Franchise Royalties in Taiwan: Checking Turnover-Based Fees, Minimum Charges and Settlement Terms

When comparing franchise brands in Taiwan, identical royalty rates do not necessarily mean identical costs. Whether turnover includes tax, whether delivery platform commissions can be deducted and whether minimum charges apply during quiet periods will all affect what you pay. To build a lasting franchise relationship, start by turning the royalty arrangement into a formula that both parties can independently check, rather than simply accepting the percentage shown in a franchise sales presentation.

1. Identify the charging model, then check disclosure requirements

Royalties may be charged as a fixed monthly fee, a percentage of turnover, or a percentage subject to a minimum charge. Before comparing brands, ask the franchisor to set out the calculation basis, payment cycle, date from which charges begin and whether a separate operational support fee applies. Do not assume that ‘royalties’ cover all ongoing support.

Taiwan has no single, comprehensive franchise statute, but franchise transactions are subject to specific rules. The Fair Trade Commission’s Guidelines on the Business Practices of Franchisors, together with the Fair Trade Act, govern franchise information disclosure and contracting practices. Contract performance and payment obligations are also governed by general legislation, including the Civil Code.

Under the Guidelines, franchisors should provide material franchise information ten days before entering into a franchise relationship or preliminary franchise relationship, or within a period considered reasonable in the circumstances or agreed by both parties. This includes the amounts or estimated amounts of fees payable during operation, as well as the method used to calculate royalties. Failure to provide this information without proper justification engages Article 25 of the Fair Trade Act only where it constitutes manifestly unfair conduct capable of affecting trading order. Not every billing disagreement should therefore be treated as a breach of the law.

Practical step: Ask for an explanation of the royalty calculation and a sample settlement statement, and include the agreed formula in a schedule to the contract. Disclosure may be provided by email, messaging apps or other means, but receiving information does not mean that all related commitments have been incorporated into the contract.

2. Break down ‘turnover’: which receipts attract royalties?

‘Calculated on monthly turnover’ is still not precise enough. Check in-store sales, delivery orders, advance orders, gift vouchers and refunds separately. This helps avoid counting the same sum twice or having to pay royalties before you have received the money.

Ask the franchisor to confirm each of the following:

• Tax: Is the royalty calculated on a tax-inclusive or tax-exclusive amount? How is tax applied to the royalty charge itself?
• Delivery orders: Is the calculation based on the total paid by the customer or the amount settled by the platform after deducting commission? How are platform subsidies recorded?
• Discounts and refunds: Is turnover measured before or after discounts? In which period are cancelled orders, partial refunds and returns made in a later month deducted?
• Gift vouchers and advance payments: Are these recognised when sold or when redeemed? How are redemptions at other outlets allocated, and how is double charging avoided?
• Unpaid transactions: Must an unpaid group order still be included in that month’s turnover? Can an adjustment be made if the money later proves unrecoverable?

These are not items that can automatically be deducted by law. They are boundaries of the calculation that need to be expressly agreed. In particular, the amount you actually receive after platform deductions is not necessarily the turnover defined in the contract.

Ask the franchisor to work through a sample transaction involving a discount, platform commission and refund, showing the original order, each adjustment and the final amount on which royalties are calculated. If the franchise sales team and finance team produce different answers, obtain a consistent written explanation before proceeding.

3. Check minimum charges and when fees begin

A minimum royalty can make a brand with an apparently lower percentage rate a fixed financial burden when turnover is low. If the contract refers to both a ‘percentage of turnover’ and a ‘monthly minimum’, establish whether you pay the higher of the two or the minimum plus the percentage charge. These are very different arrangements.

Also check whether the minimum applies per outlet, per contract or per sales channel, and whether there are tiered rates, annual adjustments or caps. For tiered royalties, ask whether crossing a threshold means the new rate applies to the whole month’s turnover or only to the amount above that threshold.

The starting date matters too. The soft launch, official opening, contract signing and system activation may all fall on different dates. Make sure the contract clearly addresses:

• Whether charges for a partial first or final month are calculated pro rata by day;
• Whether minimum royalties remain payable if opening is delayed;
• Whether fees can be reduced, waived or suspended during temporary closure, major repairs or force majeure events;
• When introductory offers end and whether separate notice will be given before normal charges resume.

Such concessions usually need to be negotiated; they should not be treated as automatic entitlements. When comparing brands, use the same low, medium and high turnover scenarios to calculate the royalties payable and their effective percentage of turnover. This is a stress test, not a revenue forecast.

4. Make monthly settlement a process you can verify

A clear formula still needs a clear settlement process. The contract should specify the settlement cut-off date, when the franchisor must provide an itemised statement, the payment deadline and how the franchisee can raise an objection. It should also set deadlines for adjustments and refunds relating to refunds processed in a later month, omitted orders or duplicate charges.

If the franchisor can collect payment directly from your account, negotiate for an itemised statement to be supplied before collection and agree how disputed amounts will be handled. Franchisees should not assume that raising an objection entitles them to stop all payments. A safer approach is to agree in advance that undisputed amounts remain payable while disputed amounts are checked through a specified procedure.

Before signing, obtain the full contract and fee schedules, and compare them line by line with the disclosure information. The Guidelines require a contract review period of at least five days, or a period considered reasonable in the circumstances. The contract should be delivered within 30 days of signing, except where a delay is not attributable to the franchisor. Do not confuse the information disclosure period with the contract review period.

Keep the final version, calculation examples, confirmations of promotional terms and monthly settlement statements. Ask a Taiwan-based accountant to check tax treatment. If you have concerns about account debits, additional charges or dispute procedures, have the documents reviewed by a lawyer familiar with franchise contracts.

Key takeaway: Before signing, give yourself and the franchisor the same set of transaction data and calculate the royalties independently. The charging arrangement is genuinely verifiable only when both parties can use the same formula to reach the same amount, with exceptions clearly documented.