How to Open Investment Company in Nepal

Nepal has been actively promoting foreign direct investment (FDI) to boost its economy and create employment opportunities. Investment companies play a crucial role in channeling foreign capital into various sectors of the Nepalese economy.

For foreign investors looking to establish an investment company in Nepal, understanding the regulatory framework and procedures is essential. The Foreign Investment and Technology Transfer Act (FITTA) 2019 and the Industrial Enterprises Act 2020 govern foreign investment in Nepal.

These laws provide guidelines for foreign investors to establish and operate investment companies in the country. The Nepal government welcomes foreign investment in sectors such as hydropower, agriculture, tourism, and information technology, among others.

Legal Requirements for Establishing an Investment Company in Nepal

Establishing an investment company in Nepal requires compliance with several legal requirements. The primary legislation governing investment companies is the Companies Act 2063 (2006). Foreign investors must also adhere to the Foreign Investment and Technology Transfer Act 2075 (2019). Key legal requirements include:

Company registration with the Office of the Company Registrar
Obtaining approval from the Department of Industry
Compliance with the minimum capital requirements
Appointment of a local representative or agent
Obtaining necessary licenses and permits from relevant authorities
Compliance with foreign exchange regulations
Registration with the Inland Revenue Department for tax purposes
Adherence to sector-specific regulations, if applicable

Step-by-Step Process of Opening an Investment Company in Nepal

Conduct market research and feasibility study
Choose a unique company name and verify its availability
Prepare required documents, including Memorandum and Articles of Association
Submit application to the Department of Industry for approval
Register the company with the Office of the Company Registrar
Obtain Permanent Account Number (PAN) from Inland Revenue Department
Open a bank account in Nepal
Apply for necessary licenses and permits specific to the investment sector
Register with the Social Security Fund
Obtain Labor Permit for foreign employees, if applicable
Comply with post-registration requirements and start operations

Essential Documents Required for Investment Company Registration in Nepal

Application form for company registration
Memorandum of Association
Articles of Association
Copy of passport and visa of foreign investors
Proof of address for foreign investors
Board resolution authorizing company formation
No Objection Certificate from the Department of Industry
Bank certificate showing capital deposit
Lease agreement for office premises
Photographs of promoters/directors
Power of Attorney, if applicable
Tax clearance certificates from home country, if required

Estimated Timeframe for Investment Company Registration Process in Nepal

The registration process for an investment company in Nepal typically takes between 4 to 8 weeks, depending on various factors such as the completeness of documentation, the complexity of the proposed investment, and the efficiency of government departments. The initial approval from the Department of Industry may take 2-3 weeks. Company registration with the Office of the Company Registrar usually takes 1-2 weeks. Obtaining necessary licenses and permits can add another 2-3 weeks to the process. It’s advisable to allocate sufficient time for potential delays and additional information requests from authorities.

Cost Considerations for Opening an Investment Company in Nepal

Opening an investment company in Nepal involves various costs that foreign investors should consider. These costs include:

Company registration fees
Legal and professional fees for document preparation
Capital requirement fulfillment
Office setup costs
License and permit fees
Bank account opening charges
Notarization and translation costs for foreign documents
Travel and accommodation expenses for in-person meetings
Post-registration compliance costs

The total cost can vary significantly depending on the scale of investment and the specific requirements of the proposed business activities.

Government Fees Associated with Investment Company Registration in Nepal

Company registration fee: NPR 9,500 for private limited companies
Foreign investment approval fee: NPR 20,000
PAN registration fee: NPR 200
Stamp duty on share capital: 0.5% of the authorized capital
Business license fee: Varies by sector and local authority
Labor permit fee for foreign employees: NPR 20,000 per year
Social Security Fund registration: No fee, but contributions required
Annual renewal fees for various licenses and permits

Note: Fees are subject to change, and additional sector-specific fees may apply.

Comprehensive Checklist for Investment Company Registration Process in Nepal

Conduct market research and feasibility study
Choose and verify company name
Prepare Memorandum and Articles of Association
Obtain approval from Department of Industry
Register company with Office of Company Registrar
Obtain PAN from Inland Revenue Department
Open corporate bank account
Apply for sector-specific licenses and permits
Register with Social Security Fund
Obtain Labor Permits for foreign employees
Comply with post-registration requirements
Set up office and start operations
Implement proper accounting and reporting systems
Ensure compliance with ongoing regulatory requirements

Relevant Laws and Regulations for Investment Companies in Nepal

Companies Act 2063 (2006)
Foreign Investment and Technology Transfer Act 2075 (2019)
Industrial Enterprises Act 2076 (2020)
Income Tax Act 2058 (2002)
Labor Act 2074 (2017)
Foreign Exchange (Regulation) Act 2019 (1962)
Securities Act 2063 (2007)
Banks and Financial Institutions Act 2073 (2017)
Social Security Act 2074 (2017)
Environment Protection Act 2076 (2019)

These laws provide the regulatory framework for establishing and operating investment companies in Nepal.

