Foreign Company Incorporation in Nepal

Legal Framework for Foreign Company Registration

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) and the Office of the Company Registrar (OCR) serve as the primary regulatory authorities overseeing foreign company incorporation. Foreign entities can operate through various business structures including private limited companies, public limited companies, branch offices, liaison offices, and project offices.

Types of Foreign Business Entities in Nepal

Private Limited Company

A private limited company represents the most common structure for foreign investment in Nepal. Foreign investors can establish a wholly-owned subsidiary or form a joint venture with Nepali partners. The Companies Act, 2063 permits 100% foreign ownership in most sectors except those listed in the negative list under the Foreign Investment and Technology Transfer Act, 2075.

Branch Office

A branch office operates as an extension of the foreign parent company without separate legal personality. Branch offices can engage in activities directly related to the parent company’s business operations. The Foreign Investment and Technology Transfer Act, 2075 governs the establishment and operation of branch offices in Nepal.

Liaison Office

A liaison office serves as a representative office that cannot engage in commercial activities or generate revenue in Nepal. These offices facilitate communication between the parent company and Nepali entities. Liaison offices require approval from the Department of Industry and must operate within the scope defined in their approval letter.

Project Office

Foreign companies executing specific projects in Nepal can establish project offices for the project duration. These offices operate under contracts with Nepali government entities or private organizations. The project office registration remains valid only for the project period specified in the contract agreement.

Minimum Capital Requirements for Foreign Companies

Business StructureMinimum Capital RequirementPrivate Limited Company (Foreign Investment)NPR 50 million for foreign nationalsPrivate Limited Company (SAARC Nationals)NPR 5 millionBranch OfficeAs specified by parent companyLiaison OfficeNo capital requirementProject OfficeAs per project contract

The Foreign Investment and Technology Transfer Act, 2075 mandates minimum investment thresholds based on the investor’s nationality and business sector. Manufacturing and energy sectors may have different capital requirements as specified in sector-specific regulations.

Restricted and Prohibited Sectors for Foreign Investment

The Foreign Investment and Technology Act, 2075 maintains a negative list restricting foreign investment in specific sectors:

• Cottage industries require mandatory Nepali partnership with minimum 51% local ownership.
• Personal service businesses such as barber shops, beauty parlors, and driving training centers prohibit foreign investment.
• Arms and ammunition manufacturing remains restricted to domestic investors only.
• Radioactive material production and processing prohibit foreign participation.
• Internal courier services with capitalization below NPR 100 million restrict foreign investment.
• Consultancy services in certain areas require Nepali majority ownership.

Step-by-Step Process for Foreign Company Incorporation

Step 1: Obtain Foreign Investment Approval

Foreign investors must submit an application to the Department of Industry for foreign investment approval. The application requires a detailed project proposal, feasibility study, and proof of financial capacity. The Department of Industry issues approval within 7 working days for automatic approval sectors and within 30 days for sectors requiring cabinet approval.

Step 2: Reserve Company Name

The applicant must reserve a unique company name through the Office of the Company Registrar. The name reservation application requires three alternative names in order of preference. The OCR verifies name availability and reserves the approved name for 35 days from the reservation date.

Step 3: Prepare Incorporation Documents

The company must prepare the Memorandum of Association and Articles of Association in accordance with the Companies Act, 2063. These documents must specify the company’s objectives, share capital structure, shareholder details, and governance provisions. All documents require notarization and translation into Nepali language if originally prepared in English.

Step 4: Submit Registration Application

The incorporation application must be submitted to the Office of the Company Registrar with all required documents and prescribed fees. The Companies Act, 2063 requires the OCR to complete registration within 7 working days of receiving a complete application with all necessary documents.

Step 5: Obtain Tax Registration

The newly incorporated company must register with the Inland Revenue Department for tax purposes within 30 days of incorporation. The tax registration process requires submission of the company registration certificate, PAN application form, and authorized representative details.

Step 6: Register with Social Security Fund

Companies employing staff must register with the Social Security Fund under the Contribution Based Social Security Act, 2074 (2017). The registration must be completed within 30 days of commencing business operations or hiring the first employee.

