Establishing a business in Nepal as a foreign national involves navigating specific legal frameworks and procedures. This guide provides a comprehensive overview of the incorporation process, tailored for foreign investors.

1. Legal Framework Governing Foreign Investment

Foreign investment in Nepal is primarily regulated by:

• Companies Act, 2006: Outlines procedures for company incorporation and governance.
• Foreign Investment and Technology Transfer Act (FITTA), 2019: Specifies guidelines for foreign investments and technology transfers.
• Industrial Enterprises Act, 2020: Provides a framework for industrial operations and incentives.

These laws collectively establish the legal basis for foreign company incorporation, defining the rights, obligations, and procedures that foreign investors must follow.

2. Types of Business Entities Available

Foreign investors can establish the following types of business entities in Nepal:

• Private Limited Company: Requires a minimum of one and a maximum of 101 shareholders. Offers limited liability protection and is suitable for small to medium-sized enterprises.
• Public Limited Company: Requires a minimum of seven shareholders, with no upper limit. Ideal for larger enterprises planning to raise capital from the public.
• Branch Office: Allows foreign companies to operate as an extension of the parent company in Nepal. Requires approval from the Department of Industry or relevant authority.
• Liaison Office: Functions as a representative office for communication and promotional activities. Not permitted to engage in commercial transactions.

Each entity type has distinct characteristics and regulatory requirements, catering to different business objectives and operational needs.

3. Minimum Capital Requirements

As per the Foreign Investment and Technology Transfer Act (FITTA) 2019, the general minimum foreign investment threshold is NPR 20 million (approximately USD 153,000). However, specific sectors may have different capital requirements.

4. Incorporation Process

The incorporation process involves several key steps:

• Company Name Reservation: Reserve a unique company name with the Office of the Company Registrar (OCR).
• Preparation of Documents: Draft the Memorandum of Association (MOA) and Articles of Association (AOA), along with other required documents.
• Submission and Registration: Submit the application and documents to the OCR for registration.
• Tax Registration: Obtain a Permanent Account Number (PAN) from the Inland Revenue Department.
• Industry-Specific Licenses: Acquire necessary licenses based on the business sector.

The timeline for foreign company incorporation in Nepal typically ranges from 4-8 weeks, depending on various factors.

5. Required Documentation

Foreign companies must submit various documents for incorporation, including:

• Resolution from the parent company approving incorporation in Nepal.
• Copy of passport or identity documents of directors and shareholders.
• Bank certificate confirming the deposit of share capital.
• Power of attorney for an authorized representative in Nepal.
• Parent company’s certificate of incorporation and constitutional documents.

All foreign documents typically require notarization and authentication.

6. Regulatory Approvals

Foreign investors must obtain approvals from relevant authorities:

• Department of Industry (DOI): Approves foreign investment proposals.
• Nepal Rastra Bank (NRB): Grants approval for foreign currency investments and regulates foreign exchange transactions.

Approval from the DOI and NRB takes about 2-3 months. If approval from the Investment Board Nepal (IBN) is necessary, the process may extend to 6 months.

7. Post-Incorporation Compliance

After incorporation, foreign companies must adhere to ongoing compliance requirements:

• Maintenance of statutory registers and books of accounts.
• Compliance with labor laws and social security regulations.
• Regular tax filings and payments to the Inland Revenue Department.
• Adherence to FITTA regulations on repatriation of profits and dividends.

Failure to meet these compliance obligations can result in penalties or legal consequences.

8. Restrictions and Considerations

Foreign investors should be aware of certain restrictions:

• Some sectors may have limitations on foreign ownership or require joint ventures with local partners.
• Foreign companies face restrictions on land ownership in Nepal; land can be leased for business purposes for up to 50 years (renewable).

Conclusion

Navigating the business incorporation process in Nepal requires careful planning and adherence to legal protocols. Engaging with local legal and accounting professionals can facilitate a smooth establishment and operation of foreign businesses in Nepal.