Registration of IT Business in Nepal Through FDI

Introduction

Foreign Direct Investment (FDI) in Nepal’s Information Technology sector operates under the Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019) and the Industrial Enterprises Act, 2020. The Department of Industry (DOI) serves as the primary regulatory authority for foreign investment registration. IT businesses qualify for automatic approval under Schedule 1 of FITTA 2019, allowing streamlined registration procedures. Foreign investors can establish IT companies with 100% foreign ownership in most technology-related activities. The registration process involves multiple government agencies including the Office of Company Registrar (OCR), Department of Industry, and Inland Revenue Department. Nepal’s IT sector offers opportunities in software development, IT consulting, data processing, and technology services.

Legal Framework for FDI in IT Sector

The Foreign Investment and Technology Transfer Act, 2019 governs all foreign investment activities in Nepal. Section 3 of FITTA 2019 permits foreign investment in industries not listed in the negative list. The Industrial Enterprises Act, 2020 classifies IT businesses under service industries eligible for foreign participation. The Companies Act, 2006 regulates company formation and corporate governance requirements. Foreign investors must comply with the Foreign Exchange Regulation Act, 1962 for capital repatriation. The Nepal Rastra Bank (NRB) issues directives on foreign currency transactions and profit repatriation. IT businesses receive automatic approval without prior government consent under current regulations.

Minimum Investment Requirements

Foreign investors must meet minimum capital thresholds specified under FITTA 2019 and related regulations. For IT service businesses, the minimum foreign investment requirement stands at NPR 50 million (approximately USD 375,000). Joint venture companies with Nepali partners require minimum foreign equity of NPR 50 million. Technology transfer agreements without equity participation require minimum NPR 20 million investment. The Department of Industry may waive minimum investment requirements for specific technology-intensive projects. Capital must be brought through banking channels with proper documentation from Nepal Rastra Bank. Investors must maintain the minimum investment throughout the business operation period.

Types of IT Business Structures

Foreign investors can establish IT businesses through several legal structures in Nepal. Private Limited Company represents the most common structure for foreign IT investments. Public Limited Company suits larger technology enterprises planning public offerings. Branch Office allows foreign IT companies to operate specific projects in Nepal. Liaison Office permits market research and liaison activities without commercial operations. Joint Venture Company combines foreign and domestic capital for collaborative technology ventures. Subsidiary Company operates as a separate legal entity wholly owned by foreign parent companies.

Eligibility Criteria for Foreign Investors

Foreign nationals and foreign companies qualify as investors under FITTA 2019 provisions. Individual foreign investors must provide valid passport copies and residential address proof. Foreign corporate investors must submit certificate of incorporation from their home country. Non-Resident Nepalis (NRNs) receive preferential treatment with reduced minimum investment requirements. Foreign investors cannot invest in industries listed in Annex 1 of FITTA 2019. The investor must demonstrate technical capability and financial capacity for proposed IT business. Background verification and due diligence apply to all foreign investment applications.

Registration Process with Department of Industry

The Department of Industry processes foreign investment applications through its online portal. Investors must create an account on the DOI online system at www.doind.gov.np. The application requires detailed project information, investment amount, and business activities. Section 4 of FITTA 2019 mandates submission of feasibility study for investments exceeding NPR 100 million. The Department issues approval within 7 working days for automatic approval category businesses. IT businesses fall under automatic approval, eliminating lengthy review procedures. The DOI issues a Foreign Investment Approval Certificate upon successful application review.

Company Registration at Office of Company Registrar

Following DOI approval, investors must register the company with the Office of Company Registrar. The Companies Act, 2006 governs the company registration process and requirements. Investors must reserve a unique company name through the OCR online system. The Memorandum of Association and Articles of Association require notarization before submission. Minimum two directors and two shareholders are mandatory for private limited companies. At least one director must be a Nepali resident as per OCR requirements. The OCR issues Certificate of Incorporation within 5-7 working days after document verification.

Documents Required for Foreign Investors

Foreign investors must prepare comprehensive documentation for IT business registration in Nepal. The following documents constitute the mandatory submission requirements:

Valid passport copies of all foreign directors and shareholders with visa stamps.
Certificate of Incorporation of foreign parent company with apostille or embassy attestation.
Board Resolution authorizing investment in Nepal and appointing authorized representatives.
Bank statement or financial statements proving financial capacity for minimum investment.
Curriculum Vitae of foreign directors demonstrating technical expertise and experience.
Residential address proof of all foreign investors from their home country.
Passport-sized photographs of all directors and shareholders for official records.
Power of Attorney if representatives handle registration on behalf of investors.
Tax Identification Number or equivalent from the investor’s home country.
Police clearance certificate for all foreign directors from their country of residence.

