Franchising a Business Into the Philippines: Legal and Registration Basics

TL;DR: The Philippines has no single franchise statute. A franchise here is a contract assembled from the Civil Code, the Intellectual Property Code, corporate law and the rules of whatever industry the outlet operates in, so the legal work is mostly about getting four things right before signing: the trademark, the foreign-ownership screen, the entity, and the tax on royalties. Franchising does not bypass any of them.

Most search results for this topic are franchise directories aimed at Filipinos choosing a food cart to buy. This guide covers the other direction. It is for two readers: a foreign brand owner who wants to bring a franchise system into the Philippines, and a foreign investor who wants to become the local franchisee of an international brand that already operates here.

What law governs a Philippine franchise

No statute is titled “franchise law.” Law firms that advise on the subject consistently describe a patchwork instead. Four sources do the work.

1. The Civil Code. A franchise agreement is a contract, so the general rules on consent, object, cause, obligations and breach apply. The parties are free to set their own terms as long as those terms are not contrary to law, morals, public order or public policy.
2. The Intellectual Property Code (Republic Act 8293). This is what lets a franchisor license a trademark, service mark and know-how. It also contains the technology transfer rules in Sections 87 to 92, discussed below.
3. The Revised Corporation Code. It applies when the franchisee, or the franchisor’s local arm, operates through a Philippine corporation.
4. Industry rules. Food safety, professional licensing, and the Retail Trade Liberalization Act apply to the business the franchise operates, whatever the franchise paperwork says.

Two newer layers sit on top. The first is Executive Order 169, signed in May 2022. It requires franchisors to register their franchise agreements with the Department of Trade and Industry (DTI) where the franchisee is a micro, small or medium enterprise, and sets minimum contents for those agreements, including full disclosure of pre-signing, initial and recurring fees, a cooling-off right for the MSME franchisee, and an alternative dispute resolution mechanism. The DTI keeps a registry of compliant agreements. Check the DTI’s current implementing guidance and its definition of an MSME before you rely on or skip this regime, because it applies according to the franchisee’s size, not the brand’s.

The second is self-regulation. The Philippine Franchise Association (PFA) is the industry body, and its members commit to its code of ethics. Membership is voluntary, so the code binds only those who join. Industry context matters for timing too. The PFA’s president told BusinessWorld in April 2026 that growth was expected to continue but more slowly, with investors cautious about the Middle East crisis.

Technology transfer rules for franchise agreements

Many franchise and master franchise agreements are technology transfer arrangements under the Intellectual Property Code, because they license a system, know-how or trademark in return for payment. That triggers Sections 87 and 88.

Section 87 lists clauses treated as prima facie harmful to competition and trade. They include restrictions on where the licensee may source inputs, price controls, caps on production, bans on using competing technology, a requirement to hand over improvements free of charge, restrictions on exports, and payments continuing after a licensed patent expires. Section 88 lists clauses the agreement must contain. Philippine law must govern interpretation, with the venue in the licensee’s location. The licensee must have continued access to improvements during the term. Any arbitration must follow Philippine arbitration law, UNCITRAL or ICC rules, with a Philippine or neutral venue. And, as the section reads in the statute text, Philippine taxes on all payments under the arrangement are borne by the licensor.

Section 91 lets the Documentation, Information and Technology Transfer Bureau exempt an agreement from these requirements case by case where there is a substantial economic benefit. Section 92 says an agreement that conforms does not need to be registered with the Bureau, while an agreement that does not conform to Sections 87 and 88 is rendered unenforceable unless it has been approved under Section 91.

The practical lesson is that a template franchise agreement imported from the US or Australia will often fail this test. Standard clauses such as home-country governing law, mandatory supplier lists, and post-termination non-competes need review against Section 87 before the document is signed. Have a Philippine lawyer confirm how the IPOPHL currently applies these sections, since the statute is old and the enforcement practice has been refined through later rules.

How a foreign franchisor enters

There are two basic structures, and a franchisor can run both.

Option 1. License to a Philippine master franchisee or franchisees

The franchisor licenses its trademark and operating system to a Philippine company under a franchise agreement. A master franchise gives that company the right to open its own units and sub-franchise to others within a territory. An area developer agreement requires the developer to open a set number of units on a schedule, without sub-franchising rights. Direct unit franchising licenses each operator individually.

