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- Anamnagar Kathmandu
How to Register a Franchise Business in Nepal
21
Apr
How can a franchise business be registered in Nepal? A franchise business in Nepal is registered through a structured process involving trademark registration with the Department of Industry (DOI), company incorporation with the Office of Company Registrar (OCR), foreign investment approval under FITTA 2019 (for international brands), and franchise agreement approval from DOI . This comprehensive procedure is governed by the Foreign Investment and Technology Transfer Act 2075 (2019), Patent, Design and Trademark Act 1965, and Companies Act 2063, requiring 52 to 97 working days for complete foreign franchise establishment .
Understanding Nepal's Franchise Legal Framework
Nepal does not have a standalone franchise law. Instead, franchise operations are regulated through multiple interconnected statutes that govern business registration, intellectual property, foreign investment, and contractual relationships . The Foreign Investment and Technology Transfer Act 2019 (FITTA) classifies franchising as a form of "technology transfer" under Section 3(f), which encompasses agreements concerning licensing of technology, sharing of technical expertise, or utilization of proprietary knowledge including franchise arrangements .
Key Governing Legislation
| Law | Purpose | Regulatory Authority |
|---|---|---|
| Foreign Investment and Technology Transfer Act 2075 (2019) | Franchise classification as technology transfer, FDI approval | DOI/IBN |
| Patent, Design and Trademark Act 1965 (2022) | Trademark registration and IP protection | DOI |
| Companies Act 2063 (2006) | Company incorporation and corporate governance | OCR |
| Industrial Enterprises Act 2076 (2020) | Industry classification and incentives | DOI |
| Contract Act 2056 (2000) | Franchise agreement enforceability | Courts |
| Income Tax Act 2058 (2002) | Taxation of franchise income and royalties | IRD |
| Foreign Exchange Regulation Act 1962 (2019) | Royalty repatriation procedures | NRB |
Types of Franchise Models in Nepal
Multiple franchise structures are practiced across Nepal's growing market :
| Franchise Type | Description | Investment Level | Best For |
|---|---|---|---|
| Product Distribution Franchise | Distribute branded products in specific territory | Medium | Experienced retailers |
| Business Format Franchise | Complete package with systems, training, brand | Medium-High | New entrepreneurs |
| Single-Unit Franchise | Operate one location only | Varies | Individual owners |
| Master Franchise | Exclusive nationwide rights with sub-franchising authority | Very High | Large investors |
| Area Developer Franchise | Rights to open multiple units in defined region | High | Regional expansion |
The master franchisee setup grants exclusive rights to operate as the "head office" for Nepal, with authority to recruit sub-franchisees and manage territorial expansion .
Step-by-Step Franchise Registration Process
Phase 1: Trademark Registration (Critical First Step)
Step 1: Conduct Preliminary Trademark Search Before any franchise agreement execution, a comprehensive search must be conducted at the Department of Industry trademark database to identify existing identical or similar marks . This prevents application rejection due to conflicts and guides application strategy. Step 2: Prepare Trademark Application Complete Form 1 as per Schedule 1 of the Patent, Design and Trademark Rules. Required details include:
- Applicant name, address, and nationality
- Trademark type and clear representation
- Goods/services classification with appropriate class numbers
- Statement of use or intention to use
Step 3: Submit Application to DOI Applications are filed at the DOI Intellectual Property Section in Tripureshwor, Kathmandu, or through the DOI online portal . One application is required per trademark per class. Step 4: Undergo Examination and Publication The DOI examines applications for distinctiveness under Section 23 and conflicts with existing marks . Accepted applications are published in the Industrial Property Bulletin for 90 days, allowing third-party oppositions . Step 5: Obtain Registration Certificate After the opposition period expires without challenge, the DOI issues a Certificate of Registration valid for 7 years, renewable indefinitely for subsequent 7-year periods .
| Trademark Stage | Timeline |
|---|---|
| Preliminary Search | 1-2 weeks |
| Application Filing | Immediate |
| Formal Examination | 3-6 months |
| Publication Period | 90 days |
| Registration Certificate | 2-4 weeks post-opposition |
| Total Estimated Time | 6-12 months |
Critical Requirement: Without trademark registration of the foreign brand, DOI approval of the franchise agreement cannot be obtained . Foreign brands receive no legal protection in Nepal unless their trademarks are duly registered .
Phase 2: Company Incorporation
Step 6: Reserve Company Name Submit proposed names to OCR at www.ocr.gov.np in both English and Nepali. Avoid prohibited terms ("Royal," "National," "Nepal") . Approved names must proceed to registration within 90 days . Step 7: Prepare Corporate Documentation
- Memorandum of Association (MOA) with franchise business objectives
- Articles of Association (AOA) outlining governance structure
- Minimum authorized capital: NPR 100,000 for private limited companies
- Citizenship certificates or passports for promoters/directors
- Registered office address proof
Step 8: Submit Company Registration Upload documents to OCR portal. Pay registration fees ranging from NPR 15,000 to NPR 35,000 depending on authorized capital . Obtain Certificate of Incorporation within 7-10 working days .
