Nepal has emerged as an attractive destination for global companies seeking to establish their presence in South Asia. The country offers strategic advantages including access to regional markets, favorable investment policies, and growing economic opportunities. Foreign companies are increasingly incorporating in Nepal to leverage these benefits while complying with the legal framework established under the Companies Act, 2063 (2006) and the Foreign Investment and Technology Transfer Act, 2075 (2019).
Legal Framework for Foreign Company Registration in Nepal
The legal structure governing foreign company incorporation in Nepal is primarily regulated by the Companies Act, 2063 (2006) and the Foreign Investment and Technology Transfer Act, 2075 (2019). These laws provide comprehensive guidelines for foreign investors seeking to establish business entities in Nepal. The Department of Industry (DOI) serves as the primary regulatory authority for foreign investment approvals, while the Office of Company Registrar (OCR) handles company registration procedures.
Key Legislation Governing Foreign Investment
| Legislation | Purpose | Administering Authority |
|---|---|---|
| Companies Act, 2063 (2006) | Regulates company formation and operations | Office of Company Registrar |
| Foreign Investment and Technology Transfer Act, 2075 (2019) | Governs foreign investment approvals | Department of Industry |
| Industrial Enterprises Act, 2076 (2020) | Provides industrial licensing framework | Department of Industry |
| Foreign Exchange Regulation Act, 2019 (1962) | Controls foreign exchange transactions | Nepal Rastra Bank |
Strategic Advantages of Incorporating in Nepal
Geographic and Market Access Benefits
Nepal’s strategic location between India and China provides foreign companies with access to markets representing over 2.8 billion consumers. The country serves as a gateway to South Asian markets through various trade agreements and preferential arrangements. Companies incorporated in Nepal can benefit from the South Asian Free Trade Area (SAFTA) agreement, which provides preferential market access to member countries including India, Pakistan, Bangladesh, and Sri Lanka.
Investment Incentives and Tax Benefits
The Government of Nepal offers substantial incentives to foreign investors under the Industrial Enterprises Act, 2076 (2020). These incentives include tax holidays, customs duty exemptions, and repatriation facilities. Foreign companies can repatriate profits, dividends, and capital gains subject to applicable taxes under Section 3 of the Foreign Investment and Technology Transfer Act, 2075 (2019).
| Incentive Type | Benefit | Legal Basis |
|---|---|---|
| Tax Holiday | Up to 7 years for priority industries | Industrial Enterprises Act, 2076 |
| Customs Duty Exemption | Reduced or zero duty on machinery imports | Customs Act, 2064 |
| Profit Repatriation | Full repatriation after tax payment | FITTA, 2075 |
| Dividend Repatriation | Unrestricted dividend transfer | FITTA, 2075 |
Competitive Labor Costs and Skilled Workforce
Nepal offers competitive labor costs compared to other South Asian countries while maintaining a growing pool of skilled professionals. The country produces thousands of graduates annually in engineering, information technology, management, and other technical fields. Foreign companies can employ both local and foreign workers, though work permits are required for foreign nationals under the Labor Act, 2074 (2017).
Types of Business Entities Available for Foreign Companies
Private Limited Company
A Private Limited Company represents the most common structure for foreign investment in Nepal. Under Section 4 of the Companies Act, 2063 (2006), a private limited company requires a minimum of two shareholders and can have a maximum of 101 shareholders. Foreign investors can hold up to 100% equity in most sectors, except those restricted under the Foreign Investment and Technology Transfer Act, 2075 (2019).
Key Features of Private Limited Companies:
- The minimum authorized capital requirement varies by sector, with no general minimum for most industries under current regulations.
- Foreign shareholders can participate fully in management and decision-making processes through board representation.
- The company must maintain separate legal personality from its shareholders, providing limited liability protection to investors.
- Annual audited financial statements must be submitted to the Office of Company Registrar as per Section 110 of the Companies Act, 2063.