Key Authorities Overseeing Investment Company Registration in Nepal

Department of Industry: Approves foreign investment proposals
Office of the Company Registrar: Handles company registration
Nepal Rastra Bank: Regulates foreign exchange and repatriation
Inland Revenue Department: Manages tax registration and compliance
Department of Labor: Issues labor permits for foreign employees
Ministry of Industry, Commerce and Supplies: Oversees industrial policy
Securities Board of Nepal: Regulates securities market activities
Investment Board Nepal: Facilitates large-scale investments
Department of Immigration: Manages visas for foreign investors
Local government bodies: Issue certain licenses and permits

Available Services for Foreign Investors Opening Investment Companies

Foreign investors can access various services to facilitate the process of opening an investment company in Nepal:

Legal consultancy firms specializing in foreign investment
Accounting and tax advisory services
Company secretarial services
Business incubators and accelerators
Investment promotion agencies
Chamber of commerce and industry associations
Banking services for foreign investors
Real estate services for office space
Recruitment agencies for local staffing
Translation and interpretation services
Government liaison services
Due diligence and market research firms

These services can significantly streamline the establishment process for foreign investors.

Minimum Capital Requirements for Investment Companies in Nepal

The minimum capital requirement for investment companies in Nepal varies depending on the type of investment and sector. As per the Foreign Investment and Technology Transfer Act 2019:

For industries, the minimum foreign investment is NPR 50 million
For service sector businesses, the minimum is NPR 20 million
For technology-based startups, the minimum is NPR 5 million

However, certain sectors may have higher capital requirements. It’s advisable to consult with the Department of Industry or a legal expert for specific capital requirements based on the proposed investment activities.

Types of Investment Activities Permitted for Foreign Companies

Foreign investment companies in Nepal can engage in various activities, including:

Manufacturing and production industries
Energy sector investments, particularly hydropower
Information technology and business process outsourcing
Tourism and hospitality services
Agriculture and agro-processing industries
Infrastructure development projects
Financial services, subject to specific regulations
Education and healthcare services
Mining and mineral exploration
Consultancy and management services

Some sectors have restrictions or require special approval for foreign investment. It’s essential to verify the latest Foreign Investment Policy for permitted activities.

Tax Implications for Investment Companies in Nepal

Investment companies in Nepal are subject to various taxes:

Corporate Income Tax: 25% for most companies, with variations for specific sectors
Value Added Tax (VAT): 13% on goods and services
Dividend Tax: 5% for resident companies, 5-25% for non-resident companies
Capital Gains Tax: 10-25% depending on the holding period and type of asset
Withholding Taxes: Applicable on various payments to non-residents
Social Security Tax: 31% of basic salary (11% employee contribution, 20% employer contribution)
Custom Duties: Vary based on imported goods
Excise Duties: Applicable to certain manufactured goods

Tax incentives are available for investments in priority sectors or underdeveloped regions.

Reporting and Compliance Requirements for Investment Companies in Nepal

Investment companies in Nepal must adhere to various reporting and compliance requirements:

Annual financial statements submission to the Office of Company Registrar
Quarterly and annual tax filings with the Inland Revenue Department
Monthly employee provident fund and social security contributions
Annual renewal of business licenses and permits
Regular reporting to Nepal Rastra Bank for foreign currency transactions
Compliance with labor laws and workplace safety regulations
Environmental compliance reports, if applicable
Sector-specific regulatory reporting, such as to the Securities Board of Nepal for investment firms
Maintenance of statutory registers and minute books
Holding of annual general meetings and filing of resolutions

Failure to comply with these requirements can result in penalties and legal consequences.

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FAQs:

What is the minimum capital requirement for an investment company in Nepal? The minimum capital requirement varies by sector, ranging from NPR 5 million for tech startups to NPR 50 million for industries, as per the Foreign Investment and Technology Transfer Act 2019.
Can foreign investors own 100% of an investment company in Nepal? Yes, 100% foreign ownership is allowed in most sectors, except for a few restricted areas specified in the Negative List of the Foreign Investment Policy.
How long does it take to register an investment company in Nepal? The registration process typically takes 4 to 8 weeks, depending on the completeness of documentation and efficiency of government departments.
What types of investments can foreign-owned investment companies make? Foreign-owned companies can invest in various sectors including manufacturing, energy, IT, tourism, agriculture, and infrastructure, subject to sector-specific regulations.
Are there any tax incentives for investment companies in Nepal? Yes, Nepal offers tax incentives for investments in priority sectors and underdeveloped regions, including tax holidays and reduced tax rates.
What are the main reporting requirements for investment companies? Key reporting requirements include annual financial statements, tax filings, social security contributions, and compliance with sector-specific regulations.
Can an investment company engage in other business activities in Nepal? Yes, investment companies can engage in multiple business activities, provided they comply with relevant sector-specific regulations and obtain necessary licenses.