Franchise Law in Korea: Legal Guide for Foreign Franchisors and Franchisees
Published by HANBYOL LAW LLC | Seoul, Korea | www.hanbl.co.kr
Key Takeaway: Korea has one of Asia's most developed — and strictest — franchise regulatory frameworks. The Fair Transactions in Franchise Business Act (가맹사업거래의 공정화에 관한 법률, "Franchise Act") imposes extensive disclosure, registration, and conduct obligations. Foreign brands entering Korea and foreign investors becoming Korean franchisees both face significant legal requirements.
1. Overview of Korean Franchise Regulation
The primary law governing franchising in Korea is the Fair Transactions in Franchise Business Act (가맹사업법, Franchise Act), enforced by the Korea Fair Trade Commission (KFTC, 공정거래위원회). Key supplementary regulations include:
- The Fair Trade Act (공정거래법) — prohibits unfair trade practices and abuse of market dominance
- The Commercial Code (상법) — governs distribution and agency arrangements
- The Trademark Act (상표법) — protection of brand identity central to franchise systems
- The Foreign Investment Promotion Act (외국인투자촉진법) — applicable when a foreign franchisor establishes a Korean entity
2. Franchise Disclosure Document (정보공개서)
The most distinctive requirement of the Korean Franchise Act is the mandatory Information Disclosure Document (정보공개서, IDD). Franchisors must:
- Register the IDD with the KFTC (through the Franchise Information System, 가맹정보시스템) before recruiting any franchisees
- Provide the IDD to prospective franchisees at least 14 days before signing any franchise agreement or accepting any payment
- Update the IDD annually (by January 31 each year) and whenever material changes occur
Required Contents of the IDD
| Category | Required Disclosure |
|---|
| Franchisor Information | Company history, executives, litigation history, financial statements (3 years) |
| Franchise System | Business description, brand history, training programs, support systems |
| Financial Terms | Initial fee, royalties, advertising fee, estimated initial investment |
| Territory | Exclusive territory provisions (if any), protected area details |
| Franchisee Network | Number of current/former franchisees, turnover data, contact information for former franchisees |
| Renewal/Termination | Conditions for renewal, transfer, and termination |
| Projected Sales | If sales projections are given, must be based on data and clearly disclosed |
Penalty: Failure to register the IDD, providing false information, or failing to provide the IDD 14 days in advance can result in criminal penalties (up to 3 years imprisonment or KRW 100 million fine) and gives franchisees the right to rescind the contract without penalty.
3. The Franchise Agreement (가맹계약서)
Korean law imposes specific content requirements on franchise agreements. Key mandatory provisions include:
- Term of agreement: Minimum 10 years for the initial franchise term (under Franchise Act Art. 13)
- Renewal rights: Franchisee has the right to renew for at least 10 years, unless there are legitimate grounds for refusal
- Territory protection: If an exclusive territory is granted, franchisor cannot open or permit competing outlets within the territory
- Supply pricing: KFTC has authority to investigate if supply prices are unfairly high
- Termination grounds: Must be specified; franchisor cannot unilaterally terminate without cause
4. Franchisee Protections Under Korean Law
Korea's Franchise Act is notably franchisee-friendly. Key protections include:
a) Cooling-Off Period
Franchisees may rescind a newly signed franchise agreement within 14 days without penalty, provided they have not received training or commenced operations.
b) Prohibition on Unilateral Changes
Franchisors may not unilaterally change key contract terms. Any amendment requires the franchisee's written consent.
c) Protection Against Unreasonable Fees
The KFTC may investigate and order correction of franchise fees, supply prices, or mandatory purchase requirements it finds "unfairly burdensome."
d) Dispute Mediation
The Franchise Dispute Mediation Council (가맹사업거래 분쟁조정협의회) offers free mediation for franchise disputes before litigation. Mediation is strongly encouraged and frequently successful.
e) Prohibition on Gap Period Refusal
After contract expiry, a franchisor may not refuse renewal unless statutory grounds exist (e.g., franchisee breach, public health concerns, redevelopment). Wrongful refusal to renew gives rise to a damages claim.
5. Foreign Franchisors Entering Korea
Foreign brands wishing to franchise in Korea must navigate both the Franchise Act and Korean foreign investment rules:
Step 1: Register an IDD
The Korean IDD must be prepared in Korean and registered with the KFTC before any franchise recruitment begins. Foreign companies without a Korean legal entity must typically appoint a Korean representative or establish a local entity.
Step 2: Establish a Korean Legal Entity
Options include:
- Wholly foreign-owned subsidiary (100% FDI): Most common for major brands — full control, separate legal liability
- Master franchise arrangement: License a Korean master franchisee to sub-franchise — less capital-intensive but less control
- Joint venture (합작투자): With a Korean partner — useful where local knowledge and distribution networks are critical
Step 3: Register Trademarks
Korea follows a first-to-file trademark system. Foreign brands must register their trademarks with the Korean Intellectual Property Office (KIPO) before entering the market to protect brand identity.
