Setting Franchise Fees in the UAE for an Established Business

The success of your existing business does not mean that any franchise fee you choose will support expansion. A high fee may drain a franchisee’s cash before opening, while a low fee may prevent you from providing the promised support. To build a sustainable relationship within the UAE franchise sector, start with the cost of providing services and the outlet’s ability to afford them. Then turn your findings into clear financial terms that can be implemented and reviewed.

1. Separate the cost of joining from the cost of ongoing support

Do not start by asking, ‘What do other brands charge?’ Begin by listing the work you will actually carry out for each new franchisee. This may include site assessment, initial training, fit-out reviews, systems set-up and support for the opening team. Calculate staff time, travel, materials and supplier fees, even where the founder carries out some tasks personally without a separate salary.

Divide the charges into items with clear purposes:

• Initial franchise fee: Covers the grant of rights and the initial work specified in the agreement.
• Ongoing royalty: Covers continuing rights, support, quality control and development of the business model.
• Marketing contribution: Funds shared marketing activities under published spending rules.
• Additional services: Such as training replacement staff or an extra support visit, where these are not already included.

Create an internal schedule linking each service to its cost, the person responsible for delivering it and its delivery date. Do not make the first franchisee bear the entire cost of developing your franchise programme. Distinguish between the initial investment that will benefit the wider network in future and the direct cost of supporting a single outlet. Equally, do not treat your team’s time as free: that assumption breaks down as the number of outlets grows.

2. Test fees against outlet-level economics, not sales alone

Use the results of your existing business as a starting point, then adjust them for an outlet run by an independent franchisee. Include a realistic manager’s salary, expected rent, and the costs of labour, stock, delivery, maintenance and systems. Add all franchise fees before assessing the cash flow left for the franchisee.

Test three scenarios: expected trading performance, weaker-than-expected sales, and a longer period before trading stabilises. These are internal scenarios, not promises of returns. Monitor the outlet’s ability to meet its obligations, rather than simply showing an accounting profit at year end.

Also compare royalty calculation methods. A percentage of sales varies with trading activity but requires a precise definition of sales. A fixed fee makes payments easier to forecast, but may burden the outlet when revenue falls. A minimum payment combined with a variable percentage needs particular testing during the start-up phase.

If the franchisee is left with a reasonable margin only under the strongest sales scenario, do not address the problem by making your forecasts more optimistic. Review costs, the scope of support or the fee structure, and consider postponing franchising until the model becomes more viable.

3. Define the royalty base and collection process precisely

The phrase ‘a percentage of gross revenue’ is not enough on its own. The financial schedule must explain what is included in the calculation, what is excluded and how transactions involving more than one sales channel are handled.

In particular, resolve the following questions:

• Is value added tax (VAT) excluded from the royalty base?
• How are returns, cancellations and discounts treated?
• Are delivery platform sales counted before or after the platforms’ commissions are deducted?
• When are gift cards and advance payments included in the calculation?
• How are online orders fulfilled by the outlet attributed?

Attach an agreed illustrative calculation, without presenting it as a performance forecast. Specify reporting, invoicing and payment deadlines, the source of sales data, procedures for correcting errors, and audit rights, including their limits and who bears the cost.

Also distinguish between the due date for the initial franchise fee and the stages of service delivery. Explain what happens if site approval or licensing cannot be secured, or if opening is delayed, and identify any refundable amounts and the conditions for repayment. Describing a fee as ‘non-refundable’ does not remove the need for a legal review of the consequences of such setbacks and each party’s responsibilities.

4. Place fees within the UAE legal framework

The UAE has no standalone federal law dedicated to franchising, nor a franchise-specific federal disclosure regime requiring a standardised pre-contractual fee statement. However, this does not exempt franchisors from general obligations concerning the accuracy of information, good faith and contractual performance.

Depending on its legal characterisation and scope, the relationship is subject to civil transactions rules, Federal Decree-Law No. 50 of 2022 on Commercial Transactions, and competition, licensing and tax legislation. Federal Decree-Law No. 36 of 2021 on Trademarks governs trade mark rights and licensing.

Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply where the arrangement meets its requirements and is registered as a commercial agency. Do not assume that calling a document a ‘franchise agreement’ settles its legal status. Before signing, seek a review of eligibility, registration and their implications. If the arrangement is connected to a financial free zone, also check which legal regime applies.

Review the tax treatment of each fee, invoicing requirements and whether quoted prices include or exclude tax with a tax adviser. Do not treat a published contract template as binding legislation or as a substitute for tailoring the agreement to your business.

5. Test your ability to deliver what you charge for

Before finalising your fees, prepare a support budget based on a small number of outlets. Can you fund visits, training and responses to problems from recurring income, without relying on sales of new franchises? If not, there is a weakness that needs addressing.

Specify how marketing contributions may be spent and how spending will be reported, and distinguish these contributions from any local marketing expenditure required of the franchisee. Disclose additional fees and the mechanism for changing them, rather than leaving them to unrestricted discretion after signing.

Practical takeaway: Before offering a franchise, prepare three linked documents: a support cost schedule, an outlet-level fee affordability assessment, and a clear financial schedule reviewed by a lawyer and a tax adviser. The right fees preserve both the franchisee’s commercial viability and your ability to support them.