Foreign companies seeking to establish operations in Nepal must comply with the Companies Act, 2063 (2006) and the Foreign Investment and Technology Transfer Act, 2075 (2019). The Department of Industry (DOI) serves as the primary regulatory authority for foreign investment approvals, while the Office of the Company Registrar (OCR) handles company registration procedures. Foreign entities can operate through subsidiary companies, branch offices, or liaison offices, each subject to specific regulatory requirements and compliance obligations under Nepalese law.
Types of Business Entities Available for Foreign Investors
Foreign investors can establish three primary types of business entities in Nepal. A subsidiary company operates as a separate legal entity incorporated under the Companies Act, 2063 (2006), with foreign ownership permitted up to 100% in most sectors. A branch office functions as an extension of the foreign parent company without separate legal personality, authorized to conduct commercial activities. A liaison office serves solely for market research and coordination purposes without engaging in profit-generating commercial activities, as specified under the Industrial Enterprises Act, 2076 (2020).
Entity TypeLegal StatusCommercial ActivitiesProfit RepatriationSubsidiary CompanySeparate legal entityPermittedAllowed after taxBranch OfficeExtension of parentPermittedAllowed after taxLiaison OfficeRepresentative officeNot permittedNot applicable
Pre-Registration Requirements and Documentation
Foreign Investment Approval
Foreign investors must obtain prior approval from the Department of Industry before incorporating a company in Nepal. The Foreign Investment and Technology Transfer Act, 2075 (2019) mandates this approval for investments exceeding NPR 50 million or involving restricted sectors. The application requires submission of a detailed project proposal, financial projections, and technology transfer agreements if applicable. The DOI typically processes applications within 7 working days for automatic approval sectors and 30 days for sectors requiring additional scrutiny.
Required Documents for Foreign Investors
Foreign investors must prepare and submit the following documents for company incorporation:
- Passport copies of all foreign shareholders and directors must be notarized and authenticated by the Nepalese embassy or consulate in the home country.
- Board resolution from the parent company authorizing the establishment of operations in Nepal must be properly executed and legalized.
- Certificate of incorporation and memorandum of association of the parent company must be apostilled or authenticated through diplomatic channels.
- Bank reference letter confirming the financial standing of the foreign investor must be issued within three months of application.
- Tax clearance certificate from the home country demonstrating compliance with tax obligations must be submitted.
- Proof of registered office address in Nepal through a lease agreement or ownership document must be provided.
- Photographs of all directors and shareholders meeting passport-size specifications must be attached to application forms.
Step-by-Step Company Incorporation Process
Step 1: Name Reservation
The first step involves reserving the proposed company name through the Office of the Company Registrar. The application requires submission of three alternative names in order of preference, along with a fee of NPR 100. The OCR verifies name availability within 1-2 working days, ensuring the proposed name does not conflict with existing registered entities or violate naming conventions under Section 9 of the Companies Act, 2063 (2006). Reserved names remain valid for 35 days from the date of approval.
Step 2: Foreign Investment Approval Application
Foreign investors must submit the foreign investment approval application to the Department of Industry with the following components:
- Completed application form as prescribed by the DOI must include detailed information about the proposed business activities and investment amount.
- Project proposal outlining business objectives, market analysis, employment generation, and technology transfer must be comprehensive and realistic.
- Financial projections for at least three years must demonstrate project viability and expected returns on investment.
- Environmental impact assessment may be required for projects in manufacturing, tourism, or infrastructure sectors as per the Environment Protection Act, 2076 (2019).
Step 3: Capital Verification and Bank Account Opening
Foreign investors must open a capital verification account at a licensed commercial bank in Nepal. The minimum capital requirement varies by business sector, with NPR 50 million required for foreign investment projects under the Foreign Investment and Technology Transfer Act, 2075 (2019). Banks issue a capital verification certificate confirming the deposit of required capital, which must be submitted to the OCR during company registration. The capital must remain in the account until the company receives its certificate of incorporation.
Step 4: Company Registration at OCR
The company registration application must be submitted to the Office of the Company Registrar with the following documents:
- Memorandum of Association defining the company’s objectives, authorized capital, and shareholding structure must comply with Schedule 1 of the Companies Act, 2063 (2006).
- Articles of Association specifying internal governance rules, director powers, and shareholder rights must be properly drafted and executed.
- Foreign investment approval letter issued by the Department of Industry must be submitted in original.
- Capital verification certificate from the bank confirming deposit of minimum capital must be recent and valid.
