No. There is not any legal definition of a franchise, but just a conceptual definition by legal commentators and case law of the Portuguese courts.

Franchise contract has not any specific legal regulation in Portuguese law. But, the Civil Code provides for a complete regulation concerning general and common statutory rules, the Law of Contract, which is also applied to the franchise contract.

Included in this, there are some which are applied rules concerning good faith in entering, performing, terminating and also about contract post-termination.

As to the pre-contractual stage, the parties to a contract must act without any reservation about the truth the relevant disclosed facts concerning parties’ financial capacity, technical aptitude for the business and any fact which may be material for the contract existence and its performance such is, inter alia, the ability of the franchise buyer to secure protection for the trademark.

Similar obligations exist, mutatits mutandis, for the franchise seller.

Consequences for failure those obligations may conduct to the invalidity of the contract which has been entered and/or termination for cause as well as.

There is not any specific registration for franchisors or franchisees as such. But, registration is required for companies or individual traders with the Commercial Registrar and tax system (Autoridade Tributária).

Consequences for failure this may result in the application of penalties and surely consequences on the tax side.

Anyway, the general legal treatment is that an unregistered company or an individual exercising trade are under irregular and illegal situation with the Commercial Registration and, if so, with the Autoridade Tributária.

A company or individual under that roughly irregular situation is compared to an inexistent entity for commercial tax purposes.

All registrations done must be updated, but only if the registered facts change.

As to this matter, the answer is written in item 2. above.

Disclosure must be served during contract negotiation stage and before the contract is entered into.

Any change in the disclosed element during the contract performance or new elements coming up concerning the same facts mentioned in 2. above must be disclosed if they are important for the stability and success of the contract. It is of use to say about this that the stage of contract performance should be analyzed carefully, because the party which has been affected by any change after the contract has entered into force may have their own legitimate commercial interests vulnered vis-à-vis the counter-party.

There is not any disclosure language or format to follow about this disclosure obligation.

Also, there is not any obligation to repeat disclosures, in case of contract renewal or amendment on facts already disclosed before.

Consequences for failure disclosure may conduct to contract termination for cause by the innocent party and/or an indemnity claim.

If applicable to the holder of the franchise unit.

Anyway, it’s advisable to disclose to each individual SPV franchisee to avoid uncertain or unclear obligation proceedings on disclosure, but this is a matter up to the policy of the franchise unit.

Franchisee is entitled to terminate the franchise contract in case of mis-selling by the franchisor if the latter has proceeded in fault and there is not any contractual provision otherwise.

In principle, under article 809 of Civil Code, it’s illegal any pre-renunciation of a claim right, that is, a repudiation before the fact which has constituted the claim has occurred.

Any party is, however, entitled to agree with the counter-party not being liable if the causing fact has been practiced by their employees or any other person the party uses to accomplish their obligations or by their legal representatives (proxy or even, if any, by tutors, etc.).

In general terms and beyond the general rule provided in article 809 Civil Code, the parties of a contract may agree to exclude or limit their responsibility if their agreement does not infringe Public Policy rules (article 800 (2) Civil Code).

Provided that a “take or leave it” contract is not against any mandatory rule such as the principle of freedom of contract or any provision concerning good faith or good customs (morality), it can be admitted in Portuguese law.

Protection of intellectual property rights in Portugal is done by domestic legislation and through the registration with the Commercial Registration office of that kind of rights. In addition, Portugal, as a member of the UE, is subject to the community laws, including the European Patent Convention which is, naturally, only appliable to patents.

But, other intellectual property rights have also a large protection of UE laws, including the central registration of those rights with a community registrar located in Alicante, Spain. However, such as with the domestic commercial registration, only facts admitted by law to registration are eligible to be registered, but not any further fact which a party may figure out convenient to their interest.

As to regulation of enforcement of intellectual property rights, the EU directive on intellectual property rights (IPR Directive) provides for the obligation of the EU member states to apply effective, dissuasive and proportionate remedies against any infringement or violation of intellectual property rights.

In conclusion, as to statutory remedies to protect intellectual property rights they are well protected by both domestic and community legislation.

