Buying a Franchise in Ireland: Checking Currency Risk

An overseas franchise brand may quote an attractive entry price, but an Irish buyer needs to know what that price means in euro. If fees or other contractual payments are denominated in sterling or another currency, exchange-rate movements can change their cost without any increase in the advertised fee. Before joining a franchise community, establish exactly who carries that risk and how each payment will be calculated.

1. Identify every foreign-currency commitment

Do not assume that a euro investment summary means the underlying agreement requires payment in euro. Ask for a schedule showing the contractual currency of every payment to the franchisor and any related overseas business.

Include the initial fee, continuing management charges, software subscriptions, equipment payments and any fixed minimum charges. For each item, record:

• The amount or calculation formula.
• The currency in which the obligation is defined.
• The currency in which you must actually pay.
• The payment date and receiving account.
• Any exchange-rate adjustment or conversion provision.

The currency defining the debt matters as much as the payment currency. An invoice payable in euro can still expose you to exchange-rate movements if it represents a sterling amount converted shortly before payment.

Separate one-off exposure from recurring exposure. A fee due before opening creates a different planning problem from a foreign-currency subscription payable throughout the agreement. Ask whether quoted euro amounts are binding prices or merely illustrations based on an exchange rate used when the proposal was prepared.

2. Make the conversion clause reproducible

A clause requiring payment at the “prevailing exchange rate” leaves important questions unanswered. You and your accountant should be able to reproduce the calculation independently, using the wording in the contract.

Ask the franchisor to identify the rate source, the relevant date and any margin added to that rate. If the agreement refers to a European Central Bank reference rate, confirm which rate is used, how the conversion works and what happens when no rate is published on the specified date. A reference rate is not necessarily the rate your bank will offer for the transfer.

The agreement should also make clear:

• Whether conversion happens on the invoice date, due date or receipt date.
• Whether the rate changes if payment is late.
• Who pays sending, intermediary and receiving bank charges.
• Whether you must make an additional payment if charges reduce the amount received.
• How refunds or credit notes are converted.

Request a worked example using a hypothetical invoice. This is particularly useful where your euro turnover determines a fee that must then be settled in another currency. Confirm the order of the calculation so that neither party applies conversion twice or uses different dates.

3. Test affordability and check cross-border tax

Ask your accountant to model the euro cost of the actual payment schedule under several exchange-rate assumptions. These should be planning scenarios, not predictions. Show one-off payments separately from recurring obligations, and include transfer charges rather than testing the headline exchange rate alone.

Check whether you could absorb an adverse movement between signing and paying the initial fee. For recurring payments, establish how much the annual euro cost could change and whether your business would have any income in the same foreign currency to offset that exposure.

Possible responses include negotiating fixed euro payments, agreeing a defined conversion method or discussing currency management with your bank. None is automatically free or riskless: a foreign-currency account does not itself remove exchange-rate exposure, and hedging arrangements can create costs and commitments.

Cross-border tax needs a separate review. Ask an Irish tax adviser whether withholding obligations, treaty relief or VAT accounting requirements apply to the particular payments. Do not assume that every payment labelled a franchise fee receives identical treatment. Also check for a tax gross-up clause, which may require you to increase a payment so the franchisor receives a specified net amount after withholding.

4. Put the agreed protection into the contract

In the Republic of Ireland, there is no specific franchise legislation, statutory franchise-specific disclosure regime or requirement to register franchise agreements. General contract law and applicable Irish and EU competition, intellectual property and other laws govern the arrangement. Relevant competition rules include section 4 of the Competition Act 2002, as amended, and Article 101 TFEU.

The Irish Franchise Association’s Code of Ethical Conduct applies to its members, but it is not legislation and does not replace contractual payment protections.

Have your solicitor check that the agreement and fee schedules match the currency explanation you received. Any negotiated euro price, conversion formula or allocation of bank charges should appear in the binding documents, not just a sales email. Check whether the franchisor can later change the payment currency or conversion method unilaterally.

Practical takeaway: Before signing, obtain one complete payment schedule, test its euro cost with your accountant and have your solicitor resolve every ambiguous conversion or tax clause.