Top 10 Mistakes to Avoid in Company Formation Nepal

Setting up a company in Nepal can look straightforward, the forms, the fees, the checklists. But the reality for many foreign investors is different.
A single overlooked clause, a missing NRB approval, or a misinterpreted section of the Companies Act 2006 can delay operations for months or even invalidate your investment approval.

That’s why understanding the top 10 mistakes to avoid in company formation Nepal is not just about saving time, it’s about protecting your capital, reputation, and future operations.

This guide breaks down the most common errors foreign investors make during company formation, what Nepalese law actually requires, and how to build a compliant foundation from day one.

1. Skipping FDI Approval Before Registering Your Company

Many investors rush to register with the Office of the Company Registrar (OCR) without realizing they need foreign investment approval first.

Under FITTA 2019, if your company includes any foreign shareholding, you must obtain prior approval from:

• Department of Industry (DOI) — for investments under NPR 6 billion, or

• Investment Board Nepal (IBN) — for investments exceeding NPR 6 billion.

Skipping this step means your incorporation is technically invalid under Nepalese law.
Without FDI approval, the Nepal Rastra Bank (NRB) will not verify your capital inflow, and you’ll lose the right to repatriate profits or dividends later.

🟢 DCV Tip: Begin your registration by filing the FDI proposal, then move to OCR only after obtaining the DOI or IBN approval letter.

2. Choosing the Wrong Company Structure for Your Goals

Foreign investors often assume all companies in Nepal are alike, but your company type determines your legal and tax obligations.

Choosing incorrectly can disqualify your FDI or complicate labour and tax compliance.

🟢 DCV Tip: Align your company type with your business model. For example, IT outsourcing firms should usually register as Private Limited Companies under Companies Act Section 4.

3. Ignoring NRB Verification for Foreign Capital Inflow

Under NRB Directives on Foreign Investment, all foreign capital must enter Nepal through official banking channels in convertible currency.

If you skip NRB verification:

• Your capital is considered “unverified,”

• You cannot legally repatriate profits or sell shares later, and

• Tax authorities may question your ownership records.

🟢 DCV Tip: Always remit your capital to a designated FDI account and obtain a Capital Inflow Verification Letter from NRB. Keep SWIFT receipts and bank letters safely, you’ll need them for future repatriation.

4. Using a Generic MOA and AOA Template Without Legal Review

The Memorandum of Association (MOA) and Articles of Association (AOA) are your company’s constitutional documents under Companies Act Sections 18–20.

Using online or local templates can cause major issues:

• Objectives written outside your approved industry scope under Industrial Enterprises Act 2020.

• Missing foreign investment clauses, director powers, or dividend rules.

• Poor translation between English and Nepali versions, leading to OCR rejection.

🟢 DCV Tip: Have both documents drafted by a legal team fluent in FITTA 2019, Companies Act 2006, and NRB Directives to ensure they align with foreign ownership requirements.

5. Forgetting PAN and VAT Registration After Incorporation

Many companies stop after getting their OCR registration certificate, but that’s only half the process.

You must register for:

• PAN (Permanent Account Number) under Income Tax Act 2002, and

• VAT (Value Added Tax) under VAT Act 1996, if annual turnover exceeds NPR 2 million.

Without these, you cannot legally invoice, deduct expenses, or pay staff.

🟢 DCV Tip: Apply for PAN and VAT immediately after incorporation through the Inland Revenue Department (IRD).
Your PAN certificate is also required when opening a corporate bank account or applying for import/export licenses.

6. Overlooking Social Security Fund and Labor Compliance

Under the Labour Act 2017 and Social Security Act 2018, every employer must:

• Register employees under the Social Security Fund (SSF).

• Contribute 31% of basic salary (20% employer, 11% employee).

• Provide written contracts and maintain attendance, leave, and overtime records.

Ignoring this not only violates labour law but also triggers financial penalties and employee disputes.

🟢 DCV Tip: Treat labour compliance as part of your formation process.
SSF registration can be completed within one week once PAN is active.

