Franchising in Pakistan: Trademark Licences, Royalty Remittances and Tax

There is no law in Pakistan that requires franchise disclosure or registration of a franchise as such. The rules that matter come from several places:

• the TMO, for the trade mark licence (ss.74 to 78) and its recordal (s.70);
• general contract law, for the franchise agreement itself;
• Chapter 14 of SBP’s Foreign Exchange Manual, for remitting royalties and franchise fees abroad;
• the Income Tax Ordinance 2001, for tax on payments to a non-resident franchisor (ss.6 and 152);
• the Board of Investment, where an upfront fee is above SBP’s threshold;
• the Competition Act 2010, for restrictive clauses such as exclusive territories or pricing controls, and provincial sales tax on services, which may apply to franchise fees.

The brand is what a franchisee pays for, and the TMO sets the basic rules for licensing it:

• a licence may be general or limited, for example to some of the goods or services, or to use in a particular manner or locality (s.75(1) and (2));
• a licence is not effective unless it is in writing signed by or on behalf of the grantor (s.75(3));
• unless it says otherwise, a licence binds the grantor’s successors in title (s.75(4));
• a sub-licence can be granted only where the licence provides for it (s.75(5)), which matters for master franchise and area development structures;
• an exclusive licence excludes everyone else, including the grantor, from using the mark in the way it authorises (s.76(1)).

The Ordinance also decides who can sue infringers. Unless the licence provides otherwise, a licensee can call on the owner to take infringement proceedings, and may sue in its own name if the owner refuses or does nothing for two months (s.77(1)). An exclusive licence can give the licensee the rights and remedies of an assignee, so that it can sue in its own name (s.78(1)). The agreement should say clearly which party enforces the mark in Pakistan and who pays for it.

A franchisee’s use of the mark helps keep the franchisor’s registration alive. Permitted use is treated as use by the owner (s.74(1)), and the non-use ground for revocation in s.73(1)(a) speaks of bona fide use in Pakistan “by the proprietor or by an authorised user thereof”. The periods that apply, and the evidence of use that counts, are explained in our article on non-use revocation in Pakistan.

Uncontrolled use carries a risk. A registration can be revoked if, because of the use made of it with the owner’s consent, the mark has become liable to mislead the public, particularly about the nature, quality or geographical origin of the goods or services (s.73(1)(d)). Quality standards, approved suppliers, inspection and audit rights, and the right to terminate for breaches of standards are therefore legal protection for the mark as well as commercial controls. When a licence is recorded, the Register entry includes particulars of the relationship between owner and licensee, including the degree of control the owner will have over the permitted use (Trade Marks Rules 2004, r.63(2)(i)).

The grant of a licence under a registered trade mark is a registrable transaction (s.70(2)(b)). Until an application to register it is made, the licence is ineffective against a person who acquires a conflicting interest in the mark without knowing of it, and the licensee does not have the full statutory protection given to licensees (s.70(3)).

The owner and the licensee apply together on Form TM-28 (r.63(1)); the official fees are in the table below. The entry records, among other things, whether the licence is exclusive, its period, and any conditions on the goods or the place and manner of use (r.63(2)). Changes and cancellations have their own forms (rr.64 and 65). Where the mark is protected in Pakistan through a Madrid international registration, Pakistan has declared that licences recorded at WIPO have no effect in Pakistan, so the licence should be recorded nationally. For the recordal step in a wider portfolio, see trademark renewal and recordal in Pakistan.

Royalties and franchise fees are remitted through authorised dealer banks under Chapter 14 of SBP’s Foreign Exchange Manual. SBP’s EPD Circular Letter No. 12 of 19 December 2025 revised the rule for agriculture, social, infrastructure and service-sector projects, the category that covers franchises such as international food chains; the financial sector is outside it. Under the revised rule:

• banks may allow recurring royalty, franchise and technical fees of up to 8% of net local sales, meaning sales after deducting sales taxes and the cost of imported items;
• the recurring limit applies to both new and existing operations;
• the permitted duration of the agreement is 10 years, further renewable.

The circular tells banks to ensure meticulous compliance with the revised instructions, so confirm with the bank, before the fee clause is agreed, that the payments fit the revised paragraph. Businesses outside these sectors, including the financial sector, are not covered by it. Rules made by circular can change quickly; this section reflects the December 2025 circular.

For a new operation, the revised rule allows an initial lump sum or one-time fee of up to USD 250,000. The initial fee is not in addition to the 8% limit: it is included within it and adjusted over the term of the agreement against the recurring fee payments once operations commence. A request for an initial fee above USD 250,000 is referred to the Board of Investment for a decision, and no upfront lump sum is allowed for existing operations.

