Overview of Foreign Investment in Nepal
Nepal welcomes foreign investment through its Foreign Investment and Technology Transfer Act (FITTA), 2019, which replaced the previous 1992 act. The Act permits foreign investors to establish companies in Nepal with varying levels of ownership depending on the business sector. Foreign nationals can incorporate private limited companies, public limited companies, or branch offices of foreign entities. The Department of Industry (DOI) and Office of Company Registrar (OCR) serve as primary regulatory bodies for company registration and foreign investment approval.
Legal Framework for Foreign Company Registration
The Companies Act, 2063 (2006) governs company incorporation in Nepal, while FITTA 2019 specifically addresses foreign investment matters. Foreign investors must obtain approval from the Department of Industry before registering their company with the Office of Company Registrar. The Industrial Enterprises Act, 2020 provides additional provisions for industrial enterprises. These laws establish clear procedures for foreign nationals seeking to conduct business operations in Nepal through properly registered corporate entities.
Key Benefits of Incorporating in Nepal
Access to South Asian Markets
Nepal’s strategic location between India and China provides incorporated companies access to markets exceeding 3 billion consumers. The country maintains preferential trade agreements with India under the India-Nepal Treaty of Trade and bilateral agreements with China. Companies incorporated in Nepal can leverage these geographical advantages for regional business expansion. The South Asian Free Trade Area (SAFTA) membership further enhances market access opportunities for registered entities.
Tax Incentives and Exemptions
The Income Tax Act, 2058 (2002) provides various tax benefits to incorporated companies in Nepal. Foreign investors receive tax holidays ranging from 5 to 7 years depending on the location and nature of business operations. Companies operating in special economic zones enjoy additional tax concessions. The Act offers reduced corporate tax rates for export-oriented industries and manufacturing sectors. Dividend repatriation is permitted after paying applicable taxes under the Foreign Exchange Regulation Act, 1962.
Tax Benefit TypeDuration/RateApplicable SectorTax Holiday5-7 yearsLocation-based industriesCorporate Tax Rate20-25%General businessesExport Industry Rate20%Export-oriented unitsSpecial Economic ZoneAdditional 5 yearsSEZ-based companies
Limited Liability Protection
Incorporating as a private limited company or public limited company provides shareholders with limited liability protection under the Companies Act, 2063. Foreign investors’ personal assets remain protected from business debts and obligations. The liability of shareholders is limited to their unpaid share capital. This legal protection applies equally to foreign and domestic shareholders. The corporate veil separates personal and business liabilities, reducing investment risks for foreign nationals.
Repatriation of Profits and Capital
FITTA 2019 guarantees foreign investors the right to repatriate profits, dividends, and invested capital. Section 3 of FITTA explicitly protects against nationalization and expropriation of foreign investments. Foreign investors can transfer funds abroad after fulfilling tax obligations and obtaining necessary approvals from Nepal Rastra Bank. The Foreign Exchange Regulation Act permits repatriation of earnings in convertible foreign currency. This legal framework provides security for foreign capital invested in Nepali companies.
Ownership Flexibility
Foreign investors can own 100% equity in most sectors under FITTA 2019. The Act categorizes industries into automatic approval and prior approval categories. Sectors requiring prior approval include those affecting national security, public health, or cultural heritage. Foreign ownership restrictions apply to specific sectors listed in Schedule 1 of FITTA. Manufacturing, tourism, information technology, and export-oriented businesses generally permit full foreign ownership without restrictions.
Ownership CategoryForeign Equity AllowedApproval TypeAutomatic Approval SectorsUp to 100%AutomaticPrior Approval SectorsVaries by sectorDOI approval requiredRestricted SectorsLimited or prohibitedSpecial permissionExport-oriented Industries100%Automatic
Simplified Business Operations
Incorporated companies in Nepal can open corporate bank accounts, own property, enter contracts, and sue or be sued in their corporate name. The Companies Act grants legal personality to registered companies separate from their shareholders. Companies can hire foreign and local employees under the Labor Act, 2017. Incorporated entities can participate in government tenders and procurement processes. The corporate structure facilitates business continuity beyond individual shareholders’ involvement.
Access to Local and International Financing
Registered companies in Nepal can access financing from Nepali commercial banks and financial institutions. Foreign invested companies may bring foreign loans with Nepal Rastra Bank approval under FITTA provisions. The Banking and Financial Institutions Act, 2073 (2017) regulates lending to corporate entities. Companies can issue shares, debentures, and bonds to raise capital. International financial institutions provide project financing to properly incorporated Nepali companies with foreign investment.