The franchisor does not need a Philippine entity for this. It contracts from abroad, supplies the system and training, and receives fees. It still needs a Philippine presence in practice if it will manage the network, which is a point to decide early, because a foreign company doing business in the country through a branch or regular activity has to register with the SEC. The question of whether a foreign franchisor is “doing business” here turns on facts, so do not assume that signing a licence from abroad is always safe.

Option 2. Company-owned outlets through a Philippine entity

The franchisor sets up its own Philippine company, usually a domestic corporation with foreign equity, and operates units directly. The entity signs the leases, hires staff, registers with the BIR and the local government, and earns the outlet revenue. This gives the brand control but takes capital, and it is where foreign-ownership limits bite hardest. Pick the entity type before you pick the premises. The entity types comparison covers branch, representative office, subsidiary and the other forms, and the guide to the best entity type for foreigners explains the trade-offs for non-resident owners.

Many brands start with Option 1 to test demand cheaply and move to Option 2 for flagship units later. Keep the master franchise agreement flexible enough to allow that, for example by carving out the franchisor’s right to open company-owned units in key locations.

Trademark first, because the Philippines is first-to-file

The Philippines gives trademark rights to the first party that applies, not the first to use the mark abroad. If someone else registers your brand name here before you do, your franchisees would be operating under a mark that you cannot enforce and that may belong to someone else. Register with the Intellectual Property Office of the Philippines (IPOPHL) before the first franchise offer, or at the latest alongside it.

Foreign applicants filing directly must appoint a local representative, a lawyer or an IPOPHL-registered agent. An application through the Madrid Protocol can designate the Philippines without one at the filing stage, but a resident agent is still needed afterward to answer provisional refusals, file the Declaration of Actual Use and renew the registration. The intellectual property registration guide walks through classes, search, timelines and the use declaration, so this article does not repeat the process.

Two franchise-specific points are worth adding.

• Search before you commit. A clearance search covers identical and confusingly similar marks in the classes you will actually use, such as restaurant services, retail services and training services. A conflict found after you have signed a master franchisee is far more expensive than one found before.
• Tie the licence to the registration. EO 169 requires MSME agreements to state the right to use the mark or other intellectual property duly registered with IPOPHL. A licence to a mark that is only pending should say so, and should say what happens if registration is refused.

Foreign ownership still applies to the business itself

A franchise agreement is not a way around the Foreign Investments Act or the Foreign Investment Negative List. The test is applied to what the outlet does. If a foreign investor holds shares in the franchisee, the question is whether the underlying business can be foreign-owned and to what percentage. Franchising as a contract is not itself a restricted activity.

For many activities the answer is generous. Food service, most consumer services and training businesses are not on the negative list, so a foreign investor can usually hold up to 100% of the franchisee, subject to minimum capital rules where they apply. Confirm the activity against the latest Foreign Investment Negative List issuance before committing capital, because the list is revised periodically.

Retail franchises

A branded retail shop is the case that surprises people. Retail trade has its own law, Republic Act 8762, the Retail Trade Liberalization Act, amended by Republic Act 11595 in December 2021. For a foreign-owned retailer, the amended Section 5 sets:

• a minimum paid-up capital of PHP 25 million, which must be maintained in the Philippines at all times;
• a minimum investment of PHP 10 million per store, with an exception for retailers already engaged in retail before the amendment took effect; and
• proof of inward remittance of the capital, such as a certification from the Bangko Sentral ng Pilipinas, or equivalent proof of a deposit in a Philippine bank.

The text of the amended section does not mention franchising, which is consistent with the rule above. A foreign investor who owns the retail franchisee must meet the retail capital test. A Filipino-owned franchisee that is just licensing a foreign brand does not. Check the full text and the implementing rules before relying on a summary, including any new rules about local product sourcing and the three-year review of capital thresholds.

Fees, royalties and tax

A typical franchise generates an initial franchise fee, ongoing royalties on sales, marketing contributions, and sometimes charges for training or supplies. For a foreign franchisor, the part that needs planning is the tax on payments leaving the country.

