Overview of Foreign Currency in Company Registration
The Companies Act, 2063 (2006) governs company registration in Nepal and establishes specific provisions regarding foreign currency usage. Foreign investors must convert foreign currency into Nepali Rupees (NPR) through authorized banking channels before completing company registration procedures. The Foreign Exchange (Regulation) Act, 2019 (1962) and Foreign Investment and Technology Transfer Act, 2075 (2019) regulate foreign currency transactions for business establishment purposes.
Legal Framework for Foreign Currency Transactions
Primary Legislation Governing Foreign Currency
The legal framework for foreign currency in company registration includes multiple statutes that work together to regulate foreign investment and currency exchange.
Key Legislative Provisions:
- The Foreign Exchange (Regulation) Act, 2019 (1962) establishes the fundamental rules for foreign currency transactions and requires all foreign exchange dealings to occur through authorized banking institutions.
- The Foreign Investment and Technology Transfer Act, 2075 (2019) specifically addresses foreign investment procedures and mandates currency conversion requirements for foreign investors establishing companies in Nepal.
- The Companies Act, 2063 (2006) requires share capital to be denominated in Nepali Rupees regardless of the source of investment funds.
- Nepal Rastra Bank Act, 2058 (2002) empowers the central bank to regulate foreign exchange transactions and establish conversion procedures for business registration purposes.
Foreign Currency Conversion Requirements
Mandatory Conversion to Nepali Rupees
All foreign investors must convert their investment capital into Nepali Rupees before registering a company in Nepal. The Office of Company Registrar (OCR) accepts only NPR-denominated share capital in registration documents.
Conversion Process Requirements:
- Foreign investors must open a foreign currency account with a licensed commercial bank in Nepal that holds authorization from Nepal Rastra Bank.
- The bank converts foreign currency to Nepali Rupees at the prevailing exchange rate established by Nepal Rastra Bank on the transaction date.
- Banks issue a foreign currency conversion certificate that serves as proof of legitimate foreign investment for company registration purposes.
- The conversion certificate must accompany the company registration application submitted to the Office of Company Registrar.
Acceptable Foreign Currencies
Nepal Rastra Bank maintains a list of convertible foreign currencies that banks can accept for business investment purposes. The central bank updates exchange rates daily for authorized currencies.
| Currency | ISO Code | Acceptance Status |
|---|---|---|
| United States Dollar | USD | Fully Convertible |
| Euro | EUR | Fully Convertible |
| British Pound Sterling | GBP | Fully Convertible |
| Japanese Yen | JPY | Fully Convertible |
| Australian Dollar | AUD | Fully Convertible |
| Canadian Dollar | CAD | Fully Convertible |
| Swiss Franc | CHF | Fully Convertible |
| Chinese Yuan | CNY | Fully Convertible |
Company Registration Capital Requirements
Minimum Capital Requirements by Company Type
The Companies Act, 2063 (2006) establishes minimum capital requirements that vary based on company structure and business sector. All capital amounts must be stated in Nepali Rupees.
| Company Type | Minimum Paid-up Capital | Currency Denomination |
|---|---|---|
| Private Limited Company | NPR 100,000 | Nepali Rupees Only |
| Public Limited Company | NPR 10,000,000 | Nepali Rupees Only |
| Foreign Investment Company (General) | NPR 5,000,000 | Nepali Rupees Only |
| Foreign Investment Company (Technology Transfer) | NPR 500,000 | Nepali Rupees Only |
| Foreign Investment Company (Consulting Services) | NPR 500,000 | Nepali Rupees Only |
Foreign Investment Specific Requirements
The Foreign Investment and Technology Transfer Act, 2075 (2019) establishes additional capital requirements for companies with foreign ownership. These requirements apply regardless of the original currency source.
Foreign Investment Capital Provisions:
- Foreign investors must maintain minimum investment thresholds specified in Section 3 of the Foreign Investment and Technology Transfer Act, 2075 (2019).
