Minimum Capital Requirements for Foreign Branch Offices
Foreign companies establishing a branch office in Nepal must meet the minimum capital requirement set by the Nepal Government. As of the current policy enforced by the Department of Industry (DOI), the minimum foreign investment threshold is NPR 20 million (approx. USD 150,000). This capital must be brought into Nepal through proper banking channels and recorded with Nepal Rastra Bank (NRB). The investment is to be utilized for operational expenses, infrastructure setup, and other business activities as specified in the business plan. The Foreign Investment and Technology Transfer Act, 2019 governs the capital requirements and investment norms for foreign entities.
Eligibility Criteria for Foreign Companies
To be eligible to establish a branch office in Nepal, a company must be legally registered in its country of origin. It must present evidence of being in good standing, such as a certificate of incorporation and a company extract. The business must not fall under the prohibited industries list provided by the Government of Nepal. Permitted sectors typically include manufacturing, technology, consultancy, and infrastructure. Eligibility is subject to evaluation by the Department of Industry and the Nepal Investment Board. Companies involved in sensitive or restricted sectors require additional government approval.
Legal Structure of a Branch Office in Nepal
A branch office of a foreign company in Nepal is not a separate legal entity; it is considered an extension of the parent company. It operates under the name and legal framework of the parent company and is liable for all actions taken by the branch. The branch must comply with the Companies Act, 2006 and Foreign Investment and Technology Transfer Act, 2019. Since the branch is not independently incorporated in Nepal, it cannot engage in activities beyond the scope approved by the DOI. The liabilities and profits of the branch are reported as part of the parent company’s financials.
Necessary Corporate Information for Foreign Applicants
Foreign companies must submit detailed corporate information when applying to open a branch office. This includes:
- Certificate of Incorporation
- Memorandum and Articles of Association
- Company profile and ownership structure
- Financial statements of the last two fiscal years
- Business plan for operations in Nepal
- Board resolution approving the opening of the Nepal branch
- Identity documents of directors and key management
- Power of attorney authorizing a local representative
All documents must be notarized and, if not in English or Nepali, translated by a certified translator.
Registered Address and Office Space Requirements
A branch office must have a registered business address in Nepal. The address is used for all official communication and legal notices. Foreign companies must submit a lease agreement or property ownership deed as proof of office premises. The office space must be suitable for the type of business activity being conducted and comply with local zoning regulations. The Department of Industry requires details of the location, area, and utilities available at the premises. Registration will not be completed without a valid office address.
Compliance with Local Labor Laws for Foreign Branches
Foreign branch offices must comply with the Labor Act, 2017 of Nepal. This includes regulations related to employee recruitment, minimum wages, working hours, contracts, health and safety, social security, and employee benefits. All employment contracts must be in writing and registered. Foreign companies must contribute to the Social Security Fund (SSF) for their Nepali employees. The branch must also comply with termination procedures, maternity and sick leave entitlements, and workplace safety standards. Non-compliance may result in fines or suspension of business licenses.
Qualifications for Local Staff and Management
While there is no specific qualification requirement under the law for local staff, foreign companies are expected to hire individuals with the skills necessary for the business operations. Management-level staff should have relevant professional qualifications and experience. For technical roles, certifications or licenses may be required. The Department of Labor may require justification for hiring foreign nationals in positions that can be filled by Nepali citizens. Preference should be given to local employment unless specialized skills are unavailable locally.
Investment Restrictions for Foreign Companies
Foreign investment in Nepal is regulated under the Foreign Investment and Technology Transfer Act, 2019. Some sectors are completely restricted for foreign investment, such as retail trade, travel agencies, and small-scale cottage industries. Foreign companies are prohibited from investing in activities that harm national security, public health, or cultural heritage. Additionally, industries like defense, tobacco, and alcohol production require special approvals. Any foreign investment must comply with the negative list published by the Government of Nepal and must be approved by the Nepal Investment Board and the Department of Industry.
