Buying a Franchise in the UAE: Defining the Basis for Ongoing Fees

Ongoing fees may look reasonable when you compare the percentages charged by two brands, but their true cost depends on the amount to which they apply. Recorded sales are not always the same as the money you receive, and ‘gross revenue’ may include amounts on which you did not expect to pay fees. Before entering the UAE franchise market, make the definition of the fee calculation basis part of your buying decision, rather than an accounting detail left until the first invoice arrives.

1. Understand what the law determines and what needs to be agreed

The UAE has no standalone, comprehensive federal franchise law, nor a franchise-specific federal disclosure regime requiring all franchisors to provide a standard document before signing. Depending on its nature, the relationship is governed by the general rules of the Civil Transactions Law, Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law, and other relevant legislation.

Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the arrangement meets its requirements and is registered under its provisions; not every franchise automatically becomes a registered commercial agency. Ask a local adviser to identify the applicable legal framework, including any considerations specific to where the business is established.

In practice, do not assume there is a single mandatory definition of franchise sales that settles the details of fee calculations for you. The model restaurant franchise agreement available from the Ministry of Economy and Tourism includes initial fees followed by a percentage of turnover, but it is a general template requiring advice and tailoring. Having a percentage in the agreement is not enough unless you know precisely what turnover means and how it is calculated.

2. Turn the definition of sales into a clear checklist

Ask the franchisor for a draft definition, then review it with your accountant before accepting the financial proposal. Simply replacing ‘gross sales’ with ‘net sales’ is not enough: either term may remain ambiguous without specifying inclusions, exclusions and the supporting evidence required.

Review the following items in the fee calculation schedule:

• VAT: Is it excluded from the fee calculation basis? Explicit wording prevents confusion between business revenue and tax collected.
• Returns and cancellations: When are they deducted, what evidence is required, and how are they treated if they occur after the month-end close?
• Discounts and vouchers: Is the calculation based on the price before the discount or the amount payable afterwards? Who funded the discount?
• Tips and service charges: Are they included in the calculation basis, and who is actually entitled to them? Do not treat all amounts collected in the same way.
• Non-operating revenue: Does the definition include sales of used equipment or insurance payouts? Negotiate exclusions for amounts that do not represent ordinary trading sales.

These are points for negotiation, not automatic legal exclusions. Ask for a separate explanation of each sales-linked fee: the ongoing royalty and marketing contribution may use different definitions. Do not let either rely on a broad term that fails to specify what enters the calculation.

3. Test delivery orders, vouchers and the timing of sales recognition

For delivery orders, the customer may pay the full order value while the platform transfers a smaller amount to you after deducting its commission and charges. Ask directly: are fees calculated on the order value before the platform’s commission, or on the amount transferred? Do not assume the commission is deducted from the calculation basis simply because it is a cost you bear.

Also distinguish between delivery charges you collect for your own account and amounts the platform collects for itself, and specify how promotional support funded by the platform or franchisor is treated. Request a written example showing the settlement of an order involving both a discount and a partial refund, so you can check that the formula works beyond straightforward cases.

For prepaid vouchers and gift cards, you need to establish when their value enters the calculation: on sale or on redemption, and how does the agreement prevent it from being counted twice? If a voucher is sold centrally and redeemed at your outlet, specify the amount attributed to you and how it will be documented and settled.

Review orders placed on credit and advance payments too. Do fees arise when the invoice is issued, when the order is fulfilled, or when payment is received? How are bad debts treated? Calculating fees before payment is collected may leave you owing fees before the corresponding cash reaches your account. That effect needs to be built into your cash flow plan.

4. Agree the reconciliation process before accepting the percentage

Request an anonymised sample statement, or work with your accountant to prepare a hypothetical one agreed by both parties. It should begin with sales by channel, show exclusions and adjustments, and end with the calculation basis and fees payable. Test a month that includes returns relating to a previous month, rather than only an ideal scenario.

Link the financial schedule to agreed data sources: the point-of-sale system, platform reports and refund records. Specify the deadline for submitting the statement, who prepares it, the process for raising queries and correcting errors, and how overpayments will be settled. Do not assume you can deduct them unilaterally from later payments.

Check whether there is a fixed minimum fee, and whether it replaces the percentage-based fee when that produces a lower amount, or is charged in addition to it. A clear definition of sales will not protect your budget if you overlook a separate obligation that remains payable when revenue is weak. Put in writing that any change to the calculation basis or exclusions requires written agreement, not merely an update to the system settings.

The practical takeaway: Do not compare brands on the advertised percentage alone. Before signing, obtain a binding definition of sales, a schedule of exclusions, and a sample reconciliation statement that you and your accountant can recalculate independently and arrive at the same result.