Legal Regulations on Franchising in the Philippines

Updated for general principles as of 2025. This article explains how franchising operates under Philippine law, which relies on a patchwork of statutes, regulations, and jurisprudence rather than a single “Franchise Law.” It is written for founders, franchise developers, master franchisees, and counsel structuring or reviewing franchise systems.

1) Foundation: There is no single, nationwide “Franchise Act”

Unlike some jurisdictions, the Philippines does not have one statute that defines, registers, or polices business-format franchises end-to-end. Instead, franchising is governed by:

The Civil Code and general contract law (consent, cause/consideration, object, vices of consent, good faith).
The Intellectual Property Code (trademarks, copyrights, patents, trade secrets).
The Revised Corporation Code (entity formation and governance).
The Consumer Act (product safety, deceptive sales practices, warranties).
The Data Privacy Act (personal data of customers, franchisees, and employees).
The Philippine Competition Act (anti-competitive agreements and abuse of dominance).
Tax laws under the National Internal Revenue Code (VAT, income tax, withholding).
Labor, occupational safety, and sectoral rules (DOLE, DTI, FDA, BFP, LGU permitting, etc.).
Investment and foreign participation rules (Retail Trade Liberalization amendments, Foreign Investments Act, SEC licensing for “doing business”).

Because there is no single franchise statute, the franchise agreement fills the gap—and courts will enforce it if it’s lawful, clear, and not contrary to public policy.

2) What is a franchise under Philippine practice?

Business-format franchising typically combines:

IP license (use of trademarks, trade dress, proprietary recipes and systems).
Business system (operations manuals, training, supply, quality control).
Fees (initial fees, royalties, advertising/marketing fund contributions, tech fees).
Support and controls (site selection standards, fit-out specs, audits, POS/IT, menu/assortment, brand standards).
Exclusivity (territorial rights and development commitments).

Courts will look at substance over labels: a distribution/dealership contract that grants brand, know-how, and controls may be treated as a franchise in disputes, even if the word “franchise” is avoided.

3) Contracts: Key clauses and enforceability

Well-drafted Philippine franchise contracts usually cover:

Grant of rights & territory
- Whether exclusive or non-exclusive; radius or polygon definitions; carve-outs (e.g., e-commerce, travel retail, institutional sales).
Term & renewal
- Initial term (e.g., 5–10 years) with renewal options; renewal fees; re-imaging/refurbishment conditions; cure of defaults.
Fees
- Initial franchise fee; continuing royalty (percentage of gross sales or minimums); advertising fund; tech/POS fees; training/travel costs; audit costs and interest on late payments.
Standards & manuals
- Manuals are usually incorporated by reference and may be updated unilaterally for brand protection; the agreement should state version control and hierarchy in case of conflicts.
Supply & sourcing
- Approved suppliers; right to change specs; competitive neutrality and transparency when franchisor or an affiliate supplies inputs.
IT & data
- POS/ERP requirements; real-time sales reporting; cyber and data privacy obligations; cross-border transfers; data retention; ownership of transaction data vs. personal data.
Advertising & PR
- National fund governance, local store marketing, use of brand assets, social media policies, influencer guidelines, crisis comms.
Training & opening
- Mandatory training; certification; re-certification; soft-opening and grand-opening obligations; staffing levels.
Quality control & inspection
- Unannounced audits; product testing; mystery shops; right to require corrective actions; suspension of menu items.
Pricing & vertical restraints
- Recommended vs. fixed retail pricing: fixed resale prices can raise competition concerns; framing as recommended with room for competition is safer.
Non-compete & non-solicitation
- Scope, duration (typically limited post-term), and reasonableness are critical to enforceability.
IP protection
- Registration/maintenance of marks; enforcement cooperation; rules for domain names, hashtags, and local language transliterations; control over trade dress.
Transfer & change of control
- Franchisor consent, preemptive rights, transfer fees, training of the buyer, and landlord consent alignment.
Default & termination
- Monetary vs. curable operational defaults; immediate termination for IP misuse, food safety failures, fraud; cure periods and notice mechanics; de-branding obligations.
Post-termination obligations
- De-identify within set days, return manuals, erase digital assets, assignment back of locally registered IP, non-compete window, and transition of leased sites if applicable.
Dispute resolution & governing law
- Philippine law is common for local franchises; arbitration (e.g., PDRCI/ICC) vs. courts; venue; interim injunctive relief; language.
Compliance clauses
- Anti-bribery, anti-money laundering, sanctions, tax compliance, labor standards, ESG undertakings.

4) Entity, licensing, and “doing business” questions (local & foreign)

Local franchisors/franchisees usually form corporations under the Revised Corporation Code.
Foreign franchisors may operate by (a) appointing an independent franchisee or master franchisee; (b) licensing a Philippine subsidiary; or (c) operating directly.
Whether a foreign company must obtain an SEC license to “do business” in the Philippines depends on the level of local presence and control (e.g., local office, service center, employees/agents habitually concluding contracts). Many systems work through a master franchisee or area developer to avoid the foreign licensure requirement, but facts matter; structure carefully.

