Franchise Agreement - Latam
Brazilian Franchise Law and Disclosure Requirements
Article 2 of the Brazilian Franchise Law (Law No. 8.955 of December 15,
1994) defines a commercial franchise as “a system whereby a franchisor
licenses to the franchisee the right to use a trademark or patent, along
with the right to distribute products or services on an exclusive or semiexclusive basis and, possibly, also the right to use technology related to
the establishment and management of a business or operating system
developed or used by the franchisor, in exchange for direct or indirect
compensation, without, however, being characterized as an employment
relationship.”
Brazilian Franchise Law and Disclosure Requirements
The franchise law requires the delivery of a franchise offering circular, by
the franchisor to prospective franchisees, containing several aspects of the
business, at least 10 days prior to the execution of any binding document
related to the franchise and receipt of any payment.
Even when international franchise agreements are governed by foreign law
and elect foreign jurisdiction, the delivery of an offering circular to a
franchisee, providing the information required by the Brazilian Franchise
Law, is extremely advisable to comply with the local law, since the
franchise business will be operated in Brazil.
Brazilian Franchise - Impositive Clauses
Clauses imposing to the franchisee the obligation of acquiring goods and
services from suppliers indicated and approved by the franchisor only, are
accepted in Brazil. Article 3, XI of the Brazilian Franchise Law establishes
that the franchise offering circular must inform if this is an essential
condition of the business, and provide to the prospective franchisees a
completed list of the suppliers .
Although the law is silent in relation to non-competition clauses, Brazilian
courts have ruled that these clauses are acceptable provided that the noncompetition period imposed to the franchisee lasts for a reasonable time
after the end of the franchise agreement (two years is normally accepted).
Registration Requirements: INPI and Central Bank
The registration (a LPI usa o termo “registro” e não “averbação”
para contratos de franquia) of international franchise agreements at
the Brazilian Trademark and Patent Office (INPI) is required for the
following purposes:
•
Make
the
agreement
effective
against
third
parties,
• Allow the remittance abroad of royalties and other payments connected
with
the
franchise
due
to
the
foreign
franchisor,
and,
• Qualify the franchisee for tax deductions of the aforesaid payments for
income tax purposes.
Registration Requirements: INPI and Central Bank
The INPI has a legal term of 30 days to issue a decision approving or
denying the registration of the agreement presented for registration,
whether, or to issue an official action requesting additional information
and/or alterations in the agreement. In practice, the INPI takes 40 days to
render the decision or to issue the official action. After the issuance of the
decision approving the registration, the INPI will issue the Certificate of
Registration
of
the
agreement
within
the
next
15
days.
The agreement must, then, be registered at the Brazilian Central Bank in
order to enable the remittance of the payments due to the franchisor. This
registration is a very simple procedure and can usually be completed in
about two days.
Taxation on Remittance of Royalties Abroad
The following taxes apply to the remittance of franchising royalties
abroad:
• Withholding tax – 15% of the total amount remitted (less CIDE). The
parties may agree which of them will bear the tax. If this burden
fall on the franchisor, the franchisee will make the payment to the
Brazilian tax authority in the name of the franchisor, and provide the
franchisor with the payment receipt so that he may claim tax
deduction in his country (provided there is an agreement to avoid
double taxation with Brazil)
• CIDE – Intervention Contribution on the Economic Order – 10% of the
gross amount due (to be paid by the franchisee)
• IOF (Financial Transaction Tax) – checar com Dr. Miguel
• ISS (Service Tax) - Idem
• PIS/COFINS-Import - Idem
Franchise in Latam - Chile
Chile
MNA
This country is a very attractive market with steady economic growth, a
safe legal and business climate that accounts for the continued success in
franchise expansion. Because of the limited size and the conservative
nature of the local entrepreneurs, franchise companies should be patient
and expect several meetings prior to any serious commitment.
Franchise agreements are not subject to specific regulations. Their
validity, binding nature and enforceability has been recognised by the civil
and anti-trust courts, whose rulings have:
•
•
•
Defined and characterised each type of agreement.
Regulated permissible terms.
Established the circumstances in which they are null and void.
Franchise in Latam - Argentina
MNA
Argentina
Even though Argentina continues to recover from its last financial
collapse at record-growth levels, it is still considered by most to be a very
fragile market. Unemployment figures register as one of the highest in
the Americas making for a very nervous investment climate at this time.
Continued price-control measures and the rise in tourism are setting the
stage for attractive future possibilities.
To date, Argentina has not adopted specific franchising legislation,
enabling the parties to reach agreements own their own terms without
material governmental intervention. Under Argentine law, those
agreements that are not specifically regulated by the law are called “unnominated agreements” and are governed by the free agreement of the
parties.
Franchise in Latam - Uruguay
Uruguay
MNA
Years ago, when a franchise or development agreement was awarded to
someone in Argentina, this small neighbor was traditionally included as part
of the package. This was mostly for two reasons; the size of the market and
the dependence on Argentina for the majority of their exports. Uruguay took
a different direction the last time that its neighbor went into financial crisis
by reaching out to the rest of the world with their exports, solidifying free
trade agreements and a very favorable and relaxed business climate.
