Franchising has become an established route for business expansion in the United Arab Emirates, attracting international brands and local investors across several sectors. Restaurants, cafés, retail outlets, hotels, education providers, fitness centres and professional services are among the businesses using this model to establish a presence in the country. For established companies, it offers an opportunity to enter new markets without financing and managing every outlet themselves. For entrepreneurs, it provides access to a recognised brand and an established business system without having to develop an entirely new concept.
The appeal lies partly in reducing the uncertainties associated with starting an independent business. A franchisee can benefit from an existing customer base, tested operating procedures and the franchisor's market experience. However, the arrangement does not eliminate commercial risks. The investor must still finance the operation, employ staff, secure premises, meet regulatory requirements and generate sufficient revenue to cover continuing expenses.
Franchising is also more than permission to display a company's name. It creates a continuing contractual relationship involving intellectual property, financial obligations, operational standards and territorial restrictions. Understanding these elements is essential before either party commits to the arrangement.
Understanding the Franchise Business Model
A franchise is a commercial arrangement in which one party, known as the franchisor, grants another party, the franchisee, the right to operate a business using its brand, products, services and established operating system. The relationship is governed by a written agreement defining the rights and responsibilities of both parties.
The franchisor owns or controls the business concept and associated intellectual property, or has the legal authority to grant the relevant rights. The franchisee invests in establishing and operating the local business, usually within an agreed geographical area and for a specified period.
A restaurant chain provides a straightforward example. An international company may grant a UAE-based investor the right to open an outlet under its name. The investor finances the premises, equipment and workforce, while the franchisor provides the operating model, recipes, training, branding guidelines and continuing support.
The outlet is locally operated, but its commercial identity remains connected to the wider franchise network. Customers expect broadly consistent products and service standards across locations, regardless of the country in which they visit the business.
Who is the Franchisor and Who is the Franchisee?
The franchisor is the owner of the business concept or the party legally entitled to grant franchise rights. Its responsibilities generally include protecting the brand, maintaining quality standards, developing the business system and providing the assistance promised under the agreement. It may also approve locations, prescribe operating procedures and organise marketing campaigns.
The franchisee is the investor or business operator who obtains the right to use that system. It establishes the local operation, provides the investment, employs staff, manages customers and assumes responsibility for daily business activities.
The franchisee is not simply a manager working for the franchisor. It generally operates through its own business entity, bears its operating expenses and takes responsibility for commercial performance. However, its freedom to make independent decisions is restricted by the franchise agreement.
For instance, the franchisee may be required to use approved suppliers, maintain specified product standards, follow prescribed opening hours and obtain approval before changing the outlet's design. These conditions protect brand consistency but can limit the operator's ability to respond independently to local market conditions.
The agreement should establish a clear division of responsibilities, ensuring that the franchisor provides the promised support while the franchisee maintains the required operational standards.
Franchise Fees, Royalties and Other Financial Commitments
The financial structure is among the most important aspects of a franchise arrangement. Investors sometimes concentrate on the initial franchise fee without fully examining the recurring payments and operating expenses that follow.
The initial franchise fee is paid for the right to join the franchise network and use its business system. Depending on the agreement, it may cover the grant of rights, initial training, access to operating manuals and assistance with setting up the outlet. The amount varies according to the brand's reputation, industry and scale of the proposed operation.
Royalties are recurring payments made to the franchisor for continuing access to the brand, intellectual property and operating system. They are commonly calculated as a percentage of gross revenue, although some agreements provide for fixed periodic payments.
The distinction between revenue and profit is important. Where royalties are based on gross sales, the franchisee may have to pay them even when the outlet is operating at a loss. Rent, salaries and supply costs do not necessarily reduce the amount on which royalties are calculated.
Some franchisors also require contributions to a central advertising fund to finance brand promotion and wider marketing campaigns. Other expenses may include technology charges, equipment purchases, additional training, renewal fees and mandatory refurbishment.