- The company can engage in any lawful business activity specified in its memorandum of association.
Public Limited Company
Public Limited Companies are suitable for larger foreign investments planning to raise capital through public offerings. Section 5 of the Companies Act, 2063 (2006) requires a minimum of seven shareholders for public company formation. These companies can issue shares to the general public and list on the Nepal Stock Exchange (NEPSE) subject to Securities Board of Nepal (SEBON) regulations.
Branch Office and Liaison Office
Foreign companies can establish branch offices or liaison offices in Nepal under Section 60 of the Companies Act, 2063 (2006). Branch offices can conduct commercial activities, while liaison offices are restricted to coordination and communication functions. The Department of Industry must approve branch office establishment for foreign companies under the Foreign Investment and Technology Transfer Act, 2075 (2019).
Sectors Open for Foreign Investment
Permitted Investment Sectors
The Foreign Investment and Technology Transfer Act, 2075 (2019) allows foreign investment in most sectors of the Nepali economy. The government has liberalized investment policies to attract foreign capital in manufacturing, services, infrastructure, and technology sectors. Foreign investors can hold 100% equity in permitted sectors without requiring local partnership.
Major Sectors Open to Foreign Investment:
- Manufacturing industries including textiles, pharmaceuticals, electronics, and consumer goods production facilities.
- Information technology and business process outsourcing services including software development and IT-enabled services.
- Tourism and hospitality sector including hotels, resorts, restaurants, and adventure tourism operations.
- Renewable energy projects including hydropower, solar, wind, and biomass energy generation facilities.
- Agriculture and agro-processing industries including commercial farming, food processing, and agricultural technology.
- Education and healthcare services including private schools, colleges, hospitals, and medical facilities.
- Infrastructure development including roads, bridges, airports, and urban development projects.
Restricted and Prohibited Sectors
Certain sectors remain restricted or prohibited for foreign investment under Schedule 1 and Schedule 2 of the Foreign Investment and Technology Transfer Act, 2075 (2019). These restrictions aim to protect national interests, cultural heritage, and small-scale domestic industries.
Restriction LevelSectorsForeign Equity LimitProhibitedArms and ammunition production0%ProhibitedRetail business with investment below NPR 100 million0%RestrictedDomestic air transport services49%RestrictedSecurity printing49%RestrictedRadioactive minerals51%
Company Registration Process for Foreign Investors
Step 1: Obtain Foreign Investment Approval
Foreign investors must obtain approval from the Department of Industry before incorporating a company in Nepal. The application must be submitted through the Industry Registration Information System (IRIS) online portal. Section 3 of the Foreign Investment and Technology Transfer Act, 2075 (2019) requires foreign investors to submit detailed project proposals including investment amount, technology transfer arrangements, and employment generation plans.
Required Documents for Foreign Investment Approval:
- The foreign investor must submit a completed application form through the IRIS portal with accurate company and investor information.
- A detailed project proposal must outline the business plan, investment amount, technology transfer, and expected economic benefits.
- Certified copies of passport and address proof documents for all foreign investors must be submitted with notarization.
- Bank solvency certificates or financial statements demonstrating the investor’s financial capacity must be provided from recognized financial institutions.
- Technical collaboration agreements must be submitted if the project involves technology transfer from foreign entities.
- Environmental impact assessment reports are required for projects in environmentally sensitive sectors as per Environmental Protection Act, 2076.
Step 2: Reserve Company Name
After obtaining foreign investment approval, investors must reserve the proposed company name with the Office of Company Registrar. The name reservation application can be submitted online through the OCR portal. Section 8 of the Companies Act, 2063 (2006) prohibits names that are identical or similar to existing companies, offensive, or misleading.
Step 3: Prepare Incorporation Documents
The company must prepare memorandum of association and articles of association as required under Sections 9 and 10 of the Companies Act, 2063 (2006). These documents must specify the company’s objectives, authorized capital, share structure, and governance provisions. All incorporation documents must be notarized and authenticated.
