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.

In short: Singapore has no franchise-specific law and no requirement to register the franchise or franchise agreement itself, so a franchise is governed mainly by the franchise agreement and general laws such as contract, competition and tax law. A typical path is to review the franchisor’s disclosure and franchise agreement, secure the right to use the trade mark in Singapore, set up the operating business with ACRA, obtain any licences your sector needs, and plan for withholding tax if royalties are paid to an overseas franchisor.

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 franchise-specific laws in Singapore. The Franchising and Licensing Association of Singapore (FLA) has a Code of Ethics that binds its members only, and FLA membership is voluntary. Non-members can still use it as a practical reference for fair dealing 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. For FLA member franchisors, the Code also requires 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. This does not remove the usual requirements: the operating business must still be registered with ACRA and hold any licences or permits its sector needs. 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 the brand owner that grants the right to use its brand and business system (the franchisor) and the business that operates under it (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, the trade mark needs protection in each of them, either through separate applications in each country or, for countries in the Madrid Protocol, one international application designating them. See IPOS’s guide to registering trade marks.
  • In Singapore, trade marks are registered with the Intellectual Property Office of Singapore (IPOS). IPOS notes that registering a business name with ACRA does not give trade mark protection. See IPOS’s introduction to trade marks.

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. A sole proprietorship or partnership is registered with ACRA under the Business Names Registration Act 2014. A company, such as a private limited company, is incorporated with ACRA under the Companies Act 1967. 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

Franchise Fees and Costs

There is no standard or legally set franchise fee in Singapore. The amounts depend on the brand and the franchise agreement. Common cost items include an initial franchise fee, ongoing royalties (often a percentage of sales), contributions to a marketing or advertising fund, and outlet set-up costs such as renovation, equipment and rental deposits. Ask the franchisor for a full written breakdown before you sign. The FLA Code of Ethics requires member franchisors to state whether a quoted investment amount is partial or the full cost of the franchise, what the amount pays for, and any financing and related costs.

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. Franchise concepts are not limited to food; service and other business formats are also available. Likewise, you can find both part-time and full-time franchise possibilities to suit your preferences.

Tax

If the franchisor is not resident in Singapore, the Singapore franchisee may have to withhold tax from royalties and certain other payments to it and pay the tax to the Inland Revenue Authority of Singapore (IRAS). The rate depends on the type of payment and the franchisor’s circumstances. For example, IRAS lists a 10% rate for royalties for the use of intellectual property and for payments for the right to use commercial knowledge or information. That rate applies when the non-resident derives the income through operations carried on outside Singapore, and it is then a final tax on the gross payment; different rates apply if the operations are carried out in Singapore. For a non-resident company, management fees and technical assistance or service fees are subject to withholding at the prevailing corporate income tax rate when the services are performed in Singapore; IRAS says withholding tax does not apply to services rendered outside Singapore. A double taxation agreement (DTA) between Singapore and the franchisor’s home country may reduce the rate. IRAS says Singapore has signed DTAs, limited DTAs and exchange-of-information arrangements with around 100 jurisdictions, and agreements signed but not yet ratified do not have the force of law, so check the franchisor’s country on IRAS’s list of DTAs. For rates and conditions, see IRAS’s withholding tax rates page and payments subject to withholding tax.

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. For a physical outlet, compare foot traffic, rent and lease terms, and check whether the franchise agreement gives you an exclusive territory.

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, close review of the franchise agreement, attention to legal and tax requirements, and adaptation to local demand, overseas brands and entrepreneurs can approach a Singapore franchise launch with clearer expectations.

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.