How to Open a Liaison or Branch Office in Nepal

Introduction to Foreign Business Presence in Nepal

Foreign companies seeking to establish operations in Nepal can register either a liaison office or a branch office under the Industrial Enterprises Act, 2020 and the Foreign Investment and Technology Transfer Act, 2019. A liaison office conducts market research and promotional activities without engaging in commercial transactions, while a branch office can undertake full business operations. The Department of Industry (DOI) serves as the primary regulatory authority for registration and approval of both office types.

Legal Framework for Liaison and Branch Offices

The establishment of liaison and branch offices in Nepal operates under specific legal provisions. The Industrial Enterprises Act, 2020 replaced the previous Industrial Enterprises Act, 1992, providing updated regulations for foreign business entities. Section 3 of the Foreign Investment and Technology Transfer Act, 2019 permits foreign investors to establish industries in Nepal with prior approval from the Department of Industry. The Company Act, 2006 governs certain operational aspects, while the Foreign Exchange Regulation Act, 1962 regulates foreign currency transactions and remittances.

Legal InstrumentRelevant ProvisionsApplicationIndustrial Enterprises Act, 2020Sections 3-7Registration procedures and requirementsForeign Investment and Technology Transfer Act, 2019Sections 3, 4, 7Foreign investment approval and repatriationCompany Act, 2006Sections 164-168Foreign company registrationForeign Exchange Regulation Act, 1962Sections 3-5Foreign currency regulations

Difference Between Liaison Office and Branch Office

Liaison Office Characteristics

A liaison office functions as a representative office that promotes the parent company’s business interests in Nepal. The liaison office cannot engage in profit-generating commercial activities or sign contracts on behalf of the parent company. The office conducts market research, identifies business opportunities, and facilitates communication between the parent company and Nepali entities. All operational expenses must be funded through foreign currency remittances from the parent company, as the liaison office cannot generate revenue in Nepal.

Branch Office Characteristics

A branch office operates as an extension of the foreign parent company with authority to conduct full business operations in Nepal. The branch office can enter into contracts, generate revenue, and undertake commercial transactions within the scope approved by the Department of Industry. Section 164 of the Company Act, 2006 requires foreign companies to register their branch offices before commencing business operations. The branch office must maintain separate accounts and comply with Nepali tax laws, including corporate income tax and value-added tax obligations.

FeatureLiaison OfficeBranch OfficeCommercial ActivitiesNot permitted to engage in profit-making activitiesPermitted to conduct full business operationsRevenue GenerationCannot generate income in NepalCan generate revenue and sign contractsFunding SourceParent company remittances onlyParent company funds and local revenueTax ObligationsLimited tax liabilityFull corporate tax liability under Income Tax Act, 2002Contract AuthorityCannot sign binding contractsCan enter into legal contracts

Eligibility Requirements for Foreign Companies

Foreign companies must meet specific eligibility criteria before establishing a liaison or branch office in Nepal. The parent company must be legally registered and operational in its home country for at least three years. The company must demonstrate financial stability through audited financial statements showing positive net worth. The proposed activities must align with Nepal’s industrial policy and not fall under the negative list specified in the Foreign Investment and Technology Transfer Act, 2019. The parent company must have a legitimate business purpose for establishing presence in Nepal.

Required Documents for Liaison Office Registration

The application for liaison office registration requires comprehensive documentation from the parent company. Each document must be properly authenticated and translated into English or Nepali if originally in another language.

Documents from Parent Company

• Certificate of incorporation or registration issued by the competent authority in the home country, duly authenticated by the Nepali embassy or apostilled.
• Board resolution authorizing the establishment of a liaison office in Nepal and appointing a chief representative with full authority.
• Memorandum and articles of association or equivalent constitutional documents of the parent company, properly notarized.
• Audited financial statements for the last three consecutive years showing the company’s financial position and performance.
• Company profile detailing business activities, operational history, global presence, and proposed activities in Nepal.
• Tax clearance certificate from the home country demonstrating compliance with tax obligations.
• Bank solvency certificate issued by the parent company’s banker confirming financial stability and creditworthiness.

Documents for Chief Representative

• Passport copy of the proposed chief representative with valid visa status or citizenship certificate if Nepali national.
• Curriculum vitae demonstrating relevant experience and qualifications for the representative position.
• Letter of appointment from the parent company specifying the representative’s authority and responsibilities.
• Two recent passport-size photographs of the chief representative for official records.
• Police clearance certificate from the home country if the representative is a foreign national.

