Latin America represents one of the most significant growth opportunities available to US franchise brands today. With a combined GDP of over $5 trillion and a growing middle-class consumer market across Brazil, Mexico, Colombia, Chile, and Argentina, the region offers substantial franchise expansion potential. But each country has its own legal requirements, and a one-size-fits-all approach will create compliance failures. A US franchisor that expands to Brazil using the same documents it uses in Mexico, or that relies on a general US franchise agreement without local adaptation, will face legal problems that could have been avoided with advance planning.

This guide walks through the legal framework for franchising in the major Latin American markets, the expansion structures US franchisors should consider, country-specific legal requirements, and tax structure for cross-border royalties. At Lopes Law LLC, we advise US franchisors on country-specific requirements as part of international expansion planning, with services in English, Portuguese, and Spanish from our Philadelphia headquarters.

What Legal Framework Governs Franchising in Latin America?

There is no unified Latin American franchise law. Each country takes a distinct approach ranging from detailed statutory frameworks (Brazil and Mexico) to no specific franchise law at all (Colombia, Chile, Peru). Understanding the applicable framework for each target market is the starting point for any international expansion plan.

Brazil: The Most Detailed Franchise Law in Latin America

Brazil’s current franchise law, Lei 13.966/2019, is the most sophisticated franchise statute in Latin America. It requires US franchisors to prepare a Circular de Oferta de Franquia (COF), which is Brazil’s FDD equivalent, before offering any franchise in Brazil. The COF must be delivered at least 10 days before any agreement is signed or any payment is made. Lei 13.966/2019 also has specific provisions governing master franchise agreements, requiring clear allocation of responsibilities between the US franchisor, the Brazilian master franchisee, and any sub-franchisees. At Lopes Law LLC, we advise US franchisors on Brazilian COF preparation and coordinate with Brazilian counsel for in-country compliance.

Mexico: Franchise Disclosure and Trademark Registration

Mexico requires franchise disclosure under Commercial Code Article 142 and Norma Oficial Mexicana NOM-021-SCFI. The disclosure must be provided at least 20 business days before any franchise agreement is signed. NOM-021 specifies the mandatory content of the disclosure document, which differs from the US FDD format and must be prepared specifically for the Mexican legal requirements. Equally important: trademark registration through IMPI (Instituto Mexicano de la Propiedad Industrial) is essential before signing any Mexican franchise agreement. Mexico follows the first-to-file principle for trademark registration, and a competitor could register your US brand name in Mexico before you do.

Colombia: Commercial Code and Arbitration

Colombia has no specific franchise law. Franchise relationships are governed by the Colombian Commercial Code and general contract law principles. This does not mean that franchising in Colombia is legally simple: it means that the franchise agreement itself must carry more of the legal weight, since there is no statutory disclosure requirement that creates pre-contractual protections for either party. Colombia has a well-developed commercial arbitration system: the Centro de Arbitraje y Conciliacion (CAC) in Bogota handles complex commercial disputes efficiently. Bilateral investment treaty protections between the US and Colombia may be relevant for larger investments.

Chile: Strong Consumer Protection

Chile has no specific franchise law. However, Chile has strong consumer protection legislation and a relatively stable legal system by Latin American standards. Franchise agreements in Chile should address Chilean consumer protection law compliance for any consumer-facing aspects of the franchise system. Chile’s commercial arbitration framework is also well-developed, making arbitration a viable choice for dispute resolution.

Argentina: Civil and Commercial Code Recognition

Argentina’s Civil and Commercial Code, which came into force in 2015, explicitly recognized franchising as a distinct commercial relationship at Articles 1512-1524. Argentina does not have a separate franchise disclosure statute, but the Civil and Commercial Code provisions impose specific requirements on franchise agreements including mandatory minimum term provisions, limitations on non-compete clauses after termination, and specific information disclosure requirements. Argentina’s legal and economic environment requires particular attention to currency and payment structure given the history of currency restrictions.

What Expansion Structure Should US Franchisors Use in Latin America?

US franchisors entering Latin America typically choose between three main structures: master franchise, area development, and direct franchising. The right choice depends on the size of the target market, the franchisor’s international operational capacity, and the availability of qualified local partners.

Master Franchise: The Most Common Structure

The master franchise structure grants a single local entity the right to develop and sub-franchise within an entire country territory. The master franchisee is responsible for recruiting sub-franchisees, providing training and support, and managing local regulatory compliance including COF preparation in Brazil. The US franchisor receives a reduced royalty rate (since the master franchisee takes a share) but avoids the operational complexity of managing direct franchisee relationships in a foreign country. Most successful US franchise brands in Latin America use the master franchise structure.

Area Development Agreement

An area development agreement grants a developer the right to open and operate multiple franchise units within a territory, without the right to sub-franchise. The developer is a franchisee only, not a franchisor. This structure works well when the US franchisor wants to expand the brand in a country but does not want to deal with the complexity of a three-party franchise system. It requires a developer with sufficient capital to open and operate multiple locations directly.

Direct Franchising

Direct franchising, in which the US franchisor deals directly with each individual franchisee in the foreign country, is less common in Latin America but is used by franchisors who have the regional support infrastructure to manage direct relationships and who prefer to maintain direct brand control. This approach requires significant US franchisor investment in regional support staff and infrastructure.

