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The choice between a branch office vs liaison office vs subsidiary in Nepal determines how a foreign company may operate, earn revenue, pay taxes, and exit the market. Each structure is governed by different provisions of the Companies Act 2063 (2006) and the Foreign Investment and Technology Transfer Act 2075 (2019). Because the wrong choice can block revenue generation or create unnecessary compliance burdens, the decision must be made before any registration is filed.
Nepal's market has drawn foreign construction firms, IT companies, hydropower developers, manufacturers, and trading houses. Each entry path carries distinct legal consequences. This guide compares all three structures in depth. The legal status, permitted activities, taxation, costs, timelines, and compliance obligations are all analysed below.
Quick Comparison: Branch Office vs Liaison Office vs Subsidiary in Nepal
The core differences are summarised first. Detailed analysis follows.
| Factor | Branch Office | Liaison Office | Subsidiary Company |
|---|---|---|---|
| Legal nature | Extension of foreign parent | Extension of foreign parent | Separate Nepali legal entity |
| Governing provision | Companies Act 2063 — Section 154 | Companies Act 2063 — Section 154 | Companies Act 2063 + FITTA 2075 |
| Registration authority | OCR | OCR | OCR (+ DOI approval under FITTA) |
| Revenue generation | Permitted | Prohibited | Permitted |
| Contracting in Nepal | Full capacity | Coordination only | Full capacity |
| Share issuance in Nepal | Prohibited (Section 154(11)) | Not applicable | Permitted |
| Limited liability | No — parent fully liable | No — parent fully liable | Yes |
| Corporate income tax | On Nepal-sourced income | None (no income) | 25% standard rate |
| Minimum capital | None prescribed | None prescribed | Sector-based (none for IT) |
| Foreign ownership | N/A — extension of parent | N/A | Up to 100% in most sectors |
| Best suited for | Project execution and operations | Market research and coordination | Long-term market presence |
What Is a Branch Office in Nepal?
A branch office in Nepal is an operational extension of the foreign parent company. It is registered with the Office of Company Registrar under Section 154 of the Companies Act 2063.
Under Section 154, a foreign company is deemed to be doing business in Nepal when it carries on transactions through a Nepali office for one month or more. Registration therefore becomes mandatory before operations begin.
Key Characteristics of a Nepal Branch Office
| Characteristic | Detail |
|---|---|
| Legal personality | No separate identity — parent is fully liable |
| Activities | Same type of business as the parent conducts abroad (Section 154(8)) |
| Revenue | May earn and repatriate income |
| Shares/debentures | May not be issued in Nepal (Section 154(11)) |
| Funding | Parent remittances through approved banking channels |
| Local representative | Mandatory under Section 155 |
What Is a Liaison Office in Nepal?
A liaison office in Nepalis also registered under Section 154, but its purpose is strictly representative. It is the lightest foreign presence available under Nepali law.
Permitted and Prohibited Activities of a Nepal Liaison Office
| Permitted | Prohibited |
|---|---|
| Market research and analysis | Selling goods or services |
| Coordination with clients and suppliers | Raising invoices to Nepali clients |
| Communication and representation | Signing business contracts in Nepal |
| Marketing and promotion | Any income-earning transaction |
All office expenses are funded by the parent through inward remittances. Because no local revenue is generated, no corporate income tax arises. However, this also means the office cannot sustain itself — every rupee spent must come from abroad.
What Is a Subsidiary Company in Nepal?
A subsidiary company in Nepalis a new Nepali legal entity incorporated under the Companies Act 2063, with the foreign company as shareholder. Where foreign investment is involved, approval under the Foreign Investment and Technology Transfer Act 2075 (FITTA) must be obtained from the Department of Industry or the Investment Board of Nepal.
Key Characteristics of a Nepal Subsidiary
| Characteristic | Detail |
|---|---|
| Legal personality | Separate Nepali entity with limited liability |
| Foreign ownership | Up to 100% permitted in most sectors |
| Activities | Any lawful business within registered objectives |
| Revenue | Fully permitted, in NPR and foreign currency |
| Shares | May be issued; foreign company holds equity |
| Governance | Own board of directors, subject to Companies Act |
The subsidiary is the only structure of the three that rings-fences Nepal risk. Parent company liability is limited to its share capital.
