Franchise Royalties in Taiwan: Checking Turnover Definitions, Minimum Charges and Billing Discrepancies

When choosing a Taiwanese franchise brand, comparing royalty percentages alone is not enough. The amount to which the rate applies, when charges begin and whether refunds can be deducted all affect your actual monthly bill. Before joining a franchise network, ask the franchisor for a formula you can check item by item, and have the calculation rules included in a schedule to the agreement. Do not settle for a sales representative simply saying that royalties are ‘charged on turnover’.

1. Distinguish disclosure obligations from the contractual right to charge

Franchise transactions in Taiwan are governed by the Fair Trade Act. The Fair Trade Commission has also issued principles for handling cases concerning franchisors’ business practices. These guide the handling of franchise business conduct cases; they are not a system of government approval for a brand’s charges. Nor does disclosure necessarily make a term reasonable.

Point 3 of these principles identifies ‘fees payable during franchise operations’ as material information. This expressly includes how royalties are calculated and charged, along with the amounts or estimated amounts of relevant fees payable to the franchisor or its nominated parties. In principle, this information must be provided ten days before a franchise or preliminary franchise relationship is established, within a reasonable period determined in the individual case, or within a period agreed by both parties. Failure to provide it without proper justification raises the question of a breach of Article 25 of the Fair Trade Act only where it is sufficient to affect trading order.

A brand merely stating that it takes ‘a monthly percentage’ therefore does not give you enough information to assess costs. Request the rate, calculation basis, minimum amount, charging start date and payment deadline. Whether a particular charge complies with the parties’ agreement, or whether you can seek repayment, still requires analysis of the contract and relevant provisions of the Civil Code and other applicable law. A disclosure issue alone does not establish that payment is unnecessary.

2. Break ‘turnover’ down into items you can check

Turnover as defined in the agreement may not equal the money actually received in your bank account. The franchisor might calculate royalties using the selling price before discounts, the discounted transaction value, or sales before platform fees are deducted. Unless you understand these differences, the same royalty rate can result in different costs.

Ask the franchisor to answer each of the following in writing:

• Tax: Is the calculation based on tax-inclusive or tax-exclusive amounts? How is tax removed from the figures in the reports?
• Discounts: Does the calculation use the original price or the amount actually received? Are franchisor-funded promotions counted separately as income?
• Platform orders: Is the calculation based on the total order value or the amount credited after platform fees?
• Refunds and cancellations: Are incomplete transactions excluded? In which period is a refund deducted if it relates to a sale in an earlier month?
• Gift vouchers and advance payments: Are these recognised when sold, when payment is received or when redeemed? How is double charging avoided?
• Non-sales receipts: Are deposits, money collected on behalf of others or other receipts included? If so, on what grounds and to what extent?

The aim is not to make every brand use the same approach, but to ensure that the definition works with your day-to-day bookkeeping. If the agreement simply refers to ‘all income’, ask for a list of included and excluded items rather than leaving all interpretation until after opening.

3. Check minimum royalties and when charges begin

Alongside percentage-based royalties, check for fixed monthly fees, minimum royalties and tiered rates. A ‘minimum monthly charge’ might mean paying a top-up when the percentage-based royalty falls below the minimum. Alternatively, it might be drafted as a fixed fee payable in addition to the percentage. These are not the same arrangement.

Ask the franchisor for worked examples covering low, typical and high sales. Each should show the calculation basis, applicable rate, minimum charge and final amount payable. If rates are tiered, clarify one point in particular: once a threshold is crossed, does the new rate apply to all turnover or only to the portion above that threshold?

Confirm the charging start date separately. The signing date, completion of training, soft opening and official opening may all fall on different dates. Minimum royalties charged before the outlet opens will add to cash-flow pressure during the preparation period. Do not assume that a partial first month will be charged pro rata by the day.

Will minimum charges continue during a closure, equipment breakdown or a failure by the franchisor to supply goods? These circumstances do not automatically entitle you to an exemption. Agree the eligibility conditions, supporting documents and approval process in advance. Any fee-free or reduced-fee period promised during recruitment should also have a written end date and clear conditions for resuming normal charges.

4. Test the terms with a mock monthly statement

Before signing, ask the franchisor for a sample monthly statement that does not disclose another outlet’s confidential information, then test it with a set of hypothetical transactions. Include at least ordinary sales, discounts, cancelled orders, refunds relating to earlier months and gift voucher redemptions. Check how each amount feeds into the royalty formula.

The monthly statement should be traceable to the relevant sales reports and clearly identify adjustments. If it shows only a single ‘amount due this month’, it will be difficult to tell whether a discrepancy comes from missing orders, double counting or different interpretations of turnover.

The agreement should also specify the billing cycle, statement issue date, payment deadline, deadline for raising queries and correction procedure. In particular, establish whether you may pay the undisputed portion first when a dispute arises, and whether confirmed overcharges will be refunded or credited against the following period’s bill. These arrangements require both parties’ agreement; a franchisee cannot decide them unilaterally.

If the franchisor has the right to recover underpayments or audit your records, check how far back it can go, what information it can require, when you must bear audit costs and how errors made by the franchisor will be handled. Do not accept an arrangement that requires franchisees to make up shortfalls but provides no way to correct overpayments.

Practical takeaway: Before signing, prepare a one-page royalty checklist bringing together the turnover definition, complete formula, minimum charges, charging start date and correction procedure. If a charge cannot be clearly explained using a mock monthly statement, request written clarification before deciding whether to join.