This article will guide you through the legal provisions regarding foreign brand franchising in Nepal.
What is Franchising in Nepal?
Nepal has a population that exceeds 29 million and a staggering 6% GDP with an untapped market followed by Unlimited Potential making it one of the most attractive Business Expansion projects anywhere in the world. Among the various Models of Business Expansion, Franchising by large global conglomerates is one of the choices.
Franchising can be an effective and strategic model in bustling markets and a growing economy, allowing brands to leverage their established identity while mitigating risks. For a foreign brand, the Nepal market may seem challenging at first glance.
But, with the right guidance and insights, navigating these complexities becomes much easier. This Article provides a complete overview of Foreign Brand Franchising and all its legal challenges in a condensed form:
Foreign Brand Franchising in Nepal – Governing Laws
It’s important to understand the key legal features and regulations to franchise in Nepal. There are three primary laws governing foreign brand franchising:
- Foreign Investment and Technology Transfer Act 2019 (FITTA): This act facilitates foreign investments and technology transfers, including franchising.
- Patent, Design, and Trademark Act 1965 (PDTA): Crucial for protecting intellectual property rights, this act emphasizes trademark registrations.
- Foreign Exchange (Regulation) Act 1962 (FERA): This act oversees foreign exchange transactions, including the repatriation of royalties.
Process of Franchising in Nepal
Step 1: Trademark Registration
Before venturing into franchising, the foremost step is to register your foreign trademark in Nepal with the Department of Industry (DOI). Without this, franchising is not permissible.
- Application in the prescribed format.
- Copy of the registration certificate or license of your business.
- Specimen of your trademark.
- Power of attorney if appointing someone for registration.
- For foreigners, a certified copy of any foreign registration certificate.
- Payment of the application fee.
Post-submission, the DoI conducts a review and communicates its decision within 15 days. If issues arise, applicants have 35 days from the notice date to rectify them.
Step 2: Executing the Franchise Agreement
Upon trademark registration, the next phase involves forming a franchise agreement with a local partner. This document should detail:
- The scope and nature of the franchise.
- Rights and responsibilities of both parties.
- Fees, royalties, and payment structures.
- Duration and conditions for termination.
- Quality standards and training provisions.
- Methods for dispute resolution.
It’s pivotal to ensure this agreement complies with Nepal’s laws and to consult a local legal practitioner for guidance.
Step 3: Securing Approval from the Department of Industry (DoI):
After drafting the franchise agreement, it’s essential to get approval from the DoI by submitting:
- Trademark registration certificate copy.
- Notarized copy of your foreign registration certificate or license.
- Translated copy (in Nepali) of the foreign registration certificate or license.
- Franchise agreement copy.
- Power of attorney, if necessary.
- Application fee receipt.
DoI’s examination process checks for alignment with national interests and standards. After approval, a certificate is issued.
Step 4: Setting Up Royalties and Licensing Fees
Nepal does not have a fixed law governing the rate of licensing fees or royalty fees for foreign trademarks. In most cases, the Department of Industry proposes a 1% to 5% royalty or licensing fee on the gross sale or net profit. Special provisions exist for the liquor and beer industry.
Repatriating Fees and Royalties
One of the critical aspects for foreign entities is the repatriation of profits. For this, approval from the Nepal Rastra Bank (NRB) is mandatory.
- Certificate of approval from the DoI.
- Copy of the franchise agreement.
- Auditor-certified document showcasing the calculated amount due.
- Income tax payment certificate on fees or royalties.
Step 5: Renewing Franchising Agreements While there isn’t a specific law defining the term of trademark licensing in Nepal, the standard practice sees the DoI approve trademark licensing for five years, renewable upon application.
Benefits of Franchising in Nepal
- Access to a Growing Market: With a vast population and growing economy, Nepal offers an extensive market to cater to.
- Brand Leverage: Franchising allows businesses to utilize their established brand name, distinguishing them from competitors.
- Risk Mitigation: Partnering with a local entity means shared risks, and the local partner’s expertise can help navigate the Nepali business ecosystem.
- Safeguarding Intellectual Property: Nepal’s commitment to global agreements, like TRIPS, offers enhanced protection for your trademarks when you franchise.
- Increased Business potential: A successful franchise in Nepal can enhance brand reputation and loyalty, leading to long-term business growth.
Risks to Franchising in Nepal
Cultural Risks: Cultural differences can impact a franchise’s success. It’s essential to understand the local culture, consumer behavior, and preferences.
Not Registering the Trademark: The Department of Industry won’t approve a franchise agreement unless the trademark is registered. Ensure this step is prioritized.
Overstepping Royalty Limits: Stay within the royalty limits set by the DOI. This prevents legal complications and ensures a smooth repatriation process.
Foreign Brand Franchising in Nepal offers an incredible opportunity for foreign brands looking to expand. There are several advantages for international companies to consider Franchising as an attractive choice law supports Foreign Brand Franchising in Nepal.
First, Brand Awareness has been rapidly increasing in Nepal. Second, Nepalese Markets don’t have local superior Brands that can potentially compete with International Giants. Third, Nepal has Trademark Registration Laws that can protect your brand from potential infringement. Foreign Brand Franchising in Nepal plays vital role in expanding brands all over Nepal.