Step 4: Comply with Disclosure Timeline
Even after IDD registration, the 14-day pre-signing disclosure window is mandatory for every franchisee transaction.
6. Master Franchise Agreements in Korea
For foreign franchisors appointing a Korean master franchisee, the master franchise agreement should address:
- Development schedule and minimum outlet obligations
- Sub-franchising rights and approval procedures
- Brand standards enforcement and audit rights
- Ownership of customer data and digital assets
- Exit provisions — what happens to sub-franchisees if the master franchise is terminated?
- Governing law and dispute resolution (arbitration recommended — KCAB or ICC)
Key Risk: If the master franchise is terminated, Korean sub-franchisees may have direct legal claims against the foreign franchisor under Korean consumer protection and franchise law principles. Carefully structure the master agreement to limit this exposure.
7. KFTC Enforcement and Compliance
The KFTC actively investigates franchise disputes and has wide enforcement powers:
| Violation | Penalty |
|---|
| Failure to register/update IDD | Fine up to KRW 100M; rescission right for franchisee |
| False/misleading disclosure | Criminal penalty: up to 3 years or KRW 100M fine |
| Failure to provide IDD 14 days in advance | Rescission right; damages claim |
| Unjustified refusal to renew | Damages; KFTC corrective order |
| Unfair supply pricing/mandatory purchase | KFTC investigation; corrective order; fine |
8. Tax Considerations for Franchise Royalties
Royalty payments from a Korean franchisee to a foreign franchisor are subject to:
- Korean withholding tax: 20% (reduced by tax treaty — e.g., US: 15%, Japan: varies by agreement)
- VAT on royalties: 10% VAT applies to royalty payments for services supplied from abroad
- Foreign franchisors should review the applicable tax treaty and consider establishing a Korean entity if royalty volumes are significant
9. FAQ
Q: Can a foreign brand franchise in Korea without a Korean company?
A: Yes, but only through a master franchise arrangement with a Korean company handling local registration and IDD filing. Direct franchising by a foreign entity typically requires a Korean registered business address for KFTC IDD registration purposes.
Q: What is the minimum franchise term in Korea?
A: The Franchise Act sets a minimum initial term of 10 years, with the franchisee having the right to renew for a further 10-year period absent legitimate grounds for refusal.
Q: Can a franchise agreement be governed by foreign law?
A: Parties may choose a foreign governing law, but Korean courts will apply mandatory provisions of the Korean Franchise Act regardless of the chosen law — especially IDD, cooling-off, renewal rights, and territory protection rules. Franchise agreements covering Korean operations should always comply with the Franchise Act.
Q: What happens if a franchisee violates the agreement?
A: The franchisor must provide written notice of the breach and a reasonable opportunity to cure (typically 30 days) before terminating the agreement. Immediate termination without notice is generally prohibited unless the breach is severe (e.g., fraud, criminal activity, public health risk).
Q: Is there a registry of Korean franchise systems?
A: Yes. The KFTC maintains the Franchise Information System (공정거래위원회 가맹정보시스템), accessible online, which lists all registered franchise IDDs and allows prospective franchisees to compare systems before investing.
Expanding Your Franchise to Korea or Resolving a Franchise Dispute?
HANBYOL LAW LLC provides expert legal support for franchise registration, agreement drafting, KFTC compliance, and dispute resolution. We assist both foreign franchisors entering Korea and Korean investors evaluating franchise opportunities.
