Franchising a Taiwanese or Chinese Brand in the US: What the US-Side Partner Needs to Know
- Jeff Chang
- 2 hours ago
- 11 min read
A Taiwanese bubble tea company wants to expand into the United States. They need someone on the ground to open locations, manage operations, and navigate a market they don't know from the inside. That someone is you.
Maybe you've run restaurants before. Maybe you have the capital and the connections. Maybe you've been drinking their tea for years and see the opportunity. Whatever brought you to the table, you're now looking at a franchise agreement, a Franchise Disclosure Document, and a set of legal questions that don't come up in a typical domestic franchise deal.
This is happening more often than most people realize. Over the past two years, a wave of Taiwanese and Chinese food and beverage brands have entered or accelerated their expansion in the US market. Mixue opened its first US locations in late 2025. Luckin Coffee launched in New York City. Gong cha bought back 170 US stores from a master franchisee in early 2026. Taiwanese brands like Presotea, CoCo, Kung Fu Tea, and TKK Fried Chicken have been actively recruiting US franchise partners through trade shows and government-supported export programs.
The business opportunity can be real. Non-alcoholic specialty beverages and desserts are among the fastest-growing restaurant categories in the United States, and many of these brands come with established global operations, tested supply chains, and strong social media recognition.
But the legal landscape for the US-side partner in these deals is more complicated than it looks. The franchise disclosure rules, the cross-border supply arrangements, the trademark questions, and the dispute resolution mechanics all involve layers of complexity that a domestic franchise simply does not have.
This article walks through the key issues. It is not a substitute for legal advice on your specific situation.
The FDD: What Changes When the Franchisor Is Foreign
Under US law, anyone selling a franchise in this country must provide the prospective franchisee with a Franchise Disclosure Document. The FTC's Franchise Rule (16 CFR Part 436) requires this, and it applies regardless of where the franchisor is based. If the franchise is being offered or sold in the United States, the FDD is required.
The FDD contains 23 items of required disclosure covering everything from the franchisor's litigation history and bankruptcy record to the estimated initial investment, fee structure, and the contact information of current and former franchisees. The franchisor must provide the FDD at least 14 calendar days before the prospective franchisee signs any binding agreement or makes any payment.
Beyond the federal requirement, 14 states require franchisors to register their FDD with a state agency and receive approval before offering or selling franchises in that state. These registration states include California, New York, Illinois, Maryland, Virginia, and Washington, among others. Several additional states require a notice filing. Selling a franchise in a registration state without completing the registration process can result in penalties and may give the franchisee the right to rescind the agreement and recover all fees paid.
Here is where the foreign franchisor issue gets complicated.
The FDD is only as useful as the information in it. When the franchisor is a Taiwanese or Chinese company, several of the required disclosures raise questions that a domestic FDD typically does not:
Financial statements. The FDD generally requires three years of audited financial statements prepared in accordance with US Generally Accepted Accounting Principles (US GAAP). Foreign franchisors have some flexibility under the FTC's rules, but a reconciliation to US GAAP is typically required. Financial statements prepared under Taiwanese or Chinese accounting standards, without reconciliation, may not meet this requirement. If the FDD you receive contains financial statements you cannot evaluate, or if they are not audited by a firm familiar with US standards, that is something to examine carefully.
Litigation history. Item 3 of the FDD requires disclosure of certain lawsuits. For a foreign franchisor, legal proceedings in Taiwan or China may not be captured in the same way US litigation would be. The scope of what must be disclosed is defined by the FTC Rule, but the practical challenge is that a prospective franchisee has limited ability to independently verify the franchisor's litigation history in foreign courts.
Franchisee contact information. Item 20 requires the franchisor to list current and former franchisees. For a Taiwanese or Chinese brand that has primarily operated overseas, most of those franchisees may be located in Asia. Contacting them is still possible, but the language barrier and time zone differences make the due diligence process harder in practice.
The franchisor's US presence. Some foreign franchisors establish a US subsidiary or affiliate to manage US franchise operations. Others operate directly from overseas. This distinction matters. It affects where you direct legal communications, where you can enforce contractual obligations, and what assets are reachable if a dispute arises.
None of this means you should walk away from a foreign franchise opportunity. It means you should review the FDD with a lawyer who understands what to look for when the franchisor is based overseas.
Entity Structuring for the US Franchisee
Before signing a franchise agreement, the US-side partner needs to form the right entity to operate the franchise. This decision affects liability exposure, tax treatment, and operational flexibility.
Single-location vs. multi-location structures. If you are opening one location, a single LLC or corporation may be sufficient. If you are signing an area development agreement to open multiple locations, or if you are becoming a master franchisee with the right to sub-franchise to others, the structure gets more complex. Master franchise arrangements often warrant a holding entity that owns the master franchise rights, with separate entities for each operating location. This separates the liability of individual stores from the master franchise itself.
