Franchising in Nepal: Process, Time, Cost, Laws

Franchising represents a business expansion model where a franchisor grants rights to a franchisee to operate a business using the franchisor’s brand, systems, and intellectual property. In Nepal, franchising has gained momentum across sectors including food and beverage, retail, education, and hospitality. The legal framework governing franchising in Nepal derives from multiple statutes including the Companies Act 2063, Foreign Investment and Technology Transfer Act 2075, and Industrial Enterprises Act 2076. Understanding the regulatory requirements, registration procedures, and compliance obligations remains essential for both domestic and international franchisors seeking to establish operations in Nepal.

Legal Framework for Franchising in Nepal

The Nepalese legal system does not contain specific legislation exclusively dedicated to franchising arrangements. Instead, franchising operations fall under the purview of several interconnected laws that regulate business operations, intellectual property, foreign investment, and contractual relationships.

The Companies Act 2063 (2006) governs the incorporation and operation of business entities in Nepal. Franchise operations typically require registration as a private limited company or public limited company under this Act. The Foreign Investment and Technology Transfer Act 2075 (2019) regulates foreign investment and technology transfer agreements, which apply when international franchisors enter the Nepalese market. The Industrial Enterprises Act 2076 (2020) provides the framework for industrial and commercial enterprises, including registration requirements and operational guidelines.

The Copyright Act 2059 (2002) and Patent, Design and Trademark Act 2022 (1965) protect intellectual property rights essential to franchise operations. The Contract Act 2056 (2000) governs the contractual relationship between franchisor and franchisee. The Competition Promotion and Market Protection Act 2063 (2007) ensures fair competition and prevents monopolistic practices in franchise arrangements.

Types of Franchising Models in Nepal

Franchising in Nepal operates through several distinct models, each with specific characteristics and legal implications. The choice of model depends on the nature of the business, investment capacity, and strategic objectives of both franchisor and franchisee.

Product Distribution Franchising involves the franchisee selling the franchisor’s products under the brand name. This model commonly appears in automobile dealerships, petroleum distribution, and consumer goods sectors. The franchisee maintains inventory and provides after-sales service while adhering to the franchisor’s quality standards and pricing policies.

Business Format Franchising represents the most comprehensive model where the franchisee receives complete business systems, operational procedures, training, and ongoing support. This model dominates the food and beverage, retail, and service sectors in Nepal. The franchisee replicates the entire business concept including branding, marketing, and operational protocols.

Master Franchising grants the franchisee exclusive rights to develop the franchise within a specific territory, typically an entire country or region. The master franchisee can sub-franchise to other operators within the territory. This model suits international franchisors entering the Nepalese market through local partners with market knowledge and resources.

Joint Venture Franchising combines franchising with equity participation where the franchisor and franchisee establish a jointly owned entity. This model provides the franchisor with greater control while sharing risks and returns with the local partner. The Foreign Investment and Technology Transfer Act 2075 regulates such arrangements involving foreign franchisors.

Franchise Registration Process in Nepal

The franchise registration process in Nepal involves multiple steps across different government agencies. The specific requirements vary depending on whether the franchisor is domestic or international and the nature of the franchise business.

Step 1: Company Registration

The franchisee must register a company under the Companies Act 2063 at the Office of Company Registrar.
The application requires submission of company name reservation, memorandum of association, and articles of association.
The company must have minimum authorized capital as prescribed by law, currently NPR 100,000 for private limited companies.
The registration process requires submission of citizenship certificates of promoters, tax clearance certificates, and registered office address proof.

Step 2: Foreign Investment Approval (if applicable)

Foreign franchisors must obtain approval from the Department of Industry under the Foreign Investment and Technology Transfer Act 2075.
The application requires submission of the franchise agreement, technology transfer agreement, and financial projections.
The Department evaluates the application based on technology transfer benefits, employment generation, and economic contribution.
Approval typically takes 15 to 30 working days from the date of complete application submission.

Step 3: Industrial Enterprise Registration

The franchise business must register with the Department of Industry under the Industrial Enterprises Act 2076.
The application requires submission of company registration certificate, tax registration certificate, and business plan.
The registration provides access to various government incentives and facilities available to industrial enterprises.
The Department issues the industrial enterprise registration certificate upon verification of submitted documents.

Step 4: Tax Registration

The franchisee must obtain a Permanent Account Number (PAN) from the Inland Revenue Department.
Value Added Tax (VAT) registration becomes mandatory if annual turnover exceeds NPR 5 million.
The tax registration requires submission of company registration certificate, office lease agreement, and citizenship certificates of directors.
The Inland Revenue Department issues the PAN certificate within 3 to 5 working days.

Step 5: Municipal License

The franchise outlet requires a business operation license from the respective municipal authority.
The application requires submission of company registration certificate, tax registration certificate, and property ownership or lease documents.
Municipal authorities conduct site inspection before issuing the license.
The license must be renewed annually with payment of prescribed fees.

