{"id":114256,"date":"2025-10-09T13:37:38","date_gmt":"2025-10-09T13:37:38","guid":{"rendered":"https:\/\/my.legal500.com\/guides\/?post_type=comparative_guide&#038;p=114256"},"modified":"2025-10-09T13:45:18","modified_gmt":"2025-10-09T13:45:18","slug":"germany-franchise-licensing","status":"publish","type":"comparative_guide","link":"https:\/\/my.legal500.com\/guides\/chapter\/germany-franchise-licensing\/","title":{"rendered":"Germany: Franchise &amp; Licensing"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-114256","comparative_guide","type-comparative_guide","status-publish","hentry","guides-franchise-licensing","jurisdictions-germany"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Dentons<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2020\/03\/Dentons-Logo-RGB-Dentons-Purple-300.jpg\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Dentons<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2020\/03\/Dentons-Logo-RGB-Dentons-Purple-300.jpg\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Franchise &amp; Licensing laws and regulations applicable in Germany<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a legal definition of a franchise and, if so, what is it?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In Germany, a franchise is not explicitly defined by law. The franchise agreement is understood as a mixed-type contract (&#8220;typengemischter Vertrag&#8221;) meaning it combines elements from various contract types, such as purchase, license, lease, and service agreements. In some cases, the provisions of commercial agency law or the principles for authorized dealers apply by analogy (see Question 21).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any requirements that must be met prior to the offer and\/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>German law mandates a duty of pre-contractual principal of good faith under \u00a7 242 German Covil Code (BGB). In the context of franchise law, this principle manifests itself in the form of pre-contractual disclosure obligations for both parties. The exact scope of such disclosure duties has been shaped by court decisions over the years and continues to evolve. Further details on the pre-contractual disclosure are laid down under Question 4.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any registration requirements for franchisors and\/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations? If so, please describe.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Germany does not have a national franchise register or a requirement to register a franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made, is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply. Is there an obligation to update and\/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Both the franchisor and the franchisee (as well as sub-franchisors and sub-franchisees) are subject to pre-contractual disclosure obligations:<\/p>\n<ul style=\"padding-left: 0\">\n<li>The <strong>franchisee<\/strong> is obliged to disclose its professional qualifications, personal characteristics, and financial capabilities truthfully and fully, insofar as these are relevant for the conclusion of the franchise agreement.<\/li>\n<li>The <strong>franchisor\u2019s pre-contractual disclosure duties<\/strong> are considerably broader and more important: Before signing a franchise agreement, the franchisor must provide the franchisee with all material information necessary to make an informed decision. The scope of disclosure obligations depends on the specific franchise system as well as on the business experience of the prospective franchisee. Consequently, unlike in jurisdictions with codified disclosure requirements, the assessment in German law must always be made on a case-by-case basis. The franchisor is obliged &#8211; without being asked &#8211; to disclose any risks or information relevant to the franchise agreement if such information could influence the franchisee\u2019s decision or if the franchisee has misunderstood key aspects. The franchisor must also correct any misunderstandings or misconceptions he becomes aware of.<\/li>\n<\/ul>\n<p>In the event of an active misinformation or a failure to provide adequate disclosure, the legal consequences may include not only the other party\u2019s right to claim damages under \u00a7 280 BGB, but also a potential right to rescind the contract.<\/p>\n<p>Disclosure should be made at least two weeks before signing the franchise agreement. While no formal requirements exist for the format, it is advisable for franchisors to document disclosures. Typically, information is provided in German, though English may be used if both parties agree and understand the implications.<\/p>\n<p>Although German law does not explicitly require ongoing disclosure updates, franchisors are expected to inform prospective franchisees of any material changes &#8211; such as adjustments to fees, financial performance, business structure, or intellectual property &#8211; prior to the conclusion or renewal of the franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs\u2019 parent company or must disclosure be made to each individual SPV franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Disclosure to the parent company is not sufficient. In Germany, the principle of corporate independence applies. Disclosure must be made to the actual contracting party as an independent legal entity.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What actions can a franchisee take in the event of mis-selling by the franchisor? Would these still be available if there was a disclaimer in the franchise agreement, disclosure document or sales material?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In the event of mis-selling by the franchisor, the franchisee has several legal remedies under German law. The franchisee may;<\/p>\n<ul style=\"padding-left: 0\">\n<li><strong>Claim damages<\/strong> pursuant to \u00a7 280 BGB<\/li>\n<li><strong>Terminate<\/strong> the franchise agreement for good cause according to \u00a7 314 BGB in case of fundamental mis-selling<\/li>\n<li><strong>Rescind <\/strong>the contract with retroactive effect (\u00a7\u00a7 119, 123 BGB) in cases of fraudulent misrepresentation.