Foreign franchise businesses in Thailand
Thailand has over 400 franchises and over 12,000 domestic franchisees, mainly in the food and restaurant sector, services, education, and retailing. The general idea is to start a business of choice at a selected location with
- a well-recognized brand,
- proven systems and processes that can be replicated, and
- continuous coaching and support by experienced partners
by remaining an independent entrepreneur. From a legal and tax perspective, the long-term success of the tried-and-true, time-tested business model depends on
- A solid corporate and investment structure, especially with respect to Thailand’s foreigner legislation,
- A beneficial franchise agreement which properly takes into consideration future developments on the business, regulatory, and on the taxation level,
- A tax efficient structuring of the cross-border business, especially with respect to withholding tax minimization, and
- Legal advice and support starting from visa, work permit issues to leasing and employment agreements.
The franchise system, the contractual framework of different agreements and the quality and standards set by the franchisor are essential to protect the brand and the franchise system’s image. Therefore, these elements are not negotiable. Other legal and business essentials as territory, a right of first refusal, contractual cure periods, and other tasks can be negotiated.
Thailand’s regulatory framework on franchises
Positive stance: Thailand’s Ministry of Commerce (Department of Business Development) actively promotes franchising as a “business strategies which could help franchisor and franchisee to grow their business and many of Thai franchise brands are now running stores abroad.”
Unregulated business: Franchise business is currently unregulated and needs no license. The Trademark Act, the Trade Competition Act, Patent Act, Copyright Act, Trade Secret Act, and Trade Competition Act, Foreign Business Act, etc. apply and have a significant impact on the franchise businesses.
No franchise whitepaper: Under current legislation, there is no need to prepare a franchise disclosure document (FDD, UFOC) with 23 specified areas of disclosure to provide franchise buyers with vetted and validated information that can be used to make a decision.
Draft legislation: Franchise is defined under the pending draft of Thailand’s Franchise Business Act as „the operation of a business in which one party called a ‘franchisor’ agrees to let the other party, the ‘franchisee,’ operate the business using the forms, systems, procedures and intellectual property rights of the franchisor, or to use its rights to operate a business during a specified time or in a specified area, such operation being under the direction of the franchisor’s business plan, and the franchisee having a duty to reimburse the franchisor.“
License requirement: Under the current draft version, the franchisee will require a franchise license and the franchise agreement has to be in written form and registered with the Ministry of Commerce. The Franchise Commission Agency will be created as a regulatory body.
Professional services in the franchise industries
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property developments and acquisitions. In the franchise industry, the law firm provides, in particular, these professional services:
#1. Support and assistance in the adjustment of U.S./international franchise systems to Thailand’s civil law system, regulatory framework, and taxation rules.
#2. Review of current franchise projects for compliance under Thai laws and regulations, as well as tax reduction opportunities.
#3. Legal support and assistance of investors in the acquisitions of franchises in Thailand.
#4. Development of Thai franchise projects including licensing and tax structuring.
#5. Continuous support and assistance as a franchise lawyer as well as general legal counsel on the ongoing business.