Company Incorporation in Nepal: A Step-by-Step Guide for Foreign IT Companies

Nepal is emerging as an attractive destination for IT businesses, with a growing tech talent pool and government initiatives to welcome foreign direct investment (FDI). Foreign investors can own 100% of an IT company in Nepal, as information technology is not on the “negative list” of industries restricted for FDI. In fact, under the Foreign Investment and Technology Transfer Act (FITTA) 2019, foreign investment in IT is fully permitted, allowing overseas entrepreneurs to establish wholly foreign-owned software development firms, outsourcing centers, and other IT ventures in Nepal.

Recent regulatory updates have made investing even easier. Until 2023, Nepal required a minimum FDI of NPR 20 million (around USD 150,000) per foreign investor. However, this minimum capital requirement has been removed for IT companies – a significant incentive for startups. As of October 2023, the government announced that no minimum investment limit applies to information technology-based industriesl. This means foreign IT entrepreneurs can start a company with any capital level, enabling smaller investments and startups to enter Nepal’s market.

Multiple government bodies are involved in the incorporation process. The key agencies include:

• Department of Industry (DoI) – the approving authority for foreign investment proposals under FITTA. (Large projects above NPR 6 billion may instead go through the Investment Board of Nepal, but typical IT companies fall under DoI.)

• Office of the Company Registrar (OCR) – the registrar where all companies are legally incorporated and recorded.

• Nepal Rastra Bank (NRB) – the central bank, which oversees the inflow of foreign currency and ensures compliance for repatriation of profits.

• Inland Revenue Department (IRD) – the tax authority, for business PAN registration and VAT if applicable.

FDI Approval and Timeline: By law, DoI must decide on foreign investment applications within 7 days of receiving a complete application. In practice, the approval (often called an FDI Approval or Investment Approval) typically takes about one to two weeks. Notably, Nepal introduced an automatic online approval system in 2023 for investments up to NPR 500 million. Under this “automatic route,” foreign investors can apply online from abroad and receive immediate preliminary approval for investments (including in IT) up to that amounti This streamlines the process significantly. For larger investments or certain sectors, a manual review and cabinet approval may be required, but most IT companies will qualify for the automatic route.

Company Registration: Once you have FDI approval, incorporating the company with OCR is a relatively swift process. Nepal has an online company registration portal where you reserve the company name and submit incorporation documents. The company registration process usually takes 7–10 days if all documents are in order, making the overall timeline (FDI approval + company setup) around 3–4 weeks. After registration, the company receives a Certificate of Incorporation and is legally recognized.

Authorized Capital and Government Fees: Nepal’s registration fees are based on the authorized share capital of the company. Fees are quite reasonable – for example, a company with up to NPR 1 million authorized capital pays NPR 1,000 in registration fee, while one with NPR 10 million capital pays NPR 16,000. For higher capital, the fee increases modestly (e.g. NPR 22,000 for NPR 30 million capital). Foreign IT companies often start with modest capital (you may choose an amount aligning with initial investment funds). Name reservation incurs a small fee (around NPR 500) and the application to the OCR can be made online. Aside from OCR fees, foreign investors do not pay separate FDI approval fees to the DoI; the main costs are professional services (legal/notary translations if needed) and some minor stamp duties. Overall, government fees for incorporation are low – even a large IT company (e.g. NPR 100 million capital) would pay about NPR 43,000 (≈ USD 330) to register.

Legal Structure: The most common entity type is a Private Limited Company. It offers limited liability and is suited for IT businesses. A private company in Nepal can be incorporated with a single shareholder and director (the Companies Act allows one-person companies), though you might appoint multiple directors for practical reasons. There is no requirement to have a local Nepali partner – foreigners may own 100% and can also be the directors. However, having a local representative or advisor can be useful for navigating local procedures. Branch or liaison offices of foreign companies are another route, but those are less common for IT services because branches face restrictions (for instance, a branch must get a separate permission and cannot engage in local revenue generation easily). Most foreign tech firms therefore set up a new locally incorporated subsidiary for full flexibility.

