Franchise Pricing Rights in Taiwan: Checking Recommended Prices, Compulsory Promotions and Discount Costs

When choosing a franchise in Taiwan, look beyond franchise fees and ask: who sets the selling prices? If head office launches a promotion, must you take part? A franchise network needs clear boundaries between maintaining a consistent brand image and allowing individual outlets to run their businesses. If the agreement simply requires you to “comply with head office policies”, a single prolonged discount campaign could upset your original budget for opening the outlet.

1. Distinguish recommended prices from pricing that is compulsory in practice

Do not rely on promises of “operational freedom” in a franchise sales presentation. Ask head office to explain, item by item, how in-store prices, delivery-platform prices, meal deals, member offers and vouchers are set. Then compare those explanations with the agreement, operating manual and till-system settings.

Use three questions to test how much pricing freedom you really have:

• Can you change prices? Can franchisees adjust prices to reflect rent, delivery costs or local demand, or does every change require approval?
• Can you opt out? Could declining to join a promotion result in penalty points, supplies being withheld, incentives being withdrawn or a finding that you have breached the agreement?
• Can you make the change in practice? Even if the agreement permits price changes, does head office lock the till system so that the outlet cannot make them?

Whether a price is genuinely “recommended” depends on more than its label. If head office uses penalties or supply conditions to force compliance, the word “recommended” alone does not establish pricing freedom. Conversely, the fact that all outlets happen to charge the same prices does not necessarily mean there is an unlawful restriction.

Ideally, ask head office to demonstrate the price-change process and provide the application form, approval criteria and processing times. Summarise verbal answers in an email and ask for confirmation. If the answers differ from the agreement, have the documents amended rather than relying on flexibility later.

2. Understand Taiwan’s rules: brand consistency does not automatically make restrictions lawful

Taiwan has no single dedicated franchise law governing every franchise relationship, but franchise transactions are not unregulated. Contractual rights and obligations primarily fall under the Civil Code, while franchise recruitment disclosures and competitive conduct also engage the Fair Trade Act.

The Fair Trade Commission’s handling principles for franchisors’ business conduct identify restrictions that apply during the franchise relationship as important information to be disclosed in advance. The principles require the relevant information to be provided ten days before entering into a franchise or preliminary franchise relationship, within a period considered reasonable in the circumstances, or within a period agreed by both parties. Withholding important information without justification may breach Article 25 of the Fair Trade Act if it constitutes obviously unfair conduct capable of affecting trading order.

On pricing, Article 19 of the Fair Trade Act generally prohibits a business from restricting the prices at which its trading counterpart resells supplied goods to a third party, or at which that third party subsequently resells them, unless there is a justifiable reason. The provision also applies to services, with the necessary adaptations. Whether it applies in a particular case depends on the arrangements for supplying the goods or services, how the restriction operates and any justification offered. It cannot be reduced to either “franchises can always impose uniform prices” or “uniform pricing is always unlawful”.

If head office says fixed prices are necessary to maintain quality, ask it to explain the reasons and the practical arrangements, then have these assessed by a lawyer familiar with Taiwan’s Fair Trade Act. Disclosing a restriction does not, in itself, make that restriction lawful. Franchising is usually a transaction entered into for business purposes, so consumer shopping protections or return rights should not simply be assumed to apply.

3. Use a settlement statement to break down compulsory promotions

The key questions about a promotion are not just how large the discount is, but who funds it, which amount is used to calculate royalties and when any subsidy actually reaches the outlet. Ask head office for an anonymised example of a promotional settlement, showing the full process from the customer’s payment to the franchisee’s receipt of funds.

Check at least the following:

• Scope: Does the offer apply in-store, through the brand’s app and on delivery platforms? Can it be combined with other offers?
• Cost allocation: Who pays for discounts, free items, platform fees and refunds?
• Royalty calculation: Are royalties based on the listed price, sales after discounts or an amount that includes subsidies?
• Form of subsidy: Does head office pay cash, offset the amount against supply invoices or provide purchasing credit with an expiry date?
• Reconciliation timetable: When are redeemed quantities confirmed, discrepancies raised and subsidies paid?

For example, even if head office subsidises the free item in a buy-one-get-one-free promotion, that subsidy may not cover additional packaging, staffing or platform fees. This does not necessarily mean the promotion is not worth joining, but you must assess it using the costs the outlet actually bears, rather than treating “head office subsidy” as meaning “no loss to the outlet”.

Then compare normal sales with promotional sales and calculate how much each order leaves to cover fixed costs. Even without guessing how many new customers the campaign will attract, you can establish whether each additional order makes a sufficient contribution.

4. Turn participation boundaries into enforceable terms

Before signing, put the arrangements for independent pricing and promotional participation into a schedule to the agreement, rather than merely keeping messages from the franchise sales representative. Prioritise these four points in negotiations:

First, define decision-making authority. Specify which prices are recommendations, which promotions require all outlets to participate and who decides requests for exceptions. This clarifies the commercial arrangements; it does not establish in advance that every restriction is lawful.

Second, set a notification procedure. Require head office to provide the campaign dates, eligible products, settlement rules and costs to the outlet before a promotion begins. Major changes should not be announced only on the eve of launch.

Third, agree a cap on the outlet’s contribution. Consider negotiating a limit on the discount costs the outlet must bear for each campaign or over a defined period, with further written consent required above that limit. Also specify how low-margin products, stock shortages and changes in platform fees will be handled.

Fourth, protect your ability to check the figures. Franchisees should have access to their own outlet’s promotional orders, redemption records and subsidy breakdowns. There should be a procedure for correcting disputed figures and paying any shortfall, rather than requiring the outlet to accept an untraceable lump-sum deduction in its monthly settlement.

Practical takeaway: Before signing, obtain a pricing-authority table, a real settlement example and a contractual schedule setting out who bears promotional costs. If head office simply says “it is the same for every franchisee”, it has still not answered how much your outlet must pay or which decisions you can make.