There is not any franchise specific laws governing the ongoing relationship of a franchise contract, but Civil Code is applied to govern any contract, including that type of contracts, and some of its rules are applied.

But, in general terms, the principle of freedom of contract is the master rule. It may be extensively applied, including on contract forms.

Attention should be called for the provisions concerning protection of good faith already mentioned above, abuse of rights and, in general and provisions which provide remedies against infringement of law and/or good faith and good customs.

Of course, a local specialist lawyer should be consulted about drafting franchise contracts ruled by Portuguese law or, even though that law may not be applied, the public policy principles of Portuguese legal system may be respected as well, including on recognition in Portugal of foreign judgments or arbitration awards. The latter one in accordance with the New York Convention on recognition and enforcement of foreign arbitration awards in Portugal. And as to foreign court judgments in accordance with the Civil Procedure Code.

Yes, there are aspects of competition law applicable to franchise transactions, such as regulation of online sales, exclusive supply or fix retail prices.

As a matter of fact, and following same order, either non-online sales or online sales, franchisor may not interdict the franchisee to practice and accept passive sales.

Beyond this and in general terms, franchisor is not entitled to fix minimum prices to franchisee, but he may fix maximum prices as well as recommended prices. Exclusive supplies are also allowed.

Despite there is not any specific systemed competition law appliable to franchising business, it is of great importance to recall the new EU Block Exemption Regulation on certain categories of vertical agreements and concerted practices (VBER) – Commission Regulation (EU) 2022/720 of 10 May 2022 – which has been adopted and is in force since 1st. June 2022.

Franchise agreements can benefit from the exemption afforded by the Block Exemption Regulation on Vertical Restraints on the purchase, sale and resale of goods and services within a franchising arrangement, such as selective distribution, non-compete obligations or exclusive distribution, when neither of them have a market share that exceeds the 30% threshold.

Over this threshold, the agreement is not necessarily illegal, but does not benefit from the presumption and exemption set in the Block Exemption. Therefore, over 30% market share threshold, the agreement provisions described below would require assessment case by case to guarantee that they do not harm competition on the market.

Even below the 30% market threshold there are certain provisions considered hard core which may not have the benefit of exemption afforded by the Regulation. This is the case, inter alia, of resale price fixing or resale price maintenance.

As a general principle, all companies must determine their own price policies. EU or domestic competition law does not permit companies to directly or indirectly impose or determine a fixed or minimum resale price on its franchisees.

However, a franchisor may apply maximum prices and recommended retail price. One exception to this rule is that of a franchisor may apply a fixed resale price in marketing campaigns for the short-term.

Franchisor may take measures necessary for maintaining the identity and reputation of the network bearing their business name or symbol. However, agreement provisions that are not necessary to protect know-how and goodwill or to maintain the common identity or reputation of the franchised network are assessed on an individual basis.

Franchisors can allocate certain territory or consumer groups exclusively to a franchisee, whereby franchisees are prohibited from actively selling into the exclusive territory or to an exclusive customer group allocated to another franchisee or reserved for the franchisor. However, passive selling, including online sales, may not be restricted nor the restriction of cross supplies between the franchisees operating at the same or different levels of trade or the restriction of active or passive sales to end users by franchisees operating at the retail level of trade or the prevention of the effective use of the internet by the franchisee or its customers to sell the contract goods or services, as it restricts the territory into which or the customers to whom the contract goods or services may be sold.

The law does not prohibit price discrimination, as long as a dominant entity is not involved (i.e. with a market share of at least 50%). Nevertheless, it is important to understand that price discrimination, when found to distort competition, can still be considered anticompetitive.

Post termination non-compete and confidentiality covenants are generally valid/enforceable under Portuguese / European Union laws.

However, in order to benefit from the exemption, post-termination non-compete covenants as per the EU law must meet the following cumulative requirements:

(1) this obligation is limited to a maximum period of one-year post-termination;

(2) the obligation is limited to goods/services which compete with the contract goods/services;

(3) the obligation is limited to the point of sale from which the buyer has operated during the contract period; and

(4) the obligation is indispensable to protect substantial know-how transferred by the franchisor to the franchisee.