<\/li>\n<\/ul>\n<p>Disclaimers may limit the actions of the franchisee, provided they meet statutory requirements and comply with applicable laws on general terms and conditions, especially regarding fairness and transparency.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Would it be legal to issue a franchise agreement on a non-negotiable, \u201ctake it or leave it\u201d, basis?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><strong>\u201cTake-it-or-leave-it&#8221; offers are permissible<\/strong> under German law. It is in fact common practice that franchisors draft the franchise agreement in advance for a wide range of cases and insist on it.<\/p>\n<p>It must be noted that under German law such template agreements are <strong>generally qualified as standard terms and conditions (\u201c<em>AGB<\/em>\u201d)<\/strong>. AGB are deemed to exist whenever a contract is prepared for repeated use and is presented by such a party on a &#8220;take it or leave it&#8221; basis. <strong>Stricter requirements apply to such AGB <\/strong>pursuant to \u00a7\u00a7 307 et seq. BGB: Clauses are subject to a comprehensive review for transparency and unfair disadvantage.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How are trademarks, know-how, trade secrets and copyright protected in your country?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><strong>Trademarks<\/strong> are protected under the German Trademark Act and EU Trademark Regulation. They should be registered with the German Patent and Trademark Office (DPMA) as German trademark or with the European Union Intellectual Property Office (EUIPO) as EU trademarks to receive full protection.<\/p>\n<p><strong>Know-how<\/strong>, although not formally registered, is protected through confidentiality agreements and contract law. It often includes business methods, manuals, or operational systems. In franchising, access to know-how is a key benefit for the franchisee, and franchise agreements usually include strict non-disclosure clauses.<\/p>\n<p><strong>Trade secrets<\/strong> are protected under the German Trade Secrets Act, aligned with EU law. To qualify, the information must be secret, valuable, and protected by reasonable measures. Franchisors must actively safeguard trade secrets through internal policies and clear contractual obligations, which usually extend beyond the end of the franchise relationship.<\/p>\n<p><strong>Copyright<\/strong> protects original works such as training materials, software, and advertising content. It arises automatically upon creation under the German Copyright Act. In a franchise system, the franchisor licenses its use to the franchisee, usually under clearly defined terms within the franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Germany does not have franchise-specific legislation, but the ongoing franchise relationship is shaped by general civil and commercial law, court decisions, and principles such as good faith, fair dealing, and full disclosure. Furthermore, Franchise agreements must comply with German and EU competition laws, especially regarding non-compete clauses, territorial exclusivity, and pricing restrictions.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales, insist on exclusive supply or fix retail prices)? If applicable, provide an overview of the relevant competition laws.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Several aspects of German and EU competition law apply to franchise transactions. Compliance with EU Regulation 2022\/720 (VBER); the German Act Against Restraints of Competition (GWB) and Article 101 TFEU (Treaty on the Functioning of the European Union) is required.<\/p>\n<ul style=\"padding-left: 0\">\n<li><strong>Online Sales<\/strong>: It is not permissible under VBER to prohibit online sales entirely. However, it may be permissible to impose certain criteria for online sales, e.g. criteria for web shop appearance. Restrictions on online distribution via platforms may be permissible under certain conditions.<\/li>\n<li><strong>Exclusive Supply<\/strong>: A franchisor may insist on exclusive supply (i.e. requiring franchisees to purchase goods or services only from designated suppliers), provided this does not restrict competition excessively and the market share of the franchisor remains below 30% (VBER threshold). Usually, competition law requires timely restriction, however this does not apply strictly to franchise agreement (<em>Judgment of the European Court of Justice of 28 January 1986 &#8211; Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis<\/em>).<\/li>\n<li><strong>Retail Price Fixing<\/strong>: Fixing minimum or fixed resale prices is prohibited under \u00a7 Art. 101 TEFU, Art. 4 VBER. However, the franchisor may recommend non-binding retail prices or set maximum prices.<\/li>\n<\/ul>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are in-term and post-term non-compete and non-solicitation clauses enforceable and are there any limitations on the franchisor's ability to impose and enforce them?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Both non-compete and non-solicitation clauses are enforceable under German law if they comply with legal requirements:<\/p>\n<ul style=\"padding-left: 0\">\n<li><strong>In-term non-compete clauses<\/strong> are permitted but may require limitations with respect to geographic scope, time and subject matter.<\/li>\n<li><strong>Post-term non-compete clauses<\/strong> are permitted \u00a0but must be:\n<ul style=\"padding-left: 5\">\n<li>Limited to one year after contract termination,<\/li>\n<li>Restricted to the former contractual territory and to the same products\/services, and<\/li>\n<li>Accompanied by reasonable compensation according to an analogy of \u00a7 90a HGB, if franchisee is organizationally integrated into the franchise system to such an extent that his position economically resembles that of a commercial agent.