Step-by-Step Process to Start an IT Company in Nepal (for Foreigners)

Starting an IT company in Nepal as a foreign entity involves a sequence of approvals and registrations. Below is a step-by-step guide covering “Nepal company registration for foreigners” in the IT sector:

1. Obtain Foreign Investment Approval: The first step is securing FDI approval under FITTA. You (or your local legal representative) submit an application to the Department of Industry. This includes details of the foreign investor(s), intended company name and address, proposed business activities (e.g. software development, IT services), and the investment amount. Along with the application, you’ll provide documents like a project proposal or business plan, passport copies of investors, and board resolution of the parent company (if investing via a corporate entity). The DoI reviews that the sector is permitted (IT is permitted 100%) and that the investment meets any criteria. Timeline: Approval is legally mandated within 7 days. With the new online system, preliminary approval can be almost instant for eligible cases. The output of this step is an FDI Approval Letter (also called an Industry Registration Certificate) authorizing you to invest and register the company.

2. Name Reservation with OCR: While your FDI application is in process (or immediately after approval), reserve your company name on the Office of the Company Registrar’s online portal. The name must be unique and not too similar to existing companies. You can search the OCR database to ensure availability. Names typically follow the format “XYZ Private Limited”. Submit a name reservation application online and pay the nominal fee (around NPR 500). Approval of the name reservation usually takes 1–2 days, after which the name is locked for your use.

3. Prepare Incorporation Documents: Next, prepare the documents required for company incorporation. The primary documents are the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company’s objectives, share structure, and governance. These need to conform to Nepal’s Companies Act, 2006. Standard templates can be obtained, but it’s wise to have a legal professional draft or review them, especially to ensure your IT business activities are correctly described (e.g. software development, IT consulting, export of IT services, etc.). If there are multiple shareholders, you may also prepare a joint venture or shareholders’ agreement (though not mandatory for registration). Additionally, you’ll attach:

   • Copies of passports and photographs of foreign promoters (notarized and translated if not in English).

   • A copy of the FDI Approval Letter from the DoI.

   • Power of attorney to a local representative (if you appoint someone to liaise with OCR on your behalf).

   • Bank reference letters or financial credibility documents (sometimes requested to show you can bring in the investment).

   All foreign-origin documents should be notarized and, if required, attested by the Nepali Embassy in your country or apostilled, then translated to English/Nepali as needed.

4. Company Registration at the Office of the Company Registrar: With documents ready, you will register the company online via the OCR portal. Fill in the incorporation form with details such as the company’s authorized capital, registered address in Nepal, directors, and shareholders. Upload the MOA, AOA, and supporting documents, and pay the registration fee electronically (the system will compute the fee based on your authorized capital – refer to the fee schedule above). For instance, a tech startup with NPR 10 million authorized capital pays NPR 16,000 as the registration fee. After submission, OCR officials review the application. If everything is in order, the company will be approved and registered within about a week. You will then receive:

   • Certificate of Incorporation (Registration Certificate),

   • Company PAN (Permanent Account Number) – this is the tax registration number, often issued together or right after incorporation by coordinating with the Inland Revenue Office,

   • and copies of your MOA/AOA stamped as registered.

   Tip: Nepal’s OCR has improved its online systems. Still, be prepared to follow up or correct any minor issues; common fixes include revising objectives wording or providing additional clarifications. Once incorporated, the company is a legal entity and you can proceed to make it operational.

5. Post-Incorporation Compliance: After incorporation, there are a few regulatory registrations and compliance steps:

   • Industry Registration & PAN/VAT: If not already obtained, register with the Inland Revenue Department to get a PAN for tax purposes (often done simultaneously with company registration). If your company will be providing services within Nepal or importing equipment, you may also register for VAT. The Industry Registration with the Department of Industry is generally completed upon FDI approval, so your company will be in the DoI records as well.

   • Local Government Registration: Register the business at the local ward or municipality where your office is located. This is usually a simple formality for a trade license or municipal registration, often needed to obtain signage permissions and local support. The ward office will record your business address and may levy a small annual fee for operating in that locality.

   • Opening Bank Account: Open a company bank account in Nepal (in Nepali Rupees). To bring in foreign capital, you’ll also open a foreign currency account (usually USD) in the same bank.

   • Inward Remittance of Capital: Now, you can remit the promised investment funds from abroad into Nepal. Send the money from the foreign investor’s bank account to the company’s foreign currency account in Nepal, clearly marking it as share investment. The Nepali bank will issue a Letter of Inward Remittance (credit advice) confirming the amount received and equivalent NPR value.

