Franchising Your Business in Taiwan: Setting Terms for Deposits, Reservation Fees and Refunds

When opening an existing business in Taiwan to franchising, a franchisor may wish to collect an expression-of-interest deposit or reservation fee to establish an applicant’s level of commitment. However, the name given to the payment is not what matters most. The key questions are what obligations the applicant takes on after paying, and what it will cost them to withdraw. Clear reservation and refund arrangements build more lasting trust within the franchise community than pressure tactics such as ‘pay today to secure your place’.

1. Identify whether taking payment creates a preliminary franchise relationship

Taiwan’s Fair Trade Commission Guidelines on the Business Conduct of Franchisors expressly define a ‘preliminary franchise relationship’. This covers arrangements made before a formal franchise relationship is established, where an applicant pays a fee, signs franchise-related documents such as a draft agreement, reservation form or letter of intent, and agrees that withdrawal will result in forfeiture of fees already paid or liability for compensation.

A reservation form labelled ‘not a formal agreement’ may therefore still fall within these rules if it involves payment and a forfeiture clause on withdrawal. Calling the payment a consultancy fee, eligibility reservation fee or trade-area assessment fee does not, by itself, put it outside their scope.

Taiwan has no single dedicated franchise statute, but this does not mean franchise recruitment is free from specific regulation. The guidelines are enforced under the Fair Trade Act. Failure to comply with the relevant disclosure or contractual procedure requirements may breach Article 25 of that Act if it is sufficient to affect trading order. Questions about repayment, contractual validity and damages must also be assessed under Taiwan’s Civil Code and the specific terms agreed.

Franchisors should map every point in their recruitment process at which payment is collected, including information sessions, site-selection consultations and the signing of reservation documents. Each should be checked for any cost attached to withdrawal, rather than reviewing only the final franchise agreement.

2. Choose the reservation model before deciding what to charge

Do not use the same ‘letter of intent’ to cover initial enquiries, reservation of a place and a binding commitment. In practice, these can be structured as three separate arrangements:

• An initial expression of interest with no payment: Collect application details and arrange discussions only. Make clear that this does not guarantee franchise approval and does not make the applicant liable for compensation if they withdraw.
• A refundable short-term reservation: Specify what is being reserved, when the reservation expires, how to cancel and the refund deadline. Even where a full refund is promised, the document may still create contractual obligations and should not be treated as having no legal effect.
• A reservation with withdrawal costs: If the franchisor genuinely provides specific services or reserves resources, clearly describe those services or resources, the charges and the consequences of withdrawal. Complete the applicable regulatory procedures before taking payment or obtaining signatures.

When choosing a model, first ask: what exactly is the franchisor promising to do once it receives payment? If the applicant believes payment secures the right to open in a particular area, while the franchisor sees it merely as a fee to join a queue, the seeds of a dispute have already been sown.

At a minimum, the reservation document should explain what is reserved, its duration, the approval conditions and what happens on expiry. For example, distinguish clearly between priority in discussions and a commitment to stop accepting other applications for a specified location. Before site and operational assessments are complete, payment should not be presented as a guarantee that the applicant will be able to open an outlet.

3. Provide key information before any non-refundable commitment

Point 3 of the guidelines requires franchisors to provide important franchise information for review ten days before establishing a franchise relationship or preliminary franchise relationship, or within a period deemed reasonable in the individual case or agreed by both parties. There is also an exception where justified grounds exist. A franchisor should not wait until the formal agreement to disclose fees if it has already tied the applicant in through a non-refundable reservation payment.

The important information extends beyond the reservation fee itself. Pre-opening and ongoing operating costs, the scope of the licence, training and operational guidance, operating restrictions, and conditions for changing or exiting the agreement may all affect an applicant’s willingness to take on reservation obligations.

Disclosure and contract review are also separate requirements. Point 4 of the guidelines requires a contract review period of at least five days, or a period deemed reasonable in the individual case, before a franchise-related contract is signed. Where reservation documents are involved, the franchisor should not neglect review of the document currently being signed on the grounds that ‘the main agreement will come later’.

Consider introducing a payment checkpoint: a designated member of staff should confirm the version of the information supplied, its delivery date, the reservation documents and the applicable time periods before issuing a payment request. Sales staff should not independently promise to shorten the process, nor should a standard declaration agreeing to sign on the same day be treated as a guarantee against liability.

4. Draft refund terms by scenario, rather than simply stating ‘non-refundable’

Refund arrangements should cover different reasons why an outlet might not open, rather than attributing every unsuccessful outcome to the applicant. At a minimum, address the following scenarios separately:

• The franchisor rejects the application: For example, if the applicant fails the eligibility assessment, explain which payments will be refunded. Any separate service fee must be supported by a clear advance agreement on the service and the basis for the charge.
• Site selection or other preconditions cannot be completed: Specify who confirms the outcome, whether an extension is possible and how the reservation ends once the deadline has passed.
• The applicant chooses to withdraw: Clearly explain how notice must be given, the refundable amount and any conditions for deductions. Avoid adding administration charges after the event.
• Both parties enter into a formal franchise relationship: State which fee the reservation payment will be credited against, when that credit will be applied and how any shortfall or overpayment will be handled.

If deductions are to be based on costs already incurred, agree the permitted items and calculation method before taking payment. Keep records of commissions, quotations, payments and work delivered. Where work involves third-party expenditure, it is advisable to obtain the applicant’s confirmation before proceeding, rather than later seeking to recover charges for internal staff time or a vague ‘loss of a franchise place’. The validity and reasonableness of the terms should still be reviewed by a professional familiar with Taiwanese law.

Finally, include the refund deadline, responsible contact and payment method in the documents, and ensure finance staff receive refund approvals directly. Refunds should not be made conditional on requirements that were not originally agreed, such as withdrawing a complaint.

Practical takeaway: Before launching franchise recruitment, prepare a table linking each payment to the commitment made, the withdrawal terms and the refund arrangements. Wherever an applicant cannot withdraw freely after paying, check the disclosure and contractual procedures in advance. Do not wait for a dispute before explaining what the money was for.