IDS debates the prospects for the expansion of franchising in Brazil and Europe, with a focus on Portugal

IDS debates the prospects for the expansion of franchising in Brazil and Europe, with a focus on Portugal

On October 21, the Dannemann Siemsen Institute (IDS) held another edition of Agenda IDS, discussing the prospects for franchising expansion in Brazil and Europe, with an emphasis on Portugal.

After the opening remarks by Patrícia Porto, Academic Coordinator of IDS, the event continued under the moderation of Cândida Ribeiro Caffé, a partner at Dannemann Siemsen. At the outset, Cândida Caffé emphasized the relevance of the topic for franchisors seeking international expansion, highlighting the importance of understanding the legislative differences between Brazil and the European Union to operate safely. The discussion began with the European perspective, followed by an analysis of the Brazilian scenario, offering a comparative view.

The comparative analysis was led by experts José Cavaleiro Machado, a Portuguese attorney and Legal Director of the World Franchise Council (WFC), and Bruno Lucius de Sousa, Legal Manager of the Brazilian Franchising Association (ABF).

Addressing the European framework, José Cavaleiro Machado outlined two key legal instruments. The first is the Agency Contract Directive, regarded as the “mother of all distribution contracts,” which is applied by analogy by European courts to matters such as client compensation and contract termination. The second is Regulation (EU) 2022/720, which governs vertical agreements, including the relationship between franchisor and franchisee, allowing certain restrictions that would otherwise be deemed anti-competitive within the EU. According to the expert, the Regulation establishes three conditions for a franchise network to benefit from the applicable exemptions: maintaining a market share below 30%, refraining from imposing minimum resale prices (only recommending or setting a maximum price ceiling), and ensuring the freedom of passive sales, including online sales. The Regulation also addresses post-term non-compete obligations, which are stricter for the franchisor than under Brazilian law—limited to a one-year clause, restricted to the physical premises of the former franchise, and valid solely for the protection of the franchisor’s substantial and proven know-how.

Cavaleiro further presented a comparative overview of franchise legislation across various European jurisdictions. He noted that while countries such as Italy and Spain have specific statutory regimes governing franchise contracts and pre-contractual disclosure, Portugal adheres to the principle of contractual freedom, recognizing the franchise agreement as a standard adhesion contract. The expert emphasized that, although not mandatory, providing a Franchise Disclosure Document (COF) in Portugal may offer a competitive advantage by evidencing transparency and good faith. He also discussed issues related to post-contractual non-compete compensation, contractual formalities, and tax implications concerning royalties, highlighting key considerations for Brazilian franchisors operating within the European market.

Subsequently, Bruno Lucius de Sousa contextualized the Brazilian franchise system, highlighting Law No. 13,966/2019, the Civil Code, and the Industrial Property Law as its principal regulatory pillars. He noted that rules concerning unfair competition and non-compete clauses in Brazil are generally more flexible than in Europe, although case law has increasingly limited their duration and territorial scope to prevent excessive restrictions. Bruno detailed the essential elements of the franchise system—such as the use of trademarks, product and service distribution, administrative systems, and remuneration structures—while emphasizing the importance of rigorous franchisee selection. He also underscored the mandatory delivery of the Franchise Disclosure Document (COF), ensuring that prospective franchisees are granted at least ten days for review, allowing them to fully understand their rights, obligations, and potential risks prior to signing the contract.

Within this context, Bruno presented updated data from the Brazilian franchising sector in 2024: 3,300 franchise networks, over 197,000 units across 3,209 municipalities, generating 1.7 million direct jobs and approximately 6 million indirect jobs, including nearly 300,000 first-time employment opportunities. The sector’s annual revenue reached BRL 287 billion, with notable performance in the food, entertainment, and cleaning industries. Despite some store closures, the sector maintained positive growth, particularly in Brazil’s Southeast and South regions.

The closing discussion, moderated by Cândida Caffé, consolidated the key insights. It was noted that, although the COF is not mandatory in Portugal, its use constitutes a competitive advantage by promoting transparency. The most striking conclusion, however, was a caution against assuming that a shared language eliminates the need for legal and cultural adaptation. The speakers emphasized that mere translation of contracts is insufficient; rather, proper adaptation to local practices, customs, and legislation is essential to ensure the success and legal security of franchise expansion into Portuguese territory.

The full recording of the event will soon be available on the IDS website.

Note: For quick release, this English version is provided by automated translation without human review.