FAQ for Foreign Entrepreneurs Incorporating in Nepal

Understanding Company Incorporation in Nepal

Foreign entrepreneurs seeking to establish business 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 and the Office of the Company Registrar serve as primary regulatory bodies overseeing foreign investment and company registration procedures. Foreign investors can establish private limited companies, public limited companies, or branch offices depending on their business objectives and investment capacity.

Legal Framework for Foreign Investment

The Foreign Investment and Technology Transfer Act, 2075 (2019) governs foreign direct investment in Nepal. This legislation permits foreign nationals to invest in most sectors except those specifically restricted for national security or cultural preservation reasons. Foreign investors receive national treatment under Section 3 of the Act, ensuring equal rights with domestic investors. The Industrial Enterprises Act, 2076 (2020) provides additional regulatory framework for manufacturing and industrial ventures.

1. What is the minimum capital requirement for foreign companies in Nepal?

Foreign investors must invest a minimum of NPR 50 million (approximately USD 370,000) for technology-based industries and NPR 20 million for other sectors as per the Foreign Investment and Technology Transfer Act, 2075. Service sector investments require NPR 5 million minimum capital.

2. Can foreign nationals own 100% equity in Nepali companies?

Yes, foreign investors can own 100% equity in most business sectors in Nepal. Section 3 of the Foreign Investment and Technology Transfer Act, 2075 permits full foreign ownership except in restricted sectors like arms manufacturing, security services, and certain cottage industries.

3. What business structures are available for foreign entrepreneurs?

Foreign entrepreneurs can establish private limited companies, public limited companies, branch offices, liaison offices, or project offices. Private limited companies remain the most popular choice due to limited liability protection and operational flexibility under the Companies Act, 2063.

4. Which sectors are restricted for foreign investment?

Restricted sectors include arms and ammunition manufacturing, domestic security services, retail businesses with capital below NPR 100 million, cottage industries, and personal service businesses. The Foreign Investment and Technology Transfer Act, 2075 Schedule lists all restricted sectors.

5. What is the company registration process timeline?

Company registration typically requires 7-15 working days after submitting complete documentation to the Office of the Company Registrar. The Department of Industry approval for foreign investment adds another 7-10 working days. Electronic filing systems have expedited processing times significantly.

6. Do foreign directors need to reside in Nepal?

No mandatory residency requirement exists for foreign directors under the Companies Act, 2063. However, companies must maintain a registered office address in Nepal and appoint at least one local representative for official correspondence and legal compliance purposes.

7. What documents are required for company incorporation?

Required documents include:

Passport copies and photographs of all foreign shareholders and directors with notarization.
Board resolution from parent company authorizing Nepal operations and investment commitment.
Bank certificate confirming capital deposit in designated foreign currency account.
Memorandum and Articles of Association drafted according to Companies Act, 2063 requirements.
Company name reservation certificate from Office of the Company Registrar.
Registered office rental agreement or ownership documents with municipality certification.

8. How do foreign investors obtain business visas?

Foreign investors apply for business visas at Nepali embassies abroad or obtain on-arrival visas. After company registration, investors can apply for business visa extensions through the Department of Immigration. Investment visa validity extends up to five years based on investment amount.

9. What are the tax obligations for foreign companies?

Foreign companies pay 25% corporate income tax on profits under the Income Tax Act, 2058. Value Added Tax registration is mandatory for businesses with annual turnover exceeding NPR 5 million. Dividend repatriation attracts 5% withholding tax for foreign shareholders.

10. Can foreign companies repatriate profits?

Yes, Section 9 of the Foreign Investment and Technology Transfer Act, 2075 guarantees profit repatriation rights. Foreign investors can repatriate net profits, dividends, and proceeds from share sales after paying applicable taxes through authorized banking channels.

11. What is the process for obtaining foreign investment approval?

Step 1: Submit application to Department of Industry with business plan and financial projections.

Step 2: Provide proof of minimum capital commitment through bank certificates.

Step 3: Obtain environmental clearance if required for the business sector.

Step 4: Receive foreign investment approval certificate within 7-10 working days.