Intellectual Property Protection
The Industrial Property Rights Act, 2007 and Copyright Act, 2059 (2002) protect intellectual property of incorporated companies. Foreign investors can register patents, trademarks, and copyrights through the Department of Industry. Incorporated entities receive legal standing to enforce intellectual property rights in Nepali courts. The Patent, Design and Trademark Act provides 20-year patent protection. Nepal’s membership in World Intellectual Property Organization (WIPO) ensures international IP standards compliance.
Employment of Foreign Nationals
Incorporated companies can employ foreign nationals in technical and managerial positions under the Immigration Act, 2049 (1992). The Department of Immigration issues work permits and visas to foreign employees sponsored by registered companies. FITTA 2019 permits foreign invested companies to employ foreign experts and technicians. The Labor Act requires companies to prioritize Nepali workers while allowing foreign expertise when necessary. Work permits are typically granted for one year and renewable based on company requirements.
Dispute Resolution Mechanisms
The Arbitration Act, 2055 (1999) provides alternative dispute resolution mechanisms for incorporated companies. Foreign investors can include arbitration clauses in contracts for commercial disputes. Nepal is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The Act permits international arbitration for disputes involving foreign investment. Companies can access Nepal’s court system for legal remedies under the Civil Code and procedural laws.
Sectors Open for Foreign Investment
Manufacturing and Industry
FITTA 2019 permits 100% foreign ownership in manufacturing sectors without prior approval. The Industrial Enterprises Act, 2020 classifies industries by size and provides corresponding benefits. Foreign investors can establish factories for production of goods for domestic consumption or export. The Act offers additional incentives for industries using local raw materials. Manufacturing companies receive priority in infrastructure development and utility connections from government authorities.
Tourism and Hospitality
The Tourism Act, 2035 (1978) regulates tourism businesses and permits full foreign investment in hotels, resorts, and travel agencies. Foreign investors can establish star-rated hotels, trekking agencies, and adventure tourism companies. The Nepal Tourism Board provides promotional support to registered tourism enterprises. Tourism businesses receive tax holidays and concessional loan facilities. The sector remains a priority area for foreign investment under government policies.
Information Technology and Services
IT and IT-enabled services permit 100% foreign ownership under automatic approval category. The Information Technology Act, 2057 (2000) governs digital businesses and e-commerce operations. Foreign investors can establish software development companies, BPO centers, and digital service providers. The government offers tax exemptions for IT exports and special economic zones for technology parks. Nepal’s growing digital infrastructure supports IT sector expansion.
Renewable Energy
The Electricity Act, 2049 (1992) and Hydropower Development Policy permit foreign investment in power generation projects. Foreign investors can develop hydroelectric, solar, wind, and biomass energy projects. The Act allows 100% foreign ownership in renewable energy ventures. Power purchase agreements with Nepal Electricity Authority provide revenue security. The government offers tax holidays and accelerated depreciation for energy projects.
Agriculture and Agro-processing
Foreign investment in agriculture processing, cold storage, and agro-based industries receives automatic approval. The Agriculture Development Strategy encourages commercial farming and food processing investments. Foreign investors can establish organic farming operations and export-oriented agricultural businesses. The sector receives concessional financing and subsidies for technology adoption. Land ownership restrictions apply, but long-term lease arrangements are permitted for agricultural purposes.
Company Registration Process for Foreign Investors
Step 1: Business Name Reservation
Foreign investors must reserve their proposed company name with the Office of Company Registrar. The name reservation application requires submission through the OCR online portal or physical office. The proposed name must not conflict with existing registered companies or trademarks. Name reservation remains valid for 35 days from approval date. The OCR charges NPR 100 for name reservation applications.
Step 2: Foreign Investment Approval
Foreign investors must obtain approval from the Department of Industry before company registration. The application requires submission of project proposal, feasibility study, and investment details. FITTA 2019 mandates minimum investment thresholds for foreign investment approval. The DOI processes applications within 7 working days for automatic approval sectors. Prior approval sectors require additional scrutiny and may take 30-45 days for decision.
Step 3: Company Registration Documents
The following documents are required for company registration with the Office of Company Registrar:
- Memorandum of Association signed by all shareholders stating company objectives and authorized capital.
- Articles of Association defining internal management rules and shareholder rights.
- Foreign investment approval letter issued by the Department of Industry.
- Passport copies and photographs of all foreign shareholders and directors.
- Proof of registered office address through rental agreement or ownership documents.
