Franchise Agreements in Chile

Franchising in Chile: contract law, not a franchise code

Unlike some countries, Chile has no specific legislation regulating franchise agreements, and no mandatory pre-sale disclosure document or franchise registration requirement. Franchises are governed by general rules: the Civil and Commercial Codes, trademark and copyright law, tax law and competition law. That gives the parties flexibility, and puts the weight on a well-drafted contract.

Foreign franchisors usually enter in one of two ways: a direct agreement with a Chilean franchisee, or a master franchise under which a local partner develops the network. Chilean entrepreneurs who want a foreign brand sit on the other side of the same table. We represent either.

Chile is an attractive test market for foreign brands because it has a stable legal system, an open economy and strong consumer demand in food, retail, fitness and services. That also means local competitors are quick to copy a successful concept, so protecting the brand, the operations manual and the supply chain through the contract is critical from day one. Our attorneys write in English for you and negotiate in Spanish with the local party.

What the contract has to get right

The agreement should say clearly what is licensed, for how long, in which territory and under what conditions. Good faith governs both negotiation and performance in Chilean law, so overly one-sided terms can be challenged and pre-contract statements about expected sales can create liability. Even without a disclosure statute, a careful franchisor shares an accurate disclosure package.

In-term non-competes are generally accepted if reasonable. Post-term restrictions are scrutinized and tend to be accepted only for a limited period. Termination clauses should be precise, exercised in good faith, and, where the relationship has lasted years, accompanied by reasonable notice. Abrupt termination can lead to damages.

Trademarks, royalties and the money flow

Franchisors should register their brand with INAPI before they sign anyone in Chile, because a franchise built on an unregistered brand is vulnerable. Royalty payments abroad are typically subject to Chilean withholding tax, which can be reduced by a tax treaty, and transfers between related companies are checked under transfer pricing rules.

Labor law deserves attention too. Subcontracting rules can make a company jointly liable for the labor obligations of businesses working for it, so control and information clauses matter. Competition law also applies, especially to resale pricing and territory restrictions.

Common mistakes foreign franchisors make

A frequent error is exporting a US franchise agreement almost unchanged, with fee structures, territory descriptions or non-compete terms that do not suit Chilean law and market. Others sign a master franchisee before the trademark is secured, or promise unrealistic sales figures in presentations that later become the basis of a claim.

A realistic local business plan, a registered brand, accurate pre-contract information and a clear exit mechanism protect both sides. We also recommend choosing the dispute forum early, because enforcing a foreign judgment is slower than arbitration.

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