Franchising a foreign brand in South Korea

The Korean franchise market

At the end of 2025 the Korea Fair Trade Commission counted 9,960 franchisors operating 13,725 brands, both up by more than 10% on the year, and 379,739 franchised outlets at the end of 2024. Food service dominates — chicken, coffee, bakery, convenience stores — but education, fitness, beauty and services are large and growing. Foreign brands have done well: American coffee and burger chains, Japanese restaurants, European bakeries and fitness concepts, and more recently brands from Southeast Asia. Korean consumers adopt new concepts quickly and abandon them as fast, and the average food-service franchisor’s margin per outlet was reported at KRW 26 million a year, or 4.4% of sales.

The regulator is the Korea Fair Trade Commission (공정거래위원회, gongjeong georae wiwonhoe), which has made franchising a political priority: Korean franchisees are numerous, organised and sympathetic, and successive governments have tightened the Act on Fairness in Franchise Transactions in their favour. A foreign brand entering Korea in 2026 enters a mature market with a demanding rulebook.

When the Franchise Act applies

The Act applies to a relationship with four elements: the franchisee uses the franchisor’s trademarks or other marks; it sells goods or services under the franchisor’s quality standards or business methods; the franchisor supports, trains and controls it; and the franchisee pays a franchise fee (가맹금, gaengmaenggeum) in a continuing relationship. The definition of franchise fee is broad — entry and training fees, deposits, payments for equipment and fit-out, rent paid through the franchisor, royalties, and margins on goods the franchisor supplies — so in practice the fee test is rarely the escape route. Small arrangements are excluded: total fees of up to KRW 1 million in the first six months, or a franchisor with sales up to KRW 200 million and fewer than five outlets.

A pure product distribution agreement, or a trademark licence for goods sold by others, may fall outside the Act. A licensed store concept with an operating manual, training and supply arrangements almost certainly falls inside it, whatever the agreement is called. Getting the characterisation wrong is costly: a franchisee who signed without a registered disclosure document can terminate within four months and recover all fees.

Choosing foreign law does not take a Korean franchise outside the Act. Its rules protecting franchisees are mandatory for franchises operated in Korea, and the KFTC applies them to foreign franchisors that deal with Korean franchisees or master franchisees, whatever the agreement says about governing law or arbitration. An arbitration clause seated in Singapore or London remains useful for commercial disputes with a master franchisee, but it will not stop a Korean franchisee from complaining to the KFTC or the Korea Fair Trade Mediation Agency, and Korean courts will not enforce terms the Act prohibits. The safer approach is a master agreement under foreign law and arbitration, with Korean-law sub-franchise templates that the foreign franchisor approves before the master uses them.

The disclosure document

The core obligation is the disclosure document (정보공개서, jeongbo gonggaeseo), a standard-form Korean document describing the franchisor, its finances, officers, outlets, fees, costs, restrictions, training and litigation. It must be registered before franchising — with the KFTC, whose work is delegated to the Korea Fair Trade Mediation Agency, or, for franchisors whose head office is there, with the Seoul, Gyeonggi or Incheon government, which took over registration from 1 January 2019. It must be in Korean, there are no exemptions for large or foreign franchisors, and registered documents are published. Bird & Bird’s summary of practice notes a template of some 65 pages, supported by a certificate of good standing and three years of financial statements.

A prospective franchisee must receive the registered document, with a list of the ten nearest existing outlets, at least 14 days (숙려기간, sungnyeo gigan) before signing the franchise agreement or paying any fee; the period is seven days if the franchisee took advice from a lawyer or franchise consultant. Initial fees must be paid into an escrow account with a designated institution and are released when the store opens or two months after signing, unless the franchisor carries franchise guarantee insurance. Changes to the document must be filed, and from 1 January 2028 a new five-chapter format with a summary, survival rates over three, five and ten years, private-equity ownership, overseas outlets and average early-termination penalties will apply, with quarterly filing of amendments.

The KFTC can also impose surcharges and publish violations; repeat-violation uplifts doubled in 2026.

