Company incorporation process in Nepal

Establishing a company in Nepal as a foreign entity involves navigating specific legal frameworks and procedures. This guide provides a comprehensive overview tailored for foreign investors seeking to incorporate a business in Nepal.

1. Understanding the Legal Framework

Foreign investors must comply with several key legislations:

• Companies Act, 2006: Governs company incorporation and operation in Nepal.
• Foreign Investment and Technology Transfer Act (FITTA), 2019: Regulates foreign investments and technology transfers.
• Industrial Enterprises Act, 2020: Provides guidelines for industrial operations and incentives.
• Income Tax Act, 2002: Details tax obligations for companies operating in Nepal.
• Labour Act, 2017: Outlines employment laws and labor rights.

2. Choosing the Appropriate Business Structure

Foreign investors can establish the following types of entities:

• Private Limited Company: Ideal for small to medium-sized enterprises; allows up to 101 shareholders.
• Public Limited Company: Suitable for larger enterprises aiming to raise capital from the public; requires a minimum of seven shareholders.
• Branch Office: An extension of the parent company; can conduct business activities approved by Nepali authorities.
• Liaison Office: Acts as a communication channel; cannot engage in commercial activities.

3. Steps for Company Incorporation

a. Name Reservation

• Submit an application to the Office of the Company Registrar (OCR) to ensure the proposed company name is unique and compliant with regulations.

b. Document Preparation

• Memorandum of Association (MOA) and Articles of Association (AOA): Define the company's objectives and operational rules.
• Shareholder and Director Details: Include identification documents and consent letters.
• Foreign Investment Approval: Obtain from the Department of Industry (DOI) or Investment Board Nepal (IBN), depending on the investment scale.

c. Submission and Registration

• File the prepared documents with the OCR.
• Pay the registration fee, which varies based on authorized capital.
• Upon approval, receive the Certificate of Incorporation.

d. Post-Incorporation Requirements

• Tax Registration: Obtain a Permanent Account Number (PAN) and, if applicable, register for Value Added Tax (VAT) with the Inland Revenue Department.
• Industry-Specific Licenses: Secure necessary permits relevant to the business sector.
• Social Security Registration: Enroll employees in the Social Security Fund.

4. Capital Requirements

• The general minimum foreign investment threshold is NPR 20 million (approximately USD 153,000).

5. Compliance and Reporting

• Annual General Meetings: Conduct as mandated.
• Financial Statements: Prepare and submit audited reports annually.
• Tax Filings: Ensure timely submission of tax returns and payments.

6. Repatriation of Profits

• FITTA 2019 allows repatriation of profits, dividends, and investment proceeds after fulfilling tax obligations.

7. Potential Challenges

• Regulatory Delays: Bureaucratic processes may cause delays.
• Sector Restrictions: Certain industries may have limitations on foreign ownership.
• Land Ownership: Direct land ownership by foreign entities is restricted; leasing is a common alternative.

Conclusion

Incorporating a company in Nepal as a foreign investor requires careful adherence to legal procedures and regulatory requirements. Engaging with local legal and accounting professionals can facilitate a smoother incorporation process and ensure compliance with Nepali laws.