There are no specific laws dealing with franchising in Uruguay. Franchises
operating in Uruguay are subject to the same commercial laws as any other
company doing business in the country. The relationship between the
franchisor and the franchisee is established by a private agreement between
the two parties. Contracts can include an arbitration clause, which is
recommended to avoid the cost and delays of utilizing the courts system.
Franchise in Latam - Colombia
Colombia
MNA
In spite of their challenges with guerrilla warfare and the drug trade,
Colombia continues to show steady economic growth. Large population
centers may lure the attention of some, however, safety continues to be a
major concern and many franchise systems are deferring options when it
comes to this Andean nation.
In Colombia, there are no laws that govern Franchise Agreements. Under
this understanding, the Franchise is known like a non-typical contract
because it reflects a legal business that is not ruled by a code and its
clauses are freely negotiated by the parties.
In consequence, as the Franchise is regulated mainly in the frame of a
Commercial Contract, the general contract system and obligations of the
Civil and Commerce Code apply, which deal with the principle ruling acts,
contracts and civil law obligations (effects, interpretation, extinction,
mode, cancellation or termination).
Franchise in Latam - Colombia
Venezuela
MNA
Just as one thought that things could not get any worst, Pres. Hugo Chavez
was re-elected for a third term. This will be a catastrophic blow to foreign
investment and future business expansion in this now-declared communist
state. In his inaugural address, Chavez vowed to introduce a new
constitutional amendment to make him president for life. In this same
speech, he declared measures to socialize (“seize”) private industry including
the banking sector. With all of the uncertainties, and not a clear picture on
how small businesses will fare, it is recommended to stay away for now and
focus on other markets in the region.
American investors must be informed of the restrictions for currency
exchange control implemented in February 2003 by the Venezuelan
Government. Restrictions are regulated by the “Comisión de Administración
de Divisas” (CADIVI), where Venezuelan importers are required to submit
detailed information regarding specific import transactions. CADIVI states
the exporter, must provide supporting documentation when requested.
Franchise in Latam – Peru, Ecuador and Bolivia
MNA
Peru, Ecuador and Bolivia
The socio-political landscape does not fare well for these Andean nations.
Leftist governments firmly entrenched in power, assisted by deep
financial crisis, make local sizeable investments unlikely. The poverty
levels rate amongst the highest in the Americas.
Franchise in Latam - Peru
Peru
There is no special legislation governing franchising. Franchises in Peru are
subject to general commercial law: Decision 486, Decision 608, Decision 291
of the Andean Community, and the general antitrust law. According to articles
162 through 164 of Decision 486, a written license agreement must be
registered at the patents and trademarks office.
Prospective franchisors need to be aware of a 30% income tax on royalties,
19% value added tax (paid by the local company) and import tariffs of 0, 9,
and 17% depending on the type of goods. Countries that have signed double
taxation agreements with Peru have a different regime on royalties and
withholding income tax (the U.S. is not included.)
Franchise in Latam - Bolivia
Bolivia
There are no specific franchise laws. Franchise agreements, however,
must be registered before the Commerce Registry. The only limitation
with regards to franchise agreements is tax-related, in that royalties
remitted abroad are subject to a 12.5% withholding tax Approval and
Registrat
Franchise in Latam - Ecuador
Ecuador
Although not mandated by Ecuadorian law, experience has shown that
both foreign and local investors in franchises benefit from the
registration of their franchise agreements with the mercantile registry of
the city or province where the franchise is to be set up. Registration
and notarization of these contracts elevates these documents to the
level of public instruments which in turn provides additional evidentiary
protections to the parties in the event of a future contractual
dispute. With registration (provided that individual clauses do not
conflict with the country’s civil or commercial code) the parties’ can be
confident that their franchise agreement will control the parties
obligations and duties.
Latam – The Future
MNA
With a larger combined population than that of the United States, the
region continues to be the wise choice for expansion for many international
franchise concepts. European and Australian brands have recently
discovered the benefits of doing business here and have experienced rapid
growth within their respective systems.
For franchise systems entertaining expansion into the region, the
recommendation is to focus on growing as an extension of a company’s
current borders, either into Mexico or Puerto Rico, creating a foothold and
the necessary experience in adapting to the local business climate. Having
said this, do not discount a truly qualified candidate no matter where he or
she comes from. These are few and far between and if a concept draws the
interest of one of these unique individuals, one must take a serious look.
Contato
São Paulo - Rua Fidêncio Ramos, 308 – Torre A - 2º andar
Vila Olímpia - São Paulo - SP
Fone: 55 11 5502-1200 Fax: 55 11 5505-5089
Rio de Janeiro – Av. Treze de Maio, 13 - Sala 2319/2322
Centro – Rio de Janeiro - RJ
Fone: 55 21 3852-0814
www.miguelneto.com.br / contato@mnadv.com.br