Franchising remains an attractive model for expanding business operations in Romania, offering local entrepreneurs access to established brands and operational know-how, while allowing franchisors to grow with reduced direct investment. However, entering into a franchise relationship—whether as a local franchisee or a foreign franchisor—requires careful legal structuring. Romanian contract law governs franchise agreements, but various related areas, such as intellectual property, tax, and dispute resolution, also play a vital role in ensuring a compliant and profitable partnership.
Franchise agreements’ structure under Romanian law
Franchise agreements are not specifically regulated by a standalone Romanian law, but they are recognised as complex commercial contracts governed by the Romanian Civil Code and influenced by EU competition and IP legislation. A franchise agreement typically combines elements of licensing, know-how sharing, commercial cooperation, and services provision. For it to be enforceable, it must clearly establish the parties’ rights and obligations, including how intellectual property (IP) is used, how fees are paid, and what happens in the event of a dispute or termination.
IP licensing and trademark protection in franchise agreements
One of the defining elements of a franchise agreement is the licensing of intellectual property. Romanian law requires clarity when it comes to licensing registered trademarks, business names, trade dress, proprietary methods, and software. The agreement should specify the scope of the license—whether it is exclusive or non-exclusive, limited to a territory, and valid for a fixed period. Trademarks must be registered either with the Romanian State Office for Inventions and Trademarks (OSIM) or with the EU Intellectual Property Office (EUIPO) to ensure enforceability.
Moreover, franchisors must define how franchisees may use brand assets and what quality control measures apply. Failure to clearly establish brand usage rules can weaken trademark protection and even result in disputes over brand dilution or misuse. Franchisees, on the other hand, must be cautious not to act outside the limits of the licence, as unauthorised use of a franchisor’s IP may trigger termination or liability.
Franchise royalties and taxation: what to include in your contract
Franchise agreements in Romania often include multiple layers of financial obligations. These may consist of initial entry fees, monthly or quarterly royalties (calculated as a fixed amount or percentage of revenue), marketing contributions, and training costs. It is crucial that all financial terms are clearly defined, including payment deadlines, applicable taxes, and currency of payment, especially in cross-border arrangements.
Taxation of franchise royalties is governed by Romanian domestic tax rules and, in the case of foreign franchisors, by double taxation treaties (DTTs). Most DTTs to which Romania is a party set a withholding tax rate for royalty payments made to non-resident franchisors. To benefit from reduced rates or exemptions, proper documentation and tax residency certificates must be obtained in advance. Non-compliance can result in financial penalties and disputes with the Romanian tax authorities.
Essential franchise contract clauses and dispute resolution strategies
While the core obligations of the franchisor and franchisee are essential, a well-drafted franchise agreement should also address operational issues that arise during the course of the relationship. These include confidentiality provisions, non-compete obligations, training support, supply chain arrangements, advertising contributions, and performance benchmarks. These clauses help align expectations and reduce the risk of conflict.
Dispute resolution mechanisms must also be carefully considered. Romanian law allows for both domestic litigation and alternative dispute resolution (ADR), including arbitration. Many franchise agreements choose institutional arbitration—often under the ICC or Romanian Chamber of Commerce rules—to ensure confidentiality and procedural expertise. The agreement must state the applicable law (typically Romanian or the law of the franchisor’s jurisdiction), the language of proceedings, and the jurisdiction or arbitration body. Ambiguity in these clauses can significantly delay dispute resolution and increase legal costs.
Franchise termination rules and non-compete clauses under Romanian law
Termination clauses are especially important in Romanian franchise agreements. Grounds for termination should include material breach, insolvency, non-performance, or violation of IP rights. Post-termination obligations must be addressed, such as the franchisee’s obligation to cease using all IP, return confidential information, and observe any post-contractual non-compete clauses. Romanian courts tend to scrutinise non-compete clauses closely, so they must be reasonable in duration, geography, and scope to be enforceable.
Franchisees may also have rights to compensation under Romanian commercial law if the franchisor terminates the contract without valid grounds or fails to act in good faith. Therefore, both parties must ensure their termination rights are carefully balanced to avoid legal disputes.
How to legally succeed with a franchise in Romania: final takeaways
Franchising offers a scalable path to business expansion in Romania, but only when supported by a legally sound contract. Both foreign franchisors and local franchisees must take the time to develop comprehensive agreements that reflect Romanian legal standards and commercial realities. From IP protection and royalty structuring to dispute resolution and exit strategies, every clause in a franchise contract plays a strategic role.
Businesses are encouraged to seek specialised legal advice before entering or expanding franchise operations in Romania to ensure compliance, avoid risk, and build long-term, mutually beneficial partnerships.