Required Documents for Foreign Company Registration

• Valid passport copies of all foreign shareholders and directors with visa details.
• Board resolution from the parent company authorizing Nepal operations and appointing authorized representatives.
• Memorandum of Association and Articles of Association drafted according to Companies Act, 2063 requirements.
• Certificate of incorporation or equivalent document from the parent company’s home jurisdiction.
• Bank statement or financial documents proving the source of investment funds.
• Detailed project proposal outlining business activities, investment amount, and employment generation plans.
• Foreign investment approval letter issued by the Department of Industry.
• Proof of registered office address in Nepal through lease agreement or ownership documents.
• Passport-sized photographs of all shareholders and directors.
• Power of attorney authorizing local representatives to complete registration procedures.

Taxation Framework for Foreign Companies

Corporate Income Tax

The Income Tax Act, 2058 (2002) imposes corporate income tax on foreign companies operating in Nepal. The standard corporate tax rate stands at 25% of taxable income. Manufacturing industries and certain priority sectors enjoy concessional tax rates ranging from 20% to 25% depending on the location and nature of operations.

Value Added Tax

Foreign companies must register for Value Added Tax (VAT) if their annual turnover exceeds NPR 5 million. The Value Added Tax Act, 2052 (1996) prescribes a standard VAT rate of 13% on most goods and services. Exports and certain essential goods enjoy zero-rated or exempt status under VAT regulations.

Withholding Tax on Foreign Payments

Payment TypeWithholding Tax RateDividend to Non-Resident5%Interest to Non-Resident15%Royalty to Non-Resident15%Technical Service Fee15%Management Fee15%

The Income Tax Act, 2058 requires Nepali entities to withhold tax on payments made to foreign companies. Tax treaties between Nepal and other countries may provide reduced withholding tax rates for eligible taxpayers.

Repatriation of Profits and Capital

The Foreign Exchange (Regulation) Act, 2019 (1962) and Foreign Investment and Technology Transfer Act, 2075 govern profit repatriation. Foreign investors can repatriate profits after paying applicable taxes and fulfilling all legal obligations. The Nepal Rastra Bank (Central Bank) facilitates foreign exchange transactions for legitimate repatriation purposes.

Foreign investors can repatriate the following amounts after obtaining necessary approvals:

• Net profit earned from the investment after payment of all applicable taxes.
• Amount received from sale of shares or business to Nepali citizens or entities.
• Amount received as compensation in case of nationalization or acquisition by the government.
• Capital gains from the sale of investment in Nepal.

Employment and Work Permit Requirements

Foreign Employee Quota

The Foreign Investment and Technology Transfer Act, 2075 permits foreign companies to employ foreign nationals in technical and managerial positions. The Department of Industry specifies the number of foreign employees allowed based on the investment amount and business nature. Generally, companies can employ one foreign national for every NPR 50 million investment.

Work Permit and Visa Process

Foreign employees must obtain work permits from the Department of Labor and Employment Promotion. The work permit application requires:

• Valid passport with appropriate visa category.
• Employment contract specifying position, salary, and duration.
• Company registration certificate and tax clearance certificate.
• Recommendation letter from the Department of Industry.
• Academic qualifications and experience certificates.
• Medical fitness certificate from recognized health institutions.

The Department of Immigration issues work visas valid for one year, renewable annually based on continued employment and work permit validity.

Compliance Requirements for Foreign Companies

Annual Return Filing

The Companies Act, 2063 mandates all registered companies to file annual returns with the Office of the Company Registrar within six months of the fiscal year end. The annual return must include audited financial statements, board of directors’ report, and updated shareholder information. Failure to file annual returns results in penalties ranging from NPR 1,000 to NPR 100,000.

Tax Compliance

Foreign companies must file annual income tax returns by Chaitra end (mid-April) following the fiscal year. The Income Tax Act, 2058 requires companies to maintain proper books of accounts and supporting documents for at least six years. Companies must also file quarterly VAT returns and monthly withholding tax returns as applicable.

Social Security Contributions

The Contribution Based Social Security Act, 2074 requires employers to contribute 20% of employee salary to the Social Security Fund, with 11% borne by the employer and 9% deducted from employee salary. Companies must remit contributions monthly and file quarterly returns with the Social Security Fund.

