Franchising of Foreign Brands in Nepal

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

1. The foreign brand needs to register its trademark at the Department of Industry.
2. After the trademark is registered, a franchise agreement must be concluded between the foreign and local companies.
3. 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.

Disclaimer:

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