Franchise Royalties in Belarus: How to Check the Calculation

A low royalty rate does not necessarily mean a low financial burden. The final payment depends on which revenue is included, when royalties start accruing and whether a mandatory minimum applies. Anyone entering the franchise market in Belarus should check not just the percentage in the sales presentation, but the entire calculation method. Here are the terms to agree before signing the contract so that you can independently check your recurring fees.

1. Establish what royalties cover and when they start accruing

In Belarus, franchising is specifically regulated by the Civil Code, although there is no separate franchising law. Article 910 describes a comprehensive business licence agreement: the rights holder grants the user a package of licensed rights in return for a fee. Article 910-1 requires the agreement to be in writing and registered with the patent authority — the National Centre of Intellectual Property.

The recurring part of this fee is usually called a royalty. It may be a fixed amount, a percentage of an agreed base, or a combination of several elements. There is no single mandatory rate for all franchises: the specific calculation method must be set out in the agreement.

The first question to ask the franchisor is which event triggers the accrual of royalties. Possible options to discuss include registration of the agreement, delivery of materials, opening the outlet or making the first sale. These events are not equivalent. If payments start before you begin serving customers, costs arise before you generate any revenue.

Ask for separate provisions covering the first partial month. For a fixed fee, you need to know whether you pay for the full month or pro rata for the agreed period. If there is a royalty-free period, specify the dates or an unambiguous method for determining them. Wording such as ‘during the launch period’ leaves too much room for different interpretations.

2. Define the calculation base: ‘revenue’ is not enough

The agreement should make clear which transactions form the royalty base. Even if the parties use an accounting measure, it is useful to specify the data source and adjustment rules. Otherwise, a till report, bank statement and intermediary’s report may produce different figures.

Discuss the following items:

• Taxes included in the price. Is VAT included if the franchisee is VAT-registered? Do not rely on a sales manager’s verbal explanation.
• Discounts. Is the calculation based on the price actually paid or the price before the discount?
• Refunds. When does a refund to a customer reduce the base, particularly if the sale and refund fall in different months?
• Advance payments. Do royalties accrue when an advance payment is received or after the order is fulfilled? The same transaction must not be counted twice.
• Sales through intermediaries. Is the full purchase amount included, or only the amount received after deducting the commission charged by a platform, delivery service or other intermediary?
• Other receipts. How are loans, injections of your own funds and other receipts that are not sales payments kept separate?

For example, a customer pays for an order through a delivery service, which transfers the money to the seller after deducting its fee. Royalties calculated on the full order value and royalties calculated on the amount transferred represent different costs. Neither approach can be treated as agreed simply because the contract says ‘a percentage of turnover’.

A useful outcome of negotiations is a schedule defining the calculation base and providing several examples. It should explain how potentially disputed transactions are treated, rather than merely repeating the wording of the main agreement.

3. Check the minimum payment and whether fees can change

A percentage rate may be accompanied by a minimum monthly payment. In that case, weak sales increase the effective burden relative to revenue. As a prospective franchisee, you need to establish exactly how the two figures interact.

The phrase ‘percentage and minimum payment’ is ambiguous: the amounts might be added together, or the minimum might replace the percentage-based calculation if the latter is lower. Ask for the rule to be expressed both in words and as a formula. If the higher of the two amounts applies, this must be stated explicitly.

Also check:

• whether the minimum applies from the first month;
• whether it is charged separately for each outlet;
• whether indexation applies and which index is used;
• whether the franchisor can change the rate unilaterally;
• where the current terms are recorded — in the agreement, a schedule or a fee schedule that can be amended.

Compare the calculation under normal sales, reduced revenue and no sales. This is not a profit forecast, but a test of how the payment itself works. Separately, calculate a month with substantial refunds: positive revenue in a report does not necessarily mean there is cash available to pay royalties.

If the amount is linked to a foreign currency, ask a Belarusian lawyer and accountant to check whether the proposed payment arrangements are permitted for the parties concerned. The agreement needs to distinguish between the currency in which the amount is denominated and the currency of payment, and specify the exchange rate and conversion date where such a mechanism applies.

4. Agree reporting requirements and how errors will be corrected

A verifiable formula is useless without a clear procedure. Specify the calculation period, reporting deadline, payment deadline and documents used to substantiate the figures. Ideally, the franchisee and franchisor should use the same reporting template.

Include a procedure for corrections. For example, the parties may agree to make an adjustment in the following period or refund an overpayment after reconciliation. These are contractual arrangements, not concessions automatically available to the franchisee. Separately, define what happens when figures differ: who raises queries, how long the other party has to respond and how the agreed amount is recorded.

Before signing, ask the franchisor to calculate royalties for a sample month you have prepared, including ordinary sales, a discount, an advance payment, a refund and an order through an intermediary. Then repeat the calculation yourself. If the results differ, clarify the contract wording rather than relying solely on an explanation in correspondence.

Practical takeaway: agree not just a royalty rate, but a calculation you can reproduce. The agreement should define the calculation base, when royalties start accruing, the minimum payment, adjustments and payment deadlines — making the recurring payment an obligation you can verify.