Franchise Fees in Saudi Arabia: What You Pay and Refunds

You ask about the price of a franchise and are told the entry fee for the brand. Then a monthly charge appears, plus a marketing contribution, training, supply and fit-out costs. Knowing the first amount alone does not show the cost of the project. What matters more is knowing what each payment buys and how it is calculated, and what options you have if the parties disagree about whether it is due or about the service provided.

The short answer: the law does not give you a general right to recover the franchise fee just because the project failed. Your right to recover money or claim compensation is based on specific cases: a payment made before the contract that the disclosure document said was refundable; a material breach by the franchisor of its disclosure or registration duties (Articles 17 and 19); or termination by the franchisor without a legitimate reason, or refusal to renew outside the legal cases, in which case it buys back the assets and compensates you (Article 20).

What does a franchise fee in Saudi Arabia cover?

Ask for a statement listing each payment, who receives it and when it is due. Separate one-off payments from recurring charges, and link each amount to the service or right it pays for. This way you can compare offers based on the real cost of operation.

Article 11(2)(b) of the Franchise Law requires the agreement to state the fees, including for the franchise, training if any, and technical support, and the method of calculating amounts for goods and services provided by the franchisor or a member of its group. So a vague total figure that does not explain the obligations is not enough.

In practice, use these headings when comparing offers:

These are items to review, not fees imposed on every project. Do not confuse them with the agreement registration fee or business licence fees with the authorities; each has a different basis.

Worked example: how a small percentage changes the result

Assume, for illustration only, that one month's sales are SAR 100,000, and the contract sets a royalty of 5% of sales and a marketing contribution of 2% of sales. The royalty is SAR 5,000 and the marketing contribution SAR 2,000, a total of SAR 7,000 before other operating costs.

If operating expenses are SAR 85,000, SAR 8,000 is left after these two charges. By contrast, 5% of a profit of SAR 15,000 is SAR 750. So do not negotiate only the percentage. Also negotiate the definition of sales and profit, returns and discounts, and what goes into the calculation base. These figures are assumptions, not market prices or a forecast of return on investment.

What should you check before paying?

Put the agreement, the disclosure document, the financial offer and the price annex in one file. Compare them with each other instead of reading each document separately. If the agreement mentions "ongoing support", ask for a description that can be checked: visits, training, marketing materials or technical service with clear timings.

Item 8 of the disclosure annex requires a statement of whether any amount requested before the agreement is refundable, and a description of each later payment, its amount and date. Item 15 explains contributions to the marketing account, how it is managed and how it is spent; check these together with the financial offer.

Do not assume that the sales figures of a successful branch are enough to estimate yours. Review the site, rent, staff and supply costs, and prepare a cautious scenario with lower sales. A feasibility study helps the decision, but it does not replace reading the contract.

Is the money paid before signing refundable?

The annex on disclosure document requirements requires the franchisor, if it asks for an amount before the agreement is signed, to state whether it is refundable or not. Article 7 of the law requires the document to be delivered 14 days before signing or before any payment, whichever comes first. So if you are asked for a "reservation deposit" before receiving the document, that is itself a sign of a disclosure problem. Ask for a written condition that the amount will be refunded if the contract is not signed.

When can you claim compensation or the value of assets?

Article 19 allows a claim for compensation without terminating the agreement when the franchisor materially breaches its disclosure or registration duties. Article 20 covers termination by the franchisee under Article 17, termination by the franchisor in breach of Article 18, and refusal to renew outside the cases in Article 15(2)-(5). When its conditions are met, the franchisor, itself or through a member of its group, must buy back the physical assets used exclusively in the franchise business that the franchisee bought from it, or from others on its instructions, within 60 days of the franchisee's request. The price may not be lower than what was paid, less depreciation of equipment and fittings under accepted accounting standards and the franchisee's past accounting practice. The compensation in the same article for losses from setting up, acquiring and operating the business does not apply in the case of refusal to renew mentioned above.

Note the two different periods. Article 12(2) of the Implementing Regulations requires the buy-back request to be sent to the franchisor in writing within 60 days of termination or of the refusal to renew or extend. The 60 days in Article 20 of the law is the period for carrying out the buy-back, counted from the franchisee's request. So the two periods do not run from the same date.

These rules are not a promise to refund every fee. Distinguish between recovering a payment, compensation for damage, and buy-back of assets, and prove the basis of each claim. The franchisor may dispute the cause of the loss, the service provided and the accuracy of the calculations.

A café franchisee bought equipment worth SAR 240,000 on the franchisor's instructions. Two years later, the franchisor terminated the agreement without any of the reasons in Article 18.

The franchisee sends a written request for the buy-back of the equipment within 60 days of the termination. The franchisor must buy within 60 days of the request, at a price no lower than SAR 240,000 less accounting depreciation. If depreciation is, for example, SAR 80,000, the price may not be lower than SAR 160,000.

He can also claim compensation for setup and operating losses and any other damage, within three years of the termination (Articles 20 and 21).

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both sides

If you are the franchisee:

• Ask for a written statement of each payment: its description, amount and date, as the disclosure annex requires.
• Do not pay anything before 14 days have passed since you received the disclosure document, and get the deposit refund condition in writing.
• Ask the franchisor for details of the charges you owe or have paid; this is one of its obligations (Article 8).
• On termination, send a written buy-back request within 60 days, with invoices, photos of the equipment and its condition.

If you are the franchisor:

• Define sales and the royalty base expressly in the contract; this prevents most calculation disputes.
• State in the disclosure document whether a pre-contract payment is refundable, and keep to what you wrote.
• Provide the marketing fund spending report on time, if there is one.
• Keep the training, support and supply records that correspond to each fee you charge.

If these steps do not resolve the matter, the agreed dispute resolution route and the right claim need to be reviewed. Fee disputes are usually decided by documents, not words. Send us the contract, the disclosure document and the payment record on WhatsApp, and we will identify with you what can and cannot be claimed.