How to open a Branch Office of a Foreign Company in Nepal

This article discusses the procedure for opening a branch office in Nepal by a foreigner.

For foreign companies seeking to establish a presence in Nepal, a branch office is an appropriate business model. The branch office is an extension of the parent company’s business and operates in the same manner. A foreign company’s branch office in Nepal can only be established for specific business activities.

When establishing a business in Nepal as a branch office, representatives of the foreign company must obtain approval from the Department of Industry and Nepal Rastra Bank.

Branch offices of such businesses are permitted to open, and foreign investment in goods and industries is permitted in Nepal.

What is a Branch Office?

Companies incorporated outside of Nepal that are engaged in manufacturing may open Branch Offices with prior approval from the Government Authority and OCR. Generally, the Branch Office should be involved in the Parent Company’s operations. The assets of the parent company can be used to pay the debts of the branch office. The entire expenditures of the BO (Branch Office) in Nepal must be covered by funds received from the Head Office via standard banking channels or revenue generated on site.

The Advantages of a Branch Office

The main firm has more control as a result of the branch office. A branch office is a dependent business, which means that all operational decisions are made by the parent company. Because the branch office in Nepal will use the same name as the parent company, the parent company’s brand value is preserved.

What is the meaning of Subsidiary Company?

A subsidiary company is one in which a holding company or another organization holds the majority of the stock. A subsidiary in Nepal is an organization formed and registered under the Companies Act. And that It exists as a legal entity distinct from its shareholders and Parent Company.

The liability of the parent company is limited by the percentage of the subsidiary that it owns. There are no attachments against the assets of the foreign company.. all revenue generated by commercial activity.

The Benefits of a Wholly Owned Nepali Subsidiary

The following are the benefits of having a wholly owned subsidiary:

1. The Nepali subsidiary is run separately from the parent company.
2. A company’s shareholders or owners have limited liability to the company.
3. The Parent Company (which could be anywhere in the world) has complete control over its Nepali counterpart.
4. The parent company can provide the financial resources and expertise required to launch new businesses and products.

How do I set up a foreign branch office in Nepal?

Foreign companies can also establish a branch office in Nepal to conduct business. This option will be available only if the foreign investor is registered as a company in their home country.

Section 154 of Nepal’s Companies Act 2006 (“Companies Act”) specifies the requirement to register a company. It is necessary to register a branch office in Nepal in order to open one.

Companies that have invested in Nepal and are registered and own a share capital, or companies that provide debt to an entity in Nepal or participate in the management of such entities (for example in the form of management services).

Such cases do not need to be registered with the Nepal Government.

The steps below illustrates the step-by-step process of registering a branch office:

Step-1

Obtain approval from the appropriate government agency or enter into an agreement.

Step-2

Register a branch office with the OCR.

Step 3

Registration with the IRO for tax purposes

Step-4

Create a Bank Account

Step-5

Money should be transferred to the Branch Office.

What circumstances constitute the establishment of a foreign branch office in Nepal?

A foreign corporation must have established a branch office in Nepal. Moreover it must have regularly conducted business in Nepal from an office or location established or used for that purpose for a period of one month or more. 

If any person is designated as a regular contact in the said office, or if his services are retained, the company is deemed to have conducted business or established an office in Nepal.

What is the distinction between a branch and a liaison office?

A branch office can conduct business in Nepal. A foreign company registered as a contact office, on the other hand, is not permitted to perform any work that generates revenue in the state of Nepal.

• Regional Office (Wholly Owned Subsidiary)
• The Branch bears sole responsibility. 
• The branch office debts can be used to repay them.
• The parent company’s liability is limited to a certain percentage.
• The assets of the parent company, a subsidiary of the company, 
• The BO has the same authority as the CEO.
• the primary office 
• In contrast, the subsidiary firm may or may not engage in the same commercial activities as the parent company.
• Branches can manage accounts collaboratively or independently.
  separately.
• WOS (Wholly Owned Subsidiaries) keep their own books.
  Total BO expenditures in Nepal must be covered by funds received from the Head Office via standard banking channels or revenue generated in Nepal.
  All commercial revenue is generated by the Wholly Owned Subsidiary.

Foreign companies seeking to open an office in Nepal should include the following information with their application:

The mentioned documents must be submitted to the office.

