Buying a franchise in Belgium: check how royalties are calculated

A franchise may look attractive because of a modest royalty rate. But exactly what is that percentage applied to? Differences in the treatment of VAT, discounts, returns and online orders can significantly affect the fees you actually pay. If you are considering becoming a franchisee, look beyond the rate and check the calculation rules. Before signing, ask for a worked example that you can verify yourself.

1. Make ‘turnover’ a definition you can check

Terms such as ‘turnover’, ‘net turnover’ and ‘sales’ may seem clear, but without further explanation they are not enough to predict your royalty bill. Make sure the contract specifies which amounts are included in the calculation basis and which are excluded. Do not rely solely on the meanings your accountant normally gives these terms.

Check, at a minimum, how the following are treated:

• VAT: is the fee calculated on amounts including or excluding VAT?
• Discounts: does the original selling price count, or the amount actually charged?
• Returns and refunds: when are royalties previously charged adjusted?
• Unpaid invoices: does a sale count when it is invoiced, or only when payment is received?
• Gift vouchers: does the royalty become due when the voucher is sold or when it is redeemed?
• Additional receipts: are delivery charges or other amounts charged to customers included in the same calculation basis?

These are points to negotiate and check, not general statutory exemptions. The aim is for both parties to arrive at the same result when processing the same transactions.

Also ask how rounding is handled and which accounting period applies. A monthly calculation should reconcile with data you can obtain from your own records.

2. Track sales across every channel

Not every order involving a physical outlet is automatically an ordinary in-store sale. A customer might order through the central website, collect locally and later return the item to another outlet. Without clear allocation rules, disputes may arise over which franchisee made the sale and who receives the royalty adjustment.

For each sales channel, have the agreement specify who sells to the customer, who receives the money and what amount enters your royalty calculation. Consider your own shop, a central online shop, an ordering platform and sales to business customers.

Pay particular attention to deducted fees. If a platform deducts its commission before paying you, that does not automatically mean your royalty is calculated only on the net amount received. Ask explicitly which calculation basis applies.

Also check whether centrally applied customer discounts and refunds appear on your statement. You need to be able to identify which outlet a transaction is allocated to and verify that the same sale does not appear twice in your own calculation basis. Agree on how transactions adjusted after the end of a billing period will be handled.

3. Compare the contract, disclosure document and worked example

Belgium has specific pre-contractual rules for commercial cooperation agreements that meet the statutory definition, including franchise agreements. These are set out in Book X, Title 2 of the Belgian Code of Economic Law (WER), read together with Article I.11, 2°.

Under Article X.27, the prospective franchisee must receive the draft contract and a separate pre-contractual information document, commonly known in Belgium as the PID, at least one month before entering into the contract. The PID contains important contractual provisions and socio-economic information. Article X.28 requires information on fees, among other matters: an agreed direct fee must be clearly described; for an indirect fee, the calculation method must also be stated.

Use these documents to make a focused comparison. Does the presentation refer to a ‘royalty on net turnover’, while the contract uses a broader definition? If so, ask for clarification and consistent written terms. A verbal explanation is not a sound basis for years of billing.

Ask the franchisor to calculate a hypothetical month containing ordinary sales, a discount, a return and an online order. Have your accountant carry out the same exercise independently. Different results indicate an unclear definition or a missing provision. Ask a Belgian lawyer to assess how any necessary clarifications should be incorporated into the contractual documentation.

4. Agree on checks and adjustments before the first invoice

A clear formula only works if you can check the underlying data. Agree on the breakdown you will receive with each royalty invoice. It should contain enough detail to compare the calculation basis with your point-of-sale system and accounting records.

Also establish a workable procedure for errors: who should you notify of a discrepancy, what supporting documents are required and how soon should you receive a response? Make clear when a credit note will be issued or an adjustment will appear on the next statement. Have any rules on disputed amounts reviewed by a lawyer; do not assume you can simply withhold payment of an entire invoice.

Practical conclusion: do not agree to a royalty on the strength of the percentage alone. Sign only once you understand the calculation basis, can reproduce a sample calculation and know how errors will be corrected.