Documents Required for Nepali Partners

Nepali partners in joint venture IT companies must provide specific documentation. The following documents apply to domestic investors and directors:

Citizenship certificate copies of all Nepali directors and shareholders.
Recent passport-sized photographs for company registration and official records.
PAN (Permanent Account Number) certificate from Inland Revenue Department.
Residential address proof such as utility bills or local government certificates.
Bank account statements demonstrating financial capacity for equity contribution.
Character certificate from local government authority for director appointments.
Educational certificates if technical expertise is claimed for business operations.

PAN Registration Process

The Inland Revenue Department issues Permanent Account Number (PAN) for tax purposes. Companies must obtain PAN within 30 days of company registration. The application requires submission of Certificate of Incorporation and company documents. The IRD processes PAN applications within 3-5 working days after verification. PAN registration enables the company to conduct financial transactions and tax compliance. The Income Tax Act, 2002 mandates PAN for all business entities operating in Nepal. Companies must display PAN on all official correspondence and financial documents.

VAT Registration Requirements

Value Added Tax registration becomes mandatory when annual turnover exceeds NPR 5 million. IT service providers must register for VAT under the Value Added Tax Act, 1996. The Inland Revenue Department processes VAT registration applications through its online portal. Companies must submit PAN certificate, company registration documents, and office lease agreement. VAT registration typically completes within 5-7 working days after document submission. Registered businesses must charge 13% VAT on applicable IT services and products. Monthly or quarterly VAT returns require filing based on annual turnover thresholds.

Business Visa for Foreign Directors

Foreign directors require appropriate visa categories to manage IT business operations in Nepal. The Immigration Act, 1992 and Immigration Regulations, 1994 govern visa issuance procedures. Business visa allows multiple entries and stays up to 5 years with annual extensions. The Department of Immigration issues business visas based on company registration and DOI approval. Foreign directors must apply through the nearest Nepali embassy or upon arrival at Tribhuvan International Airport. Required documents include passport, company registration certificate, DOI approval, and visa application form. Business visa fees vary based on nationality and duration of stay requested.

Work Permit Requirements

Foreign nationals working in Nepal require work permits under the Foreign Employment Act, 2007. The Department of Labor processes work permit applications for foreign employees in IT companies. Companies must demonstrate that specific technical skills are unavailable in the local workforce. Work permit applications require submission of employment contract, educational certificates, and experience letters. The approval process takes 15-20 working days after complete document submission. Work permits remain valid for the duration specified in the employment contract. Annual renewal requires submission of updated documents and proof of continued employment.

Office Space Requirements

IT businesses must establish physical office premises in Nepal for company registration. The company must provide a lease agreement or ownership document for registered office address. Minimum office space requirements do not apply specifically to IT businesses under current regulations. The lease agreement must be registered with the local government authority for legal validity. Office premises must have proper infrastructure including electricity, internet connectivity, and communication facilities. The Department of Industry may conduct physical verification of office premises during registration. Companies can operate from co-working spaces if proper documentation and lease agreements exist.

Technology Transfer Agreements

Foreign IT companies can enter technology transfer agreements under FITTA 2019 provisions. Section 8 of FITTA 2019 permits technology transfer without equity investment requirements. Technology transfer agreements require registration with the Department of Industry for legal validity. The agreement must specify royalty rates, duration, and scope of technology transfer. Royalty payments cannot exceed 5% of net sales for technology transfer agreements. The Department reviews technology transfer terms to ensure compliance with national interests. Technology transfer agreements remain valid for the period specified in the registered contract.

Banking and Capital Requirements

Foreign investment capital must enter Nepal through authorized banking channels only. Nepal Rastra Bank regulations require foreign currency conversion through commercial banks. Investors must open a foreign currency account to receive investment capital from abroad. The bank issues a Foreign Investment Certificate after verifying the capital inflow. Companies must maintain minimum paid-up capital as specified in the DOI approval. Capital can be brought in cash, kind, or through technology transfer valuation. Banks require submission of DOI approval and company registration documents for account opening.

