Franchising of Foreign Brands (Foreign Trademarks) in Nepal

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Franchising International Brands in Nepal

This article discusses the procedure for franchising international brands (foreign trademarks) in Nepal.

Legal Framework Governing Franchising in Nepal

Franchising of international brands in Nepal is currently regulated by several laws:

Foreign Investment and Technology Act 2019 (2075) (FITTA)
Patent, Design and Trademark Act 1965 (2022) (PDTA)
Foreign Exchange (Regulation) Act 1962 (2019) (FERA)

These allow the establishment of franchise businesses of foreign brands in Nepal. Nepal allows the establishment of franchise businesses of both foreign and national brands in the country.

Major Steps in the Franchising Process

The foreign brand needs to register its trademark at the Department of Industry.
After the trademark is registered, a franchise agreement must be concluded between the foreign and local companies.
The franchise agreement along with the related documents must be submitted to the Department of Industry for approval.

Trademark registration usually takes almost a year. Without registration of the foreign trademark in Nepal, the Franchise Agreement would not be approved and would not grant validity and protection in Nepal for the foreign brand. The trademark has to be registered exactly as it exists originally in the home registration with no variation.

Documents Required for the Franchising Process

The franchising process requires the filing of several documents, such as:

An application for licensing the foreign brand
Foreign Registration Certificate (Home Registration Certificate of Trademark)
Franchise agreement
Documents for the incorporation of company in Nepal
The bio-data or company profile of the foreign party
Industry Registration Certificate of the Local Company
Board meeting minutes of both companies approving the franchise agreement
Power of Attorney

Financial Aspects of Franchising in Nepal

Rate of Royalty

On the financial aspects, there is no law on the rate of royalties or licensing fees provided for a foreign trademark in Nepal. In practice, however, the Department of Industry will generally allow a royalty rate between 1% to 5% of gross sales or net profits.

Regarding royalty or licensing fees for the production of liquor and beer, the royalty should not exceed 10% of net profits or 6% of the selling price, excluding government taxes.

Licensing Term Period

The licensing terms available for foreign trademarks usually prevail for a period of five years and are renewable upon application.

Repatriation of Licensing Fee

Section 10(5) of the FERA permits the licensor of foreign trademarks to repatriate licensing or royalty fees abroad. Approval has to be taken from Nepal Rastra Bank for the repatriation licensing or royalty fees.

Repatriation of the license fees abroad is subject to Nepal Rastra Bank approval, with supporting documentation including the franchise agreement, a calculation of the due amount to the foreign technology supplier certified by an auditor, and proof of income tax payment on the royalty.

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This information is provided for educational purposes only and should not be construed as legal advice. FinLex Associates retains exclusive rights to the content.

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Frequently Asked Questions (FAQ) on Franchising Foreign Brands in Nepal

Yes, foreign brands can operate franchises in Nepal under the Foreign Investment and Technology Act (FITTA) and the Patent, Design and Trademark Act (PDTA). Both foreign and national brands are permitted to establish franchise businesses.
The main laws governing foreign franchising in Nepal are FITTA, PDTA, and the Foreign Exchange (Regulation) Act (FERA). These laws outline the framework for foreign investment and trademark registration.
The franchising process involves three main steps:
Step 1: Register the trademark with the Department of Industry.
Step 2: Execute a franchise agreement between the foreign and local companies.
Step 3: Obtain approval for the franchise agreement from the Department of Industry.
Trademark registration in Nepal typically takes between 9 to 13 months. Approval of the franchise agreement is contingent upon successful trademark registration.
Franchising is allowed in both sectors where foreign investment is permitted and those where it is restricted. This provides a broader scope for foreign brands to enter the Nepali market.
The required documents include:
- Licensing application for the foreign brand
- Foreign registration certificate
- Franchise agreement and related agreements
- Local company incorporation documents
- Bio-data or company profile of the foreign party
- Industry registration certificate of the local company
- Minutes from board meetings of both companies
- Power of attorney
There is no specific law governing the royalty rate; however, the Department of Industry typically allows a royalty rate between 1% to 5% of gross sales or net profits. For sectors like liquor and beer, the maximum royalty is capped at 10% of net profits or 6% of the selling price, excluding government taxes.
The standard licensing term for foreign trademarks in Nepal is generally five years, with the option for renewal upon application.
To repatriate licensing or royalty fees abroad, approval from the Nepal Rastra Bank is required. Necessary documents include the franchise agreement, a calculation of the amount due certified by an auditor, and proof of income tax payment on the royalty.