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Non-solicitation clauses<\/strong> are generally permitted but must also be proportionate in scope and duration to be enforceable.<\/li>\n<\/ul>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there an obligation (express or implied) to deal in good faith in franchise relationships?  If so, what practical effects does this have on the relationship between franchisor and franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under German law, there is an <strong>obligation to deal in good faith<\/strong>, set out in \u00a7 242 BGB. This provision requires both franchisor and franchisee to act fairly, consider each other\u2019s legitimate interests, and uphold the spirit and purpose of the contract.<\/p>\n<p>Any violation against the principle of good faith may lead to claims for damages or contract adjustments.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Employment and labour law considerations are relevant in the context of a franchise relationship in Germany. A key legal question that can arise is whether the <strong>franchisee could be classified as an employee<\/strong> (<em>Arbeitnehmer<\/em>) of the franchisor if the franchisee is both dependent on instructions (weisungsabh\u00e4ngig) and economically dependent (wirtschaftlich abh\u00e4ngig) on the franchisor.<\/p>\n<p>To mitigate this risk, it is essential to <strong>structure the franchise relationship in a way that preserves the franchisee&#8217;s independence<\/strong>. This includes granting the franchisee a meaningful degree of entrepreneurial freedom, particularly in areas such as:<\/p>\n<ul style=\"padding-left: 0\">\n<li>Setting its own working hours,<\/li>\n<li>Deciding when to take vacation, and<\/li>\n<li>Especially, the ability to hire and manage its own employees independently.<\/li>\n<\/ul>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under German law, franchisees are generally not classified as commercial agents. A commercial agent acts on behalf of another by negotiating or concluding contracts in the name of the principal. In contrast, a franchisee typically operates in its own name and for its own account.<\/p>\n<p>To minimize the risk of reclassification as a commercial agent, the franchise agreement should make clear the franchisee operates independently, in its own name and for its own account, without authority to conclude contracts for the franchisor. Avoiding excessive operational control by franchisor further mitigates the risk. However, there is the risk that the indemnity claim of the commercial agent might apply analogously (see Question 21).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and\/or how much interest can be charged? Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Royalty and interest payments to a foreign franchisor are generally permissible under German law, but tax rules must be observed. Royalties may be subject to withholding tax if they relate to rights used in Germany (\u00a7\u202f49 EStG), although tax treaties may reduce or eliminate such withholding. Transfer pricing rules apply to royalty and interest payments between related parties, requiring that such payments reflect market conditions. There is no general cap on interest rates, but interest must not be usurious (\u00a7\u202f138 BGB).<\/p>\n<p>Payments under a franchise agreement can be made in any agreed currency; German law does not require payment in euros.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><strong>Contractual penalties<\/strong> can be imposed on franchisees in Germany for breaches of contractual obligation (\u00a7 339 BGB). Typical are penalties for breaches of intellectual property, non-compete or confidentiality obligations.<\/p>\n<p>When including a contractual penalty clause, certain requirements must be observed. Where a party unilaterally stipulates such a provision across multiple contracts &#8211; thus qualifying it as \u201cterms and conditions\u201d under German law &#8211; it will only be enforceable if it is proportionate, transparent, and does not unreasonably disadvantage the other party (\u00a7 307 BGB). Excessive penalties are void, with the consequence that no penalty may be claimed at all. By contrast, in the case of individually negotiated clauses, courts may reduce penalties under \u00a7 242 BGB if they are deemed grossly disproportionate. Furthermore, penalties must be credited against actual damages in order to prevent double recovery.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><ul style=\"padding-left: 0\">\n<li><strong>Value-Added Tax (VAT):<\/strong> Franchise fees, including initial fees and ongoing royalties, are generally subject to value-added tax (Umsatzsteuer) at the standard <strong>rate of 19%.<\/strong> The franchisor is responsible for charging VAT on the invoice, and the franchisee may be entitled to <strong>input tax deduction<\/strong> if registered for VAT and using the franchise in the course of taxable business activities.<\/li>\n<li><strong>Income Tax and Corporate Tax<\/strong>: The taxation of income from franchising depends on the legal form of the franchisor and franchisee:<\/li>\n<li style=\"list-style-type: none\">Natural persons: Income is subject to <strong>personal income tax<\/strong> (Einkommensteuer) at progressive rates.<\/li>\n<li style=\"list-style-type: none\">Legal entities (partnerships or corporations): Income is subject to <strong>corporate income tax<\/strong> (K\u00f6rperschaftsteuer) at a flat rate of 15%, plus a <strong>solidarity surcharge<\/strong> (Solidarit\u00e4tszuschlag) of 5.5% on the corporate tax.<\/li>\n<li><strong>Trade Tax (Gewerbesteuer)<\/strong>: Franchise income may also be subject to trade tax, the rate of which varies depending on the <strong>municipality<\/strong>. There is a tax allowance for sole proprietors and partnerships, but corporations are fully subject to trade tax.