In practice, set the fee schedule so that the initial fee, the recurring percentage and any technical or marketing fees fit together within the limits, keep a clear record of how net sales are calculated, and ask the bank to confirm in writing that it will process the payments as drafted.

A payment for the use of, or the right to use, a trade mark is a royalty under the Income Tax Ordinance 2001 (s.2(54)). A non-resident that receives a Pakistan-source royalty is taxed on the gross amount at the rate in Division IV of Part I of the First Schedule (s.6(1) and (2)), and the person paying it must deduct the tax at that rate from the gross amount (s.152(1)). FBR’s withholding tax rate card, updated to 30 June 2026 under the Finance Act 2026, shows the rate for s.152(1) as 15%.

• The charge does not apply where the right giving rise to the royalty is effectively connected with a permanent establishment of the franchisor in Pakistan; that income is taxed as business income of the permanent establishment instead (s.6(3)(a) and (4)).
• A tax treaty between Pakistan and the franchisor’s country may provide a lower rate. FBR publishes the list of treaties.
• A payer that intends to pay without deducting tax, other than at a reduced treaty rate, must first give the Commissioner written notice (s.152(5)).

Agree in the contract whether fees are stated gross or net of tax, and who bears any shortfall. Provincial sales tax on services may also apply to franchise fees; in Punjab that is a matter for the Punjab Revenue Authority. Our tax services and compliance practice can review the tax position.

Sources: SBP EPD Circular Letter No. 12 (19 December 2025) and its Annexure-A, Income Tax Ordinance 2001, s.152 (FBR), FBR withholding tax rate card, Trade Marks Rules 2004 and IPO-Pakistan trademark fees and forms, checked 13 October 2026. SBP rules, tax rates and fees change; confirm them before signing.

• Grant, territory and exclusivity: an exclusive licence shuts out the franchisor too (s.76(1)), so say so only if that is intended.
• Standards and inspection: tie quality control to the revocation risk in s.73(1)(d).
• Ownership of the marks: the franchisee must not file the franchisor’s marks or similar marks, and must assign any filing it does make. A filing by an importer, agent or representative can be challenged under s.90, but prevention is cheaper.
• Enforcement: who sues infringers, who controls the case and who pays (ss.77 and 78).
• Recordal: both parties must sign Form TM-28, so include a duty to cooperate.
• Fees and payments: link the fee clauses to the SBP limits and the tax position above.
• Term: align the term with what SBP allows for remittances.
• Exit: on termination the franchisee must stop using the marks, de-identify premises, transfer domain names and social media accounts, and change any company or trade name that contains the mark. Using a registered mark as a trade name is itself an infringement (s.40(5)).
• Disputes: contract disputes can be referred to arbitration, but a suit for infringement of a trade mark can only be filed in an IP Tribunal (s.117 TMO).
• Competition law: check exclusive dealing, non-compete and pricing clauses against the Competition Act 2010.

A licence of a registered mark can be recorded, and the franchisor’s position is far stronger with a Pakistani registration in place before the franchisee starts trading. Without one, the franchisee or a third party may file first; see trademark squatting in Pakistan for how that is dealt with. Check that the filing covers every class the franchise will use, including restaurant or retail services and the goods sold under the brand: see trademark classes in Pakistan and trademark registration cost and timeline in Pakistan. Foreign franchisors should also read Pakistan trademark filing for foreign applicants.

Raza & Associates was established in 2005 and is listed in Tier 3 of The Legal 500 ranking for Pakistan intellectual property. Its IP enforcement and IP contracts practice covers trademark licensing agreements and franchise-related IP documentation, and the firm assists international clients with assignments, licensing, franchising and commercial IP contracts. Its trademark law practice handles the filings a franchise depends on.

Recording a licence is a proceeding before the Registrar, where an act may be done by a duly authorised registered trade mark agent (s.127 TMO). Hashim Raza of the firm is a Registered Trade Mark Agent, IPO-Pakistan (Trade Marks Registry), Reg. No. TM-215/20, on the register since 25 January 2019.

This guide summarises the Trade Marks Ordinance 2001 (as amended in 2023), the Trade Marks Rules 2004, IPO-Pakistan’s fee schedule, the Income Tax Ordinance 2001 and FBR’s withholding tax rate card, as read on 13 October 2026, and SBP’s EPD Circular Letter No. 12 of 19 December 2025. It is general information, not legal, tax or foreign exchange advice on any particular matter.