FDI in Nepal: Opening a Company in Nepal as a Foreigner

Introduction to Foreign Direct Investment in Nepal

Foreign Direct Investment (FDI) in Nepal has been gaining momentum in recent years, with the government actively promoting investment opportunities to international investors. Nepal’s strategic location between India and China, coupled with its abundant natural resources and growing economy, makes it an attractive destination for foreign investors. The country has implemented various policies and reforms to create a more favorable investment climate, including the Foreign Investment and Technology Transfer Act (FITTA) 2019, which aims to streamline the process of foreign investment and company registration. Nepal offers diverse sectors for investment, including hydropower, tourism, agriculture, manufacturing, and information technology. The government has established institutions like the Investment Board Nepal and the Department of Industry to facilitate and support foreign investors throughout the company registration process.

Legal Requirements for Foreigners Opening Companies in Nepal

Foreigners intending to open a company in Nepal must comply with several legal requirements:

1. Obtain approval from the Department of Industry or Investment Board Nepal
2. Register the company with the Office of Company Registrar
3. Acquire a Permanent Account Number (PAN) from the Inland Revenue Department
4. Obtain necessary industry-specific licenses and permits
5. Register with the Department of Labour and Social Security
6. Open a bank account in Nepal
7. Comply with the Foreign Exchange Regulation Act
8. Adhere to the minimum capital requirements as per the type of industry

Foreign investors must also ensure compliance with the Companies Act 2063 (2006), Industrial Enterprises Act 2076 (2020), and other relevant laws governing business operations in Nepal.

Step-by-Step Process of Company Registration for Foreigners

1. Conduct preliminary research and feasibility study
2. Choose a unique company name and verify its availability
3. Prepare required documents, including Memorandum and Articles of Association
4. Submit application to the Department of Industry or Investment Board Nepal
5. Obtain approval letter from the relevant authority
6. Register the company with the Office of Company Registrar
7. Acquire PAN from the Inland Revenue Department
8. Register with the Department of Labour and Social Security
9. Open a corporate bank account in Nepal
10. Obtain industry-specific licenses and permits
11. Register for Value Added Tax (VAT) if applicable
12. Comply with ongoing regulatory requirements and reporting obligations

This process ensures that foreign investors follow all necessary steps to establish their company legally in Nepal.

Essential Documents Required for Company Registration in Nepal

• Memorandum of Association
• Articles of Association
• Resolution of the Board of Directors of the foreign company
• Power of Attorney for the authorized representative in Nepal
• Copy of passport and visa of foreign investors
• Photographs of foreign investors and local representatives
• Bank statements or other proof of financial capacity
• Project feasibility study or business plan
• Environmental Impact Assessment (if applicable)
• No Objection Certificate from relevant ministries (for specific sectors)
• Lease agreement or proof of office space in Nepal
• Joint Venture Agreement (if applicable)
• Certificate of Incorporation of the parent company (if applicable)
• Tax clearance certificate from the home country

These documents must be properly authenticated and translated into Nepali or English if originally in another language.

Estimated Timeframe for Company Registration Process in Nepal

The company registration process for foreigners in Nepal typically takes between 3 to 6 months, depending on various factors such as the complexity of the business, the sector of investment, and the completeness of submitted documents. The initial approval from the Department of Industry or Investment Board Nepal may take 30-45 days. Company registration with the Office of Company Registrar usually requires 15-30 days. Obtaining a PAN and other necessary registrations can take an additional 15-30 days. Industry-specific licenses and permits may extend the timeline further. It’s advisable for foreign investors to work with local legal experts to expedite the process and ensure compliance with all requirements.

Cost Considerations for Opening a Company as a Foreigner

Foreign investors must consider various costs when opening a company in Nepal:

• Company registration fees
• Legal and consultancy fees
• Document translation and notarization costs
• Minimum capital investment requirements
• Office space rental or purchase
• Employee salaries and benefits
• Licensing and permit fees
• Bank account opening charges
• Insurance costs
• Marketing and branding expenses
• Technology and infrastructure setup costs

The total cost can vary significantly depending on the scale and nature of the business. It’s recommended to prepare a comprehensive budget that accounts for both initial setup costs and ongoing operational expenses.

