Opening a Franchise in Singapore from Overseas

Franchising provides a practical route for foreign companies to expand their businesses in Singapore. It is also a smart option for new entrepreneurs, as choosing to set up a franchise in Singapore means benefiting from a proven business model.

A typical franchising setup is where a franchise owner company (franchisor) allows another party (franchisee) to use its name or brand. The franchise owner company maintains ongoing supervision and support towards the franchisee.

Presently, there are no specific laws exclusively governing franchising in Singapore. Nevertheless, the Franchising and Licensing Association of Singapore (FLA), has established a Code of Ethics which is legally binding only for FLA members. Despite that, it is recommended for all parties to use it as a reference to ensure fair and organised 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.

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.

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.

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 he or she can control and retain the quality, branding and image of the business, especially when there are multiple franchisees, or franchisees internationally. 

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.

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.

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.

When considering launching a franchise in Singapore, it’s important to assess the existing demand for your offerings and the level of competition in the market. Adapting your business model to resonate with the local culture, also considering the digital realm, can play a pivotal role in attracting customers. Besides that, be on the lookout for potential growth, both in terms of scaling the business and appealing to evolving consumer preferences.