Buying a Franchise in Egypt: Who Bears the Exchange Rate Risk?

The franchise fees may look affordable, but their value in Egyptian pounds is not always fixed. If the outlet’s sales are in pounds while its obligations are linked to a foreign currency, the cost of the agreement can change even when the fee percentage stays the same. A clear franchise relationship starts by establishing who bears that difference, how it is calculated and what happens if a transfer is delayed. This is a guide to reviewing currency risk before buying a franchise in Egypt, not to predicting exchange rate movements.

1. Separate the pricing currency from the payment currency

Do not settle for a statement in the commercial proposal that ‘fees are in dollars’. The franchisor may mean that the obligation is calculated and paid in dollars, or that it is paid in Egyptian pounds at its equivalent value when due. Fees may also be calculated on sales in pounds, then converted into a foreign currency for payment to the franchisor. Each arrangement has a different effect on cash flow.

Ask for a schedule attached to the agreement setting out the following for every currency-linked payment:

• The legal name of the beneficiary and the country where their bank account is held.
• The currency used to calculate the obligation and the currency actually used for payment.
• The source of the exchange rate and the type of rate used.
• The date on which the rate is fixed: the invoice date, the due date or the transfer date.
• The party responsible for intermediary bank charges and currency conversion differences.

The phrase ‘at the bank’s rate’ is not enough. Rates can differ between banks, between buying and selling rates, and between the invoice date and the date the transaction is processed. Ask for a written worked example and review it with your accountant, following one hypothetical invoice from issue through to receipt of the funds by the beneficiary.

Also watch for payments in pounds that are indirectly linked to a foreign currency, such as an operating software subscription whose price can be adjusted in line with the dollar exchange rate. This is not a fixed local cost simply because the invoice is issued in pounds.

2. Test the effect of currency movements on cash flow before accepting the price

List currency-linked obligations in a separate schedule, including initial fees, technology subscriptions and any services invoiced from abroad. The aim is not to reassess the outlet’s entire profitability, but to establish how much cash you will need on each payment date.

Work with your accountant to build three exchange rate scenarios: the rate used in your plan, a less favourable rate and a more severe stress-test rate chosen together. These are internal assumptions, not economic forecasts. Keep sales constant at first so that you can see the effect of currency movements alone, then test what happens if higher costs coincide with delayed receipts.

For each scenario, calculate the payment cost in pounds and add bank charges and any tax effects confirmed by your tax adviser. Then compare the cash required with the outlet’s available cash after essential expenses, not with its total revenue.

Ask yourself: can I make the payment without affecting wages or rent? Does the model rely on raising customer prices immediately, even though I need the franchisor’s approval? If continued operation requires a fixed exchange rate that the agreement does not guarantee, the problem lies in how risk is allocated, not just in the accuracy of the spreadsheet.

3. Negotiate a clear mechanism rather than a verbal promise

The franchisor need not bear every fluctuation, but your liability should not be open-ended and impossible to calculate. Options to discuss include fixing the amount payable in pounds for a set period, agreeing periodic reviews or sharing any increase above a contractual threshold. These are negotiated solutions, not automatic legal rights.

If you agree on a review mechanism, specify the baseline for comparison, the measurement date, the supporting documentation and the consequences of the review. A statement that ‘the parties will negotiate if the exchange rate changes’ may not solve the problem if they later fail to agree. The agreement should explain what applies during negotiations and what happens if no agreement is reached.

Also review what counts as payment: is the obligation fulfilled when the transfer instruction is issued, or when the funds are credited to the franchisor’s account? Ask for provisions covering documented banking delays, including notification, supporting evidence and a reasonable grace period before the agreed penalties apply. Do not assume that transfer difficulties or higher costs automatically excuse non-payment.

Before signing, discuss the proposed payment route with the bank you intend to use. Check which documents are required for transfers and ensure that the beneficiary’s name matches the agreement and invoices. Do not treat this preliminary discussion as a guarantee that every future transfer will be processed.

4. Align the currency clause with Egyptian rules and taxes

Egypt has no comprehensive standalone franchise law, nor a general franchise-specific regime requiring a standard disclosure document or a fixed pre-contract disclosure period. The relationship is governed by general rules, including Civil Code Law No. 131 of 1948 and Commercial Law No. 17 of 1999. If the arrangement qualifies as a technology transfer, specific provisions may apply and require a separate legal review.

Foreign-currency payments must also comply with the Central Bank and Banking System Law No. 194 of 2020 and the banking rules in force. The review will vary depending on whether the beneficiary is inside or outside Egypt and on the nature of the transaction. Do not use a standard clause from another jurisdiction without checking its suitability locally.

Obtain tax advice on the classification of each payment, whether it may be subject to tax deduction or withholding, and the effect of any applicable tax treaty. Watch for wording requiring you to ensure that the beneficiary receives the amount ‘net of taxes’: this may pass an additional cost to you on top of the currency impact. Also specify who must provide the documents needed to apply the correct tax treatment.

Practical takeaway: Do not sign until you have a currency schedule, a complete worked payment example, a cash-flow stress test and a written clause clearly allocating exchange rate differences, transfer charges and taxes.