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Payroll in Nepal

Subsidiaries in Nepal

The economy of Nepal is primarily based on agriculture and remittances. However, several other industries are coming up and flourishing in the country. The country is an emerging economy with a GDP of $36.29 billion in 2021. 

Incorporating a foreign subsidiary business in Nepal is relatively easy as it is ranked 94th in the Ease of Doing Business Index. The employment rate in the country has also increased in the last few years. Hence, you can easily find people to work for your subsidiary business in Nepal. 

Nepal has an excellent system for exports. Textiles, including textiles, carpets, and tourism, are some of the industries flourishing in the country. You can quickly get into setting up a subsidiary in Nepal in the export business. Countries like India, the United States, and Turkey are some of the major export partners. 

This guide will help you navigate the entire process of incorporating a subsidiary business in Nepal. 

What are the Types of Subsidiaries in Nepal?

While there are different types of subsidiary systems in Nepal, it is vital to understand each before starting a business here. 

Statutory company

  • A statutory company in Nepal is established under a special act passed by the country’s parliament. 
  • The act defines all the activities and functions a statutory company can perform. 
  • The Nepali government usually establishes a statutory company, and the primary objective of establishing a statutory company is to promote a special sector of the economy. 
  • A statutory company is also known as a public enterprise in Nepal. You must procure special government permission to establish a statutory subsidiary business in Nepal.

Public limited company

  • A public limited company is among the most incorporated subsidiary businesses in Nepal. 
  • You need at least seven members in Nepal to incorporate a public limited company. However, there are no restrictions on a public company’s number of shareholders. 
  • A public limited company in Nepal can invite the public to subscribe to its share by issuing a prospectus. Also, there are no restrictions on the transfer of shares.
  • Having at least three directors to manage a public limited company in Nepal is mandatory. 
  • A public limited company in Nepal must conduct a statutory meeting and obtain a commencement certificate from the relevant authorities. 
  • The name of a public limited company should always end with the word ‘Ltd.’

Private limited company

  • A private limited company is another popular type of business in Nepal. Having at least one member to start a private limited company is essential. 
  • The maximum number of shareholders that can be a part of a private limited company is 50. 
  • You cannot invite the general public to subscribe to the shares by floating a prospectus. 
  • You need to get approval from all the shareholders to transfer shares. 

How to Set Up a Subsidiary in Nepal?

For the incorporation of a subsidiary of a foreign company in Nepal, you need to follow a few mandatory steps: 

Step 1: Obtain approvals

  • Before you begin the company incorporation process, you must contact a few government bodies for approval.
  • Some relevant government bodies you need to seek approval from are the Department of Industry, Department of Electricity, Nepal Rastra Bank, Department of Agriculture, and Department of Roads.

Step 2: Register the company

  • Decide the type of company you want to incorporate in Nepal and begin with the registration process.
  • Reach out to the company registrar’s office and submit all the important documents and the incorporation form.
  • The incorporation application form must contain the following details:
    • The proposed name of the company
    • The address of the company 
    • The objectives and the details of the activities of the company that it will undertake in Nepal
    • Citizenship certificate of all the owners and shareholders of the company

Step 3: Register with the tax authorities

  • Reach out to the Inland Revenue Department and obtain a PAN and a VAT certificate for the business from then. 
  • You can also get the registration details from http://www.ird.gov.np.

Step 4: Open a bank account.

  • To begin with all business-related transactions, you need to open a bank account in a bank in Nepal.
  • You must also open a foreign currency account at the Nepal Rastra Bank, the central bank of Nepal.

Benefits of Setting Up a Nepal Subsidiary

There exist several benefits of a subsidiary company in Nepal. Let’s explore some of these benefits. 

  • A subsidiary business in Nepal is considered a legal entity, allowing you to conduct all kinds of operations in Nepal legally.
  • Nepal ranks 94th out of 180 countries in the Ease of Doing Business Index by the World Bank. Hence, you can easily incorporate a foreign subsidiary in Nepal.
  • Nepal is currently venturing into different industries, and hence, it is encouraging foreign investments from different countries. 
  • Nepal is quite close to giant economies like India and China. Hence, you can expand the span of your business to these countries as well. 
  • Nepal allows you to incorporate the business online. Hence, setting up a subsidiary business in Nepal is hassle-free. 
  • Nepal has a stable economy, and the cost of operating a business is relatively low. Hence, you can run your subsidiary business in Nepal economically. 
  • People in Nepal can speak languages like Hindi and English. Hence, people can easily start working here without significant language barriers. 

Documents to Prepare When Opening a Subsidiary in Nepal

It is crucial to have a checklist for the incorporation of a foreign subsidiary in Nepal. Let’s have a look at the documents you need for the process.

  • Registration application
  • Memorandum of association
  • Articles of association of the company in question
  • Agreement of the shareholders
  • Certificate of registration
  • A copy of the registration certificate
  • Other registration documents, as prescribed by the government
  • Corporate resolution of the shareholders
  • Copy of the approval of the DOI for foreign investors

What Business Forms Can Nepal Subsidiaries Take?