A prospective franchisee should assess the complete investment, including working capital and recurring payments, rather than treating the initial fee as the principal cost of acquiring the business.
Territorial Rights and Exclusivity
The geographical territory granted to a franchisee can have a direct bearing on the commercial value of the investment. The agreement should specify where the franchisee may operate and whether the rights are exclusive or non-exclusive.
An exclusive territory generally protects the franchisee against the franchisor appointing another operator within the agreed area. A non-exclusive arrangement allows the brand owner to establish additional outlets or appoint other franchisees, potentially creating competition within the same market.
However, territorial protection may contain exceptions. An agreement could grant exclusivity within a particular neighbourhood or emirate while reserving airports, shopping malls, hotels or major commercial developments for the franchisor.
Online sales and delivery platforms can create further complications. A franchisee granted exclusive rights in one part of Dubai, for example, may discover that the agreement does not prevent customers in that area from ordering through outlets elsewhere.
The contract should address geographical boundaries, digital sales, expansion rights, minimum outlet-opening targets and the circumstances in which exclusivity can be withdrawn. These provisions are particularly important where the franchisee is making a substantial investment in a specific location.
Branding, Intellectual Property and Business Identity
The brand is often the most valuable element of a franchise. Customers may choose an outlet because they recognise its name, logo, products, packaging or established reputation. Protecting that identity is consequently a major responsibility of the franchisor.
A franchise agreement normally grants the franchisee a limited licence to use specified trademarks, logos, trade names, designs and other intellectual property. Such permission does not ordinarily transfer ownership of those rights.
In the UAE, Federal Decree-Law No. 36 of 2021 on Trademarks provides the legislative framework for trademark protection and licensing. The trademark owner may grant individuals or legal entities permission to use a registered mark, subject to the applicable requirements. The licensing agreement must be in writing and duly notarised.
An international franchisor should establish ownership of the relevant trademarks and secure appropriate protection in the UAE. The franchisee should independently verify that the party granting the rights has the legal authority to license the brand.
Branding requirements extend beyond displaying a logo. The franchisee may have to follow prescribed rules governing outlet design, signage, uniforms, packaging, advertising and customer service. The agreement should also clarify who bears the cost of implementing new branding requirements or compulsory refurbishments during the contract period.
Training and Continuing Support
Access to the franchisor's business experience is one of the principal attractions of franchising. An investor may have sufficient capital to open a restaurant or retail outlet but lack the operational knowledge required to run a business under an established brand.
Initial training generally takes place before the outlet begins trading. Depending on the industry, it may cover product preparation, customer service, inventory management, accounting procedures, staff recruitment, hygiene standards and technology systems. Training may be conducted at the franchisor's headquarters, an existing outlet or the new business premises.
Support can continue after the business opens. The franchisor may provide operational guidance, conduct inspections, organise refresher programmes, introduce new products and supply marketing materials. Some international brands also maintain regional support teams to monitor outlets and assist local operators.
The level of assistance varies between franchise systems. The agreement should specify what training and support the franchisor is obliged to provide, whether additional charges apply and how frequently operational reviews will take place.
How UAE Law Regulates Franchise Arrangements
The UAE does not have a single federal statute devoted exclusively to franchising. Instead, franchise arrangements are governed by a combination of civil and commercial legislation, intellectual property rules, competition requirements and regulations applicable to individual business activities.
Federal Decree-Law No. 25 of 2025 promulgating the Civil Transactions Law came into force on June 1, 2026, replacing the previous Civil Transactions Law of 1985. Its provisions form part of the general legal framework governing contractual rights and obligations. The Commercial Transactions Law, issued under Federal Decree-Law No. 50 of 2022, may also apply depending on the nature of the commercial relationship.
An important distinction concerns registered commercial agencies. Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies provides a specific statutory framework for qualifying and registered agency arrangements. Not every franchise agreement automatically becomes a commercial agency simply because it grants rights to operate under an established brand.