Office-Related Documents

• Rental agreement or property ownership documents for the proposed office location in Nepal, registered with local authorities.
• No objection certificate from the landlord permitting commercial use of the premises for liaison office purposes.
• Location map showing the exact address and accessibility of the proposed office premises.

Required Documents for Branch Office Registration

Branch office registration requires similar documentation as liaison offices, with additional documents reflecting the commercial nature of operations.

Core Documents from Parent Company

• Certificate of incorporation authenticated by the Nepali embassy or apostilled according to the Hague Convention requirements.
• Board resolution specifically authorizing branch office establishment and defining the scope of business activities permitted.
• Memorandum and articles of association translated into English or Nepali by a certified translator.
• Audited financial statements for three years demonstrating adequate capital and financial capacity for branch operations.
• Detailed business plan outlining proposed activities, investment amount, employment generation, and contribution to Nepal’s economy.
• Power of attorney granted to the branch manager with authority to represent the parent company in legal matters.
• Tax registration certificate and tax clearance from the home jurisdiction proving compliance with tax laws.

Additional Branch-Specific Documents

• Feasibility study report justifying the need for branch office establishment and projected business operations in Nepal.
• Environmental impact assessment if the proposed activities involve manufacturing or potentially polluting operations.
• Sector-specific licenses or approvals if operating in regulated industries such as banking, insurance, or telecommunications.
• Capital commitment letter from the parent company specifying the initial capital allocation for branch operations.

Step-by-Step Registration Process for Liaison Office

Step 1: Document Preparation and Authentication

The foreign company must prepare all required documents in the prescribed format. Documents issued in foreign countries require authentication from the Nepali embassy or consulate in that country. Alternatively, documents from countries party to the Hague Apostille Convention can be apostilled. All documents in languages other than English or Nepali must be translated by certified translators and notarized.

Step 2: Application Submission to Department of Industry

The applicant submits the complete application package to the Department of Industry’s Foreign Investment and One Window Section. The application form must be filled accurately with all required information about the parent company and proposed liaison office activities. The DOI assigns a file number and provides an acknowledgment receipt upon submission. The application fee must be paid at the designated bank as per the prevailing fee structure.

Step 3: Document Verification and Review

The Department of Industry reviews the submitted documents for completeness and authenticity. Officials verify the parent company’s credentials, financial capacity, and proposed activities. The DOI may request additional information or clarification during the review process. The review period typically takes 15 to 30 working days, depending on the complexity of the application and completeness of documentation.

Step 4: Approval and Registration Certificate

Upon satisfactory review, the Department of Industry issues an approval letter and registration certificate for the liaison office. The certificate specifies the validity period, typically granted for one year initially and renewable annually. The liaison office receives a unique registration number for official correspondence and transactions. The certificate outlines permitted activities and any conditions imposed by the DOI.

Step 5: Post-Registration Compliance

After receiving the registration certificate, the liaison office must complete additional registrations. The office must register with the Inland Revenue Department for tax purposes and obtain a Permanent Account Number (PAN). Registration with the local municipality or metropolitan city office is mandatory for business operation permits. The office must open a bank account in Nepal for receiving remittances from the parent company.

Step-by-Step Registration Process for Branch Office

Step 1: Preliminary Approval from Department of Industry

The foreign company submits an application for preliminary approval to establish a branch office. The application includes the business plan, proposed investment amount, and scope of activities. The Department of Industry evaluates the application based on industrial policy, sectoral priorities, and economic benefits. The preliminary approval typically takes 20 to 30 working days and authorizes the company to proceed with detailed registration.

Step 2: Company Registration at Office of Company Registrar

Following DOI approval, the branch office must register with the Office of Company Registrar (OCR) under Section 164 of the Company Act, 2006. The application includes the DOI approval letter, parent company documents, and prescribed registration forms. The OCR verifies the documents and issues a certificate of registration for the foreign company’s branch. The registration fee depends on the authorized capital and nature of business activities.

Step 3: Final Approval and Industry Registration

The branch office returns to the Department of Industry with the OCR registration certificate for final approval. The DOI issues the industry registration certificate specifying the approved business activities and investment amount. The certificate serves as the primary authorization document for commencing business operations in Nepal. The registration remains valid as long as the branch office operates in compliance with applicable laws.