The 1+1 rule and foreign brands

Since 19 November 2021 a franchisor registering a new brand must show that it has operated at least one directly managed store for at least one year in the same business — the 1+1 rule (1+1 규정, il peullseu il) aimed at brands created to sell franchises rather than food. There are exemptions for businesses licensed under other statutes and, importantly for foreign franchisors, for franchisors with at least a year of experience in the same industry in Korea or abroad, including through officers who remain officers at the time of application. A foreign brand with operating history at home therefore usually qualifies. From 2028 evidence of the store operation will have to be filed with the registration, and an extension of the rule to changes of business type is planned. A Korean master franchisee registering its own document for a foreign brand should rely on the foreign franchisor’s experience and document it carefully.

Running the network: renewal, territory, termination

Korean franchise contracts usually run for several years, and the Act gives the franchisee a renewal right (계약갱신요구권, gyeyak gaengsin yoguggwon) until the total term reaches ten years: the franchisee asks between 180 and 90 days before expiry, and the franchisor may refuse only for justifiable reasons listed in the Act, with notice within 15 days. A franchisor that misses the notice window is treated as having renewed on the same terms. The contract must define a sales territory (영업지역, yeongeop jiyeok), within which the franchisor may not open its own or an affiliate’s outlet in the same business without just cause.

Termination requires at least two months’ notice to cure and at least two written notices, except for grounds listed in the decree that allow immediate termination — bankruptcy, dishonoured cheques, closure of the store for seven days or more, and similar. There is no separate cooling-off period, but the 14-day rule and the four-month termination right for undisclosed franchising perform the same role. Planned changes would give franchisees a statutory right to terminate without penalty in defined cases and require notice before implied renewal.

Essential items and supply margins

The most contentious issue in Korean franchising is what franchisees must buy from the franchisor and at what price. Amendments in force since July 2024 require the contract to list the types of essential purchase items (필수품목, pilsu pummok) and the method for setting their supply prices, and since December 2024 the franchisor must consult franchisees before changing those terms to their disadvantage. Margins the franchisor earns on supplied goods — difference franchise fees (차액가맹금, chaaek gaengmaenggeum) — must be disclosed.

Enforcement has become expensive. In January 2026 the Supreme Court ordered Pizza Hut Korea to refund KRW 21.5 billion of margins to 94 franchisees for 2016 to 2022 because the contracts did not provide for them, and around twenty brands, including major chicken and burger chains, face similar claims. In March 2026 the KFTC fined a tteokbokki chain KRW 967 million for forcing franchisees to buy fifteen categories of undisclosed consumables. A foreign brand’s supply model — imported sauces, packaging, equipment — must be written into the Korean contract and disclosure document with the pricing method, not assumed.

Franchisee associations

An amendment passed in December 2025 by 238 votes to none, in force from 31 December 2026, gives registered franchisee associations (가맹점주단체, gaengmaengjeomju danche) a right to consult with the franchisor, which must respond in good faith, starting with the largest registered association; refusal can lead to corrective orders. The draft decree sets thresholds for registration — a share of franchisees or a minimum number of members — which the KFTC said in August 2026 it would revise. For foreign brands entering through a master franchisee, it is the master franchisee that faces the association, but the foreign franchisor’s supply terms, marketing levies and remodelling requirements are what will be negotiated.

Advertising funds and promotions

Advertising is the other recurring dispute. The franchisor must account to franchisees for advertising and promotion funds they contribute, and amendments in force since 2022 require it to obtain the prior consent of a set share of franchisees before running advertising or promotional events whose costs franchisees will share, unless the contract already sets the scheme out. Discount promotions that cut franchisees’ margins, delivery-app campaigns and loyalty programmes all fall under the rule. Foreign brands used to global marketing levies should translate them into a Korean fund with written rules on contributions, decisions and annual reporting, and keep the consent records.

