Philippine Franchise International Expansion: Master Franchise and Export Rules

A Philippine franchisor expands abroad chiefly through a master franchise agreement — a contract granting a foreign party the right to develop the brand and sub-franchise within a defined territory. Because that contract transfers and licenses intellectual property rights, it falls within the Intellectual Property Code's definition of a technology transfer arrangement under Section 4.2 of Republic Act No. 8293. Royalty payments moving across borders must also pass through the Philippine foreign exchange system, where inward investments may be registered with the Bangko Sentral ng Pilipinas (BSP) so that capital and earnings can later be repatriated.

What a master franchise arrangement involves

In a master franchise, the Philippine franchisor grants a foreign master franchisee the right to use the brand, system, and know-how, and to appoint sub-franchisees in the target country. The arrangement typically covers trademarks, service marks, trade secrets, and management systems.

Under Section 4.1 of the Intellectual Property Code, "intellectual property rights" include trademarks and service marks, industrial designs, patents, and the protection of undisclosed information. A franchise package usually touches several of these at once.

Section 4.2 defines technology transfer arrangements as contracts involving the transfer of systematic knowledge for manufacturing a product, applying a process, or rendering a service, including management contracts, and the transfer, assignment, or licensing of all forms of intellectual property rights. A master franchise agreement is, in substance, this kind of contract.

Registering technology transfer arrangements

The Intellectual Property Office (IPO) administers the registration of these arrangements. Under Section 5.1 of the Code, one of the IPO's functions is to register technology transfer arrangements and settle disputes involving technology transfer payments. The Documentation, Information and Technology Transfer Bureau performs this function, registering technology transfer arrangements and settling disputes involving technology transfer payments under Section 11.8.

The State policy behind these rules, stated in Section 2, is to liberalize the registration of technology transfer and to facilitate the transfer of technology. Registration gives the arrangement official recognition and places the payment terms on record.

Protecting the brand abroad

A Philippine franchisor should secure trademark protection in the target market before or alongside signing the master franchise agreement. Section 3 of the Intellectual Property Code provides that nationals or persons domiciled or with a real and effective industrial establishment in a country that is a party to an intellectual property convention to which the Philippines is also a party — or that extends reciprocal rights to Filipinos — are entitled to the benefits of that convention.

This matters because the master franchisee will use the mark in a foreign jurisdiction. The franchisor's rights in the Philippines do not automatically extend abroad; protection in the target country depends on that country's law and on any applicable convention.

Foreign exchange and royalty remittances

Royalties and franchise fees paid by the foreign master franchisee to the Philippine franchisor are cross-border transactions that pass through the banking system. The BSP's rules on foreign exchange, as amended by Circular No. 1192, govern inward investments and the servicing of related earnings.

Under Section 32 of the FX Manual, a Bangko Sentral Registration Document (BSRD) evidences the BSP registration of investments. The Glossary defines the BSRD as a document evidencing registration of foreign investments and loans, which allows the transacting party to access the foreign exchange resources of, or purchase foreign exchange from, authorized agent banks against Philippine pesos for servicing and settlement.

Under Section 38.2, authorized agent banks may sell to a non-resident investor or his authorized representative the equivalent foreign exchange of peso sales or divestment proceeds and related earnings from BSP-registered investments, upon submission of a duly accomplished Application to Purchase FX and the required documents. Section 38.3 provides that foreign exchange sold for repatriation of capital and remittance of related earnings shall be directly remitted to the account of the non-resident investor or his intended beneficiary on the date of the foreign exchange sale.

For investments registered through authorized agent banks under Section 37, a BSP Reference Number is issued to the non-resident investor, and transactions are reported to the BSP within the periods set in the FX Manual — generally within two banking days from the actual settlement or remittance date.

Frequently asked questions

Does a Philippine franchise agreement with a foreign partner need to be registered with the IPO? If the contract transfers or licenses intellectual property rights or systematic knowledge, it is a technology transfer arrangement, and the IPO registers these arrangements under the Intellectual Property Code.

Can a foreign master franchisee remit royalties out of the Philippines? Yes. Foreign exchange for related earnings on BSP-registered investments may be sold by authorized agent banks upon compliance with the documentary requirements, and remitted to the non-resident investor or his beneficiary.

What document proves that a foreign investment is registered with the BSP? For investments registered with the BSP, the Bangko Sentral Registration Document (BSRD) evidences the registration. For investments registered through authorized agent banks, a BSP Reference Number is issued instead.

Practical takeaways

• A master franchise agreement is a technology transfer arrangement and should be structured with the Intellectual Property Code's registration framework in mind.
• Secure trademark protection in the target country; Philippine registration alone does not protect the brand abroad.
• Register the foreign investment with the BSP or through an authorized agent bank so that capital and earnings can later be repatriated using banking system foreign exchange.
• Keep documentary requirements for FX sale and remittance complete, since authorized agent banks require a duly accomplished Application to Purchase FX and supporting documents.
• Report registered investment transactions within the periods set in the FX Manual to keep the registration and access to foreign exchange intact.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

Amendments to foreign exchange regulations covering foreign investmentsOpen in Law LibraryDownload PDF

• REPUBLIC ACT NO. 8293 - AN ACT PRESCRIBING THE INTELLECTUAL PROPERTY CODE AND ESTABLISHING THE INTELLECTUAL PROPERTY OFFICE, PROVIDING FOR ITS POWERS AND FUNCTIONS, AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.