Franchise law in Nepal

This article outlines the legal procedure for the franchise of international brand (Foreign Trademark) in Nepal as per the prevailing laws.

1. FRANCHISE IN NEPAL

Franchising in Nepal under Section 3(f) of the Foreign Investment and Technology Transfer Act 2019, franchise falls under the category of “technology transfer,” which refers to any technology transfer agreement between an industry and a foreign investor on matters related to user licenses, technological know-how sharing, or the use of technological knowledge (franchise).

2. LAWS GOVERNING FOREIGN FRANCHISE

The following law regulate foreign franchising in Nepal:

  1. The Foreign Investment and Technology Transfer Act 2019 (“FITTA”),
  2. Patent, Design and Trademark Act, 1965 (“PDTA”),
  3. Foreign Investment and Technology Transfer Regulations, 2020 (“FITTR”).

3. PROCEDURE OF FRANCHISING OF INTERNATIONAL BRAND:

Under FITTA, the procedure of franchising of international brand can be outlined as follows:

Note:

  1. It will take around 12 to 14 months for trademark registration in Nepal. 
  2. Without trademark registration of a foreign brand, one cannot get approval of a trademark franchise agreement from the DOI. Foreign brand do not get validity and protection unless such trademark is registered in Nepal.

4. FOREIGN FRANCHISE PERMITTED SECTOR

Unlike the foreign investment, FITTA has not restricted specific industries or businesses for franchise business.

5. INVESTMENT THROUGH TECHNOLOGY TRASNFER

FITTA under Section 2(j,8) has identified the scope of foreign investment through technology transfer.

FITTA Section 7 mentions:

Foreign investment can be made in any industry through technology transfer. Through technology transfer agreement between concerned industry and foreign investor.

The agreement has limitations:

  • Agreement may not provide for repatriation of royalty in excess of prescribed ceiling.
  • Agreement has to be approved by foreign investment approving body.

6. REQUIRED DOCUMENTS FOR FRANCHISING PROCESS

The required documents for franchise of foreign brand in Nepal are:

  1. Original Copy of Application of licensing of Foreign Brand (1 Copy) 
  2. Passport of foreign partner or Foreign Registration Certificate of Licensor including Memorandum and Articles of Association of Foreign Company (1 Copy) 
  3. Franchise Agreement or any other related agreement (2 Copies) 
  4. Certificate of Incorporation including MOA and AOA of local company (1 Copy) 
  5. Citizenship Certificate of local partner or certificate of incorporation, including MOA if the local party is a company (1 Copy) 
  6. Bio-Data of foreign investor or company profile (1 Copy) 
  7. Current Audit Report and Tax Clearance Certificate (1 Copy) 
  8. Industry Registration Certificate of Local Company (1 Copy) 
  9. Copy of minute of board of local company and foreign company (1 Copy)  
  10. Power of Attorney (1 Copy) 

7. Royalty rates for technology transfer or franchise

FITTR under its Schedule 1 prescribes up to 5% of total local scales and 10% of total exports for reparation of royalty.

The specific royalty rates are as follows:

For all types of technology transfer for industry

Royalty
Local Sales
Export Sales
In case of total amount or total sales amount
Excluding tax, 5% of total sales amount
Excluding tax, 10% of total sales amount

For use of trademark only

Local Sales
Export Sales
For alcohol and trade industry: 2% of total sales excluding tax
For Alcohol and Trade Industry: 5% of total sales excluding tax

Frequently Asked Questions

Franchising in Nepal involves technology transfer agreements between a local industry and a foreign investor, covering user licenses and technological knowledge.

The Foreign Investment and Technology Transfer Act 2019 (FITTA), Patent, Design, and Trademark Act 1965 (PDTA), and Foreign Investment and Technology Transfer Regulations 2020 (FITTR) govern foreign franchising in Nepal.

The procedure includes trademark registration, executing a franchise agreement, and obtaining approval from the Department of Industry.

FITTA does not restrict any specific industries or businesses for franchise operations in Nepal.

Documents include an application for licensing, passport of the foreign partner, franchise agreement, incorporation certificates, audit report, and more.

 It takes approximately 12 to 14 months to register a foreign trademark in Nepal.

Royalty rates are up to 5% for local sales and 10% for export sales. Different rates apply for various industries and profit-based calculations.

Yes, FITTA allows foreign investment in any industry through technology transfer agreements, subject to approval and limitations on royalty repatriation.

Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or its members. The firm shall not be liable for consequences arising out of actions undertaken by any person relying on the information provided herein.

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