Franchise Deposits in Taiwan: Check Refunds, Fee Offsets and Commitments Before Reserving a Place

“Pay now to reserve your franchise place — you can review the agreement later.” Prospective franchisees should pause before accepting an offer like this. When entering Taiwan’s franchise market, your first payment may already create obligations, regardless of whether the document is called a “formal agreement”. Before paying, establish exactly what commitments you are securing, when you lose the option to withdraw, and what happens to your money if negotiations fall through.

1. Understand what the reservation payment covers and what it commits you to

A franchisor may describe the payment as a deposit, earnest money, an expression-of-interest payment or a reservation fee. The label offers a clue, but it does not, by itself, establish whether the money is refundable or whether the document is legally binding. The wording, the purpose of the payment and what both parties have actually agreed all matter.

Ask the franchisor to specify the following in the reservation document:

• What is being reserved: Is this simply an opportunity to discuss the franchise, or does it reserve a particular site, territory or eligibility to become a franchisee?
• How long the reservation lasts: When does it take effect, when does it expire, and does it lapse automatically?
• What each party must do: What assessments must the franchisor complete, and are you committing to sign the full agreement by a deadline?
• How the money will be used: Will the franchisor hold it temporarily, or use it immediately to pay for work such as site selection or design?

For example, “reserving franchise eligibility” does not necessarily mean the franchisor will stop recruiting other franchisees in the same area. If you are paying to reserve a particular location temporarily, the document should define the precise scope of that reservation and the franchisor’s obligations during the reservation period, rather than merely promising “priority discussions”.

Also look for wording such as “failure to sign by the deadline will be treated as withdrawal” or “payment constitutes acceptance of all franchise terms”. These provisions could turn a seemingly straightforward reservation process into a commitment to make an investment decision within a fixed period.

2. Disclosure cannot always wait until the full agreement is signed

Taiwan does not have a single, dedicated franchise statute, but franchise transactions are subject to specific rules. The Taiwan Fair Trade Commission’s principles for handling cases involving franchisors’ business conduct, together with the Fair Trade Act, address disclosure during recruitment and related trading practices. Questions about contract formation, performance and repayment also involve the Civil Code.

Under these principles, franchisors must provide seven categories of material franchise information ten days before establishing a franchise relationship or a preliminary franchise relationship, or within a period deemed reasonable in the individual case or agreed by both parties. Separate provisions allow exceptions where there are legitimate grounds. The information covers pre-opening and operating costs, intellectual property licensing, operational support, plans for further outlets within the same franchise system, operating restrictions, and how the agreement can be changed or brought to an end.

One point deserves particular attention: collecting a non-refundable fee and signing franchise-related documents, such as a letter of intent, draft agreement or reservation form, may already establish a preliminary franchise relationship. A franchisor cannot assume it may postpone all disclosure simply because “the full agreement has not yet been signed”. Equally, not every enquiry registration or payment necessarily establishes such a relationship; the actual arrangements must be considered.

This disclosure requirement is separate from the requirement to allow at least five days, or a period deemed reasonable in the individual case, to review the relevant contract before signing. Neither should be understood as a cooling-off period allowing unconditional cancellation after payment. A franchise transaction is not an ordinary consumer transaction, so you cannot simply rely on the consumer protections in Taiwan’s Consumer Protection Act to claim a refund.

3. Set out refund scenarios, rather than simply referring to “the rules”

Refund clauses often cause problems because they say only that “no refund is available if the applicant changes their mind”, without addressing what happens if the franchisor rejects the application, the reservation expires, or the parties cannot agree on the full contract.

Before paying, negotiate the following points individually. These are terms to seek, not refund rights guaranteed by law in every case:

• The franchisor rejects your application: Will you receive a full refund, and within what timeframe?
• The agreed reservation cannot be honoured: Can you cancel the reservation and recover your money?
• The full agreement is not agreed within the deadline: Will the payment be refunded, the reservation extended, or the amount settled in a specified way?
• You choose to withdraw your application: Is a partial refund available, and which completed work may be charged for?

If the franchisor wants to deduct “costs already incurred”, agree in advance which costs qualify, how they will be calculated, the maximum deduction and what supporting evidence is required. Do not settle for wording such as “administration fees charged separately” or “deductions based on the franchisor’s losses”, as this leaves the refund amount unpredictable.

The refund procedure should also be clear, including how to give notice, whom to notify, the processing deadline and the bank account to which the refund will be paid. Avoid arrangements that require “internal approval” without setting a deadline for that approval.

4. Check how the payment will be credited and keep a complete record

“Deductible from future franchise fees” does not mean the payment can be offset against every type of cost. Ask for the document to identify the specific fee against which it will be credited, the amount of the credit and the invoice on which it will appear. If it can only be credited against the initial franchise fee, do not assume it can pay for equipment, training or your first stock order.

Also confirm whether any balance will be refunded if the final franchise fee is lower than the reservation payment; whether the credit remains available if you switch franchise packages; and whether the payment will be forfeited when the reservation expires. Resolve these questions before paying, rather than arguing over them once the final quotation arrives.

Keep the reservation documents, franchise information supplied by the franchisor, refund promises, proof of payment and correspondence. Record when you received each item. If a franchise recruitment representative says “you can definitely get a refund” but the document says the payment is non-refundable, have the document amended before considering payment.

If a dispute arises, treat disclosure breaches and recovery of your money as separate issues. Failure to meet the relevant requirements of the handling principles, where sufficiently serious to affect trading order, may engage Article 25 of the Fair Trade Act. However, reporting the matter to the Fair Trade Commission does not mean your money will automatically be returned. Whether you are entitled to a refund may still need to be determined under the contract and civil law. Where necessary, ask a lawyer qualified in Taiwan to review the matter.

Practical takeaway: Do not pay a non-refundable sum just to obtain the full terms. Get all the information first, then put the reservation commitments, refund scenarios and method of crediting the payment in writing before deciding whether to pay.