Step 6: Sector-Specific Approvals

Food and beverage franchises require approval from the Department of Food Technology and Quality Control.
Educational franchises need approval from the Ministry of Education, Science and Technology.
Healthcare franchises require registration with the Department of Health Services.
Financial service franchises need approval from Nepal Rastra Bank or relevant regulatory authority.

Franchise Agreement Requirements

The franchise agreement constitutes the legal foundation of the franchisor-franchisee relationship. Nepalese law requires franchise agreements to contain specific provisions to ensure legal validity and enforceability.

The agreement must clearly identify the parties, including complete legal names, registered addresses, and registration details. The grant of franchise rights must specify the scope of rights granted, territorial exclusivity, and duration of the franchise relationship. The agreement should detail the franchise fee structure, including initial franchise fees, ongoing royalties, marketing contributions, and payment schedules.

Intellectual property provisions must address the use of trademarks, trade names, copyrights, patents, and proprietary systems. The agreement should specify quality standards, operational procedures, training requirements, and performance benchmarks. Termination clauses must outline grounds for termination, notice periods, post-termination obligations, and dispute resolution mechanisms.

The Foreign Investment and Technology Transfer Act 2075 requires technology transfer agreements to specify the nature of technology, transfer methodology, training provisions, and duration. The Act prohibits certain restrictive clauses including export restrictions, price fixing, and limitations on research and development activities.

Time Required for Franchise Establishment

The timeline for establishing a franchise operation in Nepal varies based on the complexity of the business, involvement of foreign investment, and efficiency of document preparation. The following table outlines typical timeframes for each stage:

Stage	Domestic Franchise	Foreign Franchise
Company Registration	7–10 working days	7–10 working days
Foreign Investment Approval	Not applicable	15–30 working days
Industrial Enterprise Registration	5–7 working days	5–7 working days
Tax Registration	3–5 working days	3–5 working days
Municipal License	7–15 working days	7–15 working days
Sector-Specific Approvals	15–30 working days	15–30 working days
Total Duration	37–67 working days	52–97 working days

The actual timeline may extend due to document deficiencies, requirement for additional information, or administrative delays. Engaging professional service providers can expedite the process through proper documentation and liaison with government agencies.

Cost Structure for Franchising in Nepal

The cost of establishing a franchise in Nepal comprises multiple components including registration fees, franchise fees, infrastructure investment, and operational expenses. The total investment varies significantly based on the franchise brand, business sector, and location.

Registration and Legal Costs

Cost Component	Amount (NPR)
Company Registration Fee	1,000 – 5,000
Foreign Investment Approval Fee	5,000 – 25,000
Industrial Enterprise Registration	1,000 – 10,000
Tax Registration	Free
Municipal License	5,000 – 50,000
Legal Documentation	50,000 – 200,000

Franchise-Specific Costs

The initial franchise fee ranges from NPR 500,000 to NPR 10,000,000 depending on the brand value and market position. International franchise brands typically charge higher fees compared to domestic franchises. Ongoing royalty fees generally range from 4% to 8% of gross sales, paid monthly or quarterly as specified in the franchise agreement.

Marketing and advertising contributions typically constitute 2% to 4% of gross sales, allocated to national and regional marketing campaigns. Training costs cover initial training for franchisee and staff, ranging from NPR 100,000 to NPR 500,000. Infrastructure and setup costs vary widely based on location and business type, typically ranging from NPR 2,000,000 to NPR 50,000,000.

Intellectual Property Protection

Intellectual property protection forms the cornerstone of successful franchising operations. The franchisor must register trademarks, copyrights, and patents in Nepal to enforce exclusive rights and prevent unauthorized use.

The Department of Industry administers trademark registration under the Patent, Design and Trademark Act 2022. The application requires submission of trademark representation, applicant details, and prescribed fees. The registration process involves examination, publication for opposition, and final registration. Trademark registration provides protection for seven years, renewable indefinitely.

Copyright protection arises automatically upon creation of original works under the Copyright Act 2059. However, registration with the Copyright Registration Office provides evidentiary value in enforcement proceedings. The franchisor should register operational manuals, training materials, marketing content, and proprietary systems.

The franchise agreement must contain comprehensive intellectual property clauses addressing permitted use, quality control, protection obligations, and consequences of infringement. The franchisee must agree to discontinue use of intellectual property upon termination of the franchise relationship.

Foreign Investment Regulations

Foreign franchisors entering Nepal must comply with the Foreign Investment and Technology Transfer Act 2075 and associated regulations. The Act establishes the framework for foreign investment approval, repatriation of profits, and technology transfer arrangements.

