Introduction to Legal Requirements
The legal requirements for opening a liaison office in Nepal are specified under the Foreign Investment and Technology Transfer Act, 2019 (FITTA) and the Companies Act, 2006. A liaison office is intended for non-commercial activities and must meet strict legal standards before receiving approval. All activities must align with Nepal’s legal framework concerning foreign companies and investment regulations. The company must ensure compliance at all levels including document authentication, local representation, and reporting duties.
Company Eligibility and Nationality Rules
To open a liaison office in Nepal, a foreign company must:
- Be legally incorporated outside Nepal
- Have been in operation for at least two years
- Submit proof of its incorporation and operational status
- Not be from a country restricted under Nepali laws or bilateral treaties
Nepal allows companies from most countries to set up liaison offices, provided their intent complies with non-commercial regulations.
Nature of Activities Allowed
Liaison offices are only permitted to:
- Conduct market research
- Promote parent company’s products and services
- Act as a communication channel
- Facilitate technical collaboration
- Coordinate with government and business agencies
They are strictly prohibited from engaging in trading, revenue-generating, or profit-distributing activities within Nepal.
Nepali Legal Framework for Liaison Offices
The legal structure includes:
- Foreign Investment and Technology Transfer Act, 2019
- Companies Act, 2006
- Income Tax Act, 2002 (for PAN registration)
- Industrial Enterprises Act, 2020
- Labor Act, 2017 (if employing local staff)
These laws govern approval, operation, compliance, taxation, and labor requirements for liaison offices.
Stepwise Legal Compliance Overview
Legal compliance involves the following steps:
- Preparation of notarized and translated documents
- Appointment of a local representative
- Submission of application to the Department of Industry
- Approval letter issuance
- PAN registration with the Inland Revenue Department
- Setting up an office in Nepal
- Annual compliance and reporting
Each step must follow legal formats and timeframes as prescribed by FITTA and related laws.
Required Documentation for Legal Filing
The company must submit:
- Application letter
- Certificate of incorporation
- Charter documents (MoA and AoA)
- Board resolution for liaison office
- Power of attorney for local representative
- Company profile and financial reports
- Lease agreement of office space in Nepal
- Passport copy of the local representative
- Translations of foreign-language documents
All documents must be notarized and certified according to Nepali legal requirements.
Permits and Licenses Required
The required permits include:
- Approval from the Department of Industry
- Permanent Account Number (PAN) from the Inland Revenue Department
Liaison offices do not require a business license, trade license, or VAT registration, as they are not involved in trading or income generation.
Applicable Government Charges and Fees
Fees to be paid include:
- NPR 15,000 to NPR 20,000 to the Department of Industry
- NPR 100 to the Inland Revenue Department for PAN registration
- Translation, notarization, and legal service costs (variable)
No recurring license fees apply, but fees may be required during renewal or modification.
Approval Authority and Their Functions
The Department of Industry (DoI) is the main approving authority. Its functions include:
- Receiving and reviewing the application
- Evaluating legal compliance
- Verifying submitted documentation
- Issuing the liaison office approval letter
- Monitoring annual compliance and report submission
The DoI operates under the Ministry of Industry, Commerce and Supplies.
Legal Liabilities and Restrictions
A liaison office is subject to the following restrictions:
- Cannot generate income in Nepal
- Cannot sign sales or service contracts
- Must only operate within the scope defined in the approval
Legal liabilities include:
- Penalties for false representation
- Termination of approval for non-compliance
- Legal proceedings for violating FITTA or Companies Act
Obligations under Foreign Investment Laws
Under FITTA, liaison offices must:
- Submit activity reports annually to the DoI
- Ensure that no revenue is earned from Nepalese sources
- Maintain accurate financial records
- Use foreign remittances to cover operational expenses
- Renew the liaison office on time
Non-compliance with these obligations can lead to cancellation.
Renewals and Legal Validity Period
The standard validity of a liaison office approval is one year. Renewal requires:
- Submission of an application before expiry
- Updated company profile and reports
- Proof of continued funding from the parent company
Failure to renew in time may result in revocation of approval and loss of legal status.
Legal Representation in Nepal
Each liaison office must appoint a local legal representative or agent authorized by power of attorney. Their roles include:
- Representing the company before authorities
- Ensuring legal and compliance responsibilities
- Receiving notices and communications from government
This requirement is mandatory under Nepali law.
Common Legal Mistakes to Avoid
Frequent legal errors include:
- Submitting incomplete documentation
- Not notarizing and translating documents
- Misstating the purpose of the liaison office
- Failing to appoint a qualified local representative
- Missing renewal deadlines
Avoiding these issues ensures smoother registration and continued operation.
Final Legal Compliance Checklist
Before submission, ensure:
- All documents are notarized and translated
- Power of attorney and board resolution are enclosed
- Office lease is valid and in company name
- Representative’s ID and credentials are attached
- Application form is complete and properly signed
- Fees are paid in full and proof is included
This checklist is essential for legal clearance and approval.
FAQs
Are liaison offices legal in Nepal?
Yes, liaison offices are permitted under FITTA for non-commercial purposes.
What laws govern their operation?
FITTA 2019 and Companies Act 2006 govern the operation of liaison offices.
Can they sign contracts locally?
No, liaison offices cannot enter into revenue-generating or service contracts.
Is a local legal advisor needed?
It is not mandatory but highly recommended for compliance assurance.
What are the penalties for non-compliance?
Penalties include fines, license cancellation, and possible legal action.
Who is the licensing authority?
The Department of Industry is the primary authority for liaison approvals.
Can legal status be revoked?
Yes, the DoI can revoke approval if legal requirements are violated.
Do I need an MoU for activities?
No MoU is required, but clearly defined non-commercial activities must be stated.
Are labor laws applicable?
Yes, if the office employs local staff, Nepali labor laws apply.
What if laws are violated?
Violations can lead to legal proceedings, penalties, and cancellation of approval.