Franchising is one of the easiest ways for foreigners to invest in a business. You won’t be the first person to open a franchise in Thailand because franchising is not a recent business model there. More than 12,000 franchisees and over 400 franchises are currently present in Thailand. Franchises have gained popularity, though, as a result of the AEC’s introduction because it has been much simpler, more profitable, and more effective to expand inside ASEAN. Thailand still lacks a franchise law, nevertheless.
- What is Franchise Business in Thailand?
- Regulations Governing Franchise Business in Thailand
- Obligations to follow to Start Franchise Business in Thailand
- Benefits for Foreigners to Start Franchise Business in Thailand
- This is What You Must Do!
What is Franchise Business in Thailand?
According to the 2019 notification, a franchise is a business transaction in which one party, called a franchisor, contracts with another party, called a franchisee can –
- To use the franchisor’s s business method, model, system, procedures, and intellectual property rights (or any business method, intellectual rights, etc) that the franchisor has the right to license
- In a specific time and place
- Where the business operation is under the support and business plan of the franchisor
- The franchisee has an obligation to pay royalties to the franchisor
However, to assure the protection of both the franchisor and the franchisees, a contract must be neutral and benefit both parties. Moreover, the franchise agreement must strike a good balance between the interests of the two parties because they have various matters to take into account.
Therefore, call one of our attorneys if you wish to launch a franchise business in Thailand. Additionally, we provide other services and legal paperwork in addition to registering your business in Thailand promptly.
Regulations Governing Franchise Business in Thailand
First off, a franchisor/franchisee relationship is not subject to any notice or registration requirements under Thai law. Although the relationship between the franchisee and the franchisor is mostly contractual, nonetheless there are certain laws and rules governing them:
- The provisions of the Thai Civil and Commercial Code governing contracts
- The Unfair Contract Terms Act B.E.2540
- Intellectual property laws, in particular, the Trademark Act
- The Trade Secrets Act B.E.2545
- The law on consumer protection and “controlled contracts
- Laws governing the specific commercial activity that is the subject of the franchise, such as the Food Law or the Cosmetics Law
- The law on commercial competition
Additionally, the Notification Regarding the Guidelines for the Consideration of Unfair Trade Practices in Franchise Businesses was released on December 6, 2019, to stop franchisors from implementing excessively onerous and unfair contractual provisions that are thought to potentially hurt franchisees. The notice has been in effect since February 4, 2020.
Obligations for Franchise Business in Thailand
The franchisor is subject to two requirements in the announcement. Disclosure of crucial information about the franchise is mandatory. Therefore, the franchisor must provide the franchisee with material information before signing a franchise agreement, such as information about:
- The royalty and other payments for operating the franchised business
- The business model of the franchise
- Intellectual property rights
- Renewal and termination of the franchise agreement
The franchisor must first grant the franchisee the authority to operate the branch if the franchisor plans to open and run a new branch in the vicinity of the franchisee’s area of operation.
Therefore, we advise that franchisors implement their franchise systems carefully and abide by the notification requirements. Additionally, it is advisable to review the Commission’s rulings and the cases decided by the Thai Supreme Court that established a standard for “unfairness.”
However, the rules forbid the following franchise activities:
- Setting conditions on franchisees’ rights without valid business reasons
- Setting additional conditions after the execution of the contract without good cause
- Prohıbıtıng franchisees from purchasing products or services from manufacturers, distrıbutors, or other service providers without good cause
- Prohibit franchisees from selling perishable products at a discount without good reason
- Prohibit franchisees from selling discounted perishable products without good reason
- Not treatıng all franchisees equally by setting different terms for each franchisee
- Setting inappropriate contract terms for franchisees that are not related to maintaining the franchisor’s reputation, quality, and standards
Violation of the said rules can lead to an administrative fine of up to 10% of yearly sales. On this, the franchisee may file claims for violations under the terms of the franchise agreement with a one-year statute of limitations. Additionally, Section 60 of the Trade Competition Act provides the Commission extensive jurisdiction to prohibit an offender from operating any franchise businesses in Thailand.
Benefits for Foreigners in Franchise Business in Thailand
For an incomıng foreigner just arriving in the country, starting a franchise business in Thailand has many business advantages:
- New entrants are often unfamiliar with the Thai market
- They may not know the local supply chains, rental markets, and potential customers.
- Local franchisees are often more familiar with local supply chains, rental markets, and potential customers
- Spreading the risk
This type of business relationship also has interesting legal advantages:
- Foreigners will not have to deal with Thai restrictions on foreign entrants
- They are not subject to Thai legal restrictions on foreign parties: such as the Foreign Business Act, the Tourism Act, and other local laws, permits, and regulations. This is done by the franchisee, not the franchisor
- Their contract will be concluded under specific local laws such as Thai labor law
The Bottomline
There are regulations, acts, and laws in anything you do in any region of this world. Thailand is not an exception. The advantages that you can get by starting your franchisee business in Thailand are as follows:
- Get the opportunity to be part of the booming ASEAN market
- Tap the entire South-East Asian economy
- Be part of the rapidly growing digital economy of Thailand
- Get immense support from the Royal Thai Government & the Board of Investment, and,
- Have Konrad Legal by your side!
Reach out to us for all types of legal paperwork, legal, accounting, or regulatory guidance and assistance in your venture to start a franchise business in Thailand. Email us at [email protected].