Phase 3: Foreign Investment Approval (For International Brands)
Step 9: Prepare Franchise and Technology Transfer Agreements The franchise agreement must specify:
- Territory rights (national or regional exclusivity)
- Initial franchise fees and ongoing royalty structures
- Quality standards and operational procedures
- Training requirements and performance benchmarks
- Intellectual property usage rights and protection obligations
- Termination clauses and post-termination obligations
Step 10: Submit FDI Application to DOI Under FITTA Section 7, foreign investment can be made through technology transfer agreement between the industry and foreign investor . Required documents include:
| Document | Copies | Specification |
|---|---|---|
| Application for foreign brand licensing | 1 | Original |
| Foreign partner passport or company registration certificate | 1 | Including MOA/AOA of foreign company |
| Franchise agreement and related agreements | 2 | Executed copies |
| Local company incorporation certificate with MOA/AOA | 1 | Certified copy |
| Foreign investor bio-data or company profile | 1 | Detailed |
| Latest audit report and tax clearance certificate | 1 | Notarized |
| Local franchisee industry registration certificate | 1 | Current |
| Board resolutions from both companies | 1 | Authorizing franchise execution |
| Power of Attorney | 1 | Notarized |
Step 11: Obtain DOI Franchise Agreement Approval The DOI evaluates applications based on technology transfer benefits, employment generation, and economic contribution . Approval typically requires 15-30 working days from complete submission . Important Distinction: Unlike general foreign investment, FITTA does not restrict specific industries or businesses for franchise operations . Franchising is permitted even in some sectors where direct FDI may be restricted .
Phase 4: Tax and Operational Registration
Step 12: Obtain Permanent Account Number (PAN) Register at Inland Revenue Department (ird.gov.np) with company registration certificate, office lease agreement, and director identification . PAN certificate issued within 3-5 working days . Step 13: VAT Registration (if applicable) Mandatory if projected annual turnover exceeds NPR 5 million . Franchise operations with significant revenue streams must comply. Step 14: Industrial Enterprise Registration Register with DOI under Industrial Enterprises Act 2076 to access government incentives and facilities . Submit company registration certificate, tax registration, and business plan. Step 15: Secure Municipal and Sector-Specific Licenses Depending on franchise type:
- Food license (Department of Food Technology and Quality Control)
- Health license
- Municipality operating license
- Fire safety clearance
- Tourism license (for hospitality franchises)
Royalty Structure and Repatriation Framework
Approved Royalty Rates
The Foreign Investment and Technology Transfer Regulations 2020 (FITTR) Schedule 1 prescribes maximum royalty rates :
| Royalty Basis | Local Sales | Export Sales |
|---|---|---|
| Total sales (excluding tax) | 5% maximum | 10% maximum |
| Net profit | 15% maximum | 20% maximum |
Trademark-Only Licensing Rates
| Sector | Local Sales | Export Sales |
|---|---|---|
| Alcohol and tobacco | 2% of total sales | 5% of total sales |
| Other industries | 3% of total sales | 6% of total sales |
Royalty Repatriation Process
Under Section 10(5) of the Foreign Exchange Regulation Act, foreign franchisors can repatriate licensing or royalty fees abroad with Nepal Rastra Bank (NRB) approval . Required documents include:
- Executed franchise agreement
- Auditor-certified calculation of amounts due
- Income tax payment certificate on royalty income
Master Franchisee Setup Specifics
The master franchisee model grants exclusive rights to develop and sub-franchise throughout Nepal :
Master Franchisee Obligations
- Establish pilot operations demonstrating brand standards
- Develop sub-franchisee recruitment and training systems
- Maintain quality control across all franchise units
- Pay master franchise fees typically USD 50,000-200,000
- Maintain royalty collection and remittance systems
Sub-Franchisee Management
- Draft sub-franchise agreements consistent with master agreement
- Ensure local sub-franchisees meet company registration requirements
- Collect and remit royalties to foreign franchisor
- Provide ongoing operational support and training
Cost Breakdown for Franchise Establishment
| Cost Category | Domestic Franchise | Foreign Franchise |
|---|---|---|
| Company Registration | NPR 15,000-35,000 | NPR 15,000-35,000 |
| Trademark Registration | NPR 5,000-15,000 | NPR 10,000-25,000 |
| FDI/DOI Approval | Not applicable | NPR 25,000-50,000 |
| Franchise Agreement Legal Fees | NPR 50,000-150,000 | NPR 100,000-300,000 |
| Initial Franchise Fee | NPR 5-20 lakhs | USD 5,000-50,000 |
| Royalty (ongoing) | 4-8% of revenue | 4-10% of revenue |
| Fit-out and Equipment | NPR 5-50 lakhs | NPR 10-100 lakhs |
| Working Capital Reserve | NPR 5-15 lakhs | NPR 10-30 lakhs |
| Total Initial Investment | NPR 15-50 lakhs | USD 25,000-150,000+ |
Timeline for Complete Franchise Establishment
| Stage | Domestic Franchise | Foreign Franchise |
|---|---|---|
| Trademark Registration | 6-12 months | 6-12 months |
| Company Registration | 7-10 days | 7-10 days |
| FDI/DOI Approval | Not applicable | 15-30 days |
| Industrial Enterprise Registration | 5-7 days | 5-7 days |
| Tax Registration | 3-5 days | 3-5 days |
| Municipal Licensing | 7-15 days | 7-15 days |
| Sector-Specific Approvals | 15-30 days | 15-30 days |
| Total Duration | 37-67 working days (plus trademark) | 52-97 working days (plus trademark) |
Pro Tip: Submit trademark and company incorporation applications simultaneously rather than sequentially to reduce overall timeline by several weeks .
