Subsidiary: A Separate Local Company
A subsidiary is a company incorporated in Nepal and controlled by a foreign parent through share ownership. It has a legal identity separate from its parent and can enter contracts, employ staff and conduct its approved business in its own name. Shareholder liability is generally limited, subject to statutory exceptions and any separate guarantees or obligations assumed by the parent.
This structure is generally suitable for a continuing business presence and local investment. Incorporation is governed by the Companies Act, 2006, while foreign investment is subject to the Foreign Investment and Technology Transfer Act, 2019, applicable industry laws and regulatory approvals.
Branch Office: Operating Through the Foreign Company
A branch is an extension of the foreign company, rather than a separate Nepali legal entity. Consequently, the foreign company remains responsible for obligations arising from branch operations.
Under Section 154 of the Companies Act, 2006, branch registration requires permission from the competent authority. Selection by, or a contract with, a competent authority can constitute the required permission. The branch’s activities must remain within its authorised scope and the type of business conducted by its head office.
In practice, this route is commonly used by foreign companies undertaking government contracts, including construction, supply and consultancy assignments. Businesses planning general commercial operations should first establish whether a competent authority can approve their proposed branch.
Liaison Office: A Presence for Coordination
A liaison or contact office provides a local presence for communication and coordination on behalf of the foreign company.
Its central limitation is clear: Section 154(6) of the Companies Act, 2006, prohibits a liaison office from undertaking income-earning activities in Nepal. It therefore cannot operate as a local sales or fee-charging service business. Its proposed activities should be assessed against the applicable registration conditions before operations begin.
Which Structure Fits Your Business?
| Business objective | Structure to consider |
| Establish an ongoing business with a separate local entity | Subsidiary |
| Perform an approved contract through the foreign company | Branch office |
| Maintain local communication and coordination without earning income | Liaison office |
The choice should also account for sector eligibility, ownership restrictions, funding, tax treatment and future expansion. Registering an entity or office does not, by itself, replace the approvals required for its activities.
Frequently Asked Questions
Can a foreign company wholly own a Nepali subsidiary?
Yes, where the relevant sector permits full foreign ownership. Some activities are restricted or subject to ownership limits, so eligibility must be checked before incorporation.
Is a government tender the only legal basis for registering a branch?
No. Section 154 also recognises permission from the competent authority. However, government contracts provide an established practical basis for branch registration; obtaining separate approval for general business operations can be more difficult.
Can a liaison office invoice clients in Nepal?
No. Invoicing clients for its own goods or services would involve income-earning activity, which a liaison office is prohibited from undertaking.
Does a liaison office have annual compliance obligations?
Yes. Under Section 156(5), it must submit auditor-certified particulars concerning staff payments, tax deductions, rent and operating expenses to the Office of the Company Registrar within three months after the financial year ends. Having no commercial revenue does not remove these obligations.
Does subsidiary registration alone authorise business operations?
No. Foreign investment approval, industry registration and sector-specific licences may also be required, depending on the proposed business.
How Alpha Law Associates Can Assist
Alpha Law Associates advises foreign businesses on entry structures, foreign investment approvals, subsidiary incorporation, branch and liaison office registration, and ongoing corporate compliance. We help align the proposed structure with the business’s activities, contractual requirements and regulatory obligations in Nepal.