- Consent letters from directors agreeing to serve in their respective positions must be notarized.
- Declaration of compliance with all legal requirements must be signed by the company secretary or authorized representative.
Step 5: Tax Registration
Within 30 days of incorporation, the company must register with the Inland Revenue Department for tax purposes. The registration covers Permanent Account Number (PAN) issuance, Value Added Tax (VAT) registration if annual turnover exceeds NPR 5 million, and employer registration for withholding tax purposes under the Income Tax Act, 2058 (2002). The IRD issues the PAN certificate within 3-5 working days of application submission with required documents including the certificate of incorporation and memorandum of association.
Step 6: Municipal and Local Registrations
The company must obtain business operation approval from the local municipal office where the registered office is located. This requires submission of the certificate of incorporation, office lease agreement, and PAN certificate. The municipality conducts a site verification and issues the business operation certificate within 7-15 working days. Additionally, companies must register with the local ward office and obtain necessary sector-specific licenses depending on the nature of business activities.
Sector-Specific Compliance Requirements
Restricted and Prohibited Sectors
The Foreign Investment and Technology Transfer Act, 2075 (2019) identifies sectors where foreign investment is restricted or prohibited. Prohibited sectors include retail trading with capital less than NPR 100 million, personal service businesses, arms and ammunition manufacturing, and real estate business except for industrial infrastructure development. Restricted sectors requiring special approval include security services, consultancy services, and industries affecting public health and environment. Foreign investors must verify sector eligibility before initiating the incorporation process.
Regulated Industries Licensing
Companies operating in regulated industries must obtain additional licenses and approvals from sector-specific regulatory authorities:
- Financial services companies must obtain licenses from Nepal Rastra Bank under the Banks and Financial Institutions Act, 2073 (2017).
- Insurance companies require approval from the Insurance Board under the Insurance Act, 2079 (2023).
- Telecommunications companies must secure licenses from the Nepal Telecommunications Authority under the Telecommunications Act, 2053 (1997).
- Tourism enterprises need registration with the Department of Tourism under the Tourism Act, 2035 (1978).
- Manufacturing industries require environmental clearance from the Ministry of Forest and Environment for specified categories.
Post-Incorporation Compliance Obligations
Annual Filing Requirements
Registered companies must fulfill annual compliance obligations under the Companies Act, 2063 (2006). Every company must file an annual return with the Office of the Company Registrar within 60 days of the annual general meeting, accompanied by audited financial statements, director’s report, and auditor’s report. The annual return fee varies based on authorized capital, ranging from NPR 2,000 to NPR 25,000. Companies must also file annual income tax returns with the Inland Revenue Department by the 15th day of the tenth month following the fiscal year end.
Statutory Audit and Accounting
All companies incorporated in Nepal must maintain proper books of accounts as per Nepal Accounting Standards and conduct annual statutory audits by licensed chartered accountants. The Companies Act, 2063 (2006) requires appointment of auditors at each annual general meeting for a one-year term. Foreign companies must prepare financial statements showing true and fair view of financial position, profit and loss, and cash flows. The audit report must be submitted to shareholders at the annual general meeting and filed with the OCR along with the annual return.
Board Meeting and AGM Requirements
Companies must conduct at least four board meetings annually with a minimum gap of three months between meetings as per Section 108 of the Companies Act, 2063 (2006). The annual general meeting must be held within six months of the fiscal year end to approve financial statements, declare dividends, and appoint auditors. Proper notice of 21 days must be given to all shareholders for AGM, and minutes of all meetings must be maintained in the statutory registers at the registered office.
Tax Compliance for Foreign Companies
Corporate Income Tax
Foreign companies operating in Nepal are subject to corporate income tax at the rate of 25% on taxable income under the Income Tax Act, 2058 (2002). Companies must file quarterly advance tax payments and annual income tax returns. The fiscal year runs from mid-July to mid-July (Shrawan to Ashad in Nepali calendar). Tax returns must be filed by Kartik 15 (approximately October 31) following the fiscal year end, accompanied by audited financial statements and tax computation schedules.
Withholding Tax Obligations
Companies must withhold tax on various payments including employee salaries, contractor payments, professional fees, rent, and interest. The withholding tax rates vary from 1.5% to 15% depending on the nature of payment and recipient status. Withheld taxes must be deposited to the government treasury within 25 days of the month following deduction. Monthly withholding tax returns must be filed with the Inland Revenue Department, and annual withholding tax statements must be provided to payees by Shrawan end (mid-August).