Legal Framework for Each Entry Structure
| Structure | Primary Law | Key Provisions |
|---|---|---|
| Branch office | Companies Act 2063 | Section 154 (registration), Section 155 (representative), Section 156 (documents), Section 157 (reporting) |
| Liaison office | Companies Act 2063 | Same Sections 154–157 |
| Subsidiary company | Companies Act 2063 + FITTA 2075 | Companies Act Sections 3–13 (incorporation); FITTA approval for foreign capital |
All three structures require OCR registration. The branch and liaison offices register as foreign companies under Section 154. The subsidiary registers as a domestic company with foreign shareholders.
Registration Process Comparison
The procedural burden differs significantly across the three structures.
| Step | Branch Office | Liaison Office | Subsidiary Company |
|---|---|---|---|
| Prior approval | Competent authority (DOI/ministry) | Competent authority | DOI/IBN approval under FITTA |
| Name clearance | OCR — 10–14 working days | OCR — 10–14 working days | OCR — 1–3 working days |
| Core registration | OCR under Section 154 | OCR under Section 154 | OCR incorporation + DOI FDI approval |
| Documents from abroad | Certified and translated parent documents | Same | Parent documents + FDI application |
| Typical total timeline | 30–45 working days | 30–45 working days | 2–4 months |
The subsidiary company in Nepal takes longer because FITTA approval and capital injection formalities with Nepal Rastra Bank are added to the standard incorporation process.
Cost Comparison: Branch vs Liaison vs Subsidiary
| Cost Element | Branch Office | Liaison Office | Subsidiary Company |
|---|---|---|---|
| OCR registration fee | NPR 15,000–160,000+ (based on proposed amount) | NPR 15,000–160,000+ | Standard company fee (NPR 1,000–55,000) |
| FITTA approval | Not applicable | Not applicable | Required |
| Document certification and translation | NPR 30,000–100,000 | NPR 30,000–100,000 | NPR 30,000–100,000 |
| Legal/professional fees | NPR 150,000–500,000 | NPR 150,000–500,000 | NPR 200,000–700,000 |
| Ongoing compliance | Quarterly OCR reports | Quarterly OCR reports | Full company compliance |
The government fee for a branch or liaison office is calculated on the proposed investment or funding amount declared by the parent. Where no amount is stated, a fixed NPR 100,000 applies.
Taxation Comparison
Tax treatment is one of the most decisive factors in the branch office vs liaison office vs subsidiary in Nepal decision.
| Tax Element | Branch Office | Liaison Office | Subsidiary Company |
|---|---|---|---|
| Corporate income tax | On Nepal-sourced income under Income Tax Act 2058 | None — no income generated | 25% standard rate on worldwide Nepal income |
| VAT | Applicable on taxable supplies | Not applicable | Applicable above thresholds |
| Repatriation | After-tax remittance through NRB approval | Expense reimbursement only | Dividend repatriation after tax and NRB approval |
| Withholding tax | On local payments | On local salaries only | On local payments and dividends |
The branch office's Nepal income is taxed like any other business income. The subsidiary is taxed as a domestic company, with dividends remitted abroad after withholding tax. The liaison office has no tax base, but its funding flows are monitored under foreign exchange regulations.
Compliance Obligations Comparison
| Obligation | Branch Office | Liaison Office | Subsidiary Company |
|---|---|---|---|
| Quarterly OCR reports | Required | Required | Not applicable |
| Annual audited financials | Branch statements + parent financials | Office statements + parent financials | Full statutory audit |
| Annual return to OCR | Yes | Yes | Yes |
| AGM requirement | No | No | Yes |
| Auditor appointment | Recommended | Recommended | Mandatory within 3 months |
| Name board display | Mandatory (Section 154(9)) | Mandatory (Section 154(9)) | Standard requirement |
| Cancellation procedure | OCR notice — 21-day publication twice | OCR notice — 21-day publication twice | Liquidation or deregistration |
The subsidiary company in Nepal carries the heaviest ongoing compliance because full company law applies. The liaison office carries the lightest, but activity restrictions compensate for this.
Which Structure Should You Choose?