Liability separation. The franchise entity should be properly capitalized and maintained as a separate legal entity from your personal assets. This sounds basic, but it is where problems often arise. If you commingle personal and business funds, fail to maintain corporate formalities, or operate the franchise as an extension of yourself rather than as a separate business, the liability protections of your LLC or corporation can be weakened.
Tax considerations. When the franchisor is based in Taiwan or China, the US franchisee will typically be making cross-border payments for royalties, ingredient purchases, and possibly management fees. These payments may be subject to US withholding tax requirements. As of early 2026, the United States does not have a comprehensive income tax agreement with Taiwan, though legislation to address double taxation (the US-Taiwan Expedited Double-Tax Relief Act) passed the House in January 2025 and remains under consideration in the Senate. The US does have an income tax treaty with China, but its application to specific franchise-related payments depends on the nature of each payment. The withholding obligations for cross-border payments to a Taiwanese or Chinese franchisor should be reviewed with a tax professional before the franchise agreement is finalized.
Getting the entity structure right before signing the franchise agreement is easier and less expensive than restructuring after the business is already operating.
Supply Chain and Import Obligations
Most Taiwanese and Chinese food and beverage franchises require the franchisee to purchase proprietary ingredients from the franchisor or from designated suppliers. Tea leaves, flavoring syrups, tapioca, sauces, packaging materials, and specialized equipment often must be imported from Asia.
This means the US franchisee is, in practical terms, also an importer. And importers face a distinct set of legal obligations.
Customs classification and duties. Every product imported into the United States must be classified under the Harmonized Tariff Schedule. The classification determines the duty rate. Getting it wrong can result in penalties, back duties, and potential referral for further investigation. Depending on the product, Section 301 tariffs on Chinese-origin goods may apply. For products originating from Taiwan, the tariff landscape is different, but not necessarily simpler. Tariff rates and trade policy continue to shift, and the correct classification and duty rate should be confirmed before committing to a supply arrangement.
FDA compliance. Food and beverage products imported into the United States are subject to FDA requirements, including facility registration, prior notice of imported food shipments, and compliance with labeling and food safety standards. If the franchisor's products do not meet FDA requirements, the shipment can be detained or refused entry. The franchisee, as the importer of record, bears the consequences.
The Uyghur Forced Labor Prevention Act (UFLPA). This federal law establishes a rebuttable presumption that goods produced in whole or in part in China's Xinjiang region, or by entities on the UFLPA Entity List, are made with forced labor and are prohibited from entry into the United States. While this is more commonly associated with industries like solar and apparel, it can apply to any product with a supply chain that traces back to covered entities or regions. Franchisees importing food ingredients from China should understand where in the supply chain their products originate.
Who bears the risk. The franchise agreement may allocate responsibility for import compliance to one party or the other. Regardless of what the contract says between the parties, US customs authorities will hold the importer of record responsible. If you are the importer of record, the compliance obligations are yours.
Trademark and Intellectual Property
Trademark issues in cross-border franchise arrangements deserve close attention, because the consequences of getting them wrong tend to surface at the worst possible time.
Trademark rights are territorial. A trademark registered in Taiwan does not automatically provide protection in the United States. The US operates on a "first to use" system, meaning trademark rights are generally established through actual use of the mark in US commerce. Federal registration with the US Patent and Trademark Office provides important additional protections, but it requires a separate application.
Who owns the US trademark? In a well-structured franchise arrangement, the franchisor typically registers the US trademark in its own name (or through its US subsidiary) and licenses the franchisee to use it. But in practice, especially with newer brands entering the US market, the trademark ownership question is sometimes left unresolved. If nobody has filed a US trademark application, or if the wrong party filed it, the result can be a dispute that undermines the entire franchise relationship.
Clearance before commitment. Before committing to a brand name in the US market, a clearance search through the USPTO database is a basic step. A mark that works well in Chinese or Taiwanese markets may conflict with existing US registrations. Discovering this after you have already invested in buildout, signage, and marketing materials is significantly more expensive than running the search beforehand.
What happens to the trademark if the franchise ends. The franchise agreement should clearly address what happens to the US trademark rights when the relationship terminates. Can the franchisor immediately license the mark to someone else in your territory? Are you required to stop using all brand materials within a specified period? If you helped build the brand's US recognition, is there any compensation for that contribution? These are negotiation points that are much harder to address after the franchise agreement has been signed.
Dispute Resolution
Franchise agreements from foreign franchisors sometimes contain dispute resolution provisions that merit careful review.