Step 4: Tax Registration and PAN Acquisition

The branch office must register with the Inland Revenue Department within 30 days of registration. The office submits the industry registration certificate, OCR certificate, and prescribed tax registration forms. The IRD issues a Permanent Account Number (PAN) certificate for tax identification purposes. If the branch office’s annual turnover exceeds the VAT threshold, registration for Value Added Tax becomes mandatory.

Step 5: Additional Licenses and Permits

Depending on the business sector, the branch office may require additional licenses from regulatory authorities. Manufacturing activities require environmental clearance from the Ministry of Forest and Environment. Service sector businesses may need specific approvals from concerned ministries or departments. The branch office must obtain a business operation permit from the local municipal authority. Sector-specific registrations must be completed before commencing commercial operations.

Capital Requirements and Financial Obligations

Liaison Office Financial Requirements

Liaison offices do not require minimum capital investment in Nepal as they cannot engage in commercial activities. The parent company must demonstrate financial capacity to fund the liaison office’s operational expenses. The office must maintain a bank account in Nepal for receiving remittances from the parent company. All expenses including rent, salaries, and administrative costs must be funded through foreign currency inward remittances. The liaison office must maintain proper accounting records of all receipts and expenditures for annual reporting.

Branch Office Capital Requirements

Branch offices must bring in capital commensurate with the proposed business activities and investment plan. The Foreign Investment and Technology Transfer Act, 2019 does not specify a universal minimum capital requirement, but sector-specific regulations may apply. The Department of Industry evaluates capital adequacy based on the business plan and projected operations. The branch office must remit the committed capital through banking channels and obtain foreign investment approval. The capital can be brought in cash, kind, or technology transfer as permitted under the Act.

Financial AspectLiaison OfficeBranch OfficeMinimum CapitalNo minimum requirementBased on business plan and sectorCapital SourceParent company remittancesForeign investment through banking channelsRevenue GenerationNot permittedPermitted within approved scopeProfit RepatriationNot applicablePermitted after tax payment under Section 7 of FITTAAccounting RequirementsExpense records onlyFull accounting as per Nepal Accounting Standards

Tax Obligations and Compliance Requirements

Liaison Office Tax Obligations

Liaison offices have limited tax obligations in Nepal as they do not generate income. The office must withhold tax on employee salaries as per the Income Tax Act, 2002 and remit to the Inland Revenue Department. Tax deduction at source applies to payments made to Nepali service providers for rent, professional services, and other expenses. The liaison office must file an annual information return with the IRD detailing all receipts and payments. Social security contributions are mandatory for Nepali employees under the Social Security Act, 2017.

Branch Office Tax Obligations

Branch offices are subject to full corporate taxation in Nepal on income generated from Nepali operations. The corporate income tax rate is 25% for most businesses, with variations for specific sectors under the Income Tax Act, 2002. The branch office must file quarterly advance tax payments and an annual income tax return. Value Added Tax registration is mandatory if annual turnover exceeds NPR 5 million, with a standard VAT rate of 13%. The branch must maintain books of accounts according to Nepal Accounting Standards and undergo annual audits by registered auditors.

Employment and Staffing Regulations

Foreign companies establishing liaison or branch offices can employ both Nepali and foreign nationals. The Labor Act, 2017 governs employment relationships, working conditions, and employee rights. Foreign employees require work permits from the Department of Labor and employment visas from the Department of Immigration. The ratio of foreign to Nepali employees is typically restricted, with preference given to employing Nepali nationals. All employees must be registered with the Social Security Fund for social security benefits. Employment contracts must comply with Nepali labor laws regarding minimum wages, working hours, and leave entitlements.

Renewal and Reporting Requirements

Liaison Office Renewal Process

Liaison offices must renew their registration annually with the Department of Industry. The renewal application must be submitted at least 30 days before the expiry of the current registration. Required documents include an annual activity report, financial statements showing receipts and expenditures, and tax clearance certificate. The parent company must provide a letter confirming continuation of the liaison office and updated financial statements. The renewal fee must be paid as per the prevailing schedule, and the DOI issues a renewed certificate upon approval.

Branch Office Reporting Obligations

Branch offices must submit annual returns to the Office of Company Registrar within six months of the fiscal year end. The return includes audited financial statements, annual report, and details of directors or authorized representatives. The Department of Industry requires annual reporting on business activities, investment realization, and employment generation. The Inland Revenue Department mandates annual income tax returns and quarterly VAT returns if registered. Non-compliance with reporting requirements may result in penalties or cancellation of registration.