Retail restrictions. The Retail Trade Liberalization amendments substantially eased foreign equity limits and paid-up capital thresholds for retail enterprises, but franchising a brand into a locally owned franchisee is often outside retail-entity licensing. If a foreign franchisor plans to own and operate retail outlets directly, retail rules can apply.

5) IP strategy for franchises

Trademarks: Register word and device marks (and sometimes trade dress) with IPOPHL in relevant classes; record license agreements if public record is useful for enforcement.
Trade secrets & know-how: Protect via NDAs, access controls, and manual confidentiality.
Copyright: Training materials, manuals, designs, photos, jingles, and software are protected as works.
Domain & social handles: Reserve .ph and .com domains; implement policies for local social pages; require admin access hand-over on termination.

6) Competition law (verticals, MFN, market power)

Cartels (price-fixing, market division) are prohibited.
Vertical restraints (exclusive territories, exclusive supply/purchase, MFN clauses, resale price maintenance) are generally assessed under a rule-of-reason approach—focus on market power, foreclosure, efficiencies, and consumer impact.
Abuse of dominance: If a franchisor holds dominance in a relevant market, tying or discriminatory access could be risky.
M&A notifications: Combination thresholds can capture acquisitions of large master-franchise portfolios—rare but possible.

7) Consumer protection & marketing

Truthful advertising: Claims must be substantiated; avoid deceptive promotions, “limited time” claims without real limits, or drip pricing.
Warranties & after-sales: Honor statutory warranties for goods; disclose conditions and exclusions.
Promos & raffles: Certain sales promos may require prior permits; keep mechanics clear and fair.
Food & health: Menu claims (e.g., “sugar-free,” “organic”) must meet standards; allergen disclosure and calorie claims should be defensible.

8) Data privacy & cyber

Lawful basis for processing (consent, contract, legitimate interests); clear privacy notices at point of sale and online.
Cross-border processing (cloud POS, loyalty apps) must ensure adequate safeguards and data processing agreements.
Breach response: Incident response playbooks; notification to regulators/data subjects when thresholds are met.
CCTV, biometrics, and employee monitoring require proportionality and transparency.

9) Labor and “joint employer” risk

Franchisees are separate employers of their store staff, but risk arises if the franchisor directly hires, schedules, or disciplines employees. Mitigate by:

Keeping brand standards at the what level, not day-to-day how of HR management.
Requiring compliance with labor standards (minimum wage, benefits, OSH) while avoiding direct supervision.
Distinguishing brand audits from employee control; train field teams on boundaries.
Ensuring third-party contractors (delivery riders, cleaners) are properly classified and compliant.

10) Taxes for franchising arrangements (high-level)

Always model tax with current rates and treaty positions; the following are common patterns.

VAT: Franchise/royalty fees for services rendered in the Philippines are generally subject to VAT if the franchisor is VAT-registered and thresholds are met.
Income tax:
- Domestic corporations pay corporate income tax on net income; small domestic corporations may have different rates.
- Royalties constitute taxable income for the recipient; cross-border royalties may attract withholding tax, potentially reduced by tax treaties if the foreign franchisor can claim treaty benefits and substance tests are met.
Withholding & compliance: Franchisees commonly withhold on royalties/fees paid to non-residents; proper Certificates of Tax Residency and BIR forms are needed to enjoy treaty rates.
Transfer pricing: Related-party supply, management, and royalty rates should be arm’s-length, with documentation.
Local business taxes: LGUs may impose percentage levies on gross receipts; check the LGU’s tax code where outlets operate.
Invoicing: E-invoicing and official receipt rules apply; align POS and ERP.

11) Permits, licenses, and sectoral approvals

Most franchise outlets require a stack of approvals before opening:

LGU business permits (mayor’s permit), barangay clearance, and DTI/SEC registration (and business name if sole prop/partnership).
BIR registration, invoicing authority, and POS accreditation if applicable.
Fire safety (BFP), sanitary permits and health cards.
FDA clearances for food establishments handling certain products, food supplements, or cosmetics; DA/BAI for meat/dairy imports; DENR if environmental permits are triggered.
Building/fit-out permits and signage approvals.
Special sectors: Education, clinics, fitness, money service businesses, and other regulated sectors need additional licenses (e.g., CHED/DepEd, DOH, BSP/AML for payments/remittances).

12) Foreign exchange, payments, and technology

Cross-border payments of royalties/fees should follow BSP FX rules via authorized agent banks (documentation to show underlying service/IP).
Payment flows: Consider whether royalties are gross sales-based (via POS feed) or invoice-based; include audit rights.
Tech stack: Cloud POS, loyalty apps, and delivery aggregators must integrate with VAT invoicing, data privacy, and cybersecurity standards.