- Board resolution appointing the first directors and company secretary.
- Consent letters from directors accepting their appointment positions.
- Bank certificate showing deposit of minimum paid-up capital in company account.
Step 4: Tax Registration
Registered companies must obtain Permanent Account Number (PAN) from the Inland Revenue Department. The PAN application requires submission of company registration certificate and shareholder details. Companies must register for Value Added Tax (VAT) if annual turnover exceeds NPR 5 million. The IRD issues PAN within 3 working days of application submission. Tax registration enables companies to issue tax invoices and claim input tax credits.
Step 5: Municipal and Sectoral Licenses
Companies must obtain business operation licenses from local municipal authorities. Sector-specific licenses are required from relevant ministries or departments based on business nature. Manufacturing companies need industrial registration from the Department of Industry. Tourism businesses require licenses from the Department of Tourism. The licensing requirements vary by business sector and location of operations.
Capital Requirements and Investment Thresholds
Minimum Investment for Foreign Investors
FITTA 2019 establishes minimum investment thresholds for foreign investors based on business type. Foreign investors must invest at least NPR 50 million (approximately USD 375,000) for service sector businesses. Manufacturing and tourism sectors require minimum investment of NPR 50 million. Technology transfer projects and industries using local raw materials may have lower thresholds. Joint ventures with Nepali partners may qualify for reduced minimum investment requirements.
Business SectorMinimum Foreign InvestmentCurrencyService SectorNPR 50 millionNepali RupeesManufacturingNPR 50 millionNepali RupeesTourismNPR 50 millionNepali RupeesConsulting ServicesNPR 5 millionNepali Rupees
Paid-up Capital Requirements
The Companies Act, 2063 requires private limited companies to have minimum paid-up capital of NPR 100,000. Public limited companies must maintain minimum paid-up capital of NPR 10 million. Foreign invested companies must meet both Companies Act requirements and FITTA investment thresholds. The paid-up capital must be deposited in a Nepali bank before company registration. Share capital can be brought into Nepal through banking channels with Nepal Rastra Bank approval.
Compliance Requirements for Foreign Companies
Annual Filing Obligations
Registered companies must file annual returns with the Office of Company Registrar within six months of fiscal year end. The annual return includes audited financial statements, director details, and shareholder information. Companies must hold annual general meetings and maintain minutes of all board meetings. The Companies Act imposes penalties for late filing of annual returns. Foreign invested companies must also submit annual reports to the Department of Industry.
Tax Compliance
Companies must file annual income tax returns with the Inland Revenue Department by mid-December each year. The Income Tax Act requires advance tax payments in three installments during the fiscal year. VAT-registered companies must file monthly or quarterly VAT returns based on turnover. Companies must maintain proper accounting records for seven years. Tax audits are mandatory for companies exceeding specified turnover thresholds.
Foreign Exchange Reporting
Foreign invested companies must report foreign currency transactions to Nepal Rastra Bank quarterly. The Foreign Exchange Regulation Act requires documentation of all foreign currency inflows and outflows. Companies must obtain NRB approval for dividend repatriation and capital repatriation. Annual foreign investment reports must be submitted to the Department of Industry. Banks facilitate foreign exchange transactions after verifying compliance with regulatory requirements.
Labor Law Compliance
The Labor Act, 2017 mandates employment contracts for all workers and employees. Companies must register with the Labor Office and maintain employee records. Social security contributions are mandatory under the Social Security Act, 2074 (2017). Companies must provide statutory benefits including provident fund, gratuity, and leave entitlements. Foreign employees require work permits renewed annually through the Department of Immigration.
Comparison of Business Structures
Structure TypeMinimum ShareholdersLiabilityForeign OwnershipRegistration AuthorityPrivate Limited Company1-101LimitedPermitted with DOI approvalOffice of Company RegistrarPublic Limited Company7 minimumLimitedPermitted with DOI approvalOffice of Company RegistrarBranch OfficeParent companyParent company liable100% foreignOffice of Company RegistrarLiaison OfficeParent companyNo commercial activity100% foreignDepartment of Industry
Challenges and Considerations
Regulatory Compliance Burden
Foreign companies face multiple regulatory authorities for approvals and compliance. The bureaucratic processes can cause delays in obtaining necessary permits and licenses. Companies must maintain relationships with various government departments for ongoing operations. Regular policy changes require continuous monitoring of legal and regulatory updates. Professional legal and accounting services are essential for maintaining compliance.
