Legal Structure Options to Start a Business in Nepal

If you are planning to start a business in Nepal, choosing the right legal structure is your most important decision. It affects taxation, profit repatriation, compliance, hiring, and long-term scalability. Nepal welcomes foreign companies, but its legal framework is precise. Understanding it early saves time, capital, and regulatory risk.

This guide is written for foreign companies. It explains every legal structure available to start a business in Nepal, when each option makes sense, and how to choose the most compliant pathway.

Why Legal Structure Matters When You Start a Business in Nepal

Your legal structure determines:

• Whether you qualify as Foreign Direct Investment (FDI)

• How profits can be repatriated

• Your exposure to local taxes and liabilities

• Hiring and payroll obligations

• Approval timelines and capital thresholds

Nepal’s investment regime is governed by:

• Foreign Investment and Technology Transfer Act

• Companies Act

• Department of Industry

• Office of Company Registrar

• Nepal Rastra Bank

Choosing the wrong structure often results in blocked remittances or forced restructuring later.

Overview: Legal Structure Options in Nepal for Foreign Companies

Foreign investors can legally start a business in Nepal through the following structures:

1. Liaison Office

2. Branch Office

3. Private Limited Company (FDI Company)

4. Joint Venture Company

5. Public Limited Company

6. Employer of Record (EOR) Model

Each option serves a different market-entry objective.

1. Liaison Office in Nepal

A Liaison Office is a non-commercial presence. It is ideal for research, coordination, and relationship building.

What a Liaison Office Can Do

• Market research

• Promotion and branding

• Communication with local partners

• Coordination with head office

What It Cannot Do

• Generate revenue in Nepal

• Sign local commercial contracts

• Invoice or receive payments

Key Facts

• Approval required from Department of Industry

• Annual renewal mandatory

• All expenses funded by the parent company

This structure is suitable if you want to test the market before you start a business in Nepal fully.

2. Branch Office in Nepal

A Branch Office is an extension of the foreign parent company.

When to Choose a Branch Office

• Project-based work

• Government or infrastructure contracts

• Short-to-medium-term operations

Characteristics

• Can generate revenue

• Parent company bears full liability

• Profits can be repatriated with approval

Regulatory Oversight

• Registered with Office of Company Registrar

• Regulated by Nepal Rastra Bank for forex movements

A branch office works well when Nepal is not your long-term base but you need operational authority.

3. Private Limited Company (Foreign Direct Investment)

This is the most common and scalable way to start a business in Nepal.

Why Foreign Companies Prefer This Structure

• Separate legal entity

• Limited liability

• Full commercial operations allowed

• Clear exit and repatriation framework

Key Requirements

• Minimum foreign investment threshold as per FITTA

• Industry approval from Department of Industry

• Company registration at OCR

• Bank approval for capital inflow

Typical Use Cases

• Outsourcing and captive centers

• IT and software companies

• Professional services firms

• Manufacturing and trading businesses

If you plan to hire staff, invoice locally, and grow sustainably, this is the preferred structure.

4. Joint Venture Company in Nepal

A Joint Venture (JV) involves partnering with a Nepali individual or company.

When a JV Makes Sense

• Regulated or restricted sectors

• Local market knowledge is essential

• Government-linked projects

Ownership Structure

• Foreign and Nepali shareholders

• Profit sharing as per shareholding

• Governance defined in shareholder agreements

Risks to Consider

• Partner disputes

• Exit complexity

• Minority shareholder protections

A JV is powerful but requires strong legal documentation.

5. Public Limited Company

A Public Limited Company is suitable for large-scale investments.

Characteristics

• Minimum seven shareholders

• Higher compliance and disclosure

• Ability to raise capital publicly

Who Should Consider This

• Infrastructure developers

• Banks and financial institutions

• Large manufacturing enterprises

This structure is rarely used for first-time foreign investors.

6. Employer of Record (EOR) Model

The EOR model allows foreign companies to hire Nepali employees without setting up a legal entity.

How It Works

• A local provider employs staff on your behalf

• You manage day-to-day work

• Provider handles payroll, tax, and compliance

Benefits

• No incorporation

• Fast market entry

• Full compliance with labor laws

This model is ideal for companies that want to start operations in Nepal quickly before formal investment.

Comparison Table: Best Legal Structure to Start a Business in Nepal

Step-by-Step: How Foreign Companies Start a Business in Nepal

1. Define business activity and sector eligibility

2. Select the optimal legal structure

3. Secure investment approval

4. Register with OCR and tax authorities

5. Open bank accounts and inject capital

6. Register for VAT and payroll compliance

7. Begin operations

Each step must align with Nepalese regulations to avoid delays.

Taxes and Compliance Considerations

Foreign companies operating in Nepal must comply with:

• Corporate income tax

• Withholding tax

• VAT (if applicable)

• Social Security Fund contributions

• Annual audit and filings

Non-compliance can restrict profit repatriation.

Common Mistakes Foreign Companies Make

• Choosing a liaison office when revenue is required

• Underestimating FDI approval timelines

• Ignoring sector-specific restrictions

• Poor shareholder agreements in JVs

Avoiding these mistakes protects your investment.

When Should You Start a Business in Nepal?

Nepal is attractive for:

• Cost-efficient talent

• Strategic access to South Asia

• Growing digital and services economy

With the right structure, Nepal can become a long-term operational hub.

Frequently Asked Questions (People Also Ask)

Can foreigners fully own a company in Nepal?

Yes. Many sectors allow 100 percent foreign ownership under FITTA, subject to approval.

What is the minimum investment to start a business in Nepal?

The minimum FDI threshold is prescribed by the government and may change by sector.

How long does company registration take in Nepal?

A private limited FDI company typically takes 8–12 weeks, including approvals.

Can profits be repatriated from Nepal?

Yes. Profits, dividends, and capital can be repatriated after tax and central bank approval.

Is an EOR legal in Nepal?

Yes. EOR is widely used and compliant when structured correctly.

Conclusion: Choose the Right Structure to Start a Business in Nepal

To start a business in Nepal successfully, your legal structure must align with your commercial goals, risk appetite, and expansion timeline. Most foreign companies choose a private limited FDI company or begin with an EOR model before scaling.

Making the right choice early protects your capital and accelerates growth.

Call to Action

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