Closure and Exit Procedures

Liaison Office Closure Process

A liaison office can be closed by submitting a closure application to the Department of Industry. The application must include a board resolution from the parent company authorizing closure and reasons for discontinuation. The office must settle all outstanding liabilities, including employee dues, rent, and tax obligations. Tax clearance from the Inland Revenue Department is mandatory before closure approval. The DOI issues a closure certificate after verifying compliance with all legal requirements. The office must surrender the registration certificate and deregister from all authorities.

Branch Office Closure Process

Branch office closure requires approval from both the Department of Industry and Office of Company Registrar. The branch must publish a public notice in national newspapers announcing the intention to close operations. All creditors must be paid, and outstanding contracts must be settled or transferred. The branch office must file final tax returns and obtain tax clearance certificates. An application for deregistration must be submitted to the OCR with supporting documents. The closure process typically takes three to six months, depending on the complexity of operations and settlement of obligations.

Common Challenges and Solutions

Foreign companies often face challenges in document authentication, particularly obtaining embassy attestation or apostille certification. Engaging a local legal consultant or registered firm can facilitate the process and ensure proper documentation. Language barriers in understanding Nepali regulations can be addressed by hiring bilingual legal advisors familiar with foreign investment laws. Delays in approval processes can be minimized by submitting complete applications with all required documents. Understanding sector-specific regulations and obtaining necessary clearances before application submission prevents rejection or delays.

Frequently Asked Questions

What is the difference between a liaison office and a branch office in Nepal?

A liaison office can only conduct promotional and market research activities without generating revenue, while a branch office can undertake full commercial operations, sign contracts, and generate income. Liaison offices are funded entirely by parent company remittances, whereas branch offices can earn revenue locally and have complete tax obligations.

How long does it take to register a liaison office in Nepal?

The registration process for a liaison office typically takes 15 to 30 working days from the date of complete application submission to the Department of Industry. The timeline may extend if additional documents are requested or clarifications are needed. Proper document preparation and authentication can expedite the process significantly.

Can a liaison office be converted into a branch office?

Yes, a liaison office can be converted into a branch office by applying to the Department of Industry with a new business plan and required documents. The conversion requires registration with the Office of Company Registrar and compliance with branch office capital and operational requirements. The process follows similar steps as establishing a new branch office.

What is the minimum capital requirement for a branch office?

Nepal does not specify a universal minimum capital requirement for branch offices. The required capital depends on the proposed business activities, sector-specific regulations, and the business plan submitted to the Department of Industry. The DOI evaluates capital adequacy based on the scope and scale of proposed operations.

Are foreign nationals allowed to work in liaison or branch offices?

Foreign nationals can work in liaison or branch offices after obtaining work permits from the Department of Labor and employment visas from the Department of Immigration. The number of foreign employees is typically restricted, with preference for employing Nepali nationals. Work permit applications require employment contracts and proof of specialized skills or expertise.

What taxes apply to branch offices in Nepal?

Branch offices pay corporate income tax at 25% on profits generated in Nepal under the Income Tax Act, 2002. They must register for Value Added Tax if annual turnover exceeds NPR 5 million, with a standard rate of 13%. Additional obligations include withholding tax on payments, social security contributions, and local taxes.

How often must liaison offices renew their registration?

Liaison offices must renew their registration annually with the Department of Industry. The renewal application should be submitted at least 30 days before the current registration expires. Renewal requires submission of annual activity reports, financial statements, and tax clearance certificates along with the prescribed renewal fee.

Can branch offices repatriate profits to the parent company?

Yes, branch offices can repatriate profits to the parent company after paying applicable taxes in Nepal. Section 7 of the Foreign Investment and Technology Transfer Act, 2019 permits repatriation of earnings from foreign investment. The repatriation must be processed through authorized banking channels with proper documentation and Nepal Rastra Bank approval.

What happens if a liaison office engages in commercial activities?

If a liaison office engages in commercial activities, it violates the terms of its registration and applicable laws. The Department of Industry can cancel the registration, impose penalties, and initiate legal action. The office must convert to a branch office or company registration to conduct commercial activities legally.

Is environmental clearance required for all branch offices?

Environmental clearance is required for branch offices engaged in manufacturing, industrial production, or activities with potential environmental impact. The Ministry of Forest and Environment conducts environmental impact assessments based on the nature and scale of operations. Service-based branch offices typically do not require environmental clearance unless specified by sectoral regulations.