Franchise Law in Nepal

Table of Contents:

1. Introduction
2. Definition and Legal Framework
3. Laws Regulating Foreign Franchises in Nepal
4. Process for Establishing a Franchise
5. Permissible Sectors for Foreign Franchises
6. Investment via Technology Transfer
7. Documentation Requirements
8. Royalty Structure for Technology Transfer and Franchising

1. Introduction

This document provides a comprehensive legal analysis of the regulatory framework governing the establishment and operation of foreign franchises in Nepal. The franchising of international brands, including foreign trademarks, is subject to various legal provisions under the prevailing laws of Nepal.

2. Definition and Legal Framework

In Nepal, franchising is classified as a form of "technology transfer" as per Section 3(f) of the Foreign Investment and Technology Transfer Act, 2019 (FITTA). This classification encompasses agreements between a foreign investor and a local industry concerning the licensing of technology, sharing of technical expertise, or utilization of proprietary knowledge, including franchising arrangements.

3. Laws Regulating Foreign Franchises in Nepal

The key statutes governing foreign franchises in Nepal include:

• Foreign Investment and Technology Transfer Act, 2019 (FITTA)
• Patent, Design, and Trademark Act, 1965 (PDTA)
• Foreign Investment and Technology Transfer Regulations, 2020 (FITTR)

4. Process for Establishing a Franchise

The establishment of a foreign franchise in Nepal follows a structured legal process under FITTA:

Franchising Process in Nepal:

1. Trademark Registration: The foreign brand must be registered with the Department of Industry (DOI).
2. Franchise Agreement: Execution of a legally binding franchise agreement between the foreign franchisor and the local business entity.
3. Regulatory Approval: Obtaining necessary approvals from the DOI for the franchise agreement and any associated contracts.

Key Legal Considerations:

• The trademark registration process takes approximately 4 to 5 months.
• Franchise agreements cannot receive DOI approval unless the trademark has been duly registered.
• Foreign brands lacking trademark registration are not accorded legal protection in Nepal.

5. Permissible Sectors for Foreign Franchises

Unlike general foreign direct investment (FDI), FITTA does not impose industry-specific restrictions on franchise businesses, thereby allowing franchising across various sectors.

6. Investment via Technology Transfer

FITTA permits foreign investments in Nepal through technology transfer agreements. Section 7 of FITTA provides that:

"A foreign investor may invest in any industry through a technology transfer agreement with the respective industry."

However, such agreements are subject to the following conditions:

• Royalty payments must adhere to prescribed limits.
• Regulatory approval is mandatory from the relevant foreign investment authority.

7. Documentation Requirements

The following documents must be submitted for establishing a foreign franchise in Nepal:

1. Original application for licensing the foreign brand (1 Copy)
2. Passport of the foreign investor or company registration certificate, including memorandum and articles of association (1 Copy)
3. Franchise agreement and related agreements (2 Copies)
4. Certificate of incorporation, memorandum, and articles of association of the local franchisee (1 Copy)
5. Profile or bio-data of the foreign investor (1 Copy)
6. Latest audit report and tax clearance certificate (1 Copy)
7. Industry registration certificate of the local franchisee (1 Copy)
8. Board resolutions from both entities regarding the franchise agreement and approvals (1 Copy)
9. Power of Attorney (1 Copy)

8. Royalty Structure for Technology Transfer and Franchising

As per Schedule 1 of FITTR, royalty structures are prescribed for different categories of technology transfer and franchising.

Royalty Rates for General Technology Transfer:

Royalty Rates for Trademark Usage Only:

This structured framework ensures legal protection for intellectual property rights while promoting foreign investment through franchising in Nepal.