13) Master franchising, area development, and multi-unit structures

Master franchise: Grants sub-franchising rights, an area development schedule (minimum openings per year), and brand-building duties; include claw-backs or step-in rights if milestones are missed.
Area developers: Commit to opening company-owned units in a territory; sometimes limited sub-franchising.
Sub-franchise oversight: Manuals for recruitment, training, and compliance; reserve franchisor audit rights over sub-franchisees.

14) E-commerce, delivery, and marketplace channels

Define omni-channel rules: who owns marketplace listings, price parity, packaging standards, last-mile SLAs, and service fees.
Address dark kitchens and virtual brands: territory counting, exclusivity leakage, and brand reputation safeguards.
Loyalty programs: ownership of customer data, portability on termination, and compliance with promo permits.

15) Common pitfalls in Philippine franchising

Under-specifying territory (leading to cannibalization disputes).
Rigid price-setting (competition risk); use recommended pricing with guardrails instead.
Insufficient IP hygiene (no local filings, weak control of social pages, no trade secret controls).
Over-control of HR (joint employer allegations).
No tax gross-up language for cross-border royalties.
Missing renewal mechanics (leading to implied continuation and disputes).
Unclear manuals update rights (franchisees resist capex).
Weak de-branding provisions (brand dilution after termination).

16) Practical compliance checklist (build/operate/scale)

Before offering franchises

Register core trademarks with IPOPHL; clear conflicts.
Finalize a Philippine-tuned Franchise Agreement, Disclosure Package (even if not legally mandated, it’s best practice), Application, Territory Policy, and Manuals.
Prepare a Unit Economics memo (royalties, COGS assumptions, rent-to-sales, payback).
Determine corporate structure (local subsidiary vs. master franchise).
Set tax positions (royalty rates, TP documentation, treaty eligibility).
Prepare Data Privacy docs (privacy notice, data processing agreements, cross-border terms).

Before a store opens

Secure entity registrations, BIR, and LGU permits; lease aligned with franchise term and step-in rights.
Complete training; sign off on design and as-built plans; pass sanitary and fire inspections; onboard to POS and reporting.
Enroll in marketing fund governance and brand calendars.

While operating

Conduct quality audits; enforce brand standards fairly and consistently.
Maintain logs for food safety and OSH; renew permits timely.
Monitor competition-law sensitive policies (pricing, exclusivity, MFNs) with counsel.
Run periodic royalty and sales audits; calibrate recommended pricing to inflation and input costs.

On renewal/exit

Calendar notice windows; require refresh/remodel as agreed.
On termination or non-renewal, execute de-branding steps, settle inventories and keys, transfer social handles, and enforce restrictive covenants reasonably.

17) Templates and negotiation tips

Use short-form LOI/term sheet to align on territory, fees, development schedule, capex, and performance metrics before drafting long-form contracts.
Embed a capex and refurbishment schedule to reduce disputes over upgrades.
Build a dispute de-escalation ladder (ops meeting → senior execs → mediation → arbitration/court).
For multi-unit development, include penalties or reversion of unopened territories.
For advertising funds, set segregated accounting, annual plans, and audit rights.

18) Frequently asked questions

Is a pre-sale franchise disclosure document (FDD) legally required in the Philippines? There is no nationwide, franchise-specific statute mandating an FDD or government registration for business-format franchises. Many reputable systems still provide a disclosure package as a best practice to reduce misrepresentation risk and align expectations.

Can a franchise agreement fix the franchisee’s retail price? Fixing resale prices is risky under competition law; recommended pricing with objective quality/brand guardrails is safer. Get competition counsel for any hard price rules.

Do foreign franchisors need an SEC license? If they are “doing business” in the Philippines (e.g., local office, habitual contract-concluding activity), they typically need an SEC license or a local entity. Using an independent master franchisee can often avoid this—but facts and conduct matter.

Are franchise fees and royalties subject to VAT and withholding? Generally, yes: franchise/royalty fees are typically vatable when the service is rendered in the Philippines, and cross-border royalties often attract withholding (treaty reductions may apply). Model this early.

Who employs store staff? Usually the franchisee. The franchisor should avoid day-to-day control that suggests a joint-employer relationship.

19) Actionable next steps

Audit your IP (marks, trade dress, domains, manuals) and file missing registrations.
Localize your contracts to Philippine law and practice (competition-safe pricing language, robust de-branding, data privacy).
Map permits by outlet type and LGU; pre-clear tricky locations (malls, heritage zones).
Model taxes for royalties and supplies (VAT, withholding, TP).
Train field teams on brand audits vs. HR control boundaries.
Adopt disclosure best practices even if not mandatory to strengthen defensibility and franchisee relations.

Final note

Because the Philippines regulates franchising through multiple general-purpose laws and sectoral rules, success depends on good contracts, strong IP, clean compliance, and disciplined execution. For any live deal or dispute, get jurisdiction-specific legal advice tailored to your facts, current rates, and the LGU(s) where you’ll operate.