Trademark Licensing & Franchise in Pakistan: 2026 Guide

Trademark Licensing & Franchise In Pakistan: 2026 Guide

Legal guide to trademark licensing and franchise deals in Pakistan. Learn Section 70 Registered Users, SBP royalty remittances, and WHT rules.

By Syed Asad Hussain Zaidi · 8 September 2026

Author Note / Last Updated: Updated September 2026 by Syed Asad Hussain Zaidi | Advocate High Court | Professional Tax Consultant

From international fast-food chains opening flagship outlets in Karachi and Lahore to homegrown apparel brands expanding into tier-two cities through local retail partners, franchising and trademark licensing represent one of the fastest-growing commercial sectors in Pakistan.

Commercial licensing allows a brand owner (the Licensor/Franchisor) to scale their market presence, capture nationwide retail market share, and generate recurring royalty revenues without incurring the enormous capital expenditure of opening and managing dozens of company-owned stores. Simultaneously, it allows local entrepreneurs (the Licensees/Franchisees) to launch a business with an instantly recognizable brand name, established operational playbooks, and loyal consumer traffic.

However, commercial execution often outpaces legal compliance. Far too many Pakistani business owners draft informal "Franchise Agreements" on plain paper, neglecting the intricate statutory requirements established by the Trade Marks Registry (TMR) of IPO-Pakistan, the State Bank of Pakistan (SBP), and the Federal Board of Revenue (FBR).

Failing to properly structure and register a trademark license in Pakistan carries catastrophic legal consequences:

This definitive 2026 legal and corporate tax guide outlines the essential statutory framework governing trademark licensing, registered user agreements, and commercial franchising in Pakistan.

1. Trademark License vs. Trademark Assignment

Before structuring a commercial transaction, parties must clearly distinguish between a License and an Assignment:

| Legal Dimension | Trademark Assignment | Trademark License (Franchise) | | :--- | :--- | :--- | | Nature of Transaction | Permanent sale / outright transfer of title | Temporary permission / lease to use the mark | | Ownership Status | Assignee becomes the new permanent legal owner | Licensor remains 100% legal proprietor throughout | | Duration | Permanent and irrevocable | Defined contractual term (e.g., 5, 10, or 15 years) | | Reversion Rights | Title does not revert upon commercial dispute | Upon termination, all rights immediately revert to Licensor | | Official IPO Form | Form TM-23 / TM-24 (Recordal of Assignment) | Form TM-28 (Application for Registered User) |

Categories of Licenses in Pakistan

  1. Exclusive License: The licensee is the only entity authorized to use the mark in the defined territory. Even the licensor agrees not to commercially operate or sell goods under that mark within that geographic boundary.
  2. Sole License: The licensee and the licensor can both operate in the territory, but the licensor agrees not to appoint any third-party licensees.
  3. Non-Exclusive License: The licensor retains full freedom to operate and grant multiple concurrent licenses to different operators across the country (the standard model for multi-unit retail franchising).

2. The Statutory Core: Section 70 & The "Registered User" Mechanism

Under the Trade Marks Ordinance, 2001, the primary statutory mechanism for licensing a registered trademark is the "Registered User" procedure set out in Section 70.

| Step | Phase | Action Required | Statutory Effect | | :--- | :--- | :--- | :--- | | Step 1 | Agreement Execution | Execute detailed License / Franchise Agreement with quality control covenants. | Establishes commercial terms, royalty rates, and operational territory. | | Step 2 | Joint Filing (Form TM-28) | Submit joint application on Form TM-28 to Registrar of Trade Marks (IPO-Pakistan). | Formally notifies IPO-Pakistan of licensed user relationship. | | Step 3 | Examination & Recordal | Registrar reviews agreement and issues Registered User Certificate. | Recorded in official Trade Marks Register. | | Step 4 | Statutory Shield | Commercial use by Registered User counts legally as use by Proprietor. | Shields registered trademark against Section 73 non-use revocation attacks! |

Why Section 70 Registration is Absolutely Critical

Many Pakistani companies sign private franchise contracts and never bother registering the licensee with the Trade Marks Registry. This oversight creates two lethal legal risks:

Risk 1: Trademark Revocation for Non-Use (Section 73)

Under Section 73 of the Trade Marks Ordinance, 2001, any competitor can petition the Registrar or High Court to revoke a registered trademark if:

Here is the legal trap: If a Pakistani or foreign trademark owner allows an independent franchisee to run all retail operations for five years, but never registered the franchisee as a Registered User under Section 70, the franchisee's commercial use does NOT legally count as use by the proprietor!