Post-term restrictions on solicitations clauses are enforceable until one year maximum.

Limitations on the franchisor’s ability to impose and enforce them exist in accordance with contract/agreement and provided that competition law is respected.

Yes, there is an obligation to proceed in good faith in dealing with any contract including the franchise contract.

Please see answers to questions nos. 2 and 4 above for further development of this matter.

Possible consequences of proceedings against good faith are (1) nullity of the acts practiced or performed and (2) right to indemnity.

Franchisor should not practice any act regarding to issue labour orders or exercise coordination of any franchisee’s employee’s activity.

If such is done and is transmitted to the franchisee’s clients, a labour court may conclude that they are, at least, jointly employed by the franchisor and franchisee or even only by the franchisor. However, this conclusion is not easy to succeed because there are other aspects to consider (such as this who pays them the salary, same as to insurance and social security costs, for instance) which are material facts to qualify who is the employer.

But, it is an elementary attitude to demand from the franchisor to proceed in good order to avoid negative consequences concerning any confusion with the franchisee business.

Yes, this a risk. As a matter of fact, the franchisee should always act as a franchisee and not as a commercial agent.

Indeed, a commercial agent acts to get customers to the principal with no participation both on the performance of the obtained contract and the outcomes. A franchisee should have always an independent action separate from, and not mixing up with the franchisor in any action which should not be executed together.

No. There is not these hindrances.

Yes. Franchisor may impose penalties on franchisees for breaches of restrictive covenants, provided that the law does allow those penalties.

In general terms, penalties must not be in such a way where the franchise contract and franchisee contractual position are deprived of its own typical characteristics.

Also, competition law does not allow franchisor to demand from the franchisee same legal duties. Answers to questions nos. 14 and 15 above may contribute to help to answer this question.

In addition, franchisor may apply to a court of law or arbitrator if such is the case, an injunction to assure the effectiveness of the restrictions imposed or penalties.

Franchisees based in Portugal are normally regarded as independent contractors and are taxed pursuant to the worldwide corporate income tax under the Portuguese Corporate Income Tax Code.

As a rule, franchisors based abroad are not considered tax residents in Portugal, unless they incorporate a local subsidiary or qualify as having a permanent establishment in Portugal. In general, franchisors qualify as having a permanent establishment in Portugal when they have a factory or place of business in Portugal from where they conduct a business activity or when they empower someone to conclude contracts in Portugal on their behalf.

Non-resident franchisors without a permanent establishment in Portugal are taxed in Portugal (as non-residents), and only on the income obtained in Portugal from a Portuguese source, are subject to reduced rates and the double tax elimination mechanism set out in any applicable double tax treaty.

This will be the case with initial fees, franchise fees, technical assistance fees and royalties, which all are only regarded for tax purposes as taxable income if they are generated in Portugal from a Portuguese source.

Portugal has a double tax treaty in force with the majority of countries.

Even though technical assistance fees are not royalties, tax authorities may decide to consider them as such if it is not clearly evidenced before the tax authorities that the fees do not relate to the grant of a franchise business right to which the concept of royalties is applied. It is important to consult the applicable double taxation treaty, if any, to understand which concept of royalty is adopted in each case. In addition, a royalty may benefit under a double taxation treaty from a different tax withholding rate than the internal law withholding tax rate.

Portuguese tax law provides, as a rule, that royalties paid by a resident to a non-resident entity are subject to withholding at source at a rate of 25 percent. This tax rate may be lower if a double taxation treaty is applicable as set forth above.

Also, a resident entity is allowed to obtain full exemption of tax under the European Union Directive 2003/49/EC, dated June 3, as to royalties paid to a company resident in another EU country if the non-resident company holds at least 25% of the resident company for at least two years or whenever the resident and the non-resident companies are held by the same company that has owned at least 25 percent of their equity capital for at least two years.

Applicable data protection regulation in Portugal is the one in force, not only in Portugal, but in all EU member states under the Regulation (EU) 2016/679, generally known as GDPR (General Data Protection Regulation).

There is not any specific provision implication specifically with franchise business. GDPR is, therefore, applied in general, including on franchise business with no discrimination.