Taxation Structure for IT Businesses

IT businesses in Nepal face multiple tax obligations under the Income Tax Act, 2002. Corporate income tax applies at 25% on taxable income for private limited companies. Export-oriented IT businesses receive a 50% tax exemption on export income. Dividend distribution tax applies at 5% when companies distribute profits to shareholders. Foreign investors pay 5% withholding tax on dividend repatriation to their home countries. Capital gains tax applies at 10% on gains from sale of company shares. The Finance Act provides annual tax rates and exemptions for different business categories.

Profit Repatriation Procedures

Foreign investors can repatriate profits after fulfilling tax obligations under FITTA 2019. Section 11 of FITTA 2019 guarantees profit repatriation rights to foreign investors. Companies must obtain tax clearance certificate from Inland Revenue Department before repatriation. Nepal Rastra Bank approval is required for transferring profits exceeding specified thresholds. Banks process repatriation requests after verifying tax compliance and DOI approval documents. Repatriation can occur annually after approval of audited financial statements. The Foreign Exchange Regulation Act, 1962 governs all foreign currency transactions and transfers.

Timeline for Complete Registration

The complete registration process for IT business through FDI follows a structured timeline. Name reservation at OCR takes 1-2 working days with online application. DOI approval for foreign investment requires 7-10 working days for automatic approval category. Company registration at OCR completes within 5-7 working days after document submission. PAN registration with IRD takes 3-5 working days from application date. VAT registration requires 5-7 working days after PAN issuance and document verification. Business visa processing takes 5-15 working days depending on application location. The entire registration process typically completes within 4-6 weeks from initial application.

Cost Structure for Registration

Registration costs vary based on company capital, professional fees, and government charges. The following table outlines approximate costs for IT business registration:

Expense Category	Approximate Cost (NPR)	Remarks
DOI Registration Fee	1,000–5,000	Based on investment amount
Company Registration	15,000–50,000	Depends on authorized capital
PAN Registration	500	Fixed government fee
VAT Registration	1,000	One-time registration charge
Legal Documentation	50,000–150,000	Professional service fees
Office Lease Deposit	100,000–500,000	Varies by location
Business Visa Fee	20,000–100,000	Depends on duration
Total Estimated Cost	200,000–900,000	Approximate range

Annual Compliance Requirements

IT businesses must fulfill ongoing compliance obligations under various laws and regulations. Annual General Meeting must be held within 6 months of fiscal year end. Companies must file annual returns with OCR within 35 days of AGM. Audited financial statements require submission to OCR and IRD annually. Income tax returns must be filed by Poush end (mid-January) each year. VAT returns require monthly or quarterly filing based on turnover thresholds. Social Security Fund contributions apply for all employees under the Social Security Act, 2017. The Department of Industry requires annual reporting of foreign investment activities and performance.

Renewal and Continuation Procedures

Business operations require periodic renewals and compliance with regulatory authorities. Company registration remains perpetual unless voluntarily dissolved or legally terminated. Business visa requires annual renewal with submission of updated company documents. Work permits need renewal before expiration with proof of continued employment. VAT registration continues indefinitely but requires updating for any business changes. The DOI approval remains valid throughout business operations without periodic renewal. Office lease agreements require renewal based on terms specified in the contract. Tax clearance certificates need annual renewal for profit repatriation and compliance verification.

Intellectual Property Protection

IT businesses must protect intellectual property rights under the Patent, Design and Trademark Act, 1965. The Department of Industry manages patent and trademark registration in Nepal. Software copyright protection falls under the Copyright Act, 2002 administered by Copyright Office. Foreign IT companies can register trademarks for brand protection in Nepal. Patent registration requires submission of technical specifications and innovation details. Copyright registration provides legal protection for software products and digital content. Nepal is a signatory to international IP conventions including TRIPS agreement. IP registration typically takes 6-12 months depending on application complexity and objections.

Employment and Labor Regulations

IT companies must comply with the Labor Act, 2017 for employee management. Employment contracts must specify salary, benefits, working hours, and termination conditions. Minimum wage provisions apply to all employees as per annual government notifications. Companies must provide social security benefits under the Social Security Act, 2017. Foreign employees cannot exceed 15% of total workforce except with special approval. The Labor Act mandates paid leave, festival allowances, and gratuity payments. Companies must maintain employee records and submit periodic reports to labor authorities.

