Opening a Franchise in Singapore from Overseas

Overseas Business Franchising in Singapore provides a practical route for foreign companies and new entrepreneurs to expand their businesses. Setting up a franchise in Singapore is a smart choice for new entrepreneurs, offering the benefit of a proven business model.

What is Franchise?

In a typical franchising setup, a franchisor permits a franchisee to use its name or brand. The franchise owner provides ongoing supervision and support to the franchisee.

Franchise Business Landscape in Singapore

Presently, there are no specific laws exclusively governing overseas business franchising in Singapore. However, the Franchising and Licensing Association of Singapore (FLA) has established a legally binding Code of Ethics exclusive to its members. Despite this, all parties should use it as a reference to ensure fair and organized conduct when starting franchises.

However, it’s important to note that broader commercial laws in Singapore, including the Competition Act, Unfair Contract Terms Act, and Multi-Level Marketing and Pyramid Selling (Prohibition) Act extend their jurisdiction to franchising activities as well. Moreover, industries such as real estate and insurance are subject to their own distinct regulations.

Steps to Start a Franchise in Singapore

1) Pre-Contractual Disclosure

Although there are no specific rules solely focused on pre-contractual disclosure in franchising, general laws against misrepresentation apply to all business transactions. The Franchising and Licensing Association of Singapore (FLA) has established a Code of Ethics outlining guidelines for pre-contractual disclosure. For example, FLA members are not allowed to give deceptive or misleading information to potential franchise buyers. The Code also mandates clear and detailed sharing of investment requirements, current operations, performance history, and other relevant data at least seven days before signing the franchise agreement.

In Singapore, there’s no mandate for franchises or franchise agreements to be registered. Nevertheless, businesses can choose to join the FLA and, in doing so, commit to following its Code of Ethics. You can consider starting your overseas business franchising in Singapore today!

2) Franchise Agreement

A franchise agreement is made between a business owner that allows the brand, the franchisor, and the one renting the name, the franchisee. While each franchise agreement is unique, they usually cover the following aspects:

• The franchisor’s right to have control over the franchise’s operations.
• The franchisee makes regular payments to the franchisor, often as royalties or a percentage of sales.
• Non-competition clauses
  • The franchisor might add clauses in the franchise agreement that prevent competition, even after the agreement ends. It’s important to read these clauses thoroughly. However, these clauses could be considered invalid if they are too broad or last for an unreasonable amount of time.
• The franchisees’ use of the franchisor’s name or brand
  • For this, permission to use the franchisor’s trademark will be granted.
  • It is to be noted that trademark laws are limited to specific countries, meaning they only apply within those borders. Therefore, if the franchise expands into different countries, separate trademark applications need to be submitted.

3) Franchise Operations Manual

In addition to the franchise agreement, the franchisor should consider a Franchise Operations Manual to supplement the Franchise Agreement. There may be some areas of the business which are purely operational, logistical or administrative in nature. The franchisor need not put this information in the Franchise Agreement because these are just guidelines and best practices for the franchisee to follow.

A Franchise Operations Manual provides a superior advantage to the franchisor because they can control and retain the quality, branding, and image of the business, especially when there are multiple franchisees, or franchisees internationally.

4) Formation of a Company / Company Incorporation

Establishing a franchise company in Singapore involves following the regular incorporation steps, much like forming any other type of company in the country. Those looking to start a franchise business in Singapore can do so by adhering to the guidelines outlined in the Business Registration Act, which covers the creation of partnerships and sole proprietorships. Alternatively, they can opt for incorporation under the Companies Act, which pertains to various other types of companies. For further information on the process and our company incorporation services, you can refer to the provided resources.

Things to Note when Opening Franchises in Singapore

Financial Capacity

When contemplating the purchase of a franchise, it’s essential to determine your financial capacity for investment, whether you plan to hire staff, your desired income level, and your preferred lifestyle. The encouraging aspect is that there’s likely a franchise concept that aligns with, if not fully meets, your criteria. Whether you’re interested in a budget-friendly option or exploring higher-end opportunities, the market offers a variety of choices. White-collar franchise prospects are as abundant as those centred around food. Likewise, you can find both part-time and full-time franchise possibilities to suit your preferences.

Tax

In cases where the franchisor is based abroad, the local franchisee might face a 10% withholding tax on the royalties they pay. This tax is paid to the Inland Revenue Authority of Singapore (IRAS). It’s important to note that the prevailing withholding tax rate is 10%, but the situation can be influenced by whether there’s a mutual double taxation agreement between Singapore and the franchisor’s home country. Notably, Singapore has comprehensive agreements with several countries like the United Kingdom, South Korea, India, Japan, Germany, and China, which aim to prevent double taxation. These agreements can impact the tax amount.

Market

When launching a franchise in Singapore, assess demand and competition. Adapting to local culture and the digital realm is crucial for attracting customers. Look out for growth opportunities and evolving consumer preferences.

Conclusion

Considering the diverse opportunities and regulatory landscape outlined for franchising in Singapore, it’s evident that this market offers promising avenues for both local and foreign entrepreneurs. With careful planning, adherence to legal requirements, and strategic adaptation to local demands and digital trends, launching a franchise in Singapore can lead to substantial growth and success.

At Paul Hype Page, we specialize in assisting foreigners with company setup and business operations in Singapore. Whether you’re looking to establish a franchise or navigate the complexities of business incorporation, our team is here to support your needs and facilitate your journey towards entrepreneurial success.