Ongoing Franchise Fees in Egypt: How to Review the Calculation Basis

Ongoing franchise fees may seem straightforward: an agreed percentage of sales. But the cost depends on how sales are defined, when they are counted and which exclusions are allowed—not just the percentage. When comparing franchise brands in Egypt, a good starting point is to request a calculation method you can test. This guide helps you review the basis for ongoing fees before signing, so you do not pay fees on revenue that has not materialised or on amounts that are not income for your outlet.

1. Separate the fee percentage from the amounts it applies to

Ask the franchisor to define terms such as ‘gross sales’ or ‘gross revenue’ in writing. Do not assume they mean the amount that reaches your bank account or the revenue recognised by your accountant. The agreement may define sales to include money belonging to third parties or transactions for which payment has not yet been received.

Review the definition using these questions:

• Is VAT collected from customers excluded, where applicable?
• Are returns, refunds and cancelled orders deducted? What supporting documents are required?
• Are fees calculated before or after discounts? Who bears the cost of a discount when the franchisor requires a network-wide promotion?
• Do sales include delivery charges, tips and amounts collected on behalf of third parties?
• Are credit sales counted when the invoice is issued or when payment is received? How are bad debts treated?

There is no single commercial answer that suits everyone; what matters is that the answer is explicit and consistent with the pricing of the deal. Also distinguish between excluding tax from the sales calculation and any taxes that may apply to the franchisor’s fee invoice itself. Ask an Egyptian accountant to review both treatments, particularly if the franchisor is based outside Egypt.

2. Test the definition against your actual sales channels

A common mistake is to review only sales made at the outlet, even though other orders may come through apps, the brand’s website or corporate accounts. Request a sample settlement statement for each channel you will use, then trace the transaction from the customer’s payment through to settlement of the franchisor’s fees.

For app orders: distinguish between the value of the customer’s order and the amount transferred after the platform’s commission. If franchise fees are calculated on the order value before commission, you bear both costs. That may be commercially acceptable, but it should be clearly reflected in your calculations rather than discovered after you start trading.

For vouchers and gift cards: establish whether fees become due when the card is sold or when it is redeemed. Request a mechanism that prevents the same transaction from being counted twice and clarifies your outlet’s share when a card is sold centrally and then redeemed there.

For discounts and refunds: ask how a sale on which fees were charged in one month is adjusted if it is refunded the following month. The financial schedule should specify when the adjustment is made and how it appears on the statement.

Prepare a test worksheet covering a standard sale, an app order, a return and a gift voucher. Ask the franchisor to calculate the fees for each case in writing. If the sales team and finance department produce different results, the clause needs clarification before you commit.

3. Review minimum fees, payment timing and amendment rights

A short clause may conceal a minimum monthly fee payable even if sales fall. Check whether you pay the percentage-based fee or the minimum, whichever is higher, or whether a fixed amount is added to the percentage-based fee. Ask when fees start to accrue: on signing, on opening or on the first sale?

Request a clear explanation of what happens if opening is delayed or operations are suspended, without assuming an automatic exemption. If fees are denominated in or linked to a foreign currency, specify the invoicing and payment currencies, the exchange-rate source and date, and who bears transfer charges. Have these arrangements reviewed for legal enforceability and banking feasibility.

Also review the franchisor’s power to change the percentage or the definition of sales. Fixing the percentage is not enough if the amounts subject to it can be expanded through an update to the operations manual. Negotiate a requirement for written agreement to financial changes, and ensure that the financial schedule’s precedence is clear if documents conflict.

Put reporting, invoicing, objection and payment deadlines into a workable sequence. Request a procedure for handling disputed amounts without holding up settlement of undisputed sums, on terms expressly agreed by both parties.

4. Secure review and audit rights within Egypt’s legal framework

Egypt has no comprehensive standalone franchise law and no general mandatory franchise-specific disclosure regime requiring a standard document to be provided before signing. Do not therefore assume that a review period mentioned in an overseas guide is automatically a right under Egyptian law. Agree in writing on a suitable review period and the provision of financial documents.

The relationship is governed by Civil Code No. 131 of 1948, including its rules on contracts and performance in good faith, and Commercial Law No. 17 of 1999. Technology transfer provisions may apply if the agreement meets the relevant conditions; simply calling the contract a ‘franchise’ agreement is not enough. Relevant tax rules must also be observed.

Request the right to receive a detailed statement that allows you to recalculate the fees, along with a mechanism for correcting errors and refunding or crediting overpayments. In turn, review the scope of the franchisor’s right to audit your records: notice, confidentiality, required documents, who bears the cost and the conditions under which that cost can be charged to you. Have the wording reviewed by an independent lawyer and accountant, and do not rely on verbal explanations.

The practical takeaway: before signing, obtain a written definition of sales, approved calculation examples, and a procedure for objections and adjustments. If you cannot recalculate the fees yourself using the available documents, the clause needs clarification.