Government Fees Associated with Company Registration in Nepal

• Company name reservation fee: NPR 100
• Company registration fee: Varies based on authorized capital (e.g., NPR 9,500 for capital up to NPR 1 million)
• PAN registration fee: NPR 200
• VAT registration fee: NPR 1,000
• Stamp duty: 0.5% of authorized capital
• Foreign Investment approval fee: NPR 20,000
• Industry registration fee: Varies based on industry type and size
• Environmental Impact Assessment fee (if applicable): Varies
• Sector-specific license fees: Vary by industry

These fees are subject to change, and additional charges may apply depending on the specific requirements of the business and its sector.

Comprehensive Checklist for Foreign Company Registration Process

1. Conduct market research and feasibility study
2. Develop a comprehensive business plan
3. Choose and verify company name
4. Prepare Memorandum and Articles of Association
5. Gather all required documents
6. Apply for foreign investment approval
7. Register company with Office of Company Registrar
8. Obtain PAN from Inland Revenue Department
9. Register for VAT (if applicable)
10. Open corporate bank account
11. Lease or purchase office space
12. Obtain industry-specific licenses and permits
13. Register with Department of Labour and Social Security
14. Implement accounting and record-keeping systems
15. Hire employees and register for social security
16. Obtain work permits for foreign employees (if applicable)
17. Comply with environmental regulations (if applicable)
18. Set up internal policies and procedures
19. Establish relationships with local suppliers and partners
20. Begin operations and comply with ongoing regulatory requirements

This checklist ensures that foreign investors address all key aspects of the company registration process in Nepal.

Relevant Laws and Regulations for Foreign Companies in Nepal

Foreign companies operating in Nepal must comply with various laws and regulations:

• Foreign Investment and Technology Transfer Act 2019
• Companies Act 2063 (2006)
• Industrial Enterprises Act 2076 (2020)
• Labour Act 2074 (2017)
• Foreign Exchange Regulation Act 2019
• Income Tax Act 2058 (2002)
• Value Added Tax Act 2052 (1996)
• Environmental Protection Act 2076 (2019)
• Bank and Financial Institution Act 2073 (2017)
• Electricity Act 2049 (1992) (for hydropower projects)
• Tourism Act 2035 (1978) (for tourism-related businesses)
• Special Economic Zone Act 2073 (2016) (for businesses in SEZs)

Foreign investors should familiarize themselves with these laws and seek legal counsel to ensure full compliance with Nepali regulations.

Key Authorities Overseeing Foreign Company Registration in Nepal

Several government bodies play crucial roles in the foreign company registration process:

• Department of Industry: Approves foreign investment proposals
• Investment Board Nepal: Handles large-scale investments
• Office of Company Registrar: Manages company registration
• Inland Revenue Department: Issues PAN and handles tax matters
• Department of Labour and Social Security: Oversees labor-related issues
• Nepal Rastra Bank: Regulates foreign exchange transactions
• Ministry of Industry, Commerce and Supplies: Formulates industrial policies
• Department of Immigration: Handles visa and work permit issues
• Sector-specific regulatory bodies (e.g., Nepal Electricity Authority for power projects)

Foreign investors should engage with these authorities throughout the registration process and ongoing business operations to ensure compliance and smooth functioning of their companies in Nepal.

Read More:

• FDI in IT Sector: Opening an IT Company in Nepal
• Closing a Company in Nepal: A Legal Guide
• Aerial Permits in Nepal

Available Services for Foreign Investors in Nepal

Nepal offers various services to support foreign investors:

• Investment Board Nepal: One-stop service center for large investments
• Department of Industry: Facilitates investment approvals and licensing
• Nepal Investment Guide: Comprehensive resource for investors
• Business Incubation Centers: Support for startups and new businesses
• Chamber of Commerce: Networking and business development support
• Legal and Accounting Firms: Professional services for compliance
• Banks and Financial Institutions: Financial services and advice
• Industrial Districts: Ready-to-use infrastructure for manufacturing
• Special Economic Zones: Tax incentives and streamlined processes
• Embassy and Consulate Services: Assistance for foreign nationals

These services aim to simplify the investment process and provide ongoing support to foreign businesses operating in Nepal.