Common Mistakes in Franchise Registration
| Mistake | Consequence | Prevention Strategy |
|---|---|---|
| Initiating franchise agreement before trademark registration | DOI rejection, legal invalidity | Complete trademark registration first |
| Underestimating trademark timeline | Delayed market entry, lease commitment risks | Begin trademark process 12 months before launch |
| Inadequate franchise agreement drafting | Unenforceable terms, disputes | Engage specialized franchise counsel |
| Missing FDI approval for foreign brands | Illegal operations, penalties | Secure DOI approval before commencing business |
| Incorrect royalty structuring | NRB repatriation rejection | Structure within FITTR Schedule 1 limits |
| Neglecting local licensing | Operational closure, fines | Secure all municipal and sectoral permits |
Frequently Asked Questions (FAQs)
Q1: How can a franchise business be registered in Nepal? A franchise business is registered through trademark registration with DOI, company incorporation with OCR, foreign investment approval under FITTA 2019 (for international brands), and franchise agreement approval from DOI .
Q2: Is there a specific franchise law in Nepal? No, Nepal does not have a standalone franchise law. Franchising is governed through FITTA 2019, Companies Act 2063, PDTA 1965, and Contract Act 2056 .
Q3: Can foreign brands operate franchises in Nepal? Yes, foreign brands can operate through technology transfer agreements under FITTA 2019. Both foreign and national brands can legally franchise in Nepal .
Q4: What is the minimum investment for foreign franchises? While no fixed statutory minimum exists, DOI typically rejects proposals below NPR 20 million for service franchises, making this the practical minimum threshold .
Q5: How long does trademark registration take in Nepal? Trademark registration typically requires 6-12 months if no opposition is filed . Priority claims under the Paris Convention can expedite foreign trademark registration .
Q6: What royalty rates are permitted for franchises? FITTR Schedule 1 permits up to 5% of total sales for local operations and 10% for exports, or 15% of net profit locally and 20% for exports .
Q7: Can franchise royalties be repatriated abroad? Yes, under FERA Section 10(5) with NRB approval, supported by franchise agreement, auditor-certified calculations, and tax payment certificates .
Q8: What documents are required for foreign franchise registration? Required documents include application for licensing, foreign partner passport/company registration, franchise agreement (2 copies), local company incorporation certificate, investor profile, audit report, industry registration, board resolutions, and power of attorney .
Q9: Are there sector restrictions for foreign franchises? Unlike general FDI, FITTA does not impose sector-specific restrictions on franchise businesses. Franchising is permitted even in some restricted FDI sectors .
Q10: How long is franchise agreement approval valid? DOI generally approves trademark licensing for 5-year terms, renewable upon application .
Conclusion: Building Franchise Success in Nepal
Understanding how to register a franchise business in Nepal requires mastery of trademark law, company incorporation procedures, foreign investment regulations, and ongoing compliance obligations. The master franchisee setup offers significant opportunities for exclusive territorial development, but success depends on meticulous adherence to the sequential registration process. The 12-month trademark registration timeline represents the most critical planning constraint—franchise agreements cannot proceed without completed trademark registration, making early initiation essential . With proper legal guidance, realistic timeline expectations, and systematic compliance management, both domestic and international franchise brands can establish profitable operations in Nepal's growing consumer market. For comprehensive franchise registration services, contact CorporateNp – your trusted partner for navigating Nepal's franchise landscape with expertise in trademark registration, DOI approval, and master franchisee structuring.
Disclaimer: This guide is provided for informational purposes only and does not constitute legal or investment advice. Franchise regulations and requirements are subject to change. Consult qualified legal professionals and verify current requirements with the Department of Industry, Office of Company Registrar, and other official government sources before making franchise decisions.
Service Provider:
CorporateNp specializes in franchise business registration, trademark protection, FDI approval facilitation, and ongoing compliance management for domestic and international franchise operations in Nepal.
References:
- Foreign Investment and Technology Transfer Act 2075 (2019)
- Patent, Design and Trademark Act 1965 (2022)
- Companies Act 2063 (2006)
- Industrial Enterprises Act 2076 (2020)
- Foreign Investment and Technology Transfer Regulations 2020
- Foreign Exchange Regulation Act 1962 (2019)
- Contract Act 2056 (2000)
- Department of Industry, Government of Nepal