7. Not Understanding Director Duties and Board Liabilities

Directors are personally accountable for governance under Companies Act Sections 73–90.

Common foreign-founder mistakes include:

• Appointing directors who reside abroad without local authority representation.

• Failing to notify OCR within 30 days of any director change.

• Ignoring fiduciary duty, directors must act “in good faith and in the best interest of the company.”

🟢 DCV Tip: Keep a board register, pass formal resolutions, and update OCR regularly.
Foreign directors must also comply with Immigration Rules for work permits.

8: Missing Annual Audit and Filing Deadlines

Every company must prepare annual financial statements and file them with OCR within six months of the fiscal year-end (per Companies Act Section 109).

Missing this step can cause:

• Penalties up to NPR 10,000 per year,

• Suspension or deregistration, and

• Tax audits or credit blockage by banks.

🟢 DCV Tip: Appoint a licensed auditor certified by ICAN.
Coordinate your audit schedule with both IRD and OCR filing calendars to avoid duplication.

9: Treating Compliance as One-Time Setup Instead of Ongoing Obligation

Formation is only the beginning.
Compliance continues throughout your company’s life cycle.

You must:

• Hold Annual General Meetings (AGM) every year under Section 67.

• Maintain accounting records for six years.

• File annual returns and pay taxes on time.

• Update OCR for any capital increase or shareholder changes.

🟢 DCV Tip: Create a compliance calendar listing monthly (tax & SSF), quarterly (VAT), and annual (audit & OCR) deadlines. DCV provides clients with one as part of setup.

10. Using Local Templates for Foreign Companies- A Hidden Risk

Many consultants reuse domestic templates that do not account for foreign ownership, repatriation clauses, or FITTA 2019 conditions.

Consequences include:

• Rejection of dividend repatriation by NRB,

• Ambiguity in shareholder rights,

• Difficulty opening foreign-currency accounts.

🟢 DCV Tip: Ensure all formation documents clearly reflect foreign ownership structure, FDI approval reference, and NRB inflow verification. Keep bilingual copies for cross-border validation.

Hidden Traps Foreign Investors Still Miss

Even experienced investors get caught by:

• Opening the wrong foreign-currency account.

• Ignoring Industrial Enterprises Act 2020 registration.

• Missing environmental approvals for manufacturing projects.

• Forgetting to register trademarks under Intellectual Property Act 1965.

• Not obtaining tax clearance before repatriation.

🟢 DCV Tip: Conduct a pre-setup due-diligence review before filing your application. DCV’s legal team helps identify every potential red flag.

What a Compliant Company Setup Looks Like

🟢 DCV Tip: Use this checklist after incorporation to self-audit your compliance readiness.

FAQs: 

1. What is the biggest mistake foreign investors make during company formation Nepal?
Skipping foreign investment approval under FITTA 2019 before OCR registration is the most common and costly error.

2. Do I still need NRB approval after getting DOI approval?
Yes. DOI approval authorizes investment, while NRB verifies capital inflow and allows future repatriation.

3. What are penalties for not filing annual audits?
Fines up to NPR 10,000 per year and potential company suspension under Companies Act Section 135.

4. Can foreign directors operate without a local work permit?
No. They must comply with Immigration Rules and hold valid work authorization.

5. How can I stay compliant after formation?
Follow a compliance calendar, engage a licensed auditor, and partner with DCV for OCR, NRB, and IRD filings.

Incorporating a company in Nepal offers incredible opportunities, but even a small oversight in approvals or filings can derail your plans.

By understanding and avoiding these 10 critical mistakes, you safeguard your investment, maintain transparency, and ensure full legal compliance under Nepalese law.

Digital Consulting Ventures (DCV) simplifies the process from start to finish, FDI approval, OCR registration, NRB verification, PAN/VAT setup, and SSF compliance, all managed by experts in corporate law, taxation, and NRB regulations.

💬 Book a consultation today to start your company formation in Nepal with absolute confidence and zero compliance risk.