Under the new Block Exemption Regulation, care must be taken with regards to restrictions to online sales and access to online platforms, as the regulation of these subject matters has been largely expanded and reinforced in relation to the previous block exemption regulation of 2010.

A franchise agreement which, directly or indirectly, in isolation or in combination with other factors controlled by the parties, has the object of preventing the effective use of the internet by the franchisee or its customers to sell the contract goods or services to particular territories or customers is a hardcore restriction.

A franchise agreement containing one or more restrictions of online sales or online advertising which de facto prohibit the franchisee from using the internet to sell the contract goods or services has at the very least the object of restricting passive sales to end users wishing to purchase online and located outside the buyer’s physical trading area.

Therefore, such agreements fall within the scope of Article 4, point (e) of Regulation (EU) 2022/720.

The same applies to franchise agreements which do not directly prohibit but have the object of preventing the effective use of the internet by a franchisee or its customers to sell the contract goods or services to particular territories or customers.

The ownership interests of the franchisee business are naturally owned by the franchisee. However, the franchisor is entitled to preserve in the franchise contracts the ownership of goods and interest owned by the franchisor which are in possession of the franchisee for a limited period of time until permitted by the franchisor or, if not limited within a certain time, until the end of contract.

Franchisee may have such a right if agreed in the franchise contract or, if the franchisor so agrees further, based on any agreement. If not, there is not any right to a renewal.

Franchisor is free to refuse the renew of a franchise agreement. Franchisee is not entitled, unless were agreed otherwise, to any compensation for termination or expiration of contract.

As said above, franchise contract has not any specific regulation in Portuguese law. It is, however, governed by the general rules of the Portuguese Law of Contract provided for in the Civil Code which are applied to all sort of contracts. There is not any provision (mandatory or not) in Portuguese law providing for some termination rights in favour or franchisee or any minimum notice period either on the duration of contract or pre-notice for termination.

Every matter of this kind is subject to the freedom of contract principle.

There is not any intangible assets the franchisee can claim ownership of on expiry or termination, except those assets the franchisee has acquired either from the franchisor or anyone else.

In particular, customer data and local goodwill can be a critical matter. For this reason, it’s strongly advisable for the franchisor to include these matters in the text of the franchise contract. Local law and, in particular, the tendency of jurisprudence, unless it has been agreed otherwise, may consider that some rights or interests like customer data and local goodwill are owned by the franchisee, particularly in the case of customer data, if the franchisee has paid to the franchisor everything he had ordered from the franchisor.

There is a national franchising association called “Associação Portuguesa de Franchising” (APF). Membership is not required as a business pre-condition to do business in the country.

APF organizes annually Expofranchising meetings.

APF membership comprises mainly a majority of franchisees.

It is not easy to say if membership is commercially advisable. This depends on the commercial strategy of each company. However, it is always of interest to become member to have, at least, an updated well organized and dynamic information about the national market, domestic and EU legislation, main case law, etc..

Foreign franchisors are not treated differently to domestic franchisors. Portugal is an European Union member state an a country opened to the international market since the fifties of the last century.

There is not any statutory debt/equity restrictions nor any capitalisation rules discriminating foreign parent companies participating in the capital of a Portuguese company in all areas of economic commercial business.

There is no obligation to adopt local law to govern a franchise agreement. As an European Union member, Portugal is subject to the community laws which has rigorously accomplished by the Portuguese authorities and courts. Any law is accepted if a foreign law was not chosen to fraudulently circumvent any mandatory obligation under Portuguese law.

Basically, judicial, arbitration and mediation. Arbitration is advisable, even when seated in Portugal, if the parties are agreed to get a dispute resolution system which usually is faster than judicial. Foreign companies/individuals are not discriminate by the national judiciary system whatever the substantive law applicable.

No. There is not any local law requiring the use of mandatorily Portuguese language in the franchise contract and/or disclosure documents. This is entirely a matter of freedom of contract.

Yes. It is admitted using electronic signature as well as document certification is also valid if made by electronic means. Portuguese State assures the validity of contracts or documents signed or certified publicly by electronic means.

As said in question no. 35.