Foreign investors can invest in Nepal through equity participation, reinvestment of earnings, or technology transfer agreements. The Act permits 100% foreign ownership in most sectors except those reserved for Nepalese nationals or requiring joint venture arrangements. Reserved sectors include cottage industries, personal services, arms and ammunition, and certain security-related businesses.

The Department of Industry serves as the single-window agency for foreign investment approval. The application requires submission of project proposal, franchise agreement, financial projections, and technology transfer details. The Department evaluates applications based on economic benefits, technology transfer, employment generation, and environmental impact.

Approved foreign investors receive guarantees against nationalization, protection for repatriation of invested capital and profits, and access to industrial facilities. The Act permits repatriation of profits, dividends, and proceeds from sale of investment after payment of applicable taxes.

Tax Implications for Franchise Operations

Franchise operations in Nepal face multiple tax obligations under the Income Tax Act 2058 (2002) and Value Added Tax Act 2052 (1996). Understanding tax implications remains essential for financial planning and compliance.

Corporate income tax applies at 25% on taxable income for private limited companies. The tax rate reduces to 20% for companies listed on the Nepal Stock Exchange. Franchise fees paid to foreign franchisors constitute royalty income subject to 15% withholding tax under Nepalese tax law.

Value Added Tax applies at 13% on the supply of goods and services. Franchise businesses with annual turnover exceeding NPR 5 million must register for VAT. The franchisee can claim input tax credit on VAT paid for business purchases, reducing the net VAT liability.

Excise duty applies to specific products including alcohol, tobacco, and luxury goods. The rates vary based on product category as specified in the Excise Act 2058 (2002). Local taxes include property tax, vehicle tax, and entertainment tax levied by municipal authorities.

Tax treaties between Nepal and other countries may provide relief from double taxation on franchise fees and royalties. The franchisee must obtain a tax residency certificate from the foreign franchisor’s country to claim treaty benefits.

Compliance and Reporting Requirements

Franchise operations must maintain ongoing compliance with various regulatory requirements. The Companies Act 2063 requires annual general meetings, maintenance of statutory registers, and filing of annual returns with the Office of Company Registrar.

Financial statements must be prepared in accordance with Nepal Financial Reporting Standards and audited by registered chartered accountants. The audited financial statements must be filed with the Office of Company Registrar within six months of the financial year end.

Tax compliance includes filing of annual income tax returns, quarterly VAT returns, and monthly withholding tax returns. The Inland Revenue Department conducts tax audits to verify compliance with tax laws and proper maintenance of accounting records.

The Department of Industry requires annual progress reports from foreign-invested enterprises detailing production, sales, employment, and technology transfer activities. The industrial enterprise registration must be renewed periodically with updated information on business operations.

Labor law compliance includes registration with the Social Security Fund, maintenance of employment records, and adherence to minimum wage and working condition requirements under the Labor Act 2074 (2017).

Dispute Resolution Mechanisms

Franchise disputes may arise from various issues including breach of contract, quality standards, territorial rights, and termination. The franchise agreement should specify dispute resolution mechanisms to address conflicts efficiently.

Negotiation represents the first step in dispute resolution where parties attempt to resolve differences through direct discussion. The franchise agreement may require mandatory negotiation before pursuing formal dispute resolution procedures.

Mediation involves a neutral third party facilitating discussions between disputing parties to reach a mutually acceptable solution. The Mediation Act 2068 (2011) provides the legal framework for mediation in Nepal. Mediation offers confidentiality, cost-effectiveness, and preservation of business relationships.

Arbitration provides a binding resolution through a private tribunal. The Arbitration Act 2055 (1999) governs arbitration proceedings in Nepal. The franchise agreement may specify arbitration as the exclusive dispute resolution mechanism, including the seat of arbitration, applicable rules, and number of arbitrators.

Litigation through the court system remains available for franchise disputes. The District Court has jurisdiction over commercial disputes with appeal rights to the High Court and Supreme Court. However, litigation typically involves longer timeframes and higher costs compared to alternative dispute resolution methods.

Termination and Exit Provisions

Franchise termination requires careful attention to contractual provisions and legal requirements. The franchise agreement should specify grounds for termination, notice periods, and post-termination obligations.

Termination for cause occurs when one party commits a material breach of the franchise agreement. Common grounds include failure to pay franchise fees, violation of quality standards, unauthorized use of intellectual property, or insolvency. The non-breaching party must provide written notice specifying the breach and opportunity to cure within a reasonable period.

Termination for convenience allows either party to terminate the agreement without cause upon expiry of the initial term or by providing advance notice as specified in the agreement. The notice period typically ranges from three to twelve months depending on the nature of the franchise business.

Post-termination obligations include immediate discontinuation of intellectual property use, return of confidential information and proprietary materials, and de-identification of the franchise location. The franchisee must settle all outstanding financial obligations including franchise fees, royalties, and supplier payments.