<\/li>\n<li><strong>Withholding Tax on Royalties<\/strong>: If the franchisee in Germany pays royalties to a <strong>foreign franchisor<\/strong>, these payments are generally classified as royalty income and subject to withholding tax at a rate of 15% plus solidarity surcharge unless reduced or exempted by a <strong>double taxation agreement<\/strong> (DTA). To benefit from treaty relief, the foreign franchisor must apply for exemption or refund through the German Federal Central Tax Office (BZSt).<\/li>\n<li><strong>Licensees should observe the license limitation rule (\u201cLizenzschranke\u201d): <\/strong>Germany has implemented license limitation rules since 2018 under Section 4j of the Income Tax Act (EStG) which apply for intra-group license agreements. The license limitation rules limit the deductibility of royalty expenses incurred by German businesses if the direct or (in the case of a back-to-back licensing structure) indirect licensor is a related party whose income is subject to a \u201clow taxation\u201d in the sense of the license limitation rules, unless such preferential tax regime complies with the Modified OECD Nexus Approach. The threshold for \u201clow taxation\u201d is 25% for royalty expenses that accrued until 31 December 2023 and 15% thereafter.<\/li>\n<\/ul>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How is e-commerce regulated and does this have any specific implications on the relationship between franchisor and franchisee?  For example, can franchisees be prohibited or restricted in any way from using e-commerce in their franchise businesses?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>E-commerce in Germany is regulated by a combination of EU and national laws focusing on consumer protection. There is no specific implication on the franchise relationship.<\/p>\n<p>However, there are some limitation on the franchisor\u2019s right to restrict franchisee\u2019s use of e-commerce under EU competition law (see Question 10).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the applicable data protection laws and do they have any specific implications for the franchisor\/franchisee relationship?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In Germany, data protection is governed by the EU General Data Protection Regulation (GDPR) and the Federal Data Protection Act (BDSG). These laws require both franchisors and franchisees to handle personal data lawfully, transparently, and securely. The franchisor may process franchisee customer data for legitimate business reasons, such as auditing, provided it is done proportionally and with respect for the franchisee\u2019s interests. If franchisees use third parties for data processing, they must ensure compliance with GDPR requirements, especially when data is processed outside the EU.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the franchisor permitted to restrict the transfer of (a) the franchisee's rights and obligations under the franchise agreement or (b) the ownership interests in the franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under German law, franchisors can generally restrict the transfer of a franchisee&#8217;s rights and obligations under a franchise agreement. However, restrictions on the transfer of monetary claims are usually not enforceable. The same principle applies to transferring ownership interests, though to be valid, such restrictions need to bind the franchisee\u2019s shareholders directly. Franchise agreements therefore usually grant the franchisor information and termination rights in cases of changes in control.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The franchisor is <strong>not obliged to renew<\/strong> the franchise agreement upon expiration and is entitled to refuse a request for renewal by the franchisee, unless such extension right has been expressly agreed between the parties.<\/p>\n<p>Whether a franchisee is entitled to <strong>compensation after termination<\/strong> of the franchise agreement <strong>remains disputed<\/strong>. A post contractual compensation claim according to \u00a789b HGB in analogy requires that (i) the franchisee, with the franchisor\u2019s knowledge and consent, has contributed to the franchise system and built up a customer base that benefits the franchisor and (ii) that the franchisee is integrated into the franchisor\u2019s sales organization and is legally obliged to transfer the customer base upon termination. However, a post contractual compensation claim is not justified where the franchise model essentially involves anonymous mass transactions, and the continuity of the customer base is merely factual rather than contractual.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under mandatory German law, both franchisor and franchisee may terminate a contract for good cause (\u00a7 314 BGB).<\/p>\n<p>German law does not stipulate a minimum notice period. However, the notice period must take into account the term and investments of the franchisee. Any termination for good cause will have immediate effect, though a prior warning is necessary unless impossible to remedy.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any intangible assets in the franchisee\u2019s business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Generally, intangible assets like brand goodwill and marketing materials remain the property of the franchisor, and franchise agreements typically require franchisees to return or stop using these assets upon termination. While franchisees may develop local goodwill or customer relationships, legal ownership usually stays with the franchisor, including customer data, which must often be handed over at the end of the franchise relationship. The specific allocation of such assets will depend on the terms of the franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a national franchising association? Is membership required? If not, is membership commercially advisable? What are the additional obligations of the national franchising association?