Established brands that have reached maturity in major global economies, are looking to the countries of Central Asia for new opportunities. This includes Pakistan, which ranks 41st by GDP, as the ever-growing community of non-resident Pakistanis enjoy North American quick service restaurant (QSR) brands and seek to bring them to their home country. Many consider famous franchise brands to be a sound investment.

International franchisors present in the country include prominent QSR brands such as Pizza Hut, Baskin-Robbins, Burger King, Domino’s Pizza, Dunkin Donuts, KFC, McDonald’s and Subway; retailers such as Crocs and Nike; hotels such as Days Inn, Best Western, Marriott, and Ramada; transport companies such as UPS and FedEx; and car rental and sharing companies such as Hertz, Avis and Uber.

Franchise laws in Pakistan

Pakistan does not have any technical franchise laws. Notably, it does not require the preparation of a formal franchise disclosure document. The registration of the franchise agreement with the State Bank of Pakistan is required to obtain permission to remit franchise fees abroad.

FOREX restrictions on remittance of franchise fees from Pakistan

Strict limits apply to maximum remittances of fees abroad. These are currently:

• US$100,000 in lump sum fees over the life of the agreement
• 5% recurring fees (including both franchise and marketing fees), and recurring fees can only be charged on qualifying revenue

Franchisors need to review their definition of gross revenue to ensure it complies with these requirements before submitting the agreement to the Bank. There are certain limited exemptions available, but these can be difficult to secure.

Term of the franchise agreement

The maximum duration of the registration of the franchise agreement with the State Bank of Pakistan is five years. The bank does not typically approve remittances abroad for a period of more than five years. The parties therefore need to consider multiple renewals supported by re-registration.

Competition law applicable to franchise agreements performed in Pakistan

Local mandatory laws prohibit all forms of restrictions on exercising a lawful profession as a matter of public policy. This could capture both the in-term and post-term non-compete provisions typically found in franchise agreements. An exemption is available to protect the goodwill of the franchisor provided the restrictions are reasonable in geographic scope and duration and prevent the operation of a similar business. The franchise agreement also needs to be notified to the Pakistan Competition Commission. The notification is necessary not only to ensure enforceability of the non-competition covenants, but also any obligations on the franchisee to purchase products from the franchisor or its nominated suppliers. This procedure is normally straightforward and quick.

More information

Dentons’ Franchise Group includes lawyers qualified in Pakistan. Please contact Babette Marzheuser-Wood, Global Head of Franchising for more information.