Are you planning to start a business in Nepal in 2025? Whether you’re a foreign investor or a local entrepreneur, understanding the regulatory, financial, and operational landscape is key. MedhaCorpLaw, Nepal’s premier law firm in Nepal, offers a comprehensive step-by-step guide covering everything from company registration to tax compliance, industry licensing, labor laws, and investment policies. Let’s explore how you can successfully launch and operate your business in Nepal.
Why Choose Nepal for Business in 2025?
Exploring the Business Climate in Nepal Economic Landscape Nepal has witnessed consistent economic growth over the last decade, with significant progress in sectors like agriculture, tourism, services, and manufacturing. Government reforms have been geared toward attracting foreign investment and enhancing business operations. The World Bank reported Nepal’s GDP growth rate at 6.7% in 2019, signaling robust business potential.
To foster a favorable business environment, the government has streamlined business registration and introduced incentives for foreign entities. The Foreign Investment and Technology Transfer Act (FITTA) 2019 provides a structured legal framework, safeguarding foreign investment and encouraging business ventures.
Prominent Investment Sectors Nepal presents a variety of promising sectors for investment, including:
- Tourism & Hospitality: Nepal’s unique cultural and natural assets draw millions of visitors, creating lucrative hospitality opportunities.
- Agriculture & Agro-Processing: The country’s diverse climate supports a wide range of crops, ideal for agribusiness and food production.
- Information Technology: The IT industry is expanding, offering potential in software, outsourcing, and digital innovation.
- Renewable Energy: With rich hydrological resources, Nepal holds vast potential in hydropower and green energy development.
- Manufacturing: Growing segments such as textiles, handicrafts, and light industries offer attractive business prospects.
Understanding these sectors enables investors to align their business strategies with Nepal’s economic objectives.
Legal Structure for Business Operations The Companies Act 2063 (2006) governs the establishment and functioning of businesses in Nepal. Complementing this, the Industrial Enterprises Act 2076 (2020) sets the standards for industrial operations.
Foreign investments are regulated by the Foreign Investment and Technology Transfer Act 2075 (2019), which outlines sectoral eligibility and the procedure for foreign investment approval.
Business Entity Options in Nepal Private Limited Company This is a preferred choice for small to mid-sized ventures due to its limited liability structure. Key highlights:
- 1 to 101 shareholders permitted
- Restricted share transferability
- Minimum capital requirement: NPR 100,000
- Board of Directors mandatory
The Companies Act 2063 (2006) dictates its formation, making it attractive to local and international investors alike.
Public Limited Company Ideal for large-scale enterprises planning to go public. Core features include:
- Minimum 7 shareholders, no upper limit
- Free share transfer
- Minimum capital: NPR 10,000,000
- Listing on Nepal Stock Exchange required
Governed by the Companies Act 2063 (2006) and Securities Act 2063 (2007), these entities offer avenues for raising capital via public shares.
Partnership Firm Managed under the Partnership Act 2020 (1964), suitable for smaller businesses or professional services. Key attributes:
- 2 to 20 partners
- Partners bear unlimited liability
- Simplified registration process
- Flexible operational model
Sole Proprietorship The easiest business structure, suited for solo entrepreneurs. Main features:
- Simple establishment and operation
- Owner assumes unlimited liability
- Not legally separate from the owner
- Regulated by Private Firm Registration Act 2014 (1958)
Business Registration Process in Nepal Company Formation The steps to legally establish a company are as follows:
- Name Reservation: Apply at the Company Registrar’s Office (CRO).
- Document Preparation: Draft and prepare MOA, AOA, and director consents.
- Capital Deposit: Open a corporate bank account and deposit required capital.
- Application Submission: File documents and pay applicable fees at CRO.
- Incorporation Certificate: Receive certification upon approval.
- PAN Registration: Register with the Inland Revenue Department.
- Industry Registration: Obtain sector-specific licenses from the Department of Industry.
Tax Compliance Every business must register for tax purposes:
- PAN Registration: Required through the Inland Revenue Department.
- VAT Registration: Mandatory for businesses with annual turnover above NPR 5 million.
- Annual Tax Clearance: Issued by the Inland Revenue Department.
Applicable laws include the Income Tax Act 2058 (2002) and Value Added Tax Act 2052 (1996).
Sector-Specific Licensing Some businesses require additional sectoral approvals:
- Tourism: Licenses from Department of Tourism for hotels, travel agencies, trekking services
- Manufacturing: Clearances from Department of Industry and concerned ministries
- Finance: Licensing through Nepal Rastra Bank
- IT/Telecom: Authorization from Nepal Telecommunications Authority
Taxation Overview Corporate Taxation Corporate Income Tax (CIT) is imposed on net profits. Key details:
- Standard rate: 25%
- Preferential rates for select industries (e.g., 20% for priority sectors)
- Extra 5% surcharge on financial institutions
Personal Taxation Applicable to individuals and business owners:
- Progressive rates: 1% to 36%
- Tax exemption: NPR 400,000 for individuals
- Social Security Tax: 1% of total income
VAT System VAT applies to most goods and services:
- Flat rate: 13%
- Threshold: NPR 5 million turnover
- Monthly reporting and remittance
Employment & Labor Laws Labor Compliance The Labor Act 2074 (2017) stipulates employment terms:
- Work limit: 48 hours per week
- Mandated minimum wages
- Regulations on leave, overtime, social security
- Employee termination rules
Social Security Scheme The Contribution Based Social Security Act 2074 (2017) introduced mandatory contributions:
- Employer: 11% of base salary
- Employee: 31% of base salary
- Covers multiple social security benefits
IP Rights in Nepal Trademark Protection Under the Patent, Design and Trademark Act 2022 (1965):
- Conduct availability search
- File application with the Department of Industry
- Trademark review and publication
- Trademark granted post-opposition period
- Validity: 7 years, renewable indefinitely
Copyright Laws Copyright protection arises automatically under the Copyright Act 2059 (2002):
- Covers literary, artistic, and musical works
- Valid through creator’s life + 50 years
- Optional registration for enhanced rights
Foreign Investment Insights Investor-Friendly Policies Nepal’s investment climate features:
- 100% ownership in most industries
- Repatriation of earnings allowed
- Protection from expropriation
- Double taxation agreements with multiple nations
Restricted Investment Areas Foreign investment is restricted in:
- Cottage industries
- Arms/ammunition
- Broadcasting (radio/TV)
- Real estate (some limitations apply)
Approval Workflow Foreign investment requires official approval via:
- Department of Industry or Investment Board Nepal
- Submit a detailed project proposal
- Review for legal and policy compliance
- Receive investment approval
- Register the business and obtain licenses
Financial Systems Opening Business Bank Accounts To open a business account, submit:
- Company registration documents
- PAN certificate
- Board resolution for account setup
- Director/authorized signatory KYC
Banking operations fall under the Banking and Financial Institution Act 2073 (2017).
Foreign Exchange Control Nepal Rastra Bank enforces foreign exchange policies:
- Regulated foreign currency dealings
- Profit repatriation requires central bank clearance
- Mandatory use of banking channels for cross-border payments
These transactions are governed by the Foreign Exchange (Regulation) Act 2019 (1962).