📧
nohujin@gmail.com | 🌐
www.hanbl.co.kr
韩国特许经营法律指南：外国特许人与加盟商完全手册
韩别律师事务所 | 首尔，韩国 | www.hanbl.co.kr
核心要点：韩国拥有亚洲最为完善、也最为严格的特许经营监管体系。《加盟业务公平交易法》对信息披露、注册及经营行为规定了严格义务，无论外国品牌进入韩国还是外国投资者成为韩国加盟商，都面临重大法律合规要求。
1. 监管框架
韩国特许经营由《加盟业务公平交易法》（가맹사업법）规制，由公平贸易委员会（KFTC）执法。核心义务包括：特许人须在招募加盟商前向KFTC注册信息公开书（정보공개서），并在签约前至少14天提供给加盟商。
2. 加盟商保护要点
- 冷静期：合同签署后14天内可无条件解除合同
- 最低合同期：10年，续约权受法律保护
- 区域保护：特许人不得在约定区域内开设竞争性门店
- 单方变更禁止：合同条款变更须加盟商书面同意
- 纠纷调解：加盟业务纠纷调解委员会提供免费调解服务
3. 外国品牌进入韩国
外国品牌进入韩国特许市场需完成：注册韩语版信息公开书→在韩国知识产权局注册商标（先申请原则）→设立韩国法律实体或委任主特许人→遵守14天披露时限。
4. 特许权使用费税务
韩国加盟商向外国特许人支付的使用费须缴纳20%预扣税（税收协定可降低）及10% VAT，建议在支付规模较大时咨询是否设立韩国实体。
5. 常见问题
问：外国品牌可以不设立韩国公司直接开展特许经营吗？
答：通常不行。信息公开书注册需要韩国注册地址，大多数情况下需设立韩国法律实体或通过主特许人安排进行。
问：加盟合同最短期限是多少？
答：法定最短10年，续约权受法律保护。
韓国フランチャイズ法：外国フランチャイザー・フランチャイジーのための法律ガイド
HANBYOL LAW LLC（한별법률사무소）| ソウル、韓国 | www.hanbl.co.kr
重要ポイント：韓国は、アジア最先端の厳格なフランチャイズ規制体系を持ちます。《加盟事業取引の公正化に関する法律（가맹사업법）》は、情報開示・登録・行為規制に関する広範な義務を課します。
1. 規制の概要
主な規制法は加盟事業法で、公正取引委員会（KFTC）が執行します。フランチャイザーは加盟店募集前にKFTCへ情報公開書（정보공개서）を登録し、契約締結の14日前までに候補加盟店に提供する義務があります。
2. 加盟店保護の主要規定
- クーリングオフ：契約締結後14日以内に違約金なしで解除可能
- 最低契約期間：10年（更新権は法律で保護）
- テリトリー保護：フランチャイザーは約定区域内に競合店を出店不可
- 一方的変更禁止：契約条件の変更には加盟店の書面同意が必要
- 紛争調停：加盟事業取引紛争調整協議会による無料調停が利用可能
3. 外国ブランドの韓国進出手順
①韓国語版情報公開書をKFTCに登録 → ②韓国特許庁（KIPO）に商標登録（先願主義） → ③韓国法人設立またはマスターフランチャイズ契約 → ④14日前開示ルールの遵守
4. ロイヤルティの税務
韓国加盟店から外国フランチャイザーへのロイヤルティ支払いには源泉税20%（租税条約で軽減可）と10% VATが課税されます。
5. よくある質問
Q：韓国法人なしで直接フランチャイズ展開できますか？
A：原則として難しいです。情報公開書の登録には韓国の登録住所が必要なため、通常は韓国法人の設立またはマスターフランチャイズ契約が必要です。
Q：契約の最低期間は？
A：法定最低10年。加盟店には更新権が保障されています。
Ley de Franquicia en Corea: Guía Legal para Franquiciadores y Franquiciados Extranjeros
HANBYOL LAW LLC | Seúl, Corea | www.hanbl.co.kr
Punto clave: Corea cuenta con uno de los marcos regulatorios de franquicia más avanzados y estrictos de Asia. La Ley de Transacciones Justas en Franquicias impone amplias obligaciones de divulgación, registro y conducta que afectan tanto a marcas extranjeras como a inversores nacionales.
1. Marco Regulatorio
La principal ley es la Ley de Transacciones Justas en Franquicias (가맹사업법), aplicada por la Comisión de Comercio Justo (KFTC). Los franquiciadores deben registrar un Documento de Divulgación de Información (DDI) ante la KFTC antes de reclutar franquiciados, y entregarlo al candidato al menos 14 días antes de firmar el contrato.
2. Protecciones del Franquiciado
- Período de reflexión: 14 días para rescindir el contrato sin penalización
- Duración mínima: 10 años; derecho de renovación protegido por ley
- Protección territorial: El franquiciador no puede abrir puntos de venta competidores en el territorio exclusivo
- Prohibición de cambios unilaterales: Requiere consentimiento escrito del franquiciado
- Mediación gratuita: El Consejo de Mediación de Disputas de Franquicia ofrece mediación sin coste
3. Entrada de Marcas Extranjeras en Corea
Pasos clave: ① Registrar el DDI en coreano ante la KFTC → ② Registrar marcas en la KIPO (sistema first-to-file) → ③ Establecer empresa coreana o acuerdo de franquicia maestra → ④ Cumplir el plazo de 14 días en cada transacción.
4. Fiscalidad de los Royalties
Los pagos de royalties de un franquiciado coreano a un franquiciador extranjero están sujetos a una retención del 20% (reducible por convenio fiscal) y 10% de IVA.
5. Preguntas Frecuentes
P: ¿Puede una marca extranjera franquiciar en Corea sin empresa coreana?
R: Generalmente no. El registro del DDI requiere una dirección registrada en Corea, por lo que normalmente se necesita una filial coreana o un franquiciado maestro.
P: ¿Cuál es el plazo mínimo del contrato de franquicia?
R: 10 años, con derecho de renovación protegido por ley.
¿Expandiendo su franquicia a Corea o gestionando una disputa?
HANBYOL LAW LLC ofrece asesoría bilingüe en registro de franquicias, redacción de contratos, cumplimiento KFTC y resolución de disputas.
📧
nohujin@gmail.com | 🌐
www.hanbl.co.kr
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