Opening the first stores

The first Korean stores are usually opened by the master franchisee or subsidiary itself, and they set the economics every later franchisee will be shown. Prime locations in Seoul are leased with large deposits and, often, key money to the outgoing tenant; the Commercial Building Lease Protection Act gives tenants a ten-year renewal right and limits rent increases within its thresholds. Food businesses need a business report or permit from the district office, hygiene training for the operator and staff health certificates; imported ingredients need food import registration and Korean labels. Staff are employed under Korean labour law with the minimum wage, weekly holiday allowance, four insurances and severance — costs franchisees will compare with the projected sales in the disclosure document. Projections given to prospective franchisees must have a reasonable basis and, for larger franchisors, be in writing; an optimistic forecast is a classic ground for refund claims. See commercial leases, food imports and hiring in Korea.

Structures for foreign brands

Most foreign brands enter Korea through a master franchise (마스터 프랜차이즈, maseuteo peuraenchaiijeu): a Korean company receives exclusive rights for the country, opens stores itself and sub-franchises to Korean franchisees. The Act applies at both levels. The foreign franchisor must give the Korean master franchisee a disclosure document, and practice is for both the foreign franchisor and the Korean master to register their own documents, the master’s covering the sub-franchise network. Area development agreements, under which the developer opens a set number of stores itself, raise the same questions.

Alternatives are a joint venture with a Korean operator, which gives the brand a share of the Korean economics and influence over the partner, or a Korean subsidiary that runs company stores and franchises directly. The subsidiary route is slower and more capital-intensive but keeps control and avoids the classic master-franchise problem: a partner that underinvests, or that becomes too powerful to replace. Whatever the structure, the agreement should cover minimum development schedules, step-in and termination rights, ownership of Korean customer data and social media accounts, and what happens to sub-franchise agreements if the master relationship ends.

Trademarks, royalties and tax

Korea is a first-to-file trademark system, and brand squatting by would-be partners is common. File the brand with KIPO — in Latin script and Hangul, for the goods and services the stores will use — before the first meeting with a potential partner; see trademark registration. Record the licence to the master franchisee with KIPO so that it is effective against third parties.

Royalties and initial fees paid to a foreign franchisor are Korean-source royalty income. The Korean payer withholds 22% including local income tax unless a treaty applies; most treaties reduce the rate to 10% — 11% with local tax for treaties where local tax is added, such as the US — and Singapore’s to 5%, if the treaty forms are filed before payment. Services performed abroad for the master franchisee may be business profits rather than royalties, but Korean tax authorities look closely at fees for know-how and manuals. Korean VAT at 10% applies to the services; a Korean payer self-assesses it in limited cases. See Korean withholding and permanent establishment risk if your staff spend long periods supporting the Korean network.

A worked example

A Spanish bakery-café chain with 120 company-owned and franchised stores at home agrees a master franchise for Korea with a Seoul food-service group. It first files its marks with KIPO in Latin script and Hangul. The master agreement grants exclusive rights for ten years with a development schedule of 30 stores, an initial fee of USD 500,000 and a 4% royalty on network sales, and requires the master to buy flour blends and branded packaging from Spain at a price list with a formula. The Spanish company delivers a disclosure document to the master and both register Korean documents; the Spanish company relies on its own store history for the 1+1 rule.

The master’s sub-franchise contracts list the essential items, their price formula and the master’s margin, and the master escrows initial fees. Royalties from Korea bear 10% withholding under the Spain–Korea treaty instead of 22%, once the treaty forms are filed; the Spanish company credits it at home. When a franchisee association registers in 2027 and asks to discuss packaging costs, the master has the formula in the contract and the disclosure document — the position the Pizza Hut franchisees’ franchisor lacked.

Mistakes we see

1. Meeting partners before filing the trademark.
2. Calling a franchise a licence to avoid the Act.
3. Taking deposits or signing before the 14 days have run.
4. Supply margins not written into the contract and disclosure document.
5. A master agreement without step-in and exit rights.
6. Ignoring renewal rights when planning to rebrand or exit after a short term.
7. Royalty withholding at 22% because the treaty forms were not filed.
8. Assuming the foreign franchisor is beyond the KFTC’s reach.

Korean terms you will meet

Questions readers ask

About the author

Alexander Baranov

Founder of the BCA Group · cross-border corporate and tax adviser since 2008

Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.

This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.

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