Minimum Capital Requirements for Foreign-Owned Companies in Nepal

The minimum capital requirements for foreign-owned companies in Nepal vary based on the industry sector:

• Manufacturing Industries: NPR 100 million
• Energy-based Industries: NPR 200 million
• Service Industries: NPR 50 million
• Construction Industries: NPR 100 million
• Agro-based Industries: NPR 50 million
• Tourism Industries: NPR 50 million
• Mining Industries: NPR 100 million

These requirements ensure that foreign investments contribute significantly to Nepal’s economy. The government may revise these amounts periodically, and certain strategic projects may have different capital requirements.

Types of Business Structures Available to Foreign Investors

Foreign investors can choose from several business structures in Nepal:

1. Private Limited Company: Most common for foreign investors
2. Public Limited Company: Suitable for larger enterprises
3. Branch Office: For foreign companies operating directly
4. Liaison Office: For market research and non-commercial activities
5. Joint Venture: Partnership with local Nepali entities
6. Foreign Investment Company: 100% foreign-owned entity
7. Special Purpose Vehicle: For specific project-based investments

Each structure has its own regulatory requirements, tax implications, and operational considerations. Foreign investors should carefully evaluate their business objectives and consult with legal experts to choose the most suitable structure.

Tax Obligations for Foreign-Owned Companies in Nepal

Foreign-owned companies in Nepal are subject to various tax obligations:

• Corporate Income Tax: 25% for most industries, with variations for specific sectors
• Value Added Tax (VAT): 13% on goods and services
• Customs Duty: Varies based on imported goods
• Excise Duty: Applicable to certain products
• Withholding Tax: On dividends, interest, and service fees
• Capital Gains Tax: On sale of assets or shares
• Social Security Tax: 31% of basic salary (11% employee, 20% employer contribution)
• Property Tax: Varies by location and property value
• Dividend Tax: 5% for resident companies, 5-25% for non-resident companies

Companies must file tax returns annually and make advance tax payments quarterly. It’s advisable to engage with local tax experts to ensure full compliance with Nepal’s tax laws.

Repatriation of Profits and Dividends for Foreign Investors

Nepal allows foreign investors to repatriate profits and dividends, subject to certain conditions:

• Approval from Nepal Rastra Bank (central bank) is required
• Repatriation must be in convertible foreign currency
• Proper documentation of profits and dividends is necessary
• Compliance with tax obligations is mandatory
• Adherence to Foreign Exchange Regulation Act is essential
• Repatriation amount must not exceed the approved investment
• Sector-specific restrictions may apply (e.g., infrastructure projects)

Foreign investors should maintain accurate financial records and work closely with their banks to ensure smooth repatriation processes. It’s recommended to seek guidance from financial advisors familiar with Nepal’s foreign exchange regulations.

FAQs:

1. Can a foreigner be the sole owner of a company in Nepal? Yes, foreigners can own 100% of a company in most sectors, except those on the negative list. They must meet minimum capital requirements and obtain necessary approvals.
2. What is the minimum capital requirement for foreign-owned companies? Minimum capital requirements vary by sector, ranging from NPR 50 million for service industries to NPR 200 million for energy-based industries.
3. How long does it take to register a company as a foreigner in Nepal? The process typically takes 3-6 months, depending on the complexity of the business and completeness of documentation submitted.
4. Are there any restricted sectors for foreign investment in Nepal? Yes, Nepal maintains a negative list of sectors restricted for foreign investment, including poultry, fisheries, and certain media industries.
5. What are the main tax obligations for foreign-owned companies in Nepal? Key tax obligations include corporate income tax, VAT, customs duty, withholding tax, and social security tax. Rates vary by sector and type of tax.
6. Can foreign investors repatriate their profits and dividends freely? Repatriation is allowed with approval from Nepal Rastra Bank, subject to compliance with tax laws and foreign exchange regulations.
7. Is it mandatory to have a local partner for foreign investment in Nepal? No, it’s not mandatory in most sectors. However, joint ventures with local partners can be beneficial for navigating the local business environment.