Branch vs subsidiary vs liaison in Nepal: entity choices for foreign investors

Business registration in Nepal can feel complex at first glance. You will deal with foreign investment rules, bank inflows, and sector approvals. Choosing the right legal path unlocks faster execution and lower risk. Most foreign companies shortlist three routes. A branch office, a wholly owned subsidiary (private limited company), or a liaison office. This guide compares them in detail. It translates law into clear steps. It helps you choose with confidence.

Business registration in Nepal: which entity suits foreign investors?

Three legal paths serve different goals. A subsidiary builds a local profit center. A branch extends an existing foreign company into Nepal. A liaison manages non-commercial representation. Each option triggers distinct approvals, taxes, banking flows, and reporting duties. The framework below gives you a one-page view.

Quick comparison table

Notes: Timelines are indicative. Sector approvals can extend lead times. Tax rates reflect common cases. Always confirm the latest Finance Act and sector notices.

How Nepal’s laws frame your options

Nepal’s entity choices sit inside specific legal pillars:

• Companies Act, 2063 (2006) governs incorporation and branch/liaison registrations.

• Foreign Investment and Technology Transfer Act (FITTA), 2019 defines FDI entry, approvals, and technology transfer.

• NRB Foreign Investment and Loan Management Bylaw, 2078 (2021) governs equity inflow, reinvestment, and repatriation.

• Industrial Enterprises Act, 2076 (2019) and sector notices regulate industry-specific permissions.

• Income Tax Act, 2058 (2002) and Value Added Tax Act, 2052 (1996) define tax obligations.

• Labor Act, 2074 (2017) and Social Security Fund (SSF) Rules govern HR compliance.

These statutes set your approvals, documents, capital flows, and ongoing duties. They also shape your tax base and payroll rules.

Option 1 — Subsidiary (Private Limited Company)

A subsidiary is a Nepal-incorporated private limited company. It has separate legal personality. Liability stays within the Nepal entity. It is the default route for scale, sales, and hiring.

Where a subsidiary fits best

• You want local sales and long-term growth.

• You need VAT invoicing and local vendor contracts.

• Your customers prefer contracts with a Nepal company.

• You want a clean line between parent liabilities and Nepal risk.

Step-by-step incorporation pathway

1. Name reservation at OCR. Choose a clear, distinctive name.

2. FDI intent filing at DoI. Include parent profile and project brief.

3. Board resolutions. Approve investment and appoint local representative.

4. Charter documents. Prepare Memorandum and Articles in line with scope.

5. Notarization and legalization. Apostille or consular legalize foreign documents.

6. FDI approval issuance. DoI grants foreign investment approval.

7. Company registration at OCR. Obtain certificate of incorporation.

8. NRB equity registration. Register inward equity for repatriation rights.

9. Tax registrations. Obtain PAN. Register VAT if liable.

10. Bank account opening. Open FDI and operating accounts.

11. Labor onboarding. Enroll with SSF after hiring.

12. Operational licenses. Secure sector approvals if required.

Capital and banking

• No general statutory minimum paid-up capital.

• Equity must enter in convertible foreign currency through an NRB-tracked channel.

• Keep FIRC-equivalent or bank confirmation for each inflow.

• Document every share allotment and issue share certificates.

Tax and payroll snapshot

• Corporate income tax: 25% base for most sectors.

• VAT: 13% standard rate if you cross registration thresholds or opt in.

• Withholding tax: Applies to certain services, rent, and royalties.

• Payroll: Enroll staff in SSF. Typical combined contributions total 31% of base salary (11% employee, 20% employer).

• Audit: Annual statutory audit and timely return filings.

Pros

• Strong brand trust with local contracts.

• Limited liability at the Nepal level.

• Full hiring, invoicing, and VAT capability.

• Clean profit attribution for tax and transfer pricing.

Cons

• More steps and filings than a liaison.

• Requires strict equity documentation with NRB.

• Annual audit, board, and registry upkeep.

Option 2 — Branch office of a foreign company

A branch is not a separate company. It extends your foreign legal entity into Nepal. It suits project-based delivery where the parent owns contracts.

Best-fit scenarios

• You have an existing foreign contract that needs on-ground delivery.

• You need short-to-medium-term presence tied to a project.

• Customers are comfortable contracting with the foreign parent.

• You want to avoid setting up share capital.

Registration pathway

1. DoI approval for branch establishment. Provide parent’s charter and audited accounts.

2. OCR branch registration. Register as a foreign company branch.

3. Appoint local authorized representative. Maintain service address.

4. PAN and VAT (if liable). Complete tax registrations.

5. Banking and capital. Remit working funds from parent via NRB channel.

6. Sector permits. Obtain project-specific approvals if needed.

Operations and compliance

• Branch may invoice for activities within its approved scope.

• Corporate tax applies on Nepal-source profits. Common base rate is 25%.

• Audit and regulatory filings are mandatory.

• Transfer pricing rules apply on cross-border charges with the parent.

Pros

• Faster than full subsidiary in many cases.

• Aligns directly with parent contracts.

• No share capital structure.

Cons

• Parent bears full liabilities of Nepal operations.

• Some clients prefer local contracting parties.

• Closure also requires regulator sign-off.

Option 3 — Liaison office 

A liaison office performs non-commercial activities. It coordinates, promotes, and studies the market. It does not invoice or earn local revenue.

Where a liaison fits best

• Early market exploration and feasibility studies.

• Relationship management, sourcing, or vendor liaison.

• Brand promotion and talent scouting without sales.