Step 4: Submit Registration Application
The registration application must be submitted to the Office of Company Registrar along with all required documents and prescribed fees. Section 11 of the Companies Act, 2063 (2006) requires submission of memorandum of association, articles of association, details of directors and shareholders, and proof of registered office address.
Documents Required for Company Registration:
- The memorandum of association must clearly state the company’s name, objectives, authorized capital, and share distribution among shareholders.
- The articles of association must outline internal governance rules, director powers, shareholder rights, and meeting procedures.
- Consent letters from all proposed directors must be submitted confirming their willingness to serve on the board.
- Proof of registered office address must be provided through rental agreement or ownership documents with recent utility bills.
- Foreign investment approval certificate issued by the Department of Industry must be submitted as mandatory documentation.
- Passport copies and photographs of all foreign shareholders and directors must be provided with proper authentication.
- Share subscription agreements must demonstrate the commitment of shareholders to subscribe to the company’s shares.
Step 5: Obtain Company Registration Certificate
The Office of Company Registrar issues the company registration certificate upon verification of all documents and compliance with legal requirements. Section 12 of the Companies Act, 2063 (2006) provides that the company comes into existence from the date of registration certificate issuance. The registration process typically takes 7-15 working days for complete applications.
Step 6: Complete Post-Registration Compliance
After registration, the company must complete several post-registration requirements including PAN registration, VAT registration, and tax registration with the Inland Revenue Department. The company must also register with the Social Security Fund under the Contribution Based Social Security Act, 2074 (2017) if employing workers.
Capital Requirements and Investment Conditions
Minimum Investment Thresholds
The Foreign Investment and Technology Transfer Act, 2075 (2019) prescribes minimum investment requirements for foreign investors. Section 3(2) requires foreign investors to bring minimum investment of NPR 50 million (approximately USD 375,000) for technology-based industries and NPR 100 million (approximately USD 750,000) for other industries. These thresholds ensure substantial foreign investment contribution to the economy.
Capital Repatriation Rights
Foreign investors enjoy full repatriation rights under Section 3(3) of the Foreign Investment and Technology Transfer Act, 2075 (2019). Investors can repatriate amounts received from sale of shares, profits and dividends, and proceeds from liquidation after paying applicable taxes. The Nepal Rastra Bank regulates foreign exchange transactions under the Foreign Exchange Regulation Act, 2019 (1962).
| Repatriable Amount | Conditions | Approval Authority |
|---|---|---|
| Share sale proceeds | After capital gains tax payment | Nepal Rastra Bank |
| Dividends | After dividend tax deduction | Nepal Rastra Bank |
| Profits | After corporate income tax | Nepal Rastra Bank |
| Loan principal and interest | As per loan agreement | Nepal Rastra Bank |
Taxation Framework for Foreign Companies
Corporate Income Tax
Companies incorporated in Nepal are subject to corporate income tax under the Income Tax Act, 2058 (2002). The standard corporate tax rate is 25% of taxable income. However, special industries enjoy concessional tax rates ranging from 20% to 25% depending on the sector and location.
Corporate Tax Rates by Sector:
- Manufacturing and processing industries located in special economic zones pay 20% corporate income tax for the first ten years.
- Hydropower projects with generation capacity above 100 MW pay 20% corporate income tax for the first ten years.
- Banks and financial institutions pay 30% corporate income tax on their taxable income without any concessions.
- Telecommunication service providers pay 30% corporate income tax on their annual taxable income.
- General industries and service companies pay the standard 25% corporate income tax rate on taxable income.
Value Added Tax
Companies must register for Value Added Tax (VAT) if their annual turnover exceeds NPR 5 million under the Value Added Tax Act, 2052 (1996). The standard VAT rate is 13% on supply of goods and services. Exports and certain essential goods enjoy zero-rated or exempt status.