Intellectual Property Protection

The Patent, Design and Trademark Act, 2022 (1965) and Copyright Act, 2059 (2002) provide intellectual property protection in Nepal. Foreign companies can register patents, trademarks, and copyrights through the Department of Industry. Nepal’s membership in the World Intellectual Property Organization (WIPO) and Paris Convention provides international protection frameworks.

Dispute Resolution Mechanisms

Arbitration

The Arbitration Act, 2055 (1999) governs domestic and international arbitration in Nepal. Foreign companies can include arbitration clauses in contracts specifying dispute resolution through arbitration. Nepal recognizes and enforces foreign arbitral awards under the New York Convention, to which Nepal is a signatory.

Court Litigation

Foreign companies can access Nepal’s judicial system for dispute resolution. The Companies Act, 2063 establishes special commercial benches in district courts for company-related disputes. Appeals from district court decisions proceed to High Courts and ultimately to the Supreme Court.

Technology Transfer Agreements

The Foreign Investment and Technology Transfer Act, 2075 regulates technology transfer agreements between foreign and Nepali entities. Technology transfer agreements require approval from the Department of Industry. The Act permits royalty payments up to 5% of net sales for technology transfer, subject to approval conditions.

Technology transfer agreements must specify:

• The scope and nature of technology being transferred to the Nepali entity.
• Duration of the technology transfer agreement not exceeding five years initially.
• Royalty payment terms and calculation methodology based on production or sales.
• Training provisions for Nepali personnel in technology utilization and maintenance.
• Confidentiality obligations and intellectual property rights protection measures.

Banking and Financial Requirements

Opening Bank Accounts

Foreign companies must open bank accounts in Nepal for business operations. The Bank and Financial Institution Act, 2073 (2017) requires companies to submit incorporation certificates, tax registration, and authorized signatory details. Most commercial banks offer corporate banking services including foreign currency accounts for eligible foreign investment enterprises.

Foreign Currency Accounts

The Foreign Exchange (Regulation) Act, 2019 permits foreign investment enterprises to maintain foreign currency accounts. These accounts facilitate foreign exchange transactions for import payments, loan servicing, and profit repatriation. The Nepal Rastra Bank regulates foreign currency account operations through periodic directives.

Real Estate and Property Ownership

The Land Act, 2021 (1964) restricts foreign nationals and foreign companies from owning land in Nepal. However, foreign companies can lease land for business operations for periods up to 50 years, renewable subject to approval. Industrial enterprises can lease land in industrial estates and special economic zones under concessional terms.

Foreign companies can own:

• Apartment units in buildings constructed on land owned by Nepali citizens or entities.
• Built-up structures and improvements on leased land for the lease duration.
• Movable assets and equipment without restrictions on ownership or quantity.

Special Economic Zones and Industrial Estates

The Special Economic Zone Act, 2073 (2016) establishes special economic zones offering enhanced incentives for foreign investment. SEZ enterprises enjoy customs duty exemptions, income tax holidays, and simplified regulatory procedures. The Industrial Enterprise Act, 2076 (2020) provides additional incentives for industries established in designated industrial estates.

Sector-Specific Regulations

Manufacturing Sector

The Industrial Enterprise Act, 2076 governs manufacturing industries in Nepal. Foreign investors in manufacturing enjoy income tax exemptions ranging from 5 to 10 years based on location. Industries in less developed regions receive extended tax holidays and infrastructure support from the government.

Tourism and Hospitality

The Tourism Act, 2035 (1978) regulates tourism-related businesses including hotels, travel agencies, and trekking companies. Foreign investment in tourism requires approval from the Ministry of Culture, Tourism and Civil Aviation. The Act permits 100% foreign ownership in tourism ventures meeting minimum investment thresholds.

Energy Sector

The Electricity Act, 2049 (1992) and Hydropower Development Policy govern foreign investment in energy projects. Nepal offers attractive incentives for hydropower development including income tax exemptions for 10 years and customs duty waivers on equipment imports. Foreign investors can develop hydropower projects through joint ventures or wholly-owned subsidiaries.