Choice of law and venue. Some franchise agreements from Taiwanese or Chinese franchisors specify that disputes will be governed by the law of the franchisor's home jurisdiction and resolved in courts or arbitration proceedings there. From the franchisor's perspective, this makes sense. From the US franchisee's perspective, it means that if something goes wrong, you may need to pursue your claims in a foreign legal system, potentially in a language you don't speak, under laws you don't know.
State franchise laws may override. Several US states have franchise relationship laws that restrict or prohibit certain provisions in franchise agreements, including choice-of-law and venue clauses that require franchisees to litigate outside the state. California, Illinois, and Maryland are among the states with these protections. Whether a particular state's franchise law applies depends on where the franchise is located and where the franchisee resides.
Enforceability of foreign judgments and arbitral awards. If a dispute is resolved in a foreign forum, the resulting judgment or arbitral award may need to be enforced in US courts to have practical effect. China is a party to the New York Convention, which provides a framework for enforcing foreign arbitral awards across signatory states, though enforcement is not automatic and there are grounds on which a US court can refuse. Taiwan, however, is not a party to the New York Convention due to its exclusion from the United Nations. This does not mean Taiwanese arbitral awards are unenforceable in the US, but the legal path is less predictable and may depend on principles of comity and reciprocity rather than treaty obligations. This distinction matters when evaluating a franchise agreement that specifies arbitration in Taiwan versus China.
Practical leverage. Beyond the legal mechanics, there is a practical question. If the franchisor is based overseas with no substantial US assets, and the franchise agreement gives them the right to terminate on terms favorable to them, the US franchisee's leverage in a dispute may be limited. This is why the upfront negotiation of the franchise agreement matters so much.
Before Franchising a Taiwanese or Chinese Brand in the US
If you are seriously considering becoming the US franchise partner for a Taiwanese or Chinese brand, the legal work starts before you sign anything. A few steps that tend to pay for themselves:
Have the FDD reviewed by a lawyer familiar with franchise law and cross-border transactions. The FDD is a disclosure document, not a negotiation document. But understanding what it says, and what it does not say, is essential before you commit.
Understand the total cost. The franchise fee is just the beginning. Factor in the buildout costs, equipment, initial inventory, import duties, insurance, and working capital. If the franchise involves importing ingredients from Asia, your landed cost will include freight, customs duties, and potentially tariffs that can change on short notice.
Talk to existing franchisees. The FDD provides their contact information for a reason. Franchisees operating in other US locations, or in comparable international markets, can tell you things that the FDD cannot.
Negotiate where you can. Some franchise agreements are presented as non-negotiable. Many are not. Territory protections, renewal rights, termination provisions, and the allocation of import compliance obligations are all areas where negotiation is possible, especially if you are bringing significant capital or market access to the relationship.
Frequently Asked Questions
Do I need a lawyer to review a franchise agreement from a Taiwanese or Chinese company?
Yes. The FDD and franchise agreement contain provisions that affect your financial obligations, your ability to operate, and your rights if the relationship deteriorates. When the franchisor is based overseas, the cross-border dimensions add complexity that is difficult to evaluate without legal counsel.
Can a Taiwanese or Chinese brand legally sell franchises in the US without registering in franchise registration states?
No. If the state requires franchise registration, the franchisor must register before offering or selling franchises there. This requirement applies regardless of where the franchisor is based. Selling without registration in a state that requires it can give the franchisee the right to rescind the agreement.
What happens to my franchise if the foreign brand decides to leave the US market?
This depends entirely on what the franchise agreement says. Some agreements give the franchisor broad termination rights. Others provide for a transition period or allow the franchisee to continue operating under certain conditions. This is a negotiation point that should be addressed before signing.
Are there special tariffs on importing food ingredients from Taiwan or China?
Tariff rates depend on the specific product and its country of origin. Products originating from China may be subject to Section 301 tariffs in addition to standard duties. Products from Taiwan are subject to standard tariff rates, which vary by product classification. Tariff policy continues to evolve, and the applicable rates should be confirmed before committing to a supply arrangement that depends on imported ingredients.
About Chang Law Group
Chang Law Group represents importers and businesses engaged in U.S.-Asia trade. Attorney Jeff Chang is admitted to practice before the U.S. Court of International Trade, the U.S. District Court for the District of Massachusetts, and Massachusetts state courts. The firm assists clients with various business matters, including IEEPA tariff refund claims, customs disputes, and cross-border commercial matters.
Contact:
Phone: (617) 307-1238
Email: info@jchanglaw.com
WeChat: ChangLawGroupLLC
Chang Law Group LLC: One Marina Park Drive, Suite 1410 Boston, MA 02210
This article provides general information only and is not legal advice for your specific situation. Reading this post does not create an attorney-client relationship with Chang Law Group. This article may not reflect recent developments or apply to your particular circumstances. Consult Chang Law Group LLC to evaluate your specific situation and options.