Step 5: Proceed with company registration at Office of the Company Registrar.

12. Are there special economic zones for foreign investors?

Nepal operates Special Economic Zones under the Special Economic Zone Act, 2073 (2016). These zones offer tax holidays, customs duty exemptions, and streamlined regulatory procedures. Currently, operational zones exist in Bhairahawa and Simara with additional zones under development.

13. What intellectual property protections exist?

Nepal provides intellectual property protection through the Patent, Design and Trademark Act, 2022 and Copyright Act, 2059. Foreign companies can register trademarks, patents, and copyrights with the Department of Industry. Nepal is a signatory to TRIPS agreement.

14. How are disputes resolved for foreign investors?

The Foreign Investment and Technology Transfer Act, 2075 Section 13 provides for arbitration under UNCITRAL rules. Foreign investors can opt for international arbitration. The Arbitration Act, 2055 governs domestic arbitration proceedings for commercial disputes.

15. What labor laws apply to foreign companies?

The Labor Act, 2074 (2017) regulates employment relationships. Companies must provide written employment contracts, minimum wages, social security contributions, and statutory benefits. Foreign employees require work permits from the Department of Labor and Employment Promotion.

16. Can foreign companies purchase land in Nepal?

Foreign companies cannot directly purchase land under the Land Act, 2021. However, companies registered in Nepal with majority Nepali ownership can purchase land. Foreign companies typically lease land for business operations through long-term lease agreements.

17. What are the annual compliance requirements?

Annual compliance includes:

Filing annual returns with Office of the Company Registrar within six months of fiscal year end.
Submitting audited financial statements prepared by registered chartered accountants.
Conducting annual general meetings and maintaining statutory registers.
Filing income tax returns and paying advance tax installments quarterly.
Renewing business licenses and sector-specific permits annually.

18. How is technology transfer regulated?

The Foreign Investment and Technology Transfer Act, 2075 governs technology transfer agreements. Companies must register technology transfer contracts with the Department of Industry. Royalty payments for technology transfer cannot exceed 5% of net sales value.

19. What banking requirements exist for foreign companies?

Foreign companies must open corporate bank accounts in Nepal for business transactions. Initial capital must be deposited in foreign currency accounts before company registration. Banks require company registration certificates, tax registration, and director identification documents.

20. Are there investment incentives available?

Investment incentives include:

Tax holidays ranging from 5-10 years for priority sector investments.
Customs duty exemptions on machinery and equipment imports.
Income tax rebates for export-oriented industries.
Accelerated depreciation allowances for manufacturing equipment.
Special deductions for employment generation and infrastructure development.

21. What environmental clearances are required?

The Environment Protection Act, 2076 (2019) mandates Initial Environmental Examination or Environmental Impact Assessment for specified industries. The Ministry of Forest and Environment issues environmental clearances. Manufacturing, mining, and infrastructure projects require mandatory environmental assessments.

22. How are foreign employees regulated?

Foreign employees require work permits from the Department of Labor. Companies must demonstrate unavailability of qualified Nepali workers for specialized positions. Work permit validity ranges from one to five years. The Labor Act, 2074 mandates equal treatment for foreign workers.

23. What is the process for branch office registration?

Branch offices require prior approval from Nepal Rastra Bank for banking and financial services or Department of Industry for other sectors. Parent companies must have minimum three years operational history. Branch offices cannot engage in manufacturing activities under current regulations.

24. Can foreign companies bid for government contracts?

Foreign companies registered in Nepal can participate in government procurement processes under the Public Procurement Act, 2063. Joint ventures with local companies receive preference in certain procurement categories. Registration with relevant government departments is mandatory for bidding eligibility.

25. What accounting standards apply?

Companies must follow Nepal Financial Reporting Standards issued by the Accounting Standards Board. Listed companies and financial institutions must comply with International Financial Reporting Standards. The Financial Procedure Act, 2055 governs financial management and reporting requirements.