Withholding Tax on Foreign Payments
Payments to foreign entities are subject to withholding tax under Section 92 of the Income Tax Act, 2058 (2002). The rates vary depending on the nature of payment and existence of tax treaties. Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with several countries to prevent double taxation.
| Payment Type | Withholding Tax Rate | Legal Provision |
|---|---|---|
| Dividends to non-residents | 5% | Income Tax Act, Section 88 |
| Interest to non-residents | 15% | Income Tax Act, Section 88 |
| Royalty to non-residents | 15% | Income Tax Act, Section 88 |
| Technical service fees | 15% | Income Tax Act, Section 88 |
Employment and Work Permit Requirements
Foreign Employee Work Permits
Foreign nationals employed by companies in Nepal must obtain work permits from the Department of Immigration under the Immigration Act, 2049 (1992). The employer company must demonstrate that the foreign employee possesses specialized skills not available locally. Work permits are typically issued for one year and can be renewed annually.
Work Permit Application Requirements:
- The employer must submit a formal application letter explaining the need for foreign employee and their specific qualifications.
- The employment contract must clearly specify the position, salary, duration, and terms of employment for the foreign worker.
- Educational certificates and professional qualification documents must be submitted with proper authentication from relevant authorities.
- The company must provide tax clearance certificates and company registration documents to demonstrate legal business operations.
- Passport copies with valid visa and recent photographs of the foreign employee must be submitted with the application.
- The employer must pay prescribed work permit fees as determined by the Department of Immigration regulations.
Local Employment Requirements
The Labor Act, 2074 (2017) requires companies to prioritize employment of Nepali citizens. Foreign companies must provide training and skill development opportunities to local employees. The Act mandates minimum wage compliance, social security contributions, and adherence to labor standards.
Intellectual Property Protection
Patent and Trademark Registration
Nepal provides intellectual property protection through the Patent, Design and Trademark Act, 2022 (1965). Foreign companies can register patents, trademarks, and industrial designs with the Department of Industry. The country is a member of the World Intellectual Property Organization (WIPO) and has signed the Paris Convention for the Protection of Industrial Property.
Technology Transfer Agreements
Technology transfer agreements between foreign and Nepali entities require approval from the Department of Industry under Section 4 of the Foreign Investment and Technology Transfer Act, 2075 (2019). The agreements must specify royalty rates, duration, and terms of technology transfer. Royalty payments are subject to withholding tax and require Nepal Rastra Bank approval for remittance.
Banking and Financial Services
Opening Corporate Bank Accounts
Foreign companies must open corporate bank accounts with licensed commercial banks in Nepal. The Nepal Rastra Bank regulates banking operations under the Bank and Financial Institution Act, 2073 (2017). Companies must submit registration certificates, PAN certificates, and board resolutions authorizing account opening.
Foreign Currency Accounts
Companies engaged in export-import activities can maintain foreign currency accounts with authorized banks under the Foreign Exchange Regulation Act, 2019 (1962). These accounts facilitate international transactions and reduce foreign exchange conversion costs. The Nepal Rastra Bank prescribes regulations for foreign currency account operations.
Compliance and Reporting Obligations
Annual Filing Requirements
Companies must file annual returns with the Office of Company Registrar within six months of the financial year end under Section 110 of the Companies Act, 2063 (2006). The annual return must include audited financial statements, director reports, and shareholder information. Non-compliance attracts penalties and potential company deregistration.
Mandatory Annual Compliance:
- The company must prepare and submit audited financial statements including balance sheet, profit and loss account, and cash flow statement.
- Annual general meetings must be conducted within six months of financial year end with proper notice to all shareholders.
- Tax returns must be filed with the Inland Revenue Department within three months of financial year end.
- Social security contributions must be paid monthly to the Social Security Fund for all eligible employees.
- The company must maintain statutory registers including share register, director register, and meeting minutes at the registered office.
