amount in a non-excessive market value to avoid that such amount be considered to fall into usury, which is an excessive interest which is sanctioned by nullity or equal reduction in the payments, at the affected party’s choice. If no amount is agreed upon by the parties, the legal interest amount will be automatically set to 6% per annum.
Since the franchise agreement is a commercial agreement, the nature and payment of royalties and the interest that can be charged are subject to the parties’ agreement. Moreover, no material exchange control matters arise under Lebanese law in relation to the royalties
It is provided by the Supreme Court of PRC that if the interest is not provided in the agreement, the creditor can charge the interest at the lending rate of the people's bank of China in the same period.
No, there are no laws or regulations that affect the nature and payment of royalties to a foreign franchisor. In addition, there are no exchange control or currency regulations applicable to payments to a foreign franchisor.
It must be noted that the Political Constitution of Peru establishes that domestic and foreign investments are subject to the same conditions.
The Peruvian Civil Code establishes in Article N°1243 that interests can be charged on overdue payments, but must be limited to the maximum conventional interest rate, which is fixed by the Central Reserve Bank of Peru.
As regards the settlement of disputes on the payment of royalties for a franchise agreement that is in the nature of a technology transfer arrangement, the IP Code provides that any dispute between the parties arising from technology transfer payments, including the fixing of appropriate amount or rate of royalty, shall be under the quasi-judicial jurisdiction of the Director of the DITTB of the IPO.
As regards the remittance of the royalties to a foreign franchisor involving the cross-border transfer of currencies, the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) Manual of Regulations on Foreign Exchange Transactions provides that the prior written approval of/declaration to the Philippine central monetary board is required when specified thresholds are met.
As regards the payment of interest, there is no limit as to how much interest can be charged. However, Philippine jurisprudence holds that interest rates may be nullified when it is unconscionable for being contrary to morals. In a few cases, the Philippine Supreme Court has held that interest rates of three per centum (3%) per month are excessive, iniquitous, unconscionable and exorbitant and are, thus, void for being contrary to morals.
All payments to a foreign franchisor are subject to non-resident withholding tax and the Income Tax Act 2007 must be complied with. The rate of interest charged should be a commercial rate.
A franchisor is free to determine the royalties and other fees that it will charge its franchisees, so long as it properly discloses such amounts in its franchise disclosure document.
With respect to interest that may be charged, however, many states have enacted usury laws. These laws do not specifically target the franchising industry but nonetheless limit the amount of interest that may be charged on overdue payments. These state-mandated maximum interest rates vary depending on the circumstances surrounding the imposition of such interest (whether there was a written contract in place) and on the state at issue.
Generally there are no regulations, except for the general regulations in the Contract Act that agreements must not be 'unreasonable' or 'defy good business practice', affecting the nature and payment of royalties to a foreign franchisor or how much interest can be charged.
In relation to common interest/related party transactions the term and conditions must adhere to the arm's length principles, otherwise the payment can be disputed by the tax authorities.
Further there is no restriction on currency transfers out of Norway, except for transfer of physical cash above certain amounts, which must be declared to customs authorities.
There are no laws or regulations affecting the nature and payment of royalties to a foreign franchisor.
There are no laws and regulations (such as exchange control restrictions) in the UK that impact on the payment of royalties to a foreign franchisor.
There is further no statutory maximum rate of interest for overdue payments. However, the interest rate must be reasonable.
If no interest rate is agreed in the franchise agreement, the Late Payment of Commercial Debt (Interest) Act 1998 stipulates a rate of 8% per annum over the official interest rate announced by the Bank of England from time to time.
There are no legal restrictions on the repatriation of franchise fees to a foreign franchisor. Neither there is a limitation in the amount of franchise fees to be charged. Parties may agree on any amount of franchise fees, as well as the payment procedure, but such fees should be based on the appropriate market value, including from the transfer pricing standpoint.
Also, the local currency control law does not prohibit the use of a foreign currency (e.g., US dollars) in the context of international franchising. The only requirement is that the Russian franchisee must have an appropriate currency account with the bank to be able to transfer monies in a foreign currency.
As a rule, the Russian franchisee must register the international contract with a competent bank to be able to remit the agreed franchise fees to a foreign franchisor. The above rule applies only to the corresponding franchise operation for the contracted amount equal to RUR 3,000,000 or more (for import-related contracts). The bank will register and account the international transaction agreement if the underlying franchise agreement is translated into Russian, and the grant of franchise is registered with Rospatent. Absent the franchise registration with Rospatent and the competent bank, franchise fees – amounting to RUR 3,000,000 (or more) – cannot be wired to the benefit of the foreign franchisor.