26. How is foreign exchange managed?

Nepal Rastra Bank regulates foreign exchange transactions under the Foreign Exchange Regulation Act, 2019. Foreign currency accounts facilitate international transactions. Companies must convert foreign currency receipts to Nepali Rupees within specified timeframes except for approved retention purposes.

27. What insurance requirements exist?

The Insurance Act, 2079 (2022) regulates insurance operations. Companies must obtain mandatory insurance including workers’ compensation, vehicle insurance, and fire insurance for business premises. Foreign insurance companies can operate through joint ventures with minimum 51% Nepali ownership.

28. Are there restrictions on profit distribution?

Companies can distribute dividends only from realized profits after tax payments and statutory reserve allocations. The Companies Act, 2063 requires maintaining reserves as specified in Articles of Association. Dividend distribution requires board approval and shareholder consent.

29. What exit options exist for foreign investors?

Foreign investors can exit through share transfers, company liquidation, or merger and acquisition transactions. The Companies Act, 2063 governs liquidation procedures. Share sale proceeds can be repatriated after capital gains tax payment and regulatory approvals.

30. How is corporate governance regulated?

The Companies Act, 2063 mandates corporate governance standards including board composition, audit committees, and shareholder rights protection. Listed companies must comply with additional Securities Board regulations. Companies must maintain statutory registers and conduct regular board meetings.

Key Regulatory Bodies

Regulatory Body	Primary Functions	Contact Requirements
Office of the Company Registrar	Company registration, annual filings, corporate compliance	Physical presence required for registration
Department of Industry	Foreign investment approval, technology transfer, industrial licensing	Online application available
Nepal Rastra Bank	Foreign exchange regulation, banking supervision, branch office approval	Written applications required
Department of Immigration	Business visas, work permits, visa extensions	Personal appearance mandatory
Inland Revenue Department	Tax registration, tax collection, compliance monitoring	Online registration available

Investment Protection Mechanisms

Nepal provides investment protection through bilateral investment treaties with multiple countries. The Foreign Investment and Technology Transfer Act, 2075 Section 3 guarantees national treatment to foreign investors. Investments receive protection against nationalization except for public interest with fair compensation. Foreign investors can transfer shares to other foreign or domestic investors subject to regulatory approval.

Sector-Specific Regulations

Different business sectors have specific regulatory requirements beyond general company law. Manufacturing industries require industrial enterprise registration under the Industrial Enterprises Act, 2076. Tourism businesses need licensing from the Department of Tourism. Financial services require Nepal Rastra Bank approval. Healthcare facilities need Ministry of Health registration. Educational institutions require University Grants Commission or Ministry of Education approval.

Tax Incentives and Exemptions

Incentive Type	Eligibility	Duration
Income Tax Holiday	Priority sector industries, export-oriented businesses	5–10 years
Customs Duty Exemption	Machinery imports for manufacturing	Project duration
VAT Exemption	Export sales, specified essential goods	Ongoing
Accelerated Depreciation	Manufacturing equipment, technology investments	Asset life
Loss Carry Forward	All businesses with tax losses	7 years

Compliance Calendar for Foreign Companies

Foreign companies must maintain strict compliance with periodic filing requirements. Annual returns must be filed within six months of fiscal year end. Tax returns are due by three months after fiscal year end on Shrawan 31 (mid-July). Quarterly advance tax payments are mandatory. Social security contributions require monthly remittance. VAT returns need monthly filing for registered businesses.

Documentation Requirements for Incorporation

The incorporation process requires comprehensive documentation. Foreign shareholders must provide notarized passport copies with apostille certification from their home countries. Bank certificates confirming capital deposit must be issued by Class A commercial banks in Nepal. The Memorandum of Association must specify authorized capital, business objectives, and share distribution. Articles of Association must comply with Companies Act, 2063 model articles or provide customized governance provisions.

Post-Incorporation Obligations

After successful incorporation, companies must obtain Permanent Account Number from Inland Revenue Department within 21 days. VAT registration becomes mandatory when annual turnover exceeds NPR 5 million. Social Security Fund registration is required for all employers. Municipality business licenses must be obtained before commencing operations. Sector-specific licenses depend on business activities and require separate applications to relevant authorities.