The decision framework is straightforward when the commercial objective is clear.
| Your Objective | Recommended Structure |
|---|---|
| Execute a specific project and earn revenue | Branch office |
| Research the market before committing capital | Liaison office |
| Build a permanent, ring-fenced operation | Subsidiary company |
| Bid for Nepali government tenders | Subsidiary or branch |
| Coordinate a regional supply chain | Liaison office |
| Protect the parent from Nepal liabilities | Subsidiary company |
A common progression is observed. Companies enter with a liaison office, convert to a branch for project execution, and finally establish a subsidiary for long-term operations. Each conversion requires a fresh application, so the end goal should guide the starting choice.
Conversion Between Structures
| Conversion | Possible? | Process |
|---|---|---|
| Liaison → Branch | Yes | Fresh Section 154 application with revised objectives and approval |
| Branch → Subsidiary | Yes | New incorporation under Companies Act + FITTA |
| Liaison → Subsidiary | Yes | New incorporation; liaison office then cancelled |
Conversion is not automatic. Therefore, forward planning is always cheaper than restructuring.
Common Mistakes in Choosing Between the Three Structures
Several errors repeatedly create legal and financial problems:
- Registering a liaison office for revenue work — any income-earning activity violates the registration basis and invites cancellation.
- Choosing a branch for permanent operations — the parent remains fully exposed to Nepali liabilities without the ring-fencing a subsidiary provides.
- Skipping competent-authority approval — OCR registration without prior DOI or ministry approval is refused.
- Ignoring the Section 154(8) scope limit — branch activities must match the parent's home-country business.
- Underestimating subsidiary compliance — full company law, audit, and AGM obligations apply from day one.
Make the Right Entry Decision With Expert Guidance
The branch office vs liaison office vs subsidiary in Nepal choice shapes every subsequent legal, tax, and operational decision. Structure selection, competent-authority approvals, OCR filing, FITTA processing, and ongoing compliance are all interdependent.
Attorney Nepal Pvt Ltd advises foreign companies at every entry stage. Structure analysis, Section 154 registrations, FITTA approvals, document certification coordination, and long-term compliance management are handled by a dedicated legal team. Fixed pricing and a defined timeline are provided before work begins.
For a confidential consultation on branch office, liaison office, or subsidiary registration in Nepal, Attorney Nepal Pvt Ltd can be contacted today. The right structure, chosen once, saves years of cost.
Disclaimer: This guide is provided for general informational purposes only. Fees, procedures, and timelines are subject to change by the Office of Company Registrar, Department of Industry, and related authorities. This content does not constitute legal advice. For case-specific guidance, a licensed Nepali advocate should be consulted.
References
Frequently Asked Questions
A branch office may conduct full business and earn revenue in Nepal. A liaison office is restricted to coordination, research, and communication, with all income-earning activity prohibited.
For long-term operations with liability protection, yes. A subsidiary is a separate Nepali entity with limited liability, full contracting capacity, and share-issuance rights. A branch is simpler to set up but exposes the parent to unlimited liability.
Government fees are similar for branch and liaison offices (NPR 15,000–160,000 depending on proposed amount). A subsidiary adds FITTA approval costs but standard company registration fees. Professional fees dominate in all three cases.
Branch and liaison offices take 30–45 working days. A subsidiary takes 2–4 months, including FITTA approval and capital formalities.
Yes, in most sectors. Certain sectors — including some media, defence-related, and retail activities — carry restrictions or require joint ventures.
The branch office and subsidiary pay corporate income tax on Nepal-sourced income. The liaison office generates no income and therefore pays no corporate tax.
Only the subsidiary. Branch offices are expressly prohibited from issuing shares or debentures in Nepal under Section 154(11) of the Companies Act 2063.
Yes. Local employees may be hired under the Labour Act 2074, and foreign staff require work permits. Salaries and social security contributions apply.
The registration basis is violated. OCR may cancel the registration, and tax liabilities on the undeclared income can be assessed with penalties.
Branch and liaison offices are cancelled through OCR after liability statements and two 21-day claim notices in a national daily. A subsidiary is closed through formal liquidation or deregistration procedures.
This article is for general informational purposes only and does not constitute legal advice. For advice on your specific situation, please contact Attorney Nepal directly.
