Setting Up a Representative Office vs. a Branch Office in Nepal: What Foreign Companies Need to Know

For international companies exploring market entry strategies, understanding the available business registration options is critical. In the context of company incorporation in Nepal, foreign businesses typically choose between three paths: incorporating a private limited company, setting up a branch office, or establishing a representative office.

Each model comes with distinct legal, operational, and tax implications. This article will focus on comparing representative offices and branch offices—two popular alternatives for companies that are not yet ready for full incorporation but still want a presence in Nepal.

Overview of Company Incorporation in Nepal

Nepal offers multiple entry points for foreign entities under the Foreign Investment and Technology Transfer Act (FITTA) and the Companies Act. While company incorporation in Nepal refers to establishing a full legal entity such as a private limited company, both branch offices and representative offices provide a lighter-touch method of entering the market—each suited to different business goals.

What is a Branch Office?

A branch office is an extension of a foreign parent company. It is allowed to:

• Conduct commercial activities in Nepal

• Earn revenue and sign contracts

• Employ local and foreign staff

• Import goods or provide services under the parent company’s banner

However, it is not a separate legal entity—it remains legally tied to the parent company, which is liable for its operations.

Key Features:

• Requires approval from the Department of Industry (DOI) under FITTA

• Must register with the Office of the Company Registrar (OCR)

• Needs a PAN and VAT registration

• Subject to Nepalese taxation (corporate income tax, VAT, etc.)

• Must maintain audited financial statements locally

What is a Representative Office?

A representative office (also called a liaison office) is non-commercial. It serves only to promote the parent company, conduct market research, or facilitate communication between the head office and local clients or stakeholders.

This structure is best suited for companies not intending to earn income from operations in Nepal.

Key Features:

• Cannot sign contracts, generate revenue, or conduct business transactions

• Must register with the Department of Industry (DOI) under special terms

• Generally not subject to taxation unless violating the non-commercial mandate

• Allowed to employ limited staff for administrative or research purposes

• Must report activities and expenditures to authorities

Key Differences at a Glance

Regulatory Pathway for Each

For a Branch Office:

1. Obtain foreign investment approval from the Department of Industry

2. Register the entity with the Office of the Company Registrar

3. Register for PAN and VAT with Inland Revenue Office

4. Open a local bank account and deposit required capital

5. Set up an office and begin operations

For a Representative Office:

1. Submit a formal application to the Department of Industry with a business intent letter

2. Provide documentation on the parent company and office plan

3. Comply with FITTA reporting, but no need for OCR registration

4. No tax filings unless activities exceed scope

Advantages and Limitations

Branch Office

Advantages:

• Full operational presence

• Ability to earn and remit profits

• Suitable for project-based work or contracts

Limitations:

• Taxable on Nepal-sourced income

• Parent company is fully liable

• Regulatory compliance is more stringent

Representative Office

Advantages:

• Easier to set up

• No corporate tax or VAT obligations

• Ideal for market research or relationship building

Limitations:

• Cannot operate commercially

• Limited staffing

• May be restricted to 2–3 years before needing conversion to a branch or subsidiary

Which Option is Right for You?

Choosing between a branch office and a representative office depends on your business goals:

• If your aim is to sign contracts, provide services, or conduct trade, a branch office is essential.

• If your goal is to study the market, build local relationships, or coordinate with partners, a representative office is the better fit.

For both structures, understanding the nuances of FITTA, Nepalese taxation, labor laws, and repatriation rules is vital.

Conclusion

For foreign companies considering company incorporation in Nepal, both branch and representative offices offer valuable ways to establish presence without forming a full-fledged company. However, they differ significantly in their legal, operational, and tax implications. Making the right choice depends on your long-term plans, resource commitment, and compliance readiness.

Consulting with experienced local advisors in accounting, legal compliance, and cross-border regulations can ensure a smooth and compliant market entry.