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.