   • Nepal Rastra Bank Approval: With the remittance certificate, apply to Nepal Rastra Bank for recording the foreign investment. NRB will issue a Foreign Investment Registration Certificate or acknowledgement. This is crucial for future repatriation – it ensures you can remit dividends or sale proceeds out of Nepal legally. Under current rules, repatriation of profits, dividends, and capital is allowed in the foreign currency you invested (after taxes) but you must have this NRB record in place.

6. Operational Clearances & Accounting Setup: The IT sector doesn’t require special operating licenses (unlike say telecom or banking). Once the company is registered and capital is in, you may commence business operations. Key things to do at this stage:

   • Hire an Accountant and Auditor: Nepali law requires every company to appoint a qualified auditor and to maintain proper books of accounts. Annual financial statements must be prepared and audited every fiscal year (Nepal’s fiscal year ends mid-July). The auditor’s report and financials need to be submitted to OCR annually (within 6 months of fiscal year end). Also, annual tax returns must be filed with the tax office by within 3 months of fiscal year end (i.e. by mid-October), with a possible extension to December with prior request.

   • Meet Ongoing Compliance: Ensure you file annual returns to the Company Registrar (detailing shareholders, directors, etc.) and pay any annual company renewal fees if applicable (in Nepal typically a nominal fee or stamp each year). Also inform OCR and DoI if you make changes like increase capital, change address, or transfer shares – such changes need to be officially recorded within a prescribed time.

   • Social Security and Labor: If you hire employees (local or foreign), register your company and employees with the Social Security Fund (SSF) in Nepal and comply with labor laws (employment contracts, provident fund/SSF contributions, etc.). For foreign employees, the company must sponsor work permits and visas: the DoI and Department of Immigration provide Non-Tourist (Work) Visas for expatriate staff of FDI companies. Typically, one expat per NPR 10 million investment is allowed easily, and more can be negotiated if needed for specialized roles.

   • Intellectual Property (Optional): If you have trademarks or software IP to protect, consider registering them in Nepal. Trademark registration is a separate process via the Department of Industry’s IP office.

Each of these steps is important to fully “start IT company in Nepal” on a solid legal footing. Once completed, your foreign-owned Nepal company is ready to operate, invoice clients (in Nepal or overseas), and hire employees.

Timeline and Costs at a Glance

To summarize the timeline: FDI approval ~ 1 week; Company incorporation ~ 1 week; Post-registration formalities ~ 1–2 weeks. In total, expect about 3 weeks (15–20 working days) for the company to be fully established, assuming timely document preparation and follow-ups. Nepal’s recent reforms aim to expedite this – many steps can run in parallel or through a one-stop process.

In terms of government fees:

• FDI Approval: No direct fee to DoI for approval. (Professional handling charges may apply if using law firms.)

• Name Reservation: ~ NPR 500.

• Company Registration Fee: Depends on authorized capital:

  • e.g. NPR 1,000 for up to NPR 100k capital,

  • NPR 9,500 for NPR 5 lakh to 2.5 million,

  • NPR 16,000 for up to 10 million,

  • NPR 19,000 for up to 20 million, etc. (See OCR’s official fee table for full slabs.)

• PAN/VAT Registration: No fee.

• Industry Registration Certificate: Nominal stamp duty only.

• Municipal Business License: Few thousand rupees annually (varies by locale).

• Social Security Registration: No fee (contributions start when employees are hired).

Overall, incorporating a company in Nepal is cost-effective – even the largest companies pay only a few hundred dollars in government fees. This is part of why Nepal is attractive for setting up back-offices and development centers.

Incentives and Trends for Foreign IT Investors in Nepal

The Government of Nepal actively encourages foreign investment in IT, recognizing its potential. Some current incentives and benefits for foreign IT companies include:

• No Minimum Investment Requirement: As highlighted, the removal of the NPR 20 million minimum for IT investments lowers the barrier to entry. A foreign entrepreneur can start small, even a lean startup, which is a unique advantage compared to other sectors.

• Streamlined Approval (“Automatic Route”): The introduction of an online automatic approval for FDI up to NPR 500 million speeds up entry. Investors in information technology-based industries can get fast-track approval without lengthy scrutiny, provided all documents are in order. This reflects Nepal’s commitment to ease of doing business.