A predatory competitor can file a non-use revocation petition under Section 73, prove that the trademark owner has not directly sold goods in five years, and convince the court to cancel the trademark, leaving the entire franchise network unprotected!

Risk 2: Statutory Protection Under Section 71 / 80

When the licensee is formally recorded as a Registered User via Form TM-28 under Section 70, the statute explicitly provides that permitted use of a trade mark by a registered user shall be deemed to be use by the proprietor thereof for the purposes of Section 73 and any other provision requiring proof of use.

Registration at IPO-Pakistan legally anchors the franchisee's retail activity to the owner's title, creating an impenetrable defense against non-use challenges.

3. The "Naked Licensing" Doctrine and Quality Control

Under Pakistani trademark jurisprudence and common law, a trademark is not merely an abstract property right; it is a guarantee of commercial source and uniform quality to the consuming public.

If a trademark proprietor licenses their brand name to a third party but fails to maintain strict, active Quality Control over how the licensee manufactures or sells the goods, the arrangement is deemed a "Naked License":

  1. Licensor grants license without ongoing quality control or operational inspection.
  2. Licensee distributes substandard, inconsistent, or counterfeit-grade products to consumers.
  3. The trademark ceases to guarantee uniform commercial source and quality.
  4. The mark suffers legal loss of distinctiveness, opening it to invalidation or cancellation under Section 14 and Section 73.

If a trademark loses its distinctiveness due to uncontrolled naked licensing, competing merchants can petition the High Court to invalidate the mark under Section 14(1)(a).

Mandatory Quality Control Clauses in Every Agreement:

To prevent naked licensing claims, every Pakistani agreement must contain explicit, enforceable oversight mechanisms:

  1. Strict Specification Adherence: The licensee must strictly follow the recipes, raw material sourcing, interior design specifications, and operational manuals provided by the licensor.
  2. Right of Unannounced Inspection: The licensor’s corporate quality auditors must have the unconditional contractual right to enter the franchisee's premises during business hours to inspect kitchens, inventory, and hygiene standards.
  3. Mandatory Product Testing: The licensee must periodically submit random product batches for chemical, laboratory, or sensory testing at their own expense.
  4. Immediate Cure & Termination Rights: If a quality audit scores below standard, the licensor must have the contractual power to shut down operations within 48 hours if the defect is not cured.

4. Foreign Franchises & State Bank of Pakistan (SBP) Regulations

When a Pakistani enterprise acquires a foreign franchise (e.g., from the United States, United Kingdom, or UAE) and remits royalties abroad, the transaction is governed by the State Bank of Pakistan (SBP) Foreign Exchange Manual (Chapter 14).

Historically, Pakistani banks could not remit foreign exchange abroad for royalties without cumbersome prior approval from the SBP or the Board of Investment (BOI). While the SBP has introduced automated facilitation through Authorized Dealers (commercial banks), strict regulatory ceilings apply:

SBP Guidelines on Royalty Remittances:

  1. Lump-Sum Upfront Technical / Franchise Fee: SBP regulations generally permit an initial lump-sum franchise/technical fee payable in foreign currency, provided the agreement is registered with an Authorized Dealer bank.
  2. Recurring Royalty Ceiling: Ongoing commercial royalties are typically capped at 5% to 7% of net sales (excluding government taxes and imported raw material costs). Remittances exceeding these thresholds require formal commercial justification and special SBP clearance.
  3. Mandatory Documentation: Authorized Dealers will not release foreign exchange remittances without:
* A certified copy of the executed Franchise/License Agreement;

* Certified proof of trademark registration at IPO-Pakistan (or the foreign home country registry); * Audited financial certificates from a Chartered Accountant certifying the net sales calculation; * Proof of payment of applicable federal and provincial withholding taxes.