What Country-Specific Issues Should US Franchisors Address?

Beyond the franchise law framework, each Latin American country has specific legal requirements that must be addressed in the international franchise documents and structure.

At Lopes Law LLC, Anthony Lopes, Esq. advises US franchisors on country-specific compliance for Brazil, Mexico, Colombia, and other Latin American markets. Because Anthony Lopes is a native Portuguese speaker and fluent in Spanish, he communicates directly with local counsel in these countries without translation delays, which reduces both cost and the risk of miscommunication on critical legal issues. The country-specific issues below are the ones that most frequently create problems for US franchisors who enter Latin American markets without adequate legal planning.

Trademark Registration: First-to-File Risk

All Latin American countries follow the first-to-file principle for trademark registration. This creates a serious risk for US franchisors who delay registering their brand before entering a country: a local competitor, or even a speculative trademark registrant, can register the US brand name in Brazil, Mexico, or Colombia before the US franchisor does, and then demand payment for the trademark or block the US franchisor’s market entry entirely. Trademark registration in each target country should be completed before signing any master franchise agreement and well before any franchise sales are made in the territory.

Currency and Royalty Repatriation

Each Latin American country has different rules governing the repatriation of royalty payments to the US. Brazil’s BACEN (Banco Central do Brasil) regulations require registration of intercompany royalty payment arrangements and impose procedural requirements on each cross-border payment. Argentina has historically imposed currency controls that restricted dollar remittances. Mexico has fewer restrictions but still requires proper documentation of royalty payments under Mexican transfer pricing rules. The master franchise agreement must address which party bears the risk if currency repatriation is restricted.

Brazilian COF Requirements

As described above, Lei 13.966/2019 requires a COF before any franchise is offered in Brazil. The COF must include substantially more information than the US FDD in some areas, including detailed information about existing franchisees and financial performance data. The master franchise agreement should clearly state that the master franchisee is responsible for COF preparation for sub-franchise sales in Brazil, and should require the master franchisee to provide evidence of COF compliance to the US franchisor annually.

What Tax Structure Works for Latin American Franchise Royalties?

Tax planning for Latin American royalty flows requires advance attention. The withholding tax burden on royalties paid from Latin American countries to the US varies significantly by country and can substantially affect the economics of the territory.

Withholding Tax by Country

Brazil imposes withholding tax on royalty payments to non-treaty countries (including the US, since there is no US-Brazil income tax treaty) at rates that can reach 15% for trademark royalties and higher for technical service fees. Mexico has a bilateral income tax treaty with the US: withholding on royalties paid to US companies is generally 10% under the treaty. Colombia imposes 20% withholding on franchise royalties. These are substantial transaction costs that must be built into the financial model for any Latin American expansion.

Transfer Pricing

All major Latin American countries have transfer pricing rules requiring that intercompany transactions, including royalty payments from a master franchisee to the US franchisor, be priced at arm’s length. Royalty rates that would be considered standard in the US market must be documented as arm’s-length for the specific local market. Transfer pricing documentation should be prepared before the first royalty payment is made. At Lopes Law LLC, we work with international tax counsel to structure franchise royalty flows for Latin American expansion.

Intellectual Property Structure

Some US franchisors hold their trademark and franchise system intellectual property in a separate IP holding entity rather than in the operating franchisor entity. This can offer tax advantages and asset protection benefits in cross-border royalty structures. The choice of holding entity jurisdiction (Delaware, US, or a treaty-advantaged jurisdiction) depends on the specific tax treaties applicable to the target countries. This is a decision that should be made before the first international master franchise agreement is signed, not after.

A Real Scenario: Starting with Mexico Before Brazil

A US fitness brand with 80 locations in the US had received inbound interest from potential master franchisees in both Brazil and Mexico simultaneously. The franchisor’s initial plan was to sign master franchise agreements in both countries at the same time, aiming to announce a major international expansion to its system and investors.

At Lopes Law LLC, we advised the franchisor against simultaneous two-country expansion without first completing a successful single country entry. The legal and operational demands of preparing a Brazilian COF, registering trademarks in both countries, drafting two different master franchise agreements addressing different governing law frameworks, and managing two new master franchisee relationships concurrently would strain the franchisor’s internal resources at a critical growth stage. We recommended starting with Mexico: the franchise market is large, the legal framework is well-established, Mexican master franchisees have experience with US franchise concepts, and the US-Mexico proximity allows for easier initial support. The Mexican master franchise agreement was drafted with IMPI trademark registration completed first, franchise disclosure documents prepared under NOM-021, governing law as Mexican law for the local compliance obligations with ICC arbitration seated in Mexico City for dispute resolution. The Brazil expansion was planned for year three, after the Mexico master franchisee had opened its first five locations.

For a detailed look at the master franchise agreement structure, see our guide on Master Franchise Agreements for International Expansion. For country-specific Brazil information, see our post on Doing Business with Brazil: A US Legal Guide. For investors evaluating opportunities in the US from Latin America, see our International Franchise Investment Guide.

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