Tax Obligations for Foreign Branch Offices
Foreign branch offices are taxed under the Income Tax Act, 2002 of Nepal. The corporate tax rate is 25% for most industries. Branch offices must file annual income tax returns and pay applicable taxes. Branches are also subject to VAT (13%) if their annual turnover exceeds the prescribed threshold. Tax Deducted at Source (TDS) applies to payments for services, rent, salaries, and other specified categories. Foreign companies must maintain proper accounting records and submit audit reports as part of their tax filings. Non-compliance results in penalties and interest charges.
Foreign Ownership Percentage in Branch Offices
In a branch office structure, 100% foreign ownership is permitted because the branch is not a separate entity. It is wholly owned and operated by the parent company. The parent company bears all legal and financial responsibilities. However, certain sectors may impose restrictions or joint-venture requirements. The ownership structure must align with Nepal’s foreign investment policy and any applicable industry-specific regulations.
Necessary Approvals from Nepalese Authorities
Several government approvals are required before a foreign company can operate a branch office in Nepal:
- Department of Industry (DOI) approval for foreign investment
- Nepal Investment Board approval for large-scale projects
- Nepal Rastra Bank (NRB) approval for foreign currency transactions
- Inland Revenue Office registration for PAN and VAT
- Municipality registration for local operation license
Each authority reviews specific aspects of the application and may request additional documents.
Reporting and Regulatory Obligations
Foreign branch offices must comply with ongoing reporting obligations. These include:
- Annual returns to the Department of Industry
- Income tax filings to the Inland Revenue Department
- Financial audit reports by certified auditors
- Updates to the Nepal Rastra Bank on foreign exchange usage
- Reports on employment and labor compliance
Timely submission is mandatory to maintain legal status. Non-compliance may lead to penalties or revocation of business rights.
Local Director Requirements for Branch Offices
Nepalese law does not mandate the appointment of a local director for a branch office. However, a local authorized representative must be appointed to act on behalf of the parent company. This representative handles official correspondence, regulatory filings, and legal obligations. The representative must be a Nepali resident and must be authorized through a power of attorney.
Laws Governing the Scope of Operations
The scope of operations for a foreign branch office is determined by the approval provided by the Department of Industry. Branch offices are limited to the activities specified in the business plan submitted during registration. Any deviation from the approved scope requires prior consent from the DOI. The Companies Act, 2006 and Foreign Investment and Technology Transfer Act, 2019 are the governing legislations. Violation of the approved scope may result in suspension or cancellation of the license.
Financial Statements and Auditing Obligations for Foreign Companies
Foreign branch offices must maintain proper books of accounts in Nepal. These must be audited annually by a registered auditor as required by the Companies Act, 2006. The financial statements should reflect all income, expenses, assets, and liabilities related to the branch office. These reports must be submitted to the Inland Revenue Department and the Department of Industry. Additionally, the parent company must ensure consolidated financial reporting in its home jurisdiction, including the performance of the Nepal branch.
FAQs
What are the requirements for opening a branch office?
Minimum capital of NPR 20 million, legal documents, approvals, and a local office are required.
Do I need local staff for a branch office?
Yes, hiring local staff is expected and must comply with labor laws.
How much capital is needed to open a branch?
At least NPR 20 million is required as foreign investment.
Are foreign investors allowed full ownership of the branch?
Yes, 100% foreign ownership is permitted for branch offices.
Do I need a local director for the branch office?
No, but a local representative must be appointed.
What qualifications are needed for the local staff?
Relevant education, experience, and licenses if required.
Is there a minimum office space requirement?
No minimum size, but a valid commercial address is necessary.
How do I meet the investment restrictions?
Ensure the business activity is not in the restricted sectors list.
What are the tax obligations for branch offices?
Branches must file annual tax returns and pay 25% corporate tax.
Are there any special regulatory obligations for foreign branches?
Yes, including annual reporting, auditing, and labor compliance.