Foreign Company vs Local Company in Nepal: Key Differences

Foreign company registration in Nepal is often the first strategic decision global businesses face when entering the Nepali market. Should you register as a foreign company or incorporate a local company with foreign ownership? The choice affects control, taxes, compliance, and scalability. In this definitive guide, I break down foreign company vs local company in Nepal, explain legal frameworks, costs, timelines, and risks, and help you choose the structure that best fits your growth plan.

This guide is written for founders, CFOs, and expansion leaders who want clarity, speed, and compliance—without surprises.

What Does “Foreign Company Registration in Nepal” Mean?

In Nepal, a foreign company is an overseas entity that establishes a presence without incorporating a new Nepali company. It typically operates through a branch, liaison office, or project office, and is governed by foreign investment and sectoral regulations.

By contrast, a local company is a Nepal-incorporated entity (usually a Private Limited Company) that may be fully or partially foreign-owned under the Foreign Investment and Technology Transfer Act (FITTA).

Key Laws Governing Foreign and Local Companies in Nepal

Understanding the legal landscape is essential for risk-free entry.

• Companies Act, 2006 – Governs incorporation and compliance of local companies.

• Foreign Investment and Technology Transfer Act (FITTA), 2019 – Regulates foreign ownership, approvals, and repatriation.

• Industrial Enterprises Act, 2020 – Sector classification and thresholds.

• Income Tax Act, 2002 – Corporate tax, withholding, and permanent establishment rules.

• Nepal Rastra Bank (NRB) Directives – Capital inflow, banking, and repatriation approvals.

• Labour Act, 2017 – Employment and HR compliance.

Regulatory oversight is primarily handled by the Department of Industry and the central bank.

Foreign Company vs Local Company in Nepal: High-Level Comparison

Before diving deep, here’s a quick snapshot.

What Is a Foreign Company in Nepal?

Common Forms of Foreign Companies

1. Branch Office
   Operates commercial activities linked to the parent company.

2. Liaison Office
   Non-commercial presence for coordination and representation.

3. Project Office
   Temporary setup for a specific contract or project.

Key Characteristics

• No separate legal personality in Nepal.

• Activities are tightly linked to the parent company.

• Typically approved for specific purposes and durations.

When Foreign Companies Make Sense

• Short-term infrastructure or donor-funded projects.

• Market testing without revenue generation.

• Government-backed or EPC contracts.

What Is a Local Company with Foreign Ownership?

A local company is incorporated in Nepal as a Private Limited Company and may be fully foreign-owned where permitted.

Key Characteristics

• Separate legal entity under Nepali law.

• Eligible for long-term operations and local contracts.

• Clear rights to hire staff, open bank accounts, and repatriate profits.

Typical Use Cases

• Tech startups and SaaS providers.

• Manufacturing and processing industries.

• BPO, IT services, and consulting firms.

• Consumer-facing businesses.

Approval Pathways Compared

Foreign Company Approval Process

• Sector eligibility confirmation.

• Detailed parent company documentation.

• Approval from the Department of Industry.

• NRB clearance for bank accounts.

This process is case-by-case and may take longer.

Local Company (FDI) Approval Process

• FDI approval under FITTA.

• Company incorporation with the Office of the Company Registrar.

• Capital injection via NRB-approved channels.

This pathway is more predictable and standardized.

Taxation Differences You Must Understand

Foreign Company Taxation

Foreign companies are often treated as Permanent Establishments.

• Corporate tax applies to Nepal-sourced income.

• Higher scrutiny on transfer pricing.

• Limited treaty benefits in practice.

Local Company Taxation

Local companies are treated as resident entities.

• Corporate tax generally ranges around 25 percent.

• Withholding taxes are clearly defined.

• Eligible for sector-specific incentives.

According to government guidelines, resident companies enjoy clearer compliance and fewer disputes.

Profit Repatriation and Capital Exit

Foreign Company

• Repatriation is often restricted or conditional.

• Requires multiple approvals and justifications.

• Capital exit may be complex.

Local Company

• Dividends, royalties, and exit proceeds are explicitly allowed under FITTA.

• NRB approvals are procedural, not discretionary.

• Investor exits are more straightforward.

This difference alone often drives the decision.

Compliance and Ongoing Obligations

Foreign Company Compliance

• Annual reporting to regulators.

• Activity-based renewals.

• Tight operational boundaries.

Local Company Compliance

• Annual filings and audits.

• Labour, tax, and social security compliance.

• Predictable obligations aligned with growth.

Costs and Timelines

Foreign Company

• Lower upfront incorporation costs.

• Higher advisory and compliance costs over time.

• Timelines vary widely.

Local Company

• Moderate setup costs.

• Lower long-term compliance risk.

• Typical setup: 30 to 60 days.

Strategic Comparison: Which Is Better for You?

Choose a Foreign Company If

• You need a temporary presence.

• Revenue will not be generated locally.

• The project scope is fixed and time-bound.

Choose a Local Company If

• You plan to scale in Nepal.

• You want revenue, hiring, and contracts locally.

• You care about clean exits and repatriation.

Decision Framework for Foreign Company Registration in Nepal

Use this checklist before deciding.

• Nature of activities.

• Expected duration in Nepal.

• Revenue generation plans.

• Capital investment size.

• Exit and repatriation strategy.

If more than two answers point to long-term operations, a local company is usually superior.

Common Mistakes Foreign Companies Make

• Choosing a liaison office for revenue activities.

• Ignoring permanent establishment risks.

• Underestimating repatriation complexity.

• Delaying labour and tax compliance.

These mistakes are costly and avoidable.

Why Most Foreign Investors Eventually Convert to Local Companies

In practice, many foreign companies start lean and later convert to local entities because:

• Banks prefer resident companies.

• Clients demand local contracts.

• Investors require equity clarity.

• Compliance becomes simpler.

Conclusion

Foreign company registration in Nepal can work for narrow, short-term objectives. However, for most foreign investors seeking growth, stability, and exit flexibility, a locally incorporated company with foreign ownership offers superior advantages. The right structure at entry saves years of restructuring later.

Call to Action

Planning market entry or restructuring in Nepal?
Book a strategic consultation to assess the best structure for your business and receive a clear regulatory roadmap.

Frequently Asked Questions

Is foreign company registration in Nepal allowed?

Yes. Nepal permits foreign companies through branches, liaison offices, and project offices, subject to approvals and sector rules.

Can a foreign company earn revenue in Nepal?

Only branch and project offices may earn revenue. Liaison offices cannot conduct commercial activities.

Is a local company better than a foreign company in Nepal?

For long-term operations, yes. Local companies offer clearer tax treatment, easier repatriation, and higher scalability.

How long does foreign company registration in Nepal take?

Timelines vary. Expect several weeks to months, depending on sector and documentation.

Can a foreign company later convert into a local company?

Yes. Many investors restructure into local companies once operations expand.