Tax Compliance and Audit
Companies must maintain proper books of accounts and undergo annual audits by chartered accountants registered with the Institute of Chartered Accountants of Nepal (ICAN). Tax returns must be filed electronically through the Inland Revenue Department portal. The Income Tax Act, 2058 (2002) requires companies to make advance tax payments in three installments during the fiscal year.
Dispute Resolution Mechanisms
Arbitration and Mediation
Nepal recognizes arbitration as an alternative dispute resolution mechanism under the Arbitration Act, 2055 (1999). Foreign companies can include arbitration clauses in commercial contracts. Nepal is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, enabling enforcement of international arbitration awards.
Court System
The court system in Nepal consists of the Supreme Court, High Courts, and District Courts. Commercial disputes are handled by specialized commercial benches. The Civil Procedure Code, 2074 (2017) governs civil litigation procedures. Foreign companies have equal access to the judicial system for dispute resolution.
Recent Reforms and Future Outlook
Investment Policy Reforms
The Government of Nepal has implemented several reforms to improve the investment climate. The Foreign Investment and Technology Transfer Act, 2075 (2019) replaced the previous 1992 Act, introducing simplified approval procedures and enhanced investor protection. The Industrial Enterprises Act, 2076 (2020) consolidated industrial licensing and incentive provisions.
Digital Infrastructure Development
Nepal is investing in digital infrastructure to facilitate business operations. The government has launched online portals for company registration, tax filing, and investment approvals. These initiatives reduce processing time and improve transparency in regulatory procedures.
What is the minimum investment required for foreign companies in Nepal?
Foreign investors must invest minimum NPR 50 million for technology-based industries and NPR 100 million for other sectors under the Foreign Investment and Technology Transfer Act, 2075 (2019). These thresholds apply to foreign equity investment.
Can foreign companies own 100% equity in Nepal?
Yes, foreign companies can own 100% equity in most sectors except those listed as restricted or prohibited under the Foreign Investment and Technology Transfer Act, 2075 (2019). Restricted sectors have specific foreign equity limits.
How long does company registration take in Nepal?
Company registration typically takes 7-15 working days after submission of complete documents to the Office of Company Registrar. Foreign investment approval from the Department of Industry may require additional 15-30 days.
What are the corporate tax rates in Nepal?
The standard corporate income tax rate is 25%. Special industries enjoy concessional rates of 20% for manufacturing in special zones and hydropower projects. Banks and telecom companies pay 30% under the Income Tax Act, 2058.
Can foreign investors repatriate profits from Nepal?
Yes, foreign investors can repatriate profits, dividends, and capital gains after paying applicable taxes under Section 3 of the Foreign Investment and Technology Transfer Act, 2075 (2019). Nepal Rastra Bank approval is required for repatriation.
What sectors are prohibited for foreign investment?
Prohibited sectors include arms and ammunition production, retail business below NPR 100 million investment, and certain cottage industries reserved for Nepali citizens under the Foreign Investment and Technology Transfer Act, 2075 (2019).
Do foreign employees need work permits in Nepal?
Yes, foreign nationals must obtain work permits from the Department of Immigration under the Immigration Act, 2049 (1992). Employers must demonstrate that foreign employees possess specialized skills not available locally.
Are there tax treaties between Nepal and other countries?
Nepal has signed Double Taxation Avoidance Agreements with several countries including India, China, Thailand, and others. These treaties prevent double taxation and provide reduced withholding tax rates on cross-border payments.
What intellectual property protection exists in Nepal?
Nepal provides patent, trademark, and design protection under the Patent, Design and Trademark Act, 2022 (1965). The country is a WIPO member and signatory to the Paris Convention for industrial property protection.
How are disputes resolved for foreign companies in Nepal?
Disputes can be resolved through courts or arbitration under the Arbitration Act, 2055 (1999). Nepal recognizes international arbitration awards under the New York Convention. Commercial courts handle business disputes efficiently.