Nepal is a growing economy, and it supports all kinds of businesses. You can choose any form of business based on the kind of ownership structure you want. You can begin with the incorporation of a wholly-owned subsidiary in Nepal if you want to retain the entire company ownership. However, if you want to incorporate a partially owned subsidiary business, you can do that too in Nepal. 

A private limited company is one of Nepal’s most popularly incorporated companies. It is easy to incorporate a private limited company. To create an LLC in Nepal, you need to follow the usual steps. In addition, an LLC’s legal identity is distinct from its owners. An LLC can therefore exist forever and operate on its own. You can incorporate another business form depending on the firm’s needs.

Nepal Subsidiary Laws

Apart from knowing how to register a subsidiary company in Nepal, you must also adhere to all the subsidiary and labor laws as the government decides. These laws help you incorporate the business and safeguard the rights of the employees working in your subsidiary business in Nepal. 

Some of the subsidiary laws you must adhere to are:

  • Collect the certificate of incorporation from the company’s registrar before you commence the business operations. 
  • You must also have a copy of the certificate of incorporation of the parent organization. 
  • Open a Nepali bank account at Rastra Bank to ensure all business transactions are processed without hassle.
  • Pay the registration fees as compliance for a foreign subsidiary in Nepal based on the share capital you bring in. The registration fees applicable are as follows:

Capital

Registration Fee

<=1,00,000

600

1,00,000 – 3,00,000

2,000

3,00,000 – 5,00,000

4,000

5,00,000 – 10,00,000

7,500

10,00,000 – 50,00,000

10,000

>50,00,000

15,000

Post-Incorporation Compliance

There are several other post-incorporation compliances for a foreign subsidiary in Nepal. Here is a list of compliances that you must meet.

Office notification

  • As per the Companies Act of Nepal, the company incorporated in Nepal must be physically located in Nepal. 
  • The company must display a board with its name outside the registered office. 
  • Within three months of the company’s registration, you must notify the company’s registrar about the permanent location of the company. 

Shareholders and director details

  • As soon as the share capital has been issued and paid, you must prepare a Shareholders Register and file it with the Office of Companies.
  • The organization must complete the activity within a month of the share capital being paid. 
  • You must also submit all the details of the directors within seven days of the directors taking office. 

Annual general meeting

  • A subsidiary business must conduct an annual general meeting within the first year of incorporation.
  • However, if the subsidiary business is private, it should hold an annual general meeting only if the Articles and Memorandum of Association prescribe it. 

Accounting requirements

  • An auditor must maintain and audit the company’s books annually. 
  • The shareholders must select the auditor. Within 15 days of the appointment, shareholders must notify the Office of Companies Registrar of the appointment of an auditor.

Taxes on Subsidiaries in Nepal

Before incorporating a subsidiary business in Nepal, you must also consider the taxation of foreign subsidiaries in Nepal. The corporate tax rate in Nepal stands at 25%. However, the tax on the income remitted to the head office of the subsidiary business is 5%. 

The interest and royalty of the company are taxed at 15%. Other taxes, like VAT, capital gains tax, etc., are also applicable to the subsidiary business in Nepal.

Tax Incentives for Businesses Setting up a Subsidiary in Nepal

Nepal has a tax incentive policy binding on all businesses in the country. The country has an investment-friendly tax system, and the corporate tax rate in Nepal is quite low or at par with all its neighboring countries. 

Companies can carry forward tax losses for seven years and go up to 12 years in industries like power and electricity. Companies in unique manufacturing industries also get a tax exemption of up to 10%. Companies that are located in special economic zones also enjoy tax concessions. 

Nepal also has double taxation treaties with ten countries. The income from these countries will only be taxed once. These countries include:

  • China
  • Qatar
  • India
  • Norway
  • Mauritius
  • Austria
  • Sri Lanka
  • Pakistan
  • Republic of Korea

Other Important Considerations

The procedure of setting up a subsidiary business in Nepal is time-consuming and labor-intensive. The decision to take a few days off to concentrate on growing the Nepal subsidiary will be great. The company must also adhere to all legal requirements. The company might choose a representative to complete the procedure on your behalf.

Setting and adhering to a budget is also crucial when starting a subsidiary. You can schedule all the events after you have a set budget. 

How Can Multiplier’s Employer of Record Help You Hire and Expand in Nepal?

Investing time and resources into creating a subsidiary system in Nepal is difficult. It can take time to navigate a new market’s obstacles as well. It would be ideal if you collaborated with a worldwide PEO like Multiplier to overcome these obstacles. 

All the formalities and processes you must finish before entering a new market will be handled by Multiplier. We will work with you to form a subsidiary business in Nepal that complies with all applicable labor regulations. A PEO like Multiplier can help you onboard a strong workforce and utilize the resources in Nepal to their fullest potential.

Frequently Asked Questions

The application format must align with the ANUSUCHI 1, and you must submit the form with a five rupees stamp attached.

Your company would be registered in 15 minutes if you completed the application completely, accurately, and supported by the essential paperwork. To approve the name and move your registration procedure forward, the company registration office typically needs up to 15 days. Online applications are accepted for Nepali company registration.

There are no minimum capital requirements in Nepal. However, you must bring 10 million Nepalese Rupees for a public limited company.

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