The Contract Act 2056 governs the legal consequences of contract termination including damages for breach, restitution of benefits received, and enforcement of post-termination covenants. Non-compete clauses restricting the franchisee from operating competing businesses must be reasonable in scope, duration, and geographic area to be enforceable.

Sector-Specific Regulations

Different franchise sectors face additional regulatory requirements beyond general business registration. Food and beverage franchises must comply with the Food Act 2023 (1967) and obtain approval from the Department of Food Technology and Quality Control. The regulations cover food safety standards, hygiene requirements, labeling, and quality testing.

Educational franchises require approval from the Ministry of Education, Science and Technology under the Education Act 2028 (1971). The regulations address curriculum standards, teacher qualifications, infrastructure requirements, and fee structures. Foreign educational institutions must obtain equivalence recognition for degrees and certificates.

Healthcare franchises must register with the Department of Health Services under the Health Service Act 2053 (1997). The regulations cover medical practitioner licensing, facility standards, equipment requirements, and patient safety protocols. Pharmaceutical franchises require separate approval from the Department of Drug Administration.

Retail franchises dealing in specific products may require additional licenses including alcohol licenses, tobacco licenses, or pharmaceutical licenses. The respective regulatory authorities issue these licenses based on compliance with sector-specific requirements.

Role of Professional Service Providers

Professional service providers facilitate franchise establishment through expert guidance, documentation, and liaison with government agencies. Axion Partners stands as the No.1 service provider for franchising services in Nepal, offering comprehensive support throughout the franchise establishment process.

Legal advisors assist with franchise agreement drafting, regulatory compliance review, and intellectual property protection. They ensure franchise agreements comply with Nepalese law and protect the interests of both franchisor and franchisee. Legal advisors also provide representation in dispute resolution proceedings.

Chartered accountants provide tax planning, financial structuring, and compliance services. They assist with company registration, tax registration, and preparation of financial projections required for foreign investment approval. Ongoing services include accounting, auditing, and tax return filing.

Business consultants conduct market research, feasibility studies, and location analysis for franchise operations. They assist with business plan preparation, operational setup, and staff training. Consultants also provide ongoing support for performance monitoring and business optimization.

Frequently Asked Questions

What is the minimum investment required for franchising in Nepal?

The minimum investment varies by franchise brand and sector, typically ranging from NPR 2,000,000 to NPR 50,000,000. This includes franchise fees, infrastructure costs, working capital, and registration expenses. International franchises generally require higher investment compared to domestic franchises.

Can foreign nationals own 100% of a franchise business in Nepal?

Foreign nationals can own 100% equity in most franchise businesses under the Foreign Investment and Technology Transfer Act 2075. However, certain sectors require joint venture arrangements with Nepalese partners or are reserved exclusively for Nepalese nationals.

How long does franchise registration take in Nepal?

Domestic franchise registration typically takes 37 to 67 working days, while foreign franchise registration requires 52 to 97 working days. The timeline depends on document completeness, sector-specific approvals, and administrative processing efficiency.

What taxes apply to franchise operations in Nepal?

Franchise operations face corporate income tax at 25%, Value Added Tax at 13%, and withholding tax at 15% on royalties paid to foreign franchisors. Additional taxes include excise duty on specific products and local taxes levied by municipal authorities.

Is there specific franchise legislation in Nepal?

Nepal does not have dedicated franchise legislation. Franchising operates under multiple laws including the Companies Act 2063, Foreign Investment and Technology Transfer Act 2075, Industrial Enterprises Act 2076, and intellectual property laws.

What intellectual property protection exists for franchises?

Franchisors can register trademarks under the Patent, Design and Trademark Act 2022 and copyrights under the Copyright Act 2059. Registration provides exclusive rights and legal remedies against infringement. Trademark registration lasts seven years with indefinite renewal options.

Can franchise agreements include non-compete clauses?

Franchise agreements can include non-compete clauses restricting franchisees from operating competing businesses. However, such clauses must be reasonable in scope, duration, and geographic area to be enforceable under the Contract Act 2056.

What happens if the franchise agreement is terminated?

Upon termination, the franchisee must immediately discontinue use of intellectual property, return confidential materials, de-identify the location, and settle outstanding financial obligations. The franchise agreement specifies detailed post-termination obligations and consequences of breach.

Are there restrictions on repatriation of franchise fees?

Foreign franchisors can repatriate franchise fees, royalties, and profits after payment of applicable withholding taxes. The Foreign Investment and Technology Transfer Act 2075 guarantees repatriation rights for approved foreign investments.

Which government agency approves foreign franchise investments?

The Department of Industry under the Ministry of Industry, Commerce and Supplies approves foreign franchise investments. The Department serves as the single-window agency for foreign investment approval and industrial enterprise registration.