Taiwan

• Author: Wellington Liu - I-Chen Wu - David Lu
• Pages: 478-498

478 International Franchise Sales Laws

Taiwan

I. What Is a Franchise?

A. Scope of Law

The Rules on Disclosure of Information by Franchisors, first promulgated by Taiwan’s

Fair Trade Commission, Executive Yuan, on June 2, 1999, and last amended on

January 5, 2015, and renamed as the Principles for Handling Cases Relating to the

Operation of Franchisors (hereinafter the Principles), are the only set of regulations

that have been promulgated by the Taiwan government to specifically address fran-

chise issues. The purpose of the Principles is to maintain the order of franchise

transactions and to ensure free and fair competition in the franchise market in Tai-

wan. Thus, the focus of the Principles is to provide information that a Franchisor

must disclose to a potential Franchisee and to set out requirements for when and

how such information must be disclosed as well as to regulate unfair practices.

According to Article 2 of the Principles, a “franchise relationship” is defined as

a continuing relationship in which “a business, pursuant to an agreement, grants

another business the right to use its trademarks or management techniques and

provides operational assistance or guidance to the other business, while the other

business pays consideration for such rights and services.” “Franchisor” is defined

as “a business that offers trademark or management techniques and assists or guides

the operation of the Franchisee, for which it receives consideration from the Fran-

chisee in a franchise relationship.” Under the same Article, “Franchisee” is defined

as “the business that receives the assistance or guidance of the Franchisor and pays

consideration to the Franchisor in a franchise relationship.” In addition, “consider-

ation” is defined as “the franchise fee, royalty, education and training fee, purchase

price for merchandise or capital equipment and other related expenses paid by Fran-

chisee to Franchisor for the purpose of entering into the franchise relationship.” In

the amendment made on January 5, 2015, a new term, “preparatory franchise rela-

tionship,” was added to the Principles. The term is defined as the relationship estab-

lished before the Franchisor and the counterparty enter into the formal franchise

relationship, pursuant to which the counterparty, who may be a Franchisee or a

prospective Franchisee, pays certain expenses and executes franchise-related docu-

ments, such as a preliminary agreement, memorandum of understanding, letter of

intent, etc., wherein both parties agree that the expenses paid by the counterparty

will be confiscated or the counterparty will be liable for damages in case of with-

drawal. For purposes of this chapter, any reference to a “Disclosure Document”

should be taken to mean the information that a counterparty is required to disclose

to a Franchisee pursuant to the Principles. It does not include sample written con-

tracts used in the franchise relationship

Taiwan 479

Other than the Principles, no laws or regulations have been promulgated in

Taiwan that specifically address issues relating to franchises. Other issues are gen-

erally governed by other applicable laws of Taiwan, such as the Civil Code and the

Fair Trade Law. Any reference in this chapter to “the franchise law” should be taken

as a reference to the Principles only.

B. Applicability to Master Franchises

The Principles apply to a Master Franchise granted by a foreign Franchisor, pro-

vided that the Master Franchisee is in Taiwan or the franchised outlets are in Tai-

wan. On the other hand, if the Master Franchisee or the franchised outlets are located

outside of Taiwan, the laws of the country in which the franchised outlets are lo-

cated govern the franchise relationship between the Franchisor and the Master Fran-

chisee or between the Master Franchisee and the franchised outlets (as the case may

be). A Master Franchisee will be treated as a Franchisor if the Master Franchisee

grants franchises in Taiwan, regardless of the domicile of the Franchisor.

C. Exemptions

There are no statutory exemptions, exclusions, or exceptions as to what is a fran-

chise under the Principles. Thus, in Taiwan, any of the following arrangements that

fall within the definition of “franchise” given above, regardless of the industry, has

the potential to be deemed a franchise as defined in the Principles and to be subject

to the Principles:

1. a partnership relationship;

2. a trademark license;

3. a wholesale distribution arrangement;

4. a credit card services arrangement; or

5. any other business arrangement.

D. Discretion of Regulatory Authorities

The Fair Trade Commission of Taiwan has the discretion to determine whether a

particular distribution or licensing arrangement is a franchise in the context of the

Principles.

E. Jurisdiction

The Principles apply when the franchise outlet is or will be located in Taiwan. In

other words, regardless of the nationality of the Franchisor and the Franchisee, and

regardless of where the offer or sale occurs, both an offer to sell a franchise or a sale

of a franchise to be operated in Taiwan fall under the jurisdiction of the Principles.

If the franchise is to be operated outside of Taiwan, any offer to sell or any sale of a

franchised business located outside of Taiwan would not be subject to the Prin-

ciples, but instead would be subject to the laws of the foreign jurisdiction where the

franchise operation is located.