- The Department of Industry issues foreign investment approval only after verifying that proposed capital meets statutory minimum requirements in Nepali Rupees.
- Foreign investors must demonstrate the source of funds through banking channels and provide documentary evidence of legitimate foreign currency conversion.
- Joint venture companies with both Nepali and foreign investors must clearly specify each party’s capital contribution in Nepali Rupees in the company’s Memorandum of Association.
Banking Procedures for Foreign Currency Conversion
Step-by-Step Conversion Process
Step 1: Foreign investors must select a licensed commercial bank in Nepal that provides foreign currency conversion services for business investment purposes.
Step 2: The investor opens a foreign currency account by submitting passport copies, visa documentation, and a declaration of investment purpose to the selected bank.
Step 3: The investor transfers foreign currency from overseas accounts to the newly opened foreign currency account in Nepal through legitimate banking channels.
Step 4: The bank verifies the source of funds and ensures compliance with anti-money laundering regulations established under the Asset (Money) Laundering Prevention Act, 2064 (2008).
Step 5: Upon verification, the bank converts the foreign currency to Nepali Rupees at the prevailing Nepal Rastra Bank exchange rate applicable on the conversion date.
Step 6: The bank issues a Foreign Investment Conversion Certificate that documents the original foreign currency amount, conversion rate, and resulting Nepali Rupee amount.
Step 7: The investor uses the converted Nepali Rupees and the conversion certificate as supporting documents for company registration at the Office of Company Registrar.
Required Banking Documentation
Banks require specific documentation to process foreign currency conversion for company registration purposes. The documentation requirements ensure compliance with foreign exchange regulations.
Essential Banking Documents:
- The foreign investor must provide a valid passport with appropriate visa status allowing business activities in Nepal.
- The investor must submit a detailed investment proposal explaining the business purpose and intended use of converted funds.
- Banks require proof of the foreign currency source, including bank statements from the originating financial institution showing legitimate fund sources.
- The investor must complete Foreign Exchange Declaration Forms prescribed by Nepal Rastra Bank for all foreign currency transactions exceeding specified thresholds.
- Anti-money laundering compliance documents must include declarations regarding the ultimate beneficial ownership of funds and business entities.
Documentation for Company Registration with Foreign Investment
Required Documents for Office of Company Registrar
The Office of Company Registrar requires comprehensive documentation when registering companies with foreign investment capital. All financial documents must reflect amounts in Nepali Rupees.
Company Registration Documents:
- The company must submit a Memorandum of Association stating the authorized and paid-up capital in Nepali Rupees with clear specification of share distribution among shareholders.
- The Articles of Association must include provisions regarding foreign investment and comply with the Foreign Investment and Technology Transfer Act, 2075 (2019).
- Foreign investors must provide the Foreign Investment Conversion Certificate issued by the authorized commercial bank showing legitimate currency conversion.
- The company must submit Foreign Investment Approval from the Department of Industry obtained prior to company registration.
- All foreign shareholders must provide notarized and authenticated passport copies along with proof of residential address in their home countries.
- The company must submit a bank certificate confirming deposit of minimum paid-up capital in a blocked account maintained in Nepali Rupees.
Department of Industry Approval Requirements
Before registering a company with foreign investment, investors must obtain approval from the Department of Industry under the Foreign Investment and Technology Transfer Act, 2075 (2019).
| Document Type | Specific Requirement | Currency Specification |
|---|---|---|
| Investment Proposal | Detailed business plan with financial projections | Must show NPR amounts |
| Capital Commitment Letter | Bank guarantee or proof of funds availability | Original currency with NPR equivalent |
| Technology Transfer Agreement | If applicable, agreement terms and conditions | Fees and payments in NPR |
| Joint Venture Agreement | Partnership terms between foreign and local investors | All capital contributions in NPR |
| Sector-Specific Licenses | Industry-specific approvals from relevant ministries | Fee payments in NPR only |
Exchange Rate Considerations
Nepal Rastra Bank Exchange Rate Mechanism
Nepal Rastra Bank publishes daily exchange rates for all convertible foreign currencies. The exchange rate applicable on the conversion date determines the Nepali Rupee equivalent of foreign investment capital.
