Franchise Law in Nepal
In Nepal, franchising is categorized as a form of “technology transfer” under Section 3(f) of the Foreign Investment and Technology Transfer Act, 2019 (FITTA). As per FITTA, technology transfer includes agreements between a foreign investor and a local industry concerning the licensing of technology, sharing of technical expertise, or utilization of proprietary knowledge (franchise). 
Laws Regulating Foreign Franchises
The key legal provisions regulating 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)
Process for Franchising an International Brand
Under FITTA, the steps for establishing a franchise of an international brand in Nepal are as follows:
Franchising Process in Nepal
Step 1: Register the trademark (foreign brand) with the Department of Industry (DOI).
Step 2: Enter into a franchise agreement between the foreign company and the local business entity.
Step 3: Obtain approval for the franchise agreement and any associated agreements from the DOI.
Important Considerations:
• Trademark registration in Nepal typically takes between 9 to 12 months. • Franchise agreements for foreign brands cannot receive DOI approval unless the trademark has been duly registered. • Without trademark registration, foreign brands do not receive legal protection in Nepal.
Sectors Allowed for Foreign Franchises
Unlike general foreign investment, FITTA does not impose restrictions on specific industries for franchise businesses.
Investment via Technology Transfer
FITTA permits foreign investments through technology transfer agreements. Section 7 of FITTA stipulates: “A foreign investor may invest in any industry through a technology transfer agreement with the respective industry.” However, such agreements are subject to certain conditions: • The repatriation of royalties must comply with prescribed limits. • Approval must be obtained from the relevant foreign investment authority.
Required Documents for Franchising
The following documents must be submitted to establish a franchise in Nepal:
- An original copy of the application for licensing the foreign brand (1 Copy)
- Passport of the foreign partner or a company registration certificate of the licensor, including its memorandum and articles of association (1 Copy)
- Franchise agreement or any other related agreements (2 Copies)
- Certificate of incorporation, including the memorandum and articles of association of the local franchisee (1 Copy)
- Profile or bio-data of the foreign investor (1 Copy)
- Latest audit report and tax clearance certificate (1 Copy)
- Industry registration certificate of the local franchisee (1 Copy)
- Copies of board resolutions from both the local and foreign companies concerning the execution of the franchise agreement and related approvals (1 Copy)
- Power of Attorney (1 Copy)
Royalty Structure for Technology Transfer and Franchising
The Foreign Investment and Technology Transfer Regulations (FITTR) under Schedule 1 set the following royalty rates for technology transfer and franchising:
General Technology Transfer
| S.N. | Royalty Type | Local Sales | Export Sales |
| 1 | Based on total sales (excluding tax) | 5% of total sales | 10% of total sales |
| 2 | Based on Net Profit | 15% of Net Profit | 20% of Net Profit |
Trademark Usage Only
| S.N. | Local Sales | Export Sales |
| 1 | Alcohol and tobacco sector: 2% of total sales (excluding tax) | 5% of total sales (excluding tax) |
| 2 | Other industries: 3% of total sales (excluding tax) | 6% of total sales (excluding tax) |
This legal framework ensures a structured process for foreign franchises, safeguarding intellectual property rights while promoting investment opportunities in Nepal.
FAQs
Is Franchising Legally Allowed in Nepal?
Yes, franchising is legally recognized in Nepal, although there is no standalone Franchise Law.
Franchise agreements are governed under existing laws such as the Companies Act 2006, and the Foreign Investment and Technology Transfer Act (FITTA) 2019. These laws regulate the legal structure, obligations, and enforcement mechanisms involved in franchising. This means both local and foreign franchise models are permitted in Nepal if structured in compliance with applicable laws.
Can Foreign Franchisors Operate Legally in Nepal?
Yes, foreign franchisors can enter the Nepali market through a technology transfer agreement.
Under the Foreign Investment and Technology Transfer Act (FITTA) 2019, franchising is treated as a form of technology transfer. Foreign franchisors must sign an agreement with a local entity and obtain approval from the Department of Industry (DOI). This agreement typically includes licensing of trademarks, royalty terms, and technical support. Without this approval, the franchise arrangement may be considered illegal under Nepali law.
Are Royalty Payments Allowed Under Franchise Agreements in Nepal?
Yes, but royalty payments are regulated and subject to approval by Nepal Rastra Bank (NRB).
Franchise agreements often include royalty fees, which must not exceed 5% of the net sales revenue unless otherwise approved. These payments require prior clearance from NRB for foreign currency repatriation. It is important to clearly define royalty structures and ensure that they comply with the approved technology transfer agreement under FITTA 2019.
How Are Trademarks and Other Intellectual Property Protected in Franchising in Nepal?
Intellectual property (IP) rights such as trademarks and copyrights are protected under Nepali law.
Franchisors must register their trademarks in Nepal under the Patent, Design and Trademark Act 1965. Proper registration ensures legal protection against misuse or infringement. Including IP clauses in the franchise agreement and ensuring local IP registration are crucial steps to safeguard brand identity in Nepal’s franchising sector.