• Tax Concessions: Nepal offers tax incentives under the Industrial Enterprise Act and tax laws for certain industries. Importantly, IT enterprises established in designated IT Parks (such as the Kathmandu IT Park in Banepa) enjoy special tax breaks. For example, a software or data processing company operating from an IT Park is eligible for a 50% income tax reduction on business profits. Additionally, companies exporting IT services can repatriate earnings easily and may qualify for exemptions on custom duties for importing necessary equipment. While the standard corporate tax rate in Nepal is 25%, export-oriented IT companies often effectively pay a lower rate due to such concessions.

• Repatriation and Profit Transfer: Nepal’s laws guarantee that foreign investors can repatriate dividends and capital in foreign currency, after paying applicable taxes. Once your company starts earning profits, you can distribute dividends and remit them abroad with approval from NRB. The recent budget also removed the requirement of separate approval for reinvesting profits into expansion, making it easier to grow your Nepal operations. Furthermore, foreign currency exchange regulations have been eased for IT exporters – companies can open foreign currency accounts and use earnings for international expenses, and even set up contact offices abroad to promote business.

• Infrastructure and Support: Nepal is improving infrastructure for IT companies. Several tech parks and incubation centers are being developed. The government has also announced plans to set up a credit rating agency for foreign-invested firms and provide hedging facilities to mitigate foreign exchange risk. The country’s relatively low labor costs and a young, English-speaking tech workforce are natural advantages, making it a cost-effective outsourcing hub.

• FDI Growth in IT: While FDI in Nepal has traditionally been concentrated in sectors like tourism and energy, the IT sector is gaining traction. In the first nine months of FY 2022/23, Nepal received FDI commitments of NPR 1.11 billion for 185 IT industry projects – a notable share of which were small-scale software startups and BPO companies. This reflects growing confidence in Nepal’s IT potential. The overall ICT export from Nepal is also rising (over USD 117 million in IT services exports in 2022, indicating a healthy market for IT products and services where foreign-invested companies can thrive.

In summary, company incorporation in Nepal for a foreign IT company is a well-defined process with strong legal protections and increasing government support. By following the steps and making use of the available incentives, foreign investors from any country can establish an IT business in Nepal efficiently.

Checklist: Incorporation Steps for Foreign IT Companies in Nepal

To help you through the process, here’s a concise checklist you can download and refer to:

• ☑️ Obtain Foreign Investment Approval from Department of Industry (DoI): Submit FDI application with required documents; receive approval letter (usually within 7 days).

• ☑️ Reserve Company Name: Check availability and reserve a unique company name on OCR’s portal; pay reservation fee (≈ NPR 500).

• ☑️ Prepare Incorporation Documents: Draft Memorandum and Articles of Association aligning with IT business objectives; gather investor passports, authorization letters, and FDI approval letter.

• ☑️ Register the Company at OCR: Fill out the online registration form, upload documents, and pay registration fee (per authorized capital slab). Obtain Certificate of Incorporation and company PAN.

• ☑️ Register for Tax (PAN/VAT) and Local Authorities: Obtain a PAN from the tax office (if not issued with incorporation) and register your business at the local ward/municipality. Register for VAT if required (for goods or large services turnover).

• ☑️ Open Bank Accounts and Inject Capital: Open a local bank account in NPR and a foreign currency account. Remit the investment capital to Nepal through banking channels. Get the bank’s remittance certificate.

• ☑️ Obtain NRB Foreign Investment Registration: File the necessary documents with Nepal Rastra Bank to register the inward investment. Secure the NRB confirmation which enables future profit repatriation.

• ☑️ Post-Incorporation Compliance: Appoint an auditor and set up bookkeeping. File annual audited financials and annual return to OCR. Comply with tax filings (advance tax payments, annual returns) and labor regulations (employee registrations, work visas for expats, etc.).

• ☑️ Leverage Incentives: If applicable, register in an IT Park or claim available tax concessions for IT exporters. Stay updated on new incentives (e.g. any tax holidays or grants for tech startups).

• ☑️ Commence Operations: With all legal formalities done, begin business activities – hire staff, commence service delivery, and enjoy doing business in Nepal’s growing IT sector!

By following this guide, foreign investors can confidently navigate Nepal company registration for foreigners step by step. Nepal’s combination of a liberal FDI regime, English-speaking workforce, and improving business climate makes it an appealing destination to start an IT company. With proper adherence to legal procedures and timelines, your Nepalese IT venture can be up and running in a matter of weeks, positioning you to tap into both local and international opportunities from Nepal.