Franchise Advertising Funds in Taiwan: Checking Spending, Cost Sharing and Audit Rights

When considering a franchise in Taiwan, many prospective franchisees compare initial franchise fees carefully but treat monthly advertising charges as a minor, non-negotiable expense. The key questions are not just how much you pay, but where the money goes, who approves spending and whether you can check the figures. This guide focuses on advertising funds and shared promotional charges, helping you assess transparency when choosing a brand and reviewing its contract.

1. Distinguish advertising funds from franchisor service fees

Charges with similar names may involve different commitments. An ‘advertising fund’ may pool contributions from outlets for specified purposes, while a ‘marketing service fee’ may be payment for promotional services provided by the franchisor. Do not assume, from the name alone, that all the money will be spent on advertising placements.

Ask the franchisor for a complete fee schedule, with separate entries for launch publicity, monthly shared promotions, regional events and one-off campaigns. Check the following:

• Is the charge a fixed amount or a percentage of turnover? Is there a minimum charge?
• How does the calculation treat tax, refunds, discounts and orders through delivery platforms?
• Are creative production, agency fees, head-office staff salaries and administration fees charged separately?
• Do company-owned outlets contribute? If their arrangements differ, how?

If fees are based on turnover, ask for an anonymised monthly statement showing how they are calculated. The aim is not to estimate your payback period, but to confirm that the same transaction will not be charged twice and that you can reproduce the calculations yourself.

2. Set verifiable rules for fund use and promotional cost sharing

Brand-wide publicity will not necessarily benefit every outlet directly, so simply asking the franchisor to ‘guarantee customers’ is not the best approach. A more practical option is to specify permitted uses, such as brand advertising, shared creative materials and customer membership campaigns. Also clarify whether franchisee contributions may fund advertisements recruiting new franchisees, head-office public relations or expansion into new markets.

Before signing, ask to see the budget, expenditure breakdown and campaign reports for a full previous accounting period. The franchisor may not need to disclose every piece of commercially sensitive supplier information, but it should be able to explain how the money was used. A new brand without historical records should provide an initial budget and arrangements for future reporting, rather than relying on verbal promises.

In particular, distinguish ‘advertising expenditure’ from ‘the cost of promotional offers’. If the franchisor launches discount vouchers, for example, the fund might pay for publicity while individual outlets bear the cost of the discounts. Ask specifically:

• Who pays for discounts, free gifts, packaging and platform promotion fees?
• Can franchisees opt out, or is participation compulsory?
• How much notice will outlets receive? Is there a cap on additional costs per campaign or per year?
• When will any promised franchisor subsidies be settled, and what records are required?

A requirement to ‘participate in all head-office campaigns’ is too broad. If the franchisor reserves the right to make changes, negotiate the notice period, the scope of those changes and the dispute resolution procedure.

3. Obtain information under Taiwan’s rules, but do not assume automatic audit rights

Taiwan has no single dedicated franchise statute, but franchising is not unregulated. General legislation, including the Fair Trade Act and the Civil Code, may apply. The Fair Trade Commission also has its Disposal Directions (Guidelines) on the Business Practices of Franchisors, which guide its handling of relevant fair trade cases. These do not amount to government endorsement of a brand or its investment returns.

Under these guidelines, franchisors should provide important franchise information ten days before entering into a franchise or preliminary franchise relationship, or within a period deemed reasonable in the circumstances or agreed by both parties. Marketing and promotional fees payable during operations, together with restrictions imposed by the franchise relationship, are particularly relevant when checking advertising fund arrangements. Failure to provide important information in advance without justification may breach Article 25 of the Fair Trade Act where the conduct is obviously unfair and sufficient to affect trading order.

However, pre-contract disclosure does not automatically give franchisees comprehensive audit rights. If you want to check fund expenditure later, the contract should specify reporting frequency, the scope of information available and the verification process. The guidelines also require a contract review period before signing of at least five days, or a period deemed reasonable in the circumstances. Do not confuse this review period with a cooling-off period allowing you to cancel freely after signing.

4. Use a schedule to formalise reporting, audits and unused balances

Consider a separate advertising fund schedule, specifying its order of precedence alongside the main agreement and operations manual. This helps prevent negotiated limits from being overridden by later unilateral changes. The schedule should cover at least the following:

Income and expenditure records: Agree on regular reporting of opening balances, income by category, expenditure and closing balances, and clarify whether separate accounting records will be kept. A separate bank account can be requested in negotiations, but should not be described as a universal statutory requirement.

Related-party transactions: If an affiliated company handles the advertising, require disclosure of the relationship, the services provided and the basis for pricing. A single line labelled ‘marketing fees’ is not enough to understand how the money was actually used.

Audit procedure: Specify whether you may appoint an accountant bound by confidentiality obligations to review the records, how much advance notice is required, who pays for the review and how incorrect charges will be corrected.

Unused balances: Will unspent money be carried forward, credited against future charges or refunded under the contract? Will an outlet leaving the franchise participate in any final settlement? Do not assume that unused contributions will necessarily be recoverable.

Finally, contact several existing franchisees independently. Ask whether reports arrive on time and whether additional campaign charges are common, then cross-check their answers against the written information.

Practical takeaway: before signing, obtain an example fee calculation, a promotional income and expenditure report, and an advertising fund schedule. Clear answers to ‘how is it collected, how is it spent and how can it be checked?’ provide a stronger basis for long-term trust across the franchise network.