What You Need to Know About Franchising a Foreign Brand in Nepal

Franchising is a business model that allows a person or entity to use the name, logo, products, services, and systems of an established brand in exchange for a fee and a share of the profits. Franchising can be a great way to expand your market presence, leverage your brand recognition, and generate more revenue.

If you are a foreign business owner or entrepreneur who wants to franchise your brand in Nepal, you may want to know the legal requirements and procedures for doing so. Nepal is a developing country with a growing economy and a large consumer base. Nepal also has favorable laws and policies for foreign investment and technology transfer, which include franchising.

In this blog, we will explain what you need to know about franchising a foreign brand in Nepal.

The legal framework for franchising a foreign brand in Nepal

Franchising a foreign brand in Nepal is governed by the following laws and regulations:

• The Foreign Investment and Technology Transfer Act 2019 (FITTA), which regulates and facilitates foreign investment and technology transfer in Nepal, including franchising.
• The Patent, Design and Trademark Act 1965 (PDTA), which protects and enforces intellectual property rights in Nepal, including trademarks.
• The Foreign Exchange (Regulation) Act 1962 (FERA), which controls and regulates foreign exchange transactions in Nepal, including repatriation of fees and royalties.

The Department of Industry (DoI) within the Ministry of Industry is the competent authority that approves and administers franchising agreements in Nepal. The Nepal Rastra Bank (NRB) is the central bank that oversees and approves foreign exchange transactions in Nepal.

The procedure for franchising a foreign brand in Nepal

Franchising a foreign brand in Nepal involves the following steps:

Step 1: Registration of trademark

The first step is to register your trademark in Nepal with the DoI. You cannot franchise your brand in Nepal unless you have registered your trademark locally. You need to submit an application in a prescribed format along with the following documents:

• A copy of the registration certificate or license of your business for the product or service that you want to franchise.
• Four copies of the specimen of your trademark.
• A power of attorney if you have authorized someone to act on your behalf to register your trademark.
• If you are a foreigner, a certified copy of any foreign registration certificate and an address for service in Nepal.
• A receipt of payment of the prescribed application fee.

You need to submit a separate application for each category of goods or services that you want to franchise. The DoI follows the International Classification of Goods and Services (Nice Classification) for this purpose.

The DoI will examine your application and check whether it meets all the formal and substantive requirements for registration. The DoI will also conduct a search to see if there are any identical or similar trademarks already registered or pending registration in Nepal.

The DoI will refuse to register your trademark if:

• It is likely to affect the dignity of any individual or institution, or damage the reputation of another's trademark.
• It is likely to affect the well-being and morale of people in general or national interest.
• It is contrary to the principles, norms, and international conventions of industrial property.
• It has already been registered in the name of another person.

The DoI will notify you about its decision within 15 days from the date of receipt of your application. If there are any defects or objections in your application, you will be given an opportunity to rectify them within 35 days from the date of receipt of the notice. If your application is accepted, it will proceed to the next step.

Step 2: Execution of franchise agreement

The next step is to execute a franchise agreement with a local partner who will operate your franchise in Nepal. You need to find a suitable and reliable partner who has the experience, expertise, and resources to run your franchise successfully. You also need to negotiate the terms and conditions of the franchise agreement, such as the scope of the franchise, the rights and obligations of both parties, the fees and royalties, the quality standards, the training and support, the duration and termination, and the dispute resolution.

You need to ensure that your franchise agreement complies with the Nepali laws and regulations, especially those related to foreign investment, technology transfer, intellectual property, taxation, consumer protection, labor, and environment. You may also need to consult a local lawyer who can advise you on the legal aspects of franchising in Nepal.

Step 3: Approval of franchise agreement

The third step is to obtain approval of your franchise agreement from the DoI. You need to submit an application in a prescribed format along with the following documents:

• A copy of your trademark registration certificate in Nepal.
• A notarized copy of your foreign registration certificate or license of your business for the product or service that you want to franchise.
• A certified copy of the translation of your foreign registration certificate or license in Nepali language.
• A copy of your franchise agreement with your local partner.
• A power of attorney if you have authorized someone to act on your behalf to obtain approval.
• A receipt of payment of the prescribed application fee.

The DoI will examine your application and check whether it meets all the requirements for approval. The DoI will also assess whether your franchise agreement is consistent with the national interest, public welfare, industrial policy, and environmental standards. The DoI will notify you about its decision within 30 days from the date of receipt of your application. If there are any defects or objections in your application, you will be given an opportunity to rectify them within 15 days from the date of receipt of the notice. If your application is approved, you will receive a certificate of approval from the DoI.

Step 4: Repatriation of fees and royalties

The final step is to repatriate your fees and royalties from your franchise in Nepal to your home country. You need to obtain approval from the NRB for this purpose. You need to submit an application in a prescribed format along with the following documents:

• A copy of your certificate of approval from the DoI.
• A copy of your franchise agreement with your local partner.
• A document showing the calculation of the amount due to you as fees or royalties certified by an auditor.
• A certificate of payment of income tax on fees or royalties.

The NRB will examine your application and check whether it meets all the requirements for approval. The NRB will notify you about its decision within 15 days from the date of receipt of your application. If there are any defects or objections in your application, you will be given an opportunity to rectify them within 15 days from the date of receipt of the notice. If your application is approved, you will receive a certificate of approval from the NRB.

You need to comply with the foreign exchange regulations and limits prescribed by the NRB for repatriating your fees and royalties. The NRB follows the FITTA and its Schedule 1 for this purpose. The limit of fees and royalties that can be repatriated is as follows:

• Royalty: Up to 5% of total local sales excluding VAT and up to 10% of total export sales excluding VAT for all types of technology transfer; up to 2% of total local sales excluding VAT and up to 5% of total export sales excluding VAT for alcohol and tobacco industry; up to 3% of total local sales excluding VAT and up to 6% of total export sales excluding VAT for other industries; up to 15% of net profit for royalty based on net profit for all types of technology transfer; up to 20% of net profit for royalty based on net profit for alcohol and tobacco industry.
• Technical and management fees: Up to 5% of total sales excluding VAT for all types of technology transfer; up to 2% of total sales excluding VAT for alcohol and tobacco industry; up to 3% of total sales excluding VAT for other industries.
• User's license fee: Up to 5% of total sales excluding VAT for all types of technology transfer; up to 2% of total sales excluding VAT for alcohol and tobacco industry; up to 3% of total sales excluding VAT for other industries.

If you have entered into multiple agreements for fees and royalties, the total amount that can be repatriated shall not exceed the limit mentioned above.

Benefits of franchising a foreign brand in Nepal

Franchising a foreign brand in Nepal can provide you with several benefits, such as:

• It allows you to tap into a large and growing market with a population of over 29 million people and a GDP growth rate of over 6%.
• It enables you to leverage your brand recognition and reputation in Nepal and differentiate your products or services from those of your competitors.
• It reduces your capital investment and operational risks by sharing them with your local partner who has the local knowledge, expertise, and resources.
• It increases your chances of obtaining registration or protection for your trademark in other countries that are members of the Paris Convention or TRIPS.
• It adds value to your business and enhances your goodwill and customer loyalty.

If you need any assistance or guidance on franchising a foreign brand in Nepal, please feel free to contact us. We are a team of experienced and qualified lawyers who can help you with all your legal needs in Nepal.