International franchise organizations

Cross-border franchise: multiple legal systems simultaneously

International franchising is a powerful growth model, but legally more complex than national franchising. A franchise formula rolled out in multiple countries faces different legal systems, different mandatory legal regimes, different tax systems, and different cultures. The choice of structure, choice of law, and choice of forum determines the legal position of all parties involved for years to come. We advise on taking a Dutch franchise abroad and on bringing a foreign franchise to the Netherlands.

Who do we work for?

We assist Dutch franchisors looking to expand internationally, foreign franchisors wishing to enter the Dutch market, master franchisees acquiring rights for a country or region, and area developers developing multiple locations within a specific area. Additionally, we advise investors and private equity firms investing in international franchise organizations. Our role varies by position and country, but the goal is always a clear, sustainable, and tax-efficient structure.

Structures for international franchise

Direct franchising

In direct franchising, the franchisor enters into agreements directly with franchisees abroad. This provides maximum control but requires knowledge of local law and a local presence for guidance and enforcement. This can be workable for smaller expansions or neighboring countries.

Master franchise

In a master franchise, the franchisor grants a master franchisee the right to act as a (sub)franchisor and subcontract sub-franchisees in a specific country or territory. The master franchisee is familiar with the local market and local law. The structure distributes the risks but requires a comprehensive master franchise agreement and clear arrangements regarding quality control, fees, and the position of sub-franchisees.

Area development and joint venture

In area development, a developer commits to opening an agreed number of locations within an area according to a schedule. An international joint venture combines the franchisor's formula with the local knowledge and capital of a local partner in a joint entity. Both structures require detailed agreements regarding development, financing, governance, and exit.

Choice of law and choice of forum

In international franchising, the choice of law (which law governs the agreement) and the choice of forum (which court or arbitration institution has jurisdiction) are of great importance. Within the European Union, in the absence of a choice of law, the applicable law is determined by the Rome I Regulation, and jurisdiction by the Brussels I bis Regulation. Parties often choose the law and courts of the franchisor's country, or arbitration under international rules. A well-considered choice of law and forum prevents costly disputes regarding jurisdiction and applicability years later.

Mandatory law: does the Franchise Act remain applicable?

A choice of foreign law does not automatically mean that mandatory Dutch law is disregarded. When a franchisee is active in the Netherlands, it can be argued that certain mandatory provisions of the Franchise Act (Article 7:911 et seq. of the Dutch Civil Code) remain applicable as priority rules or via the protection mechanisms of Rome I, regardless of the choice of law. This is an important and legally subtle point: a foreign franchisor contracting franchisees in the Netherlands cannot simply evade Dutch protection provisions. We assess on a case-by-case basis the extent to which mandatory Dutch law applies.

Intellectual property and international protection

The formula, the brand, and the know-how form the heart of an international franchise. Protection requires international trademark registration (EU trademark via the EUIPO, international registration via the WIPO Madrid System), watertight licensing and confidentiality agreements, and enforcement strategies that are workable in the various countries. An international rollout without proper IP protection exposes the core of the formula.

Our working method

We first assess the target countries, the desired structure, the existing documentation, and the IP position. Subsequently, we advise on the structure (direct, master, area development, or joint venture), choice of law and forum, the application of mandatory law, and international IP protection. For local law, we collaborate with a network of foreign correspondents to ensure the structure is sustainable in every country involved.

Competition law: vertical cross-border agreements

An international franchise agreement is a vertical agreement under competition law and therefore falls within the scope of Article 101 of the Treaty on the Functioning of the European Union (TFEU). Within the EU, the agreement may be exempt under the block exemption of Regulation (EU) 2022/720, provided that the market share of both the franchisor and the franchisee remains below 30% of the relevant market and the agreement does not contain so-called hardcore restrictions. Vertical price fixing (imposing fixed or minimum resale prices) and excessively restricting the territory or customers to whom a franchisee may sell are examples of hardcore restrictions that place the entire agreement outside the exemption and can result in heavy fines. When rolling out across multiple Member States, the formula must be reviewed on a country-by-country and EU level to ensure that exclusivity, online sales, and price agreements remain sustainable.

Tax and VAT aspects of international franchising

In cross-border franchising, cash flows, royalties, and franchise fees cross borders, with tax implications that help determine the structure. Key considerations include the VAT treatment of royalties and entry fees, potential withholding tax on royalty payments between countries, the application of tax treaties to prevent double taxation, and whether the foreign activity constitutes a permanent establishment. Additionally, between related parties, such as in a joint venture or a master structure, transfer pricing rules apply. Taxation and legal structure should be designed together from the outset; therefore, we coordinate legal advice with tax advisors to ensure the chosen structure is sound under both civil law and tax law.

International franchise within Franchise Legal Advice

International franchise organizations are a specialty within our broader Franchise Legal Advice. In this area, we advise on franchise agreements, the duty to provide pre-contractual information, goodwill and non-compete clauses, and disputes under the Franchise Act (Article 7:911 et seq. of the Dutch Civil Code). At MKB Juristen, lawyers and in-house counsel work together in mixed teams, enabling us to assist both an internationally operating group rolling out its formula in ten countries and the individual entrepreneur becoming a master franchisee for a single country at the appropriate level. Whether it concerns a listed chain or the baker on the corner looking to expand across the border, we translate legal complexity into a workable, sustainable structure.