Which to Choose: Branch or Liaison or Subsidiary in Nepal

Overview of Foreign Business Entities in Nepal

Foreign companies seeking to establish operations in Nepal must select an appropriate legal structure. Nepal’s regulatory framework permits three primary options: branch offices, liaison offices, and subsidiary companies. Each structure carries distinct legal implications, operational requirements, and tax obligations. The Foreign Investment and Technology Transfer Act, 2075 B.S. (2019) and the Company Act, 2063 B.S. (2006) govern these entities. Selection depends on business objectives, capital investment capacity, and operational scope. Understanding the differences between these structures enables informed decision-making for market entry.

Branch Office in Nepal

A branch office represents a direct extension of a foreign company operating in Nepal without separate legal entity status. The parent company retains full liability for branch operations. Branches require registration with the Office of the Company Registrar and must comply with Nepal’s foreign investment regulations.

Key characteristics of branch offices include:

A branch office operates as an extension of the parent company with no independent legal status in Nepal.
The foreign parent company assumes complete financial and legal liability for all branch activities.
Branch offices require registration with the Company Registrar’s Office under the Foreign Investment and Technology Transfer Act, 2075 B.S.
Branches may engage in manufacturing, trading, service provision, and technology transfer activities.
The branch must maintain separate accounting records and file annual financial statements with Nepalese authorities.
Profit repatriation occurs after tax payment and compliance with foreign exchange regulations.
Branch offices do not require minimum capital investment thresholds specified by law.

Liaison Office in Nepal

A liaison office functions as a representative office with limited operational capacity. Liaison offices cannot conduct direct business transactions or generate revenue in Nepal. These offices serve coordination, research, and promotional functions only.

Liaison office operational scope includes:

A liaison office operates exclusively for coordination, research, and promotional activities without revenue generation.
Liaison offices cannot engage in direct business transactions, sales, or service delivery in Nepal.
Registration with the Company Registrar’s Office is mandatory under applicable foreign investment regulations.
Liaison offices may conduct market research, liaison with government agencies, and promotional activities.
These offices require minimal capital investment and operational infrastructure.
Liaison offices must file annual reports detailing activities and expenditures with regulatory authorities.
Staff expenses and operational costs are the primary financial obligations.

Subsidiary Company in Nepal

A subsidiary represents a separate legal entity incorporated under Nepalese law. The parent company holds ownership stakes while the subsidiary operates as an independent company. Subsidiaries possess distinct legal personality and limited liability protection.

Subsidiary company characteristics include:

A subsidiary company constitutes a separate legal entity incorporated under the Company Act, 2063 B.S.
The subsidiary operates independently with its own board of directors and management structure.
Shareholders (including the parent company) enjoy limited liability protection restricted to their investment amount.
Subsidiaries require minimum capital investment as specified in the Foreign Investment and Technology Transfer Act, 2075 B.S.
The subsidiary must maintain independent accounting records and file separate tax returns with the Inland Revenue Department.
Subsidiaries can engage in all lawful business activities permitted under Nepalese law.
Dividend distribution and profit repatriation follow corporate governance and tax compliance procedures.

Comparative Analysis Table

Aspect	Branch Office	Liaison Office	Subsidiary Company
Legal Status	Extension of parent company	Representative office	Separate legal entity
Liability	Parent company liable	Parent company liable	Limited to shareholders
Revenue Generation	Permitted	Not permitted	Permitted
Minimum Capital	No statutory requirement	Minimal requirement	Specified by regulations
Registration	Company Registrar’s Office	Company Registrar’s Office	Company Registrar’s Office
Tax Filing	Consolidated with parent	Separate reporting	Independent tax return
Operational Scope	Full business activities	Coordination only	All lawful activities
Governance	Parent company control	Parent company control	Independent board
Profit Repatriation	After tax compliance	Not applicable	After dividend declaration

Registration and Compliance Requirements

Branch Office Registration

Branch offices require submission of specific documentation to the Company Registrar’s Office. The registration process involves verification of parent company credentials and business legitimacy.

Required documents for branch registration include:

Certified copy of the parent company’s certificate of incorporation or equivalent registration document from the country of origin.
Memorandum and Articles of Association or equivalent constitutional documents of the parent company.
Board resolution authorizing establishment of the branch office in Nepal.
Detailed business plan specifying operational activities, investment amount, and employment projections.
Proof of financial capacity and creditworthiness of the parent company.
Identification and background information of the branch manager and authorized representatives.
Lease agreement or property ownership documentation for the branch office location.

Liaison Office Registration

Liaison office registration follows similar procedures with emphasis on non-revenue generating activities. Documentation must clearly delineate the liaison office’s limited operational scope.

Required documents for liaison office registration include:

Certified copy of the parent company’s incorporation certificate and constitutional documents.
Board resolution specifying liaison office establishment and authorized representatives.
Detailed description of liaison activities, market research objectives, and coordination functions.
Proof of parent company financial standing and operational history.
Identification documents of liaison office staff and management personnel.
Office location documentation including lease agreement or property ownership proof.
Undertaking that the liaison office will not engage in revenue-generating business activities.