Exchange Rate Application Rules:
- Banks must apply the official Nepal Rastra Bank buying rate for converting foreign currency to Nepali Rupees for investment purposes.
- The exchange rate fluctuates daily based on market conditions and Nepal Rastra Bank’s monetary policy decisions.
- Once foreign currency converts to Nepali Rupees, the company’s registered capital remains fixed in NPR regardless of subsequent exchange rate changes.
- Foreign investors cannot adjust registered capital amounts based on exchange rate fluctuations after completing the initial conversion and registration process.
Impact on Share Capital Valuation
The timing of foreign currency conversion affects the final Nepali Rupee amount available for company registration. Exchange rate volatility can impact the actual capital available.
Valuation Considerations:
- Foreign investors should monitor exchange rates and plan conversion timing to optimize the Nepali Rupee equivalent of their investment capital.
- The share capital stated in the Memorandum of Association reflects the NPR amount at the time of conversion and registration.
- Subsequent foreign currency transfers for additional capital increases require new conversion procedures and amendments to company registration documents.
- The Office of Company Registrar records only the Nepali Rupee amounts in official company registration records regardless of original foreign currency values.
Repatriation and Profit Transfer Provisions
Foreign Currency for Profit Repatriation
The Foreign Investment and Technology Transfer Act, 2075 (2019) guarantees foreign investors the right to repatriate profits and invested capital in foreign currency subject to tax compliance.
Repatriation Rights:
- Section 9 of the Foreign Investment and Technology Transfer Act, 2075 (2019) permits foreign investors to repatriate net profits after paying applicable taxes in convertible foreign currency.
- Foreign investors can repatriate the proceeds from sale of shares or liquidation of investment after settling all tax obligations and obtaining tax clearance certificates.
- The repatriation process requires conversion of Nepali Rupees back to foreign currency through authorized banking channels at prevailing exchange rates.
- Banks facilitate foreign currency transfers for legitimate profit repatriation upon verification of tax compliance and proper documentation from the company.
Tax Implications on Foreign Currency Transactions
The Income Tax Act, 2058 (2002) governs taxation of foreign investment income and establishes withholding tax requirements for profit distributions to foreign shareholders.
| Transaction Type | Tax Rate | Currency for Payment |
|---|---|---|
| Dividend to Foreign Shareholders | 5% Withholding Tax | NPR (converted for repatriation) |
| Capital Gains on Share Sale | 5–10% depending on holding period | NPR (converted for repatriation) |
| Technical Service Fees | 15% Withholding Tax | NPR (converted for repatriation) |
| Royalty Payments | 15% Withholding Tax | NPR (converted for repatriation) |
Sector-Specific Foreign Investment Restrictions
Prohibited and Restricted Sectors
The Foreign Investment and Technology Transfer Act, 2075 (2019) identifies certain business sectors where foreign investment faces restrictions or complete prohibition regardless of currency source.
Investment Restrictions:
- Schedule 1 of the Foreign Investment and Technology Transfer Act, 2075 (2019) lists industries closed to foreign investment including personal services, arms manufacturing, and certain retail businesses.
- Some sectors permit foreign investment only through joint ventures with Nepali partners maintaining minimum ownership percentages specified in sector-specific regulations.
- Financial services, telecommunications, and media sectors require special approvals from regulatory authorities beyond standard company registration procedures.
- Foreign investors must verify sector eligibility before initiating currency conversion and company registration processes to avoid rejection of applications.