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Germany has a national franchising association, the <strong>German Franchise Association<\/strong> (Deutscher Franchiseverband, DFV). A membership is voluntary and offers several advantages, such as increased credibility, access to expert legal and business advice, participation in networking events, and the opportunity to be certified according to the DFV quality standards. A DFV certificate signals trust and professionalism to potential franchisees.<\/p>\n<p>In addition to representing the interests of its members, the German Franchise Association (DFV) provides <strong>dispute resolution services<\/strong> and <strong>offers training and education<\/strong>. DFV promotes fair pre-contractual disclosure standards and imposes a Code of Conduct on its members.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are foreign franchisors treated differently to domestic franchisors? Does national law\/regulation impose any debt\/equity restrictions? Are there any restrictions on the capital structure of a company incorporated in your country with a foreign parent (thin capitalisation rules)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Foreign franchisors are generally treated <strong>the same as domestic franchisors<\/strong> under German law. There are no specific restrictions or additional regulatory burdens placed on foreign franchisors solely due to their non-German origin. They are free to operate directly through cross-border franchise agreements or by establishing a local presence via a subsidiary or branch. Regardless of origin, all franchisors must comply with German legal requirements, including competition law, consumer protection, and tax regulations.<\/p>\n<p>Since 2008, Germany applies the so-called <strong>interest limitation rule<\/strong> (&#8220;Zinsschranke&#8221;) under Section 4h of the Income Tax Act (EStG). This rule restricts the deductibility of net interest expenses to 30% of the taxable earnings before interest, taxes, regular depreciation, and amortization, regardless of the company\u2019s debt-to-equity ratio or whether the lender is a related party. The rule applies equally to companies with foreign or domestic shareholders. Certain exceptions apply, such as when annual net interest expenses are below 3 \u20ac million or for stand-alone entities not part of a corporate group.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement be governed by local law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A franchise agreement <strong>does not have to be governed by German law<\/strong>. Under the EU&#8217;s Rome I Regulation, the parties are generally free to choose the applicable law for their contract. However, even if foreign law is chosen, certain overriding mandatory provisions of German law &#8211; such as competition rules or specific commercial regulations &#8211; may still apply if the franchise is operated in Germany, Art. 9 Rome I Regulation. Additionally, German courts <strong>may refuse to apply a foreign law<\/strong> if it conflicts with fundamental principles of German public policy, Art. 21 Rome I Regulation. In practice, many franchise agreements involving German franchisees choose German law to avoid legal uncertainty and ensure enforceability.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In Germany, franchisors and franchisees can resolve disputes via courts, arbitration, or mediation. Litigation is generally cost-effective for domestic parties, while arbitration is preferable in international cases for its privacy and enforceability. Mediation offers a non-binding, amicable solution. The chosen dispute resolution has to be regulated in the franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement and disclosure documents be in the local language?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is <strong>no legal requirement<\/strong> for franchise agreements and disclosure documents to be in German. It is typical for cross-border franchise agreements to be drafted in English language.<\/p>\n<p>However, if the franchisee is based in Germany and has not enough knowledge of the English language, it is strongly recommended for the documents to be in German language or bilingual in German and English to ensure understanding.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In Germany, franchise agreements can generally be signed using an electronic signature. Usually, franchise agreements are not subject to any form requirements such as wet ink or notarization. The parties should however check the German Law for <strong>any specific form requirements<\/strong>, nonetheless.<\/p>\n<p>For legal certainty, especially in high-value contracts, it is recommended and common practice to use a Qualified Electronic Signature such as DocuSign, which is legally equivalent to a wet ink signature and usually fulfills all formal written form requirements under German law.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Do you foresee any significant commercial or legal developments that might impact on franchise relationships over the next year or so?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Over the coming year, the German franchise relationships may be shaped especially by three developments. First, the growing use of AI in marketing, operations, and customer service raises issues of data protection, transparency, and liability, requiring contract adjustments. Second, the EU Corporate Sustainability Due Diligence Directive (CSDDD) will extend compliance duties across franchise networks. Finally, rising corporate insolvencies increase risks for franchisees and partners, making financial monitoring, contractual safeguards, and restructuring strategies essential.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">4332<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/114256","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=114256"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}