Introduction to Liaison Offices in Nepal
A liaison office in Nepal is a representation of a foreign company that seeks to explore business opportunities or coordinate with its headquarters without conducting direct commercial or revenue-generating activities. As per Nepalese law, a liaison office acts as a non-trading office which can promote the parent company’s business, provide information, and facilitate communication. The Foreign Investment and Technology Transfer Act, 2019 (FITTA) provides a legal basis for establishing such offices. These offices are strictly prohibited from undertaking income-generating activities within Nepal.
Legal Definition and Permitted Activities
Under the FITTA and Industrial Enterprises Act, 2020, a liaison office is defined as a non-trading representation office. Its activities must be limited to:
- Promoting the business of the parent company
- Liaising between headquarters and Nepali entities
- Gathering market intelligence
- Assisting in coordination and communication
Such offices are not allowed to enter into any commercial contracts, invoice clients, or earn revenue in Nepal. Any deviation may attract penalties or cancellation of approval by the Department of Industry (DoI).
Eligibility Criteria for Foreign Companies
To be eligible to establish a liaison office in Nepal, a foreign company must:
- Be legally registered in its home country
- Be operational for at least 2 years
- Submit financial statements and corporate documents
- Provide a clear objective for establishing the liaison office
The company must also appoint a local authorized representative and maintain a physical address in Nepal. The nature of the parent company’s business must align with Nepal’s permitted sectors under FITTA.
Step-by-Step Registration Procedure
The registration of a liaison office involves the following steps:
- Application Submission: File an application with the Department of Industry (DoI)
- Document Review: DoI verifies the submitted documents
- Approval and Issuance: If approved, a permission letter is issued
- PAN Registration: Obtain Permanent Account Number (PAN) from Inland Revenue Department
- Office Establishment: Set up a physical office and assign a local representative
- Commence Permitted Activities: Start operations as per approval
All processes are conducted under FITTA, the Companies Act 2006, and related regulations.
Required Documents for Application
The application must include the following:
- Application letter addressed to the Department of Industry
- Certificate of incorporation of the foreign company
- Memorandum and Articles of Association
- Board resolution to open liaison office
- Power of attorney to the local representative
- Profile of the parent company
- Tax clearance certificate from home country
- Passport copy of the representative
- Office lease agreement or address proof in Nepal
All documents must be translated into English or Nepali and notarized.
Timeframe for Completion of Registration
The liaison office registration process typically takes 4 to 6 weeks. Document verification and inter-departmental approvals may cause variations. If all documents are in order and no queries are raised, the Department of Industry generally issues the permission within 30 working days. PAN registration takes an additional 3-5 working days. Delays may occur due to incomplete submissions or document translation issues.
Cost Involved in Setting Up
Setting up a liaison office involves:
- Legal and consultancy fees
- Document translation and notarization charges
- Office lease or rent
- Operational setup costs (furniture, utilities, etc.)
- Local representation and staffing costs
The approximate cost ranges between NPR 300,000 to NPR 600,000, depending on the size of the office and nature of services hired.
Government Fees and Associated Charges
Government fees include:
- NPR 15,000 to NPR 20,000 as processing fee to the Department of Industry
- PAN registration fee: NPR 100
- Stamp duty and notarization charges
Fees are payable at the time of application and vary slightly depending on the parent company’s sector. There are no revenue-based taxes since liaison offices are not permitted to earn income in Nepal.
Taxation Policies and Compliance
Liaison offices are not subject to corporate income tax as they cannot earn revenue. However, they must:
- Obtain PAN from Inland Revenue Department
- File annual reports and statements as required
- Maintain books of accounts
All expenses must be funded through inward remittance from the parent company. There are no Value Added Tax (VAT) obligations or tax audits unless financial activity is detected beyond approved functions.
Governing Laws and Regulatory Framework
The key legal instruments governing liaison offices include:
- Foreign Investment and Technology Transfer Act, 2019
- Industrial Enterprises Act, 2020
- Companies Act, 2006
- Income Tax Act, 2002
- Labor Act, 2017 (if hiring local staff)
Compliance with sector-specific laws may also be necessary depending on the nature of liaison activity.
Role of Department of Industry
The Department of Industry (DoI) is the approving authority for liaison office registrations. Its role includes:
- Reviewing applications
- Verifying submitted documents
- Issuing liaison office approval
- Monitoring compliance and renewal
The DoI also maintains a record of all approved foreign representations and may inspect operations if required.
Services Allowed Under Liaison Office Setup
Permissible services for a liaison office include:
- Market research and data collection
- Coordination with local suppliers and clients
- Facilitating technical or administrative support
- Promotional and branding activities
- Business correspondence with headquarters
Commercial transactions or sales are not permitted under any circumstance. Violations lead to cancellation of office approval.
Annual Reporting and Renewal Obligations
Liaison offices must renew their approval annually by submitting:
- Activity report of previous year
- Updated company profile
- Copy of inward remittance proof
- Financial statements and PAN filings
Renewal must be applied within the validity period stated in the approval letter. Non-renewal may result in automatic cancellation.
Common Challenges and How to Overcome
Challenges in setting up include:
- Delays in document verification
- Lack of clarity on permitted activities
- Language barriers in documentation
- Lease agreement and office setup delays
These can be managed by:
- Hiring a local legal advisor
- Pre-verifying documents
- Translating documents through certified translators
- Ensuring compliance with all DoI guidelines
Final Checklist Before Submission
Before submitting the application, ensure:
- All documents are complete and notarized
- Application is signed by authorized personnel
- Lease agreement is valid
- Translations are accurate
- PAN application is ready for submission
- All fees are calculated and ready for payment
Incomplete or erroneous submissions result in delays and potential rejections.
FAQs
What is a liaison office in Nepal?
It is a non-trading representative office of a foreign company that coordinates and promotes the parent company’s activities without earning revenue.
Can a liaison office earn revenue?
No, liaison offices cannot engage in commercial activities or generate revenue under Nepalese law.
Who approves liaison office applications?
The Department of Industry (DoI) is the competent authority for liaison office approvals in Nepal.
What is the registration time frame?
Registration generally takes 4 to 6 weeks if all documents are complete and correct.
Is tax registration required?
Yes, PAN registration with the Inland Revenue Department is mandatory.
How much does registration cost?
Costs range from NPR 300,000 to NPR 600,000, including legal and operational expenses.
What documents are needed?
Corporate documents, power of attorney, office lease, and passport copy of the representative are required.
Can a liaison office be renewed?
Yes, it must be renewed annually by submitting reports and updated documents.
Is repatriation of funds allowed?
Yes, expenses are funded through inward remittance, but repatriation is not applicable since no income is generated.
How long is the license valid?
The license is typically valid for one year and must be renewed annually to remain effective.