Subsidiary Company Registration

Subsidiary registration involves incorporation as a new legal entity under Nepalese law. The process requires compliance with the Company Act, 2063 B.S. and foreign investment regulations.

Required documents for subsidiary incorporation include:

Memorandum and Articles of Association drafted according to Nepalese company law requirements.
Board resolution of the parent company authorizing subsidiary establishment.
Proof of capital investment and funding source documentation.
Identification and background information of directors and shareholders.
Detailed business plan outlining operational activities and financial projections.
Lease agreement or property ownership documentation for the registered office.
Tax identification number application and registration with the Inland Revenue Department.

Tax Implications and Financial Obligations

Branch Office Taxation

Branch offices file consolidated tax returns with the parent company’s tax obligations. The branch’s income constitutes taxable income in Nepal subject to corporate tax rates.

Tax considerations for branch offices include:

Branch income is subject to Nepal’s corporate income tax rate of 25 percent as per the Income Tax Act, 2058 B.S.
The branch must file annual income tax returns with the Inland Revenue Department.
Profit repatriation requires payment of withholding tax on remitted amounts.
The branch must maintain separate accounting records and financial statements in Nepalese currency.
Value Added Tax (VAT) registration is mandatory if annual turnover exceeds the statutory threshold.
The branch must comply with customs duties and import regulations for goods and equipment.

Liaison Office Taxation

Liaison offices incur minimal tax obligations as they generate no revenue. Operating expenses constitute deductible costs against any income generated from parent company reimbursements.

Tax considerations for liaison offices include:

Liaison offices do not generate taxable income from business operations.
Operating expenses including staff salaries and office maintenance are deductible costs.
Reimbursements from the parent company do not constitute taxable income.
The liaison office must file annual financial statements with regulatory authorities.
Value Added Tax registration is not required as no taxable supplies occur.
The liaison office must comply with employment tax obligations for staff members.

Subsidiary Company Taxation

Subsidiaries file independent tax returns and bear separate tax obligations. Corporate income tax applies to subsidiary profits at standard rates.

Tax considerations for subsidiary companies include:

Subsidiaries are subject to corporate income tax at 25 percent on taxable profits under the Income Tax Act, 2058 B.S.
The subsidiary must file independent annual income tax returns with the Inland Revenue Department.
Dividend distribution to shareholders triggers withholding tax obligations.
The subsidiary must register for Value Added Tax if annual turnover exceeds the statutory threshold.
Subsidiaries must maintain independent accounting records and file audited financial statements.
Tax incentives may apply to subsidiaries in priority sectors under the Foreign Investment and Technology Transfer Act, 2075 B.S.

Selection Criteria and Decision Framework

Selection Factor	Branch Office	Liaison Office	Subsidiary Company
Business Revenue Generation	Yes	No	Yes
Capital Investment Capacity	Flexible	Minimal	Substantial
Operational Complexity	Moderate to High	Low	High
Liability Protection	None	None	Limited
Long-term Commitment	Medium	Short-term	Long-term
Regulatory Compliance	Moderate	Minimal	Extensive
Market Testing	Suitable	Suitable	Less suitable
Profit Repatriation	Permitted	Not applicable	Permitted

Frequently Asked Questions

What is the minimum capital requirement for establishing a branch office in Nepal?

The Foreign Investment and Technology Transfer Act, 2075 B.S. does not specify a minimum capital threshold for branch offices. However, the parent company must demonstrate financial capacity to support branch operations.

Can a liaison office conduct sales activities in Nepal?

No, liaison offices are restricted to coordination, research, and promotional activities only. Direct sales or revenue-generating transactions violate the liaison office’s regulatory framework and may result in penalties.

What are the liability implications for parent companies operating subsidiaries in Nepal?

Parent companies are not liable for subsidiary debts or obligations beyond their shareholding investment. Subsidiaries possess separate legal personality providing limited liability protection to shareholders.

How long does subsidiary incorporation take in Nepal?

Subsidiary incorporation typically requires 15 to 30 days from application submission to Company Registrar’s Office approval, subject to document completeness and regulatory verification.

Are foreign subsidiaries in Nepal eligible for tax incentives?

Yes, subsidiaries operating in priority sectors including manufacturing, technology, and infrastructure may qualify for tax incentives under the Foreign Investment and Technology Transfer Act, 2075 B.S.

What reporting obligations apply to branch offices?

Branch offices must file annual financial statements, income tax returns, and compliance reports with the Company Registrar’s Office and Inland Revenue Department within statutory deadlines.

Conclusion

Selection between branch, liaison, and subsidiary structures depends on business objectives, capital availability, and operational requirements. Branch offices suit companies seeking revenue generation with flexible capital investment. Liaison offices serve market research and coordination functions with minimal regulatory burden. Subsidiaries provide separate legal entity status and liability protection for long-term operations requiring substantial investment. Consultation with legal and tax professionals ensures compliance with Nepal’s regulatory framework and optimization of business structure selection.