• Approval from the competent authority to do business or transact in Nepal,
• Photocopies of the company’s certificate of incorporation,
• certificate, memorandum of association, and articles of association, as well as Nepali translations of these documents.
• full name, registered office and principal place of business address,
• date of incorporation, paid-up capital details, and
• main purpose of such company
• The director, manager, company secretary, or chief officer’s name, address, and citizenship information.
• the name and address of the person residing in Nepal who has been authorized by the company to accept the company’s terms, notices, and other information,
• the primary location in Nepal where the company conducts business or transactions, as well as the full address of the company’s office at that location,
• Information about the proposed investment and business, if the company will conduct or do business in Nepal.
• the proposed start date for the company’s operations in Nepal,
• A letter of authorization in accordance with Section 157 of the Companies Act of 2006

What is a Liaison Office?

A liaison office is a place of business, generally in the foreign land that serves as a
channel of communication between the principal place of business or Head Office or by
whatever name it is known.

Furthermore, entities in Nepal but does not engage in any commercial/trading/industrial activity, directly or indirectly, and is supported by inward remittances received from abroad through normal banking channels.

In addition a Liaison Office [also known as a representative office in the foreign land] can only
conduct liaison activities via the foreign nationale who acts as representative of company at abroad, i.e. act as a communication channel between the Head Office abroad and parties in Nepal.

That It is not permitted to engage in any business activity or earn any income in Nepal but liaison office acts as the facilitator.

However, companies incorporated outside of Nepal, or companies incorporated outside of the
parent company’s establishment and engaged in manufacturing or trading activities, are permitted to establish Branch Offices with the approval of the relevant authority.

Normally, the Branch Office should be involved in the activities as per the objective of
the Company.

Liaison office: legal entity of the headquarters

• It is a straightforward structure.
• It has no independent legal standing nor its autonomous.

Branch office

• An extension of the Head Office with the right to earn money and carry our business
  in Nepal
• It is a straightforward structure.
• It has no independent legal standing.

Permitted activities
Liaison office

• Representing the company / group companies in Nepal.
• Promotion of export and import from and into Nepal
• Fostering technical/financial collaborations between parent/group companies and
  Nepalese companies
• Serving as a liaison between the company and Nepali businesses.

Branch Office

• Goods are exported and imported.
• Providing professional or advisory services.
• Conducting research in areas where the parent company is active.
• Fostering technical and financial collaborations between Nepali and parent or
  overseas group companies.
• Acting as a buying/selling agent in Nepal on behalf of the parent company
• Providing information technology services and software development in Nepal
• Providing technical support for products provided by parent/group companies.
• International airline/shipping company

Criteria for set up
Liaison office

• Parent Company should have a profitable track record in the previous three fiscal years
• in the home country.

Branch office

• Parent Company should have a profitable track record in the previous five fiscal years in the home country.

Typical Terms of Approval
Liaison office

• Not to engage in any trading, commercial, or industrial activity or enter into any
  business contracts in its own name without the prior permission of the ….
• No commission/fees or other remuneration or income earned by the office in Nepal
  for liaison activities/services rendered or otherwise in Nepal shall be charged.
• The entire expense of the office in India will be met entirely by funds received from
  the head office via normal banking channels.
• The office in Nepal shall not borrow or lend money from or to any person in Nepal
  unless prior permission is obtained.
  

Branch office

• Not to expand its activities or engage in any new trading, commercial, or industrial
  activity unless expressly authorized by the regulatory body.
• All expenses in Nepal will be met either from funds received from the head office
  through normal banking channels or from income generated in Nepal.
• The Branch Office in Nepal will not accept any deposits.
• Any commission earned by the Branch Office from parties located outside of Nepal
  for any agency business will be repatriated to Nepal via normal banking channels.
• To refrain from engaging in any retail trading activity.
• A Branch Office is not permitted to directly or indirectly engage in manufacturing or
  processing activities in Nepal.

Time Limit of Approval
Liaison office

• Typically, three years from the date of approval.

Branch Office

• Typically, three years from the date of approval.

Basic Registration

Liaison office

Registrations and approvals will be required for the following:

• Professional Tax
• Registration under Act
• PAN
• Registration with Regulatory body
• Code for Import and Export

Branch Office

Registrations and approvals will be required for the following:

• PAN
• Service Tax
• Professional Tax
• Registration with Regulatory body
• VAT Importer Export Code
• Registration with Regulatory body
  

Liabilities of the company
Liaison office

• The parent company’s liability for all acts and omissions of LO is unlimited.

Branch office

• The Branch’s liability is limitless.
• If the branch’s liabilities exceed its assets, the parent
  company’s assets are at risk of attachment.

Remittance of Profit to Parent Company

Liaison office

• Except for when the LO is closed, none.

Branch Office

• Profits can be freely repatriated to the Parent Company after paying all applicable taxes

Should you have any questions, please do not hesitate to contact us at +977-9849517735 or by email at info@corporatelawyernepal.com