Registration pathway

1. DoI approval for liaison office. Submit parent documents and activity plan.

2. OCR liaison registration. Register as a foreign company liaison.

3. PAN registration for compliance and payroll.

4. Expense budget approval. Annual funding plan on record.

5. Banking. Remit expenses from parent via NRB channel.

Operations and compliance

• No commercial activity and no VAT invoices.

• Maintain books and annual expense reports.

• Appoint and retain a local representative.

• Close with regulator approvals and final accounting.

Pros

• Lowest commercial risk and simplest compliance.

• Good for early stage presence and research.

• Straightforward funding from parent.

Cons

• No revenue or contracts in Nepal.

• Team morale and market perception can be modest.

• Upgrade to a subsidiary later if you scale.

Decision framework: which path should you pick?

Use this three-step method for a clear call:

1. Define the first 12 months.
   Will you sell, hire, and invoice locally? Choose a subsidiary.
   Will you execute a parent contract only? Choose a branch.
   Only exploring? Choose a liaison.

2. Map your risk appetite.
   If you want limited liability in Nepal, use a subsidiary.
   If you accept parent exposure, a branch works.
   If you want minimal risk, use a liaison.

3. Check customer preferences.
   Government bids and many enterprises prefer local entities.
   A subsidiary usually wins here.
   A branch is fine for global clients used to parent contracts.

Taxes and statutory filings: what to expect

Corporate taxes and indirect taxes

• Corporate income tax (CIT): 25% base for common sectors.

• VAT: 13% standard rate on taxable supplies.

• Withholding tax (WHT): Applies to services, rent, royalties, and cross-border charges.

• Tax filings: Annual returns and estimated tax installments as required.

• Audit: Annual statutory audit for subsidiaries and branches.

Payroll and labor

• Employment contracts must meet Labor Act standards.

• Social Security Fund (SSF): 11% employee + 20% employer on base salary.

• Work policies: Leave, working hours, and benefits per law.

• Non-resident directors: Check personal tax exposure on Nepal-source income.

Tip: Keep payroll, SSF, and WHT calendars in your compliance tracker. Missed filings cause penalties.

Banking, FDI inflow, and repatriation

• Equity inflow: Register each inward remittance with NRB for future repatriation.

• Form of capital: Equity for subsidiaries; working funds for branches and liaisons.

• Use the correct bank channel: Maintain FDI and operating accounts.

• Repatriation: Dividends and disinvestment proceeds require tax clearance and NRB approval.

• Intercompany charges: Keep transfer pricing documentation for services and royalties.

Document checklist 

Prepare these early to compress timelines.

• Parent Certificate of Incorporation and Charter (MoA/AoA or equivalent).

• Parent Board Resolution approving Nepal setup and authorized signatory.

• Latest audited financial statements of the parent.

• Power of Attorney for local filing and representation.

• Passport of directors and authorized representatives.

• Registered office documents in Nepal (lease or virtual office proof).

• Draft Memorandum and Articles (for subsidiary).

• Projected budget and activity plan (branch or liaison).

• Bank KYC pack per the chosen bank’s format.

All foreign documents should be notarized and apostilled or consularized, as applicable.

Process timelines 

• Document readiness: 1–2 weeks, depending on legalization cycles.

• FDI approval (DoI): 1–3 weeks after a complete file.

• OCR registration: 3–7 working days after approvals.

• NRB registration: 3–10 working days per inflow and documentation.

• PAN / VAT: 2–5 working days each, if documents are in order.

• Bank account opening: 3–10 working days post-KYC.

Build buffer time for sector approvals and site inspections if any.

Risk controls and common pitfalls

• Mismatched scope. Align stated activities with actual operations.

• Untracked equity inflows. Register all FDI remittances with NRB.

• Late VAT registration. Monitor thresholds and register on time.

• Transfer pricing gaps. Paper every intercompany service with agreements.

• Payroll misses. Enroll in SSF and deposit on schedule.

• Director availability. Keep a local signatory to avoid filing delays.

• Lease readiness. Banks and inspectors may visit the office address.

Cost drivers you can forecast

• Government fees for approvals and registrations.

• Notarization/legalization costs in the home country.

• Translation and attestation costs.

• Professional fees for legal, tax, and accounting support.

• Audit and compliance costs each year.

• Office lease and HR costs once you hire.

Create a three-year model. Include one-off setup costs and ongoing compliance.

Advanced notes for regulated or special sectors

• Financial services, telecom, health, and education often need sector permits.

• Hydropower and large industry follow special project regimes.

• NGO-type work is not covered here; separate laws apply.

• Technology transfer and royalty arrangements must follow FITTA rules.

• Importers and exporters must register with customs systems and obtain sector codes.

Practical examples 

1. Global SaaS selling support and services.
   You will invoice Nepal clients and hire locally. Form a subsidiary.

2. Engineering firm delivering a single EPC contract.
   Client contracts the parent. Register a branch.

3. Consumer brand doing market study with a small team.
   No sales. Open a liaison.

Frequently asked questions

1) Can a liaison office invoice or sign sales contracts in Nepal?
No. A liaison office cannot invoice or earn revenue in Nepal. It is limited to representation, promotion, and market research only.

2) Do I need a Nepalese shareholder to form a subsidiary?
No. A wholly owned foreign subsidiary is allowed under FITTA, subject to the sector not being restricted and approvals being granted.

3) What is the standard corporate tax rate in Nepal?
The common base rate is 25% for many sectors. Certain industries have different rates or concessions under the Finance Act.

4) Is there a minimum paid-up capital for a private limited company?
There is no general statutory minimum. Regulated sectors may impose higher floors. Banks also assess practical capital needs.

5) Can I repatriate profits and disinvestment proceeds?
Yes. Repatriation is permitted with tax clearance and NRB approval. Keep full records of equity inflows and filings.