5. The Corporate Tax Framework: FBR & Provincial Sales Tax

Franchising transactions in Pakistan are heavily scrutinized by tax authorities at both the federal (FBR) and provincial (PRA, SRB, KPRA, BRA) levels:

| Tax Authority | Tax Head | Statutory Rate & Scope | Compliance Mandate | | :--- | :--- | :--- | :--- | | Federal Board of Revenue (FBR) | Domestic Royalty (Sec 153) | Applicable corporate/individual withholding rate. | Section 21 disallows expense if WHT not withheld. | | Federal Board of Revenue (FBR) | Foreign Royalty Remittance (Sec 152) | 15% standard gross WHT (reduced to 10%–12.5% under applicable Double Tax Treaties). | Requires Certificate of Tax Residence (TRC) from foreign franchisor. | | Punjab Revenue Authority (PRA) | Provincial Sales Tax on Services | 16% on gross franchise fees, technical advisory fees, and royalties. | Punjab Sales Tax on Services Act, 2012. | | Sindh Revenue Board (SRB) | Provincial Sales Tax on Services | 15% on gross franchise fees and royalty billings. | Sindh Sales Tax on Services Act, 2011. |

1. Federal Withholding Tax under Income Tax Ordinance, 2001

2. Disallowance of Expenses under Section 21

Under Section 21(c) and (l) of the Income Tax Ordinance, 2001, if a Pakistani business pays a royalty fee but fails to deduct and deposit the statutory withholding tax into the government treasury, the FBR disallows the entire royalty expense as a tax deduction, artificially inflating the company's taxable profit and triggering punitive penalties!

3. Provincial Sales Tax on Franchise Services

A major area of litigation in Pakistan involves provincial sales tax on services:

6. Essential Clauses in an Enforceable Franchise Agreement

A comprehensive Pakistani franchise contract drafted by an Advocate High Court should contain clear contractual protections:

  1. Precise Grant of Rights & Territory: Demarcating the exact geographical boundary (e.g., "The municipal limits of Gulberg and DHA Lahore"), stating whether the license is exclusive or non-exclusive.
  2. Quality Standards & Brand Guidelines: Mandatory adherence to brand visual identity, packaging, store layout, and supplier lists.
  3. Audits and Financial Reporting: Granting the licensor monthly access to Point-of-Sale (POS) electronic records to audit gross turnover.
  4. Restrictive Covenants & Section 27 Contract Act: Non-compete covenants during the agreement are enforceable. However, under Section 27 of the Contract Act, 1872, covenants restraining trade after termination must be strictly reasonable in duration and geography to avoid being struck down by Pakistani courts.
  5. De-Identification upon Termination: Unconditional obligation that within 14 days of termination, the franchisee must dismantle all signage, repaint premises, cease using all recipes/software, and surrender all branded inventory.
  6. Dispute Resolution & Governing Law: Specifying Pakistani law, with arbitration seated in Karachi or Lahore under the Arbitration Act, 1940, or international arbitration (LCIA/SIAC) for cross-border transactions.

Action Checklist for Franchisors and Franchisees

  1. Verify Registered Status: Ensure the primary trademark is officially registered (Form TM-11) at IPO-Pakistan before issuing commercial licenses.
  2. Execute Form TM-28 Simultaneously: File the Joint Application for Registered User with the Trade Marks Registry immediately upon signing the commercial contract.
  3. Build Concrete Quality Audit Mechanisms: Insert detailed operational schedules to eliminate any risk of "naked licensing" invalidation.
  4. Obtain Tax Treaty Clearances Early: For foreign franchisors, secure the foreign Certificate of Tax Residence to unlock lower treaty withholding rates under Section 152.
  5. Factor Provincial Sales Tax into Royalty Calculations: Account for PRA (16%) or SRB (15%) sales tax obligations in the commercial fee schedule.

Disclaimer: This guide is prepared for informational and commercial planning purposes. Trademark licensing, foreign exchange remittances, and cross-border tax withholding involve complex statutory compliance. Consult an Advocate High Court or corporate tax specialist for formal legal representation.

Legal & Statutory Notice: The information provided in this publication is for general educational, academic, and statutory informational purposes only under the relevant laws of Pakistan (including the Income Tax Ordinance, 2001, the Companies Act, 2017, and the Trade Marks Ordinance, 2001). This content does not constitute formal legal, financial, or tax advice. For specific assessments, consult a licensed Advocate or qualified tax professional.