Compliance and Reporting Obligations
Ongoing Foreign Exchange Reporting
Companies with foreign investment must maintain ongoing compliance with foreign exchange regulations and submit periodic reports to regulatory authorities.
Reporting Requirements:
- Companies must report all foreign currency transactions exceeding NPR 500,000 to Nepal Rastra Bank within specified timeframes under the Foreign Exchange (Regulation) Act, 2019 (1962).
- Annual financial statements must disclose foreign investment amounts, currency conversion details, and any foreign currency transactions during the fiscal year.
- The Department of Industry requires annual renewal of foreign investment approval with updated financial information showing capital utilization in Nepali Rupees.
- Banks monitor foreign currency accounts and report suspicious transactions to the Financial Information Unit under anti-money laundering regulations.
Penalties for Non-Compliance
The Foreign Exchange (Regulation) Act, 2019 (1962) establishes penalties for violations of foreign currency regulations including unauthorized transactions and failure to convert foreign currency properly.
Penalty Provisions:
- Unauthorized foreign exchange transactions can result in fines up to three times the transaction amount plus imprisonment for up to three years under Section 29 of the Foreign Exchange (Regulation) Act.
- Companies that fail to maintain proper foreign currency documentation face administrative penalties and potential suspension of business licenses.
- False declarations regarding foreign currency sources or amounts constitute criminal offenses subject to prosecution under the Asset (Money) Laundering Prevention Act, 2064 (2008).
- The Office of Company Registrar can cancel company registration if authorities discover fraudulent foreign currency conversion documentation or misrepresentation of capital amounts.
Can I register a company in Nepal using US Dollars directly?
No, you cannot register a company using US Dollars directly. The Companies Act, 2063 (2006) requires all share capital to be denominated in Nepali Rupees. Foreign investors must convert US Dollars to NPR through authorized banks before registration.
What is the minimum foreign investment required in Nepal?
The minimum foreign investment is NPR 5,000,000 for general industries under the Foreign Investment and Technology Transfer Act, 2075 (2019). Technology transfer and consulting services require only NPR 500,000 minimum investment in Nepali Rupees.
Which bank should I use for foreign currency conversion?
You can use any licensed commercial bank in Nepal authorized by Nepal Rastra Bank to handle foreign exchange transactions. Major banks include Nepal Investment Bank, Standard Chartered Bank Nepal, Nabil Bank, and Himalayan Bank.
How long does foreign currency conversion take?
Foreign currency conversion typically takes 3-5 banking days after funds arrive in your foreign currency account. The bank must complete verification procedures and anti-money laundering checks before issuing the conversion certificate required for company registration.
Can I change my registered capital amount after conversion?
Yes, you can increase registered capital through proper amendment procedures. You must convert additional foreign currency to Nepali Rupees, obtain Department of Industry approval, and file capital increase documents with the Office of Company Registrar.
What exchange rate applies to my investment?
The Nepal Rastra Bank official exchange rate on the actual conversion date applies to your investment. Banks use the published buying rate for converting foreign currency to Nepali Rupees for business investment purposes.
Do I need approval before converting foreign currency?
Yes, you should obtain preliminary approval from the Department of Industry before converting large amounts of foreign currency. This ensures your proposed business qualifies for foreign investment and meets all sector-specific requirements.
Can I maintain a foreign currency account after registration?
Yes, registered companies with foreign investment can maintain foreign currency accounts for legitimate business transactions. However, share capital and statutory payments must be in Nepali Rupees as required by the Companies Act, 2063 (2006).
What documents prove legitimate foreign currency source?
You must provide bank statements from your home country, tax returns, business income records, or other financial documents showing legitimate sources. Banks require this documentation to comply with anti-money laundering regulations.
How do I repatriate profits in foreign currency?
You must pay all applicable taxes, obtain tax clearance certificates, and apply through your bank for profit repatriation. The bank converts NPR profits to foreign currency at prevailing rates and transfers funds to your overseas account.