A Philippine franchisee paying royalties to a non-resident foreign corporation has to withhold income tax on them. Practitioner sources describe the rate for a non-resident foreign corporation as 25% on the gross amount under the National Internal Revenue Code, reduced where a tax treaty applies. Confirm the current rate and the royalty article of the treaty with your home country before pricing the agreement, because treaties differ widely and some tax royalties on a narrower base.

To get the treaty rate at the time of payment, the process under BIR Revenue Memorandum Order 14-2021 is as follows.

1. The franchisor gives the Philippine payer a completed BIR Form 0901 (the application form for treaty purposes) and a tax residency certificate from its home tax authority, before the first payment.
2. The payer decides whether the documents are complete and whether the treaty conditions are met, then withholds at the treaty rate.
3. The payer files a request for confirmation with the BIR’s International Tax Affairs Division after paying, by the deadline set in the memorandum. One consolidated request per non-resident per year can cover all income types.
4. If the payer withheld at the full rate, the franchisor can still claim relief later by filing a tax treaty relief application, and a granted claim leads to a Certificate of Entitlement.

Late filings carry administrative penalties but the memorandum does not make them an automatic denial of the treaty benefit, according to Grant Thornton’s summary.

The licensor-bears-tax clause in Section 88 of the Intellectual Property Code matters here. It means the franchisee should not simply absorb the withholding as a cost. Agreements usually state whether royalties are paid net of withholding or grossed up, and which side bears that burden. Decide this deliberately, not by default.

Withholding is only one layer. The franchisee also owes its own income tax on outlet profits, value-added tax or percentage tax depending on its registration, and local taxes. Whether the foreign franchisor itself faces VAT or other exposure on fees depends on the nature of the services and where they are performed, so get a tax opinion for the specific fee structure.

Disclosure: what is and is not required

There is no Philippine equivalent of the US Federal Trade Commission franchise rule. No law requires a franchisor to hand a prospective franchisee a standard disclosure document or to file one with a regulator before selling a franchise. What each side learns before signing depends on what they ask for and negotiate.

That default has two exceptions. PFA members are expected to give prospects a disclosure document containing material information about the offering, though this binds only members. And where the franchisee is an MSME, EO 169 forces the fee disclosure into the agreement itself.

For a franchisor, a voluntary, well-organised disclosure package reduces misrepresentation claims under the Civil Code. For a would-be franchisee, the absence of a mandated form means you must ask directly for the following, in writing.

• Audited or at least financial statements of the franchisor and, if different, the Philippine master franchisee.
• The number of outlets, how many closed in the last three years, and why.
• Every fee, with its basis and escalation.
• Territory exclusivity and what the franchisor may do within it, including online sales.
• Evidence that the trademark is registered or pending in the Philippines, in the classes you will use.
• Supply obligations and whether any rebates go to the franchisor.

Comparison: franchisor licensing in versus investor becoming a franchisee

What to check first, in order

Sequence matters because each step can change the next.

1. Trademark availability and filing. Run a clearance search, then file with IPOPHL. Nothing else is worth negotiating until the brand is protected.
2. Ownership screen for the activity. Test the actual business against the negative list and, for retail, the PHP 25 million and PHP 10 million thresholds. This sets the maximum foreign equity you can hold.
3. Entity structure. Choose between licensing only, a branch, or a subsidiary based on steps 1 and 2 and on who will employ staff and sign leases.
4. Franchise agreement terms. Review fees, territory, governing law, dispute resolution and exit terms against Sections 87 and 88 of the Intellectual Property Code, and against EO 169 if an MSME franchisee is involved.
5. Withholding on royalties. Work out the treaty position with the franchisor’s home country, collect the BIR Form 0901 and residency certificate before the first payment, and settle who bears the withholding cost.
6. Registration and permits. Register the entity and the outlets with the SEC, the BIR, the local government and any industry regulator, and register the agreement with the DTI where EO 169 applies.

A franchise that skips step 1 or 2 usually discovers the problem after the money is spent. One that skips step 5 usually discovers it on the first royalty remittance.

This guide is general information, not legal advice on your specific facts. Book a consultation if you want a fixed-scope review of your franchise structure before you sign.