Foreign Liaison Office Registration in Nepal

Foreign Liaison Offices in Nepal serve as representative entities for international companies seeking to establish a presence in the Nepalese market. These offices act as a bridge between the parent company abroad and potential business partners, clients, or government agencies in Nepal. The primary purpose of a liaison office is to facilitate communication, gather market information, and promote the parent company’s interests without engaging in direct commercial activities.

In Nepal, the establishment of Foreign Liaison Offices is governed by specific regulations and procedures designed to ensure compliance with local laws while fostering international business relationships. These offices play a crucial role in exploring business opportunities, conducting market research, and maintaining relationships with local stakeholders.

Legal Framework Governing Foreign Liaison Office Registration

The legal framework for Foreign Liaison Office registration in Nepal is primarily governed by the following laws and regulations:

1. Foreign Investment and Technology Transfer Act, 2075 (2019)
2. Foreign Investment and Technology Transfer Rules, 2077 (2021)
3. Industrial Enterprises Act, 2076 (2020)
4. Companies Act, 2063 (2006)

The Department of Industry (DOI) under the Ministry of Industry, Commerce, and Supplies is the primary regulatory body responsible for overseeing the registration and operation of Foreign Liaison Offices in Nepal.

Eligibility Criteria for Establishing a Liaison Office

To establish a Foreign Liaison Office in Nepal, the following eligibility criteria must be met:

1. The parent company must be a legally registered entity in its home country.
2. The parent company should have a minimum of three years of operational experience.
3. The proposed activities of the liaison office must align with Nepal’s foreign investment policies.
4. The liaison office must not engage in any profit-making or commercial activities in Nepal.
5. The parent company must demonstrate financial stability and the ability to support the liaison office’s operations.

Step-by-Step Process for Liaison Office Registration

The process for registering a Foreign Liaison Office in Nepal involves several steps:

1. Obtain approval from the Department of Industry (DOI)
2. Register with the Office of the Company Registrar
3. Obtain a Permanent Account Number (PAN) from the Inland Revenue Department
4. Register with the Nepal Rastra Bank (Central Bank of Nepal)
5. Obtain necessary permits from local authorities

Detailed Steps:

1. Submit an application to the DOI along with required documents
2. Attend a presentation meeting with DOI officials to discuss the proposal
3. Receive approval letter from the DOI
4. Apply for company registration with the Office of the Company Registrar
5. Obtain the company registration certificate
6. Apply for PAN registration with the Inland Revenue Department
7. Register with the Nepal Rastra Bank for foreign currency transactions
8. Obtain any additional permits required by local authorities

Required Documents for Foreign Liaison Office Setup

The following documents are typically required for setting up a Foreign Liaison Office in Nepal:

• Application form for liaison office registration
• Board resolution of the parent company authorizing the establishment of a liaison office in Nepal
• Copy of the parent company’s registration certificate in the home country
• Audited financial statements of the parent company for the last three years
• Memorandum and Articles of Association of the parent company
• Power of Attorney in favor of the authorized representative in Nepal
• Passport copies of the parent company’s directors
• Proposed activities and objectives of the liaison office in Nepal
• Commitment letter stating compliance with Nepalese laws and regulations
• Bank reference letter from the parent company’s bank
• Curriculum Vitae of the proposed Chief of the liaison office

Government Fees and Charges for Registration

The government fees and charges for registering a Foreign Liaison Office in Nepal include:

• Application fee for DOI approval: NPR 20,000
• Company registration fee: Varies based on authorized capital (minimum NPR 9,500)
• PAN registration fee: NPR 1,000
• Nepal Rastra Bank registration fee: NPR 5,000

Additional charges may apply for notarization, translation, and other administrative processes.

Timeline for Liaison Office Registration Approval

The timeline for obtaining approval and completing the registration process for a Foreign Liaison Office in Nepal can vary. However, a general estimate is as follows:

1. DOI approval: 2-4 weeks
2. Company registration: 1-2 weeks
3. PAN registration: 1 week
4. Nepal Rastra Bank registration: 1-2 weeks

The entire process typically takes between 6 to 10 weeks, depending on the completeness of the application and the efficiency of the relevant government departments.

Permitted Activities and Restrictions for Liaison Offices

Foreign Liaison Offices in Nepal are permitted to engage in the following activities:

• Representing the parent company in Nepal
• Promoting export/import from/to Nepal
• Promoting technical and financial collaborations between the parent company and Nepalese enterprises
• Facilitating communication between the parent company and Nepalese businesses or government agencies
• Conducting market research and providing information to the parent company

Restrictions on Liaison Offices include:

• Engaging in any profit-making or commercial activities
• Entering into business contracts or transactions on behalf of the parent company
• Generating income from activities in Nepal
• Directly employing staff for commercial operations

Taxation and Compliance Requirements for Liaison Offices

Foreign Liaison Offices in Nepal are subject to specific taxation and compliance requirements:

1. Income Tax: Liaison offices are generally not subject to income tax as they are not permitted to engage in income-generating activities.
2. Value Added Tax (VAT): Liaison offices are not required to register for VAT unless they provide taxable services.
3. Tax Deduction at Source (TDS): Liaison offices must deduct TDS on payments made to employees, contractors, and service providers as per the Income Tax Act, 2058 (2002).
4. Social Security Fund (SSF): If the liaison office employs Nepalese nationals, it must contribute to the SSF as per the Contribution Based Social Security Act, 2074 (2017).
5. Annual Returns: Liaison offices must file annual returns with the DOI and the Office of the Company Registrar.