Where an arrangement qualifies and is registered, the statutory regime can affect territorial rights, exclusivity, termination and the remedies available to the parties. Eligibility to register is restricted principally to UAE nationals and qualifying UAE-owned entities, subject to statutory exceptions. Registration is administered by the Ministry of Economy and Tourism.
Franchise agreements that are not registered as commercial agencies remain subject to the applicable general contractual and commercial laws. The actual terms and legal structure of the relationship, rather than the title given to the agreement, determine the applicable framework.
Competition legislation is another consideration. Federal Decree-Law No. 36 of 2023 Regulating Competition addresses restrictive agreements and practices that distort or limit competition. Restrictions concerning pricing, market allocation and supply arrangements must be assessed against the applicable competition requirements.
Business Licensing and Local Compliance
A franchise agreement does not replace the requirement to establish and license a business in the UAE. The franchisee must obtain the appropriate commercial licence from the competent authority in the emirate where it intends to operate, together with any additional approvals required for its activity.
Requirements vary between sectors. A restaurant may need approvals relating to food safety and public health, while healthcare and education franchises may be subject to additional licensing and inspection requirements.
The franchisee must also comply with employment regulations, tax obligations, consumer protection requirements and other rules applicable to its operations. Where the business processes personal information through digital platforms, relevant data protection obligations must also be considered.
Both parties should establish who is responsible for obtaining and maintaining licences and addressing regulatory changes. The franchisor's international operating procedures cannot override mandatory UAE requirements.
What Happens When a Franchise Agreement Ends?
Franchise agreements are generally entered into for a fixed period, although renewal may be possible if the parties satisfy the conditions specified in the contract. The agreement should clearly address renewal, notice periods and the circumstances in which either party may terminate the relationship.
A franchisee may face termination for failing to pay royalties, breaching operational standards, misusing intellectual property or failing to meet agreed performance targets. The franchisor may also be in breach if it fails to provide contractual support or interferes with rights expressly granted to the franchisee.
When the arrangement ends, the franchisee will generally have to stop using the brand, remove signage, return confidential materials and comply with applicable post-termination restrictions. Outstanding payments, inventory, equipment and customer obligations should also be addressed.
Where the agreement is registered as a commercial agency, statutory provisions governing termination and non-renewal may apply. Establishing the legal status of the arrangement at the outset can help avoid uncertainty when the relationship comes to an end.
Due Diligence Before Investing
Buying a franchise should be treated as a significant business investment rather than a straightforward purchase of brand rights. Prospective franchisees should examine the franchisor's ownership, financial position, market reputation, existing network and experience in operating the business.
They should seek information about the performance of existing outlets, estimated establishment costs, working capital requirements and royalty calculations. Financial projections supplied by the franchisor should be independently assessed. An established brand does not guarantee profitability, particularly in a competitive market where rent, staffing expenses and customer preferences can affect performance.
The franchise agreement should be reviewed alongside supporting documents, including trademark licences, supply arrangements and territorial commitments. Particular attention should be given to exclusivity, renewal, transfer of ownership, dispute resolution and termination.
Franchisors, in turn, should assess the financial strength and operational capabilities of prospective franchisees. Selecting an unsuitable local partner can damage the brand's reputation and create difficulties across the wider franchise network.
Franchising offers opportunities for established companies seeking expansion and investors looking to enter an existing market. In the UAE, however, its success depends on more than the strength of a recognised brand. A carefully negotiated agreement, appropriate intellectual property protection, realistic financial planning and compliance with the applicable legal framework are essential to building a sustainable commercial relationship.
Dr. Sunil Ambalavelil is the Global Executive Chairman of Kaden Boriss, an international law firm specialising in franchise and business agreements. A seasoned legal adviser, he has advised and supported the international growth of numerous global brands, helping them navigate the legal complexities of cross-border expansion.
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