Sector-Specific Incentives

The Government of Nepal provides various incentives for IT sector development and investment. Export-oriented IT businesses receive 50% income tax exemption on export earnings. IT parks and special economic zones offer additional tax holidays and infrastructure benefits. The Industrial Enterprises Act, 2020 provides customs duty exemptions on imported technology equipment. Foreign investors in IT sector can access concessional loans from development banks. The government offers training subsidies for skill development in technology sectors. IT businesses qualify for accelerated depreciation on computer equipment and software investments.

Common Challenges and Solutions

Foreign investors face several challenges during IT business registration and operations in Nepal. Bureaucratic delays occur despite automatic approval provisions for IT sector investments. Language barriers exist as most government documents and procedures use Nepali language. Infrastructure limitations including power supply and internet connectivity affect IT operations. The following solutions address common challenges:

Engage experienced legal consultants familiar with Nepali registration procedures and requirements.
Prepare all documents with certified translations to avoid delays in processing.
Establish relationships with local partners who understand regulatory environment and procedures.
Invest in backup power systems and multiple internet service providers for operational continuity.
Maintain regular communication with regulatory authorities for compliance updates and clarifications.

Why Choose Axion Partners

Axion Partners stands as the No.1 service provider for IT business registration through FDI in Nepal. The firm possesses extensive experience handling complex foreign investment registrations across technology sectors. Axion Partners maintains direct relationships with Department of Industry, OCR, and other regulatory authorities. The team includes legal experts, chartered accountants, and company secretaries specializing in foreign investment. Axion Partners provides end-to-end services from initial consultation to post-registration compliance management. The firm offers transparent pricing with no hidden costs throughout the registration process. Clients receive dedicated relationship managers ensuring timely completion of all registration procedures. Axion Partners has successfully registered over 200 foreign IT companies in Nepal. The firm provides ongoing support for visa processing, tax compliance, and regulatory reporting. Axion Partners offers multilingual services eliminating language barriers for foreign investors. The firm’s success rate exceeds 98% for IT business registrations through FDI. Axion Partners provides realistic timelines and manages client expectations throughout the registration journey.

Frequently Asked Questions

What is the minimum investment required for IT business FDI in Nepal?

The minimum foreign investment requirement for IT businesses stands at NPR 50 million (approximately USD 375,000) under FITTA 2019. This threshold applies to both wholly foreign-owned companies and joint ventures with Nepali partners.

How long does IT business registration take in Nepal?

Complete IT business registration through FDI typically takes 4-6 weeks from initial application. The timeline includes DOI approval (7-10 days), company registration (5-7 days), and tax registrations (3-5 days each).

Can foreign investors own 100% of IT company in Nepal?

Yes, foreign investors can establish IT companies with 100% foreign ownership in Nepal. IT businesses fall under the automatic approval category without restrictions on foreign equity participation under FITTA 2019.

What visa do foreign directors need for IT business?

Foreign directors require business visa issued by the Department of Immigration based on company registration and DOI approval. Business visas allow multiple entries and stays up to 5 years with annual extensions.

Are there tax benefits for IT businesses in Nepal?

Export-oriented IT businesses receive 50% income tax exemption on export earnings. IT companies also benefit from customs duty exemptions on imported technology equipment and accelerated depreciation on computer assets.

What documents do foreign investors need for registration?

Foreign investors need passport copies, certificate of incorporation with apostille, board resolution, bank statements, CV of directors, address proof, photographs, and power of attorney for authorized representatives.

How much does IT business registration cost in Nepal?

Total registration costs range from NPR 200,000 to NPR 900,000 including government fees, legal documentation, office lease deposit, and professional service charges depending on company capital and requirements.

Can profits be repatriated to home country?

Yes, foreign investors can repatriate profits after fulfilling tax obligations and obtaining tax clearance certificate. Section 11 of FITTA 2019 guarantees profit repatriation rights to foreign investors.

Is physical office space mandatory for registration?

Yes, IT businesses must establish physical office premises with proper lease agreement or ownership documents. The registered office address is mandatory for company registration at OCR.

What are annual compliance requirements for IT companies?

Annual compliance includes filing returns with OCR, submitting audited financial statements, filing income tax returns, VAT returns, conducting AGM, and reporting to Department of Industry on foreign investment activities.