Value Added Tax Compliance
Companies with annual turnover exceeding NPR 5 million must register for VAT and charge 13% VAT on taxable supplies under the Value Added Tax Act, 2052 (1996). VAT-registered entities must issue tax invoices for all sales, maintain proper VAT records, and file monthly VAT returns by the 25th day of the following month. Input VAT paid on business purchases can be claimed as credit against output VAT liability. Exports are zero-rated, allowing full input VAT refund.
Labor and Employment Compliance
Work Permit Requirements for Foreign Employees
Foreign nationals employed in Nepal must obtain work permits from the Department of Immigration under the Immigration Act, 2049 (1992). The employer company must first obtain approval from the Department of Labor and Employment Relations, demonstrating that qualified Nepali nationals are unavailable for the position. Work permits are issued for one year initially and can be renewed annually. Companies must maintain a ratio of at least 10 Nepali employees for each foreign employee, except for senior management positions.
Social Security and Provident Fund
The Social Security Act, 2074 (2018) mandates employer and employee contributions to the Social Security Fund for companies employing 10 or more workers. Employers must contribute 20% of basic salary while employees contribute 11%, covering health insurance, accident insurance, dependent family benefits, and medical treatment. Companies must register with the Social Security Fund within 30 days of meeting the threshold and remit monthly contributions by the 15th of the following month.
Labor Law Compliance
Companies must comply with the Labor Act, 2074 (2017) regarding employment contracts, working hours, leave entitlements, and termination procedures. The standard working week is 48 hours with mandatory weekly rest. Employees are entitled to annual leave, sick leave, maternity leave, and public holidays as specified in the Act. Companies must maintain employment registers, attendance records, and wage registers at the workplace. Termination of employment requires valid grounds and proper notice or compensation as per statutory requirements.
Foreign Exchange and Repatriation Regulations
Dividend Repatriation
Foreign investors can repatriate dividends after paying applicable taxes under the Foreign Exchange (Regulation) Act, 2019 (1962). The company must obtain a tax clearance certificate from the Inland Revenue Department confirming payment of 5% dividend distribution tax. Repatriation applications must be submitted to authorized commercial banks with supporting documents including board resolution approving dividend distribution, audited financial statements, and proof of tax payment. Banks process repatriation requests within 7 working days of receiving complete documentation.
Capital Repatriation
Foreign investors may repatriate invested capital upon liquidation or sale of investment after obtaining approval from the Department of Industry. The Foreign Investment and Technology Transfer Act, 2075 (2019) guarantees repatriation of proceeds from sale of shares or liquidation of investment. The investor must settle all tax liabilities, obtain tax clearance, and provide proof of original investment. Nepal Rastra Bank regulations require submission of audited accounts showing the investment amount and current value for repatriation approval.
Intellectual Property Protection
Foreign companies must register trademarks, patents, and copyrights with the Department of Industry to secure intellectual property protection in Nepal. The Patent, Design and Trademark Act, 2022 (1965) provides legal framework for IP registration and enforcement. Trademark registration requires submission of application with specimen, power of attorney, and priority documents if claiming convention priority. The registration process takes 12-18 months and provides protection for 10 years, renewable indefinitely. Patent protection is available for 7 years for inventions meeting novelty and industrial applicability criteria.
Compliance Monitoring and Penalties
Regulatory Inspections
The Office of the Company Registrar, Department of Industry, and Inland Revenue Department conduct periodic inspections to verify compliance with statutory requirements. Companies must maintain all statutory registers, minutes books, and financial records at the registered office for inspection. The Labor Department conducts workplace inspections to verify compliance with labor laws and social security obligations. Non-compliance may result in penalties, fines, or suspension of business operations.
Penalties for Non-Compliance
The Companies Act, 2063 (2006) prescribes penalties for various violations including failure to file annual returns (NPR 10,000 to NPR 100,000), non-maintenance of statutory records (NPR 5,000 to NPR 50,000), and conducting business without proper registration (NPR 100,000 to NPR 500,000). Tax violations under the Income Tax Act, 2058 (2002) attract penalties ranging from 25% to 100% of tax due, plus interest at 15% per annum. Repeated violations may lead to director disqualification and company deregistration.