Reporting Obligations to Nepalese Authorities

Foreign Liaison Offices in Nepal have several reporting obligations to various authorities:

1. Department of Industry (DOI):
   • Annual activity report detailing the office’s operations and achievements
   • Any changes in the parent company’s structure or ownership
2. Office of the Company Registrar:
   • Annual returns including financial statements
   • Changes in office address or authorized representatives
3. Inland Revenue Department:
   • Monthly tax deduction statements
   • Annual tax returns
4. Nepal Rastra Bank:
   • Quarterly reports on foreign currency transactions
   • Annual financial statements
5. Department of Labour:
   • Annual reports on employment of foreign nationals (if applicable)

Employment Regulations for Foreign Liaison Offices

Foreign Liaison Offices must comply with Nepalese labor laws when employing staff:

1. Employment of Nepalese nationals:
   • Must follow the Labor Act, 2074 (2017) and Labor Rules, 2075 (2018)
   • Mandatory contribution to the Social Security Fund
   • Compliance with minimum wage requirements
2. Employment of foreign nationals:
   • Obtain work permits from the Department of Labour
   • Limited to positions that cannot be filled by Nepalese nationals
   • Maximum ratio of foreign to Nepalese employees as per government regulations
3. Maintain employee records and payroll documentation
4. Implement workplace safety measures as per Occupational Safety and Health Policy

Bank Account Opening Procedures for Liaison Offices

To open a bank account for a Foreign Liaison Office in Nepal:

1. Choose a commercial bank in Nepal
2. Submit the following documents:
   • DOI approval letter
   • Company registration certificate
   • PAN certificate
   • Nepal Rastra Bank registration certificate
   • Board resolution authorizing account opening
   • Specimen signatures of authorized signatories
   • KYC (Know Your Customer) forms for signatories
   • Passport copies of signatories
3. Comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations
4. Obtain approval from Nepal Rastra Bank for foreign currency transactions

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Renewal and Closure Process for Liaison Offices

Renewal Process:

1. Submit renewal application to DOI at least 30 days before expiry
2. Provide updated documents and activity reports
3. Pay renewal fees as prescribed by the DOI
4. Obtain renewal approval letter

Closure Process:

1. Obtain board resolution for closure from the parent company
2. Submit closure application to DOI with reasons for closure
3. Settle all liabilities and obligations in Nepal
4. Obtain tax clearance certificate from Inland Revenue Department
5. Close bank accounts and repatriate remaining funds with NRB approval
6. Submit final reports to relevant authorities
7. Obtain closure approval from DOI

Differences Between Liaison Office and Branch Office

Key differences between a Liaison Office and a Branch Office in Nepal:

1. Legal Status:
   • Liaison Office: Representative entity without separate legal personality
   • Branch Office: Extension of the parent company with the ability to conduct business
2. Activities:
   • Liaison Office: Limited to non-commercial activities
   • Branch Office: Can engage in commercial activities and generate revenue
3. Taxation:
   • Liaison Office: Generally not subject to income tax
   • Branch Office: Subject to corporate income tax on Nepal-sourced income
4. Capital Requirements:
   • Liaison Office: No minimum capital requirement
   • Branch Office: Minimum capital requirement as per sector-specific regulations
5. Liabilities:
   • Liaison Office: Parent company liable for all obligations
   • Branch Office: Parent company liable, but branch can enter into contracts
6. Duration:
   • Liaison Office: Usually approved for a specific period, subject to renewal
   • Branch Office: Can operate indefinitely, subject to compliance

Recent Changes in Liaison Office Registration Policies

Recent changes in Liaison Office registration policies in Nepal include:

1. Streamlined application process through the Department of Industry’s online portal
2. Enhanced scrutiny of proposed activities to ensure compliance with foreign investment policies
3. Increased focus on technology transfer and knowledge sharing objectives
4. Stricter monitoring of liaison offices’ adherence to permitted activities
5. Emphasis on promoting liaison offices in priority sectors as identified by the government

FAQs:

1. Can a liaison office engage in commercial activities in Nepal? No, liaison offices are strictly prohibited from engaging in any commercial or profit-making activities in Nepal.
2. What is the minimum capital requirement for a liaison office? There is no specific minimum capital requirement for establishing a liaison office in Nepal. However, the parent company must demonstrate financial capability to support the office’s operations.
3. How long is the registration valid for a liaison office? The initial registration for a liaison office is typically valid for 1-3 years, subject to renewal.
4. Can foreign nationals be employed in a liaison office? Yes, foreign nationals can be employed in a liaison office, but they must obtain work permits and comply with Nepal’s labor regulations.
5. Are liaison offices subject to income tax in Nepal? Generally, liaison offices are not subject to income tax in Nepal as they are not permitted to engage in income-generating activities.
6. What are the annual compliance requirements for liaison offices? Annual compliance requirements include filing activity reports with the DOI, submitting financial statements to the Company Registrar, and fulfilling tax reporting obligations to the Inland Revenue Department.
7. Can a liaison office be converted into a branch office? Yes, a liaison office can be converted into a branch office by obtaining necessary approvals from the DOI and complying with additional regulatory requirements for branch offices.