Company registration in Nepal

The Federal Democratic Republic of Nepal is a small state in size and population, bordering China to the north and India to the east, south, and west. Although the domestic consumer market is small, the special relationship with neighboring countries, the largest in the region, makes it a promising destination for investment. Cheap labor and high return on investment encourage entrepreneurs to open a business in Kathmandu or any other city in Nepal. The country has a high potential for developing hydropower, tourism, infrastructure, and communications. Buying a company in Nepal is also beneficial in terms of tax optimization (compared to other countries of the South Asian region).

Advantages of registering a company

• high economic growth rates;
• The possibility of appointing a foreign director;
• Loyal legislation and desire to create a favorable investment environment at the state level;
• opportunity to establish a company with 100% foreign capital (except in specific industries);
• duty-free access to China (for about 8,000 goods) and the U.S. (for 77 items until 2026).

Main forms of legal presence and doing business

• individual entrepreneurship;
• partnership;
• a private company with limited liability;
• public company with limited liability;
• cooperative
• subsidiary;
• representative office.

Private subsidiaries are Nepal's most common forms of doing business in Nepal among foreign investors. They involve the creation of a separate legal entity, limit owners' liability, and can operate indefinitely.

Registration procedure

• Obtain permission from the Ministry of Industry to make a foreign investment;
• Reserve the company name;
• Apply to Nepal Rastra Bank (NRB) for approval to transfer funds from abroad;
• Register the company in Nepal with the Office of Company Registration (OCR);
• Notify the Department of Industries of the establishment of the company;
• Obtain an individual tax number from the tax office;
• Open a bank account;
• Obtain the necessary permits and licenses.

Legislation and regulatory environment

The legal system of the Republic is based on common law. The primary laws and regulations governing the process of starting a business in Nepal are:

• Company Law;
• Cooperative Law;
• Private Firm Registration Act;
• Industrial Enterprises Act;
• The Partnership Act;
• The Foreign Investment And Technology Transfer Act.

The Foreign Exchange Regulation Act regulates foreign exchange transactions in Nepal, which requires prior approval from NRB for such payments. According to the current regulations, the minimum foreign investment in the country is 5 million Nepalese rupees (about $38,000). Once a company is registered in Nepal, there are obligations to file annual financial statements audited by a qualified auditor with the OCR.

Tax system

Companies are considered to be tax residents of the Republic if they are:

• Registered in Nepal (in which case the place of management will not matter);
• Opened outside the country, but their actual place of management in the financial year under review is in Nepal.

A non-resident foreign permanent establishment in the Republic is also considered a resident. Resident enterprises are taxed on their worldwide income. The amount of tax liability is:

• corporate tax - from 20% to 30% (depending on the field of activity);
• dividend tax - 5%;
• capital gains tax - 10% to 25%;
• VAT - 13%.

If you open a company in Nepal as a permanent establishment of a foreign organization, the repatriation of income will be taxed at 5%. Every year, the country passes tax laws declaring preferential conditions and subsidizing certain types of businesses. The main criteria for granting preferences are industry affiliation, location, and the number of employees hired.

Opening a business in Nepal: how the lawyers of Prifinance can assist

The Republic of Nepal is a promising destination for investment, but it can be difficult for a foreigner to understand the specifics of the local law. And with it, it is also possible to buy a ready-made company in Nepal. Lawyers of Prifinance will tell you in detail about all the nuances of the local legislation and help you choose the appropriate legal form for creating a company. Furthermore, our experts are ready to answer all questions about doing business in the country and support to register a company for a foreign owner. In addition, Prifinance is engaged in accounting and provides annual maintenance services for Nepalese companies.