Ongoing Compliance Calendar
Compliance ActivityFrequencyDeadlineRegulatory AuthorityAdvance Tax PaymentQuarterlyAshwin 15, Poush 15, Chaitra 15Inland Revenue DepartmentVAT Return FilingMonthly25th of following monthInland Revenue DepartmentWithholding Tax ReturnMonthly25th of following monthInland Revenue DepartmentSocial Security ContributionMonthly15th of following monthSocial Security FundBoard MeetingQuarterlyWithin 3 monthsCompany RequirementAnnual General MeetingAnnuallyWithin 6 months of year endOffice of Company RegistrarAnnual Return FilingAnnuallyWithin 60 days of AGMOffice of Company RegistrarIncome Tax ReturnAnnuallyKartik 15Inland Revenue Department
Professional Service Requirements
Mandatory Appointments
Companies must appoint qualified professionals to ensure compliance with statutory requirements. A company secretary must be appointed for companies with paid-up capital exceeding NPR 10 million under Section 110 of the Companies Act, 2063 (2006). The company secretary must be a member of the Institute of Chartered Secretaries of Nepal and is responsible for maintaining statutory registers, filing returns, and ensuring corporate governance compliance. All companies must appoint a statutory auditor who is a member of the Institute of Chartered Accountants of Nepal.
Legal and Tax Advisors
Foreign companies typically engage local legal counsel and tax advisors to ensure compliance with Nepalese laws and regulations. Legal advisors assist with contract drafting, regulatory approvals, dispute resolution, and ongoing compliance matters. Tax advisors provide services including tax planning, return preparation, transfer pricing documentation, and representation before tax authorities. Companies should establish relationships with professional service providers before commencing operations to ensure smooth compliance management.
Frequently Asked Questions
What is the minimum capital requirement for foreign company incorporation in Nepal?
The minimum capital requirement for foreign investment is NPR 50 million under the Foreign Investment and Technology Transfer Act, 2075 (2019). However, specific sectors may have higher capital requirements based on industry regulations and licensing conditions prescribed by sector-specific authorities.
How long does the company incorporation process take in Nepal?
The complete incorporation process typically takes 30-45 working days from name reservation to certificate issuance. This includes foreign investment approval (7-30 days), document preparation (5-7 days), company registration (7-10 days), and tax registration (3-5 days), assuming all documents are properly prepared and submitted.
Can foreign investors own 100% equity in Nepalese companies?
Foreign investors can own 100% equity in most sectors except those specifically restricted under the Foreign Investment and Technology Transfer Act, 2075 (2019). Restricted sectors may require Nepali partnership or limit foreign ownership to specific percentages based on sector regulations and government policy.
What are the annual compliance costs for maintaining a company in Nepal?
Annual compliance costs include company registration renewal fees (NPR 2,000-25,000), audit fees (NPR 50,000-500,000 depending on company size), tax compliance costs, and professional service fees. Total annual costs typically range from NPR 200,000 to NPR 1,000,000 for small to medium enterprises.
Is physical presence required for foreign directors in Nepal?
Physical presence is not mandatory for foreign directors to incorporate a company in Nepal. However, at least one director must visit Nepal for initial registration formalities including bank account opening and document verification. Subsequent board meetings can be conducted through video conferencing with proper documentation.
What taxes apply to foreign companies operating in Nepal?
Foreign companies are subject to corporate income tax (25%), value added tax (13%), withholding taxes (1.5%-15%), dividend distribution tax (5%), and social security contributions (20% employer share). Additional sector-specific taxes may apply based on the nature of business activities.
Can branch offices generate profits in Nepal?
Branch offices can conduct commercial activities and generate profits in Nepal. However, they must obtain foreign investment approval from the Department of Industry and comply with all tax and regulatory requirements applicable to subsidiary companies under Nepalese law.
What is the process for closing a foreign company in Nepal?
Company closure requires board resolution, shareholder approval, settlement of all liabilities, tax clearance, employee settlement, and filing of dissolution application with the Office of Company Registrar. The liquidation process typically takes 6-12 months depending on company complexity and outstanding obligations.
Are there any tax incentives for foreign investors in Nepal?
The Income Tax Act, 2058 (2002) provides tax holidays ranging from 5-10 years for industries established in specified regions, export-oriented industries, and priority sectors. Additional incentives include customs duty exemptions on machinery imports and accelerated depreciation for certain assets.
What happens if annual returns are not filed on time?
Failure to file annual returns within the prescribed deadline attracts penalties under Section 169 of the Companies Act, 2063 (2006). The Office of Company Registrar may impose fines ranging from NPR 10,000 to NPR 100,000 and may initiate deregistration proceedings for persistent non-compliance.