Information Technology

The Information Technology Policy encourages foreign investment in IT and IT-enabled services. Foreign IT companies enjoy income tax exemptions and can operate with 100% foreign ownership. The government provides infrastructure support through IT parks and technology incubation centers.

Exit and Liquidation Procedures

The Companies Act, 2063 prescribes procedures for voluntary and involuntary liquidation of companies. Foreign companies seeking to exit Nepal must settle all liabilities, clear tax obligations, and obtain clearance certificates from relevant authorities. The liquidation process requires:

• Board resolution approving voluntary liquidation and appointing a liquidator.
• Publication of liquidation notice in national newspapers for creditor claims.
• Settlement of all employee dues, tax liabilities, and creditor obligations.
• Filing of final accounts and liquidation report with the Office of the Company Registrar.
• Surrender of company registration certificate and tax registration upon completion.

Recent Reforms and Policy Changes

The Government of Nepal has implemented several reforms to improve the foreign investment climate. The Foreign Investment and Technology Transfer Act, 2075 (2019) replaced the previous 1992 Act, introducing simplified approval procedures and enhanced investor protections. The Act establishes a one-stop service center at the Department of Industry for investment approvals and related services.

Recent policy changes include:

• Introduction of online company registration through the Office of the Company Registrar portal.
• Reduction in minimum capital requirements for certain sectors to attract foreign investment.
• Expansion of automatic approval sectors requiring no prior government approval.
• Implementation of industrial enterprise classification based on fixed asset investment rather than production capacity.
• Establishment of investment promotion mechanisms including investment summits and sector-specific incentives.

Frequently Asked Questions

What is the minimum investment required for foreign company incorporation in Nepal?

Foreign nationals must invest a minimum of NPR 50 million to establish a private limited company in Nepal. SAARC nationals require only NPR 5 million minimum investment. Specific sectors may have different capital requirements based on regulatory provisions.

Can foreign companies own 100% equity in Nepal?

Yes, foreign companies can own 100% equity in most sectors except those listed in the negative list under the Foreign Investment and Technology Transfer Act, 2075. Restricted sectors require mandatory Nepali partnership with specified minimum local ownership percentages.

How long does company registration take in Nepal?

The Office of the Company Registrar completes company registration within 7 working days of receiving a complete application. The entire process including foreign investment approval may take 2-4 weeks depending on the sector and completeness of documentation.

What taxes do foreign companies pay in Nepal?

Foreign companies pay corporate income tax at 25% of taxable income, VAT at 13% on taxable supplies, and withholding taxes on specific payments. Tax rates vary based on industry sector, location, and applicable tax treaties.

Can foreign companies repatriate profits from Nepal?

Yes, foreign companies can repatriate profits after paying all applicable taxes and obtaining necessary approvals from Nepal Rastra Bank. The Foreign Investment and Technology Transfer Act, 2075 guarantees profit repatriation rights to foreign investors.

Do foreign companies need local partners in Nepal?

Foreign companies do not need local partners for most business sectors in Nepal. However, cottage industries and certain service sectors require mandatory Nepali partnership with minimum 51% local ownership as specified in the negative list.

What is the process for obtaining work permits for foreign employees?

Foreign employees must obtain work permits from the Department of Labor and Employment Promotion by submitting employment contracts, company documents, and qualification certificates. Work permits are issued for one year and renewable annually based on continued employment.

Can foreign companies own land in Nepal?

No, foreign companies cannot own land in Nepal under the Land Act, 2021. However, they can lease land for business operations for up to 50 years and own apartment units in buildings constructed on Nepali-owned land.

What are the annual compliance requirements for foreign companies?

Foreign companies must file annual returns with the Company Registrar within six months of fiscal year end, submit annual income tax returns by mid-April, file quarterly VAT returns, and remit monthly social security contributions for employees.

How can foreign companies resolve disputes in Nepal?

Foreign companies can resolve disputes through arbitration under the Arbitration Act, 2055 or through court litigation. Nepal recognizes foreign arbitral awards under the New York Convention and provides access to commercial courts for business disputes.