Infrastructure Limitations
Nepal’s infrastructure challenges include unreliable electricity supply and limited transportation networks. Internet connectivity and digital infrastructure remain underdeveloped in many areas. Companies may need to invest in backup power systems and logistics solutions. The government is gradually improving infrastructure through public and private investments. Special economic zones offer better infrastructure facilities for industrial operations.
Foreign Exchange Controls
Nepal Rastra Bank maintains strict foreign exchange controls affecting currency transactions. Companies must obtain approvals for foreign currency borrowings and repayments. Repatriation procedures require documentation and compliance with tax obligations. The Nepali Rupee is pegged to the Indian Rupee, limiting currency flexibility. Foreign exchange availability can be constrained during periods of trade deficit.
Recent Reforms and Improvements
The government enacted FITTA 2019 to streamline foreign investment procedures and reduce approval timelines. The Industrial Enterprises Act, 2020 consolidated various industrial laws into a single framework. Online company registration systems have reduced processing times at the Office of Company Registrar. The Department of Industry established one-stop service centers for investment approvals. Nepal’s ranking in ease of doing business has improved through regulatory reforms.
Frequently Asked Questions
What is the minimum investment required for foreigners to incorporate in Nepal?
Foreign investors must invest at least NPR 50 million (approximately USD 375,000) in most sectors under FITTA 2019. Consulting services require minimum investment of NPR 5 million. The amount must be brought through proper banking channels with Nepal Rastra Bank approval.
Can foreigners own 100% equity in Nepali companies?
Yes, foreign investors can own 100% equity in most sectors under automatic approval category of FITTA 2019. Certain sectors require prior approval or have ownership restrictions. Manufacturing, IT, tourism, and export-oriented businesses generally permit full foreign ownership.
How long does company registration take in Nepal?
Company registration typically takes 7-15 working days after obtaining foreign investment approval from the Department of Industry. The DOI approval process takes 7 days for automatic sectors and 30-45 days for prior approval sectors. Total timeline ranges from 2-8 weeks depending on sector.
What taxes do foreign companies pay in Nepal?
Foreign companies pay corporate income tax at 25% rate, with reduced rates for specific sectors. VAT applies at 13% on taxable supplies. Companies receive tax holidays of 5-7 years based on location and sector. Dividend distribution tax and withholding taxes apply on certain payments.
Can foreign companies repatriate profits from Nepal?
Yes, FITTA 2019 guarantees profit and capital repatriation rights to foreign investors. Companies can repatriate dividends and capital after paying applicable taxes and obtaining Nepal Rastra Bank approval. Repatriation is permitted in convertible foreign currency through authorized banking channels.
Do foreign investors need local partners in Nepal?
No, foreign investors can establish wholly-owned subsidiaries in most sectors without local partners. Joint ventures with Nepali partners may provide operational advantages and reduced minimum investment thresholds. Certain restricted sectors may require Nepali partnership or majority ownership.
What sectors are restricted for foreign investment?
FITTA 2019 restricts foreign investment in arms and ammunition, radioactive materials, and certain security-related industries. Cottage industries reserved for Nepali citizens prohibit foreign investment. Retail trading with less than NPR 50 million investment is restricted. Personal service businesses have limitations on foreign participation.
How are foreign employees hired in Nepal?
Foreign invested companies can employ foreign nationals in technical and managerial positions with work permits. The Department of Immigration issues work permits valid for one year, renewable annually. Companies must demonstrate that required skills are unavailable locally. Work permit applications require company sponsorship and relevant documentation.
What intellectual property protections exist in Nepal?
Nepal provides patent protection for 20 years, trademark protection for 10 years (renewable), and copyright protection for author’s lifetime plus 50 years. The Department of Industry registers patents and trademarks. Nepal is a member of WIPO and follows international IP standards.
Can foreign companies own land in Nepal?
Foreign companies cannot directly own land in Nepal under the Land Act. Companies can lease land for up to 50 years for industrial purposes with government approval. Buildings and structures on leased land can be owned by foreign companies. Special economic zones offer long-term lease arrangements for investors.
What dispute resolution options are available?
Companies can resolve disputes through Nepal’s court system under civil and commercial laws. The Arbitration Act, 2055 permits domestic and international arbitration. Nepal recognizes foreign arbitral awards under the New York Convention. Mediation and negotiation are encouraged before formal legal proceedings.
Are there special economic zones in Nepal?
Yes, Nepal has established special economic zones offering enhanced infrastructure and tax benefits. The Special Economic Zone Act, 2073 (2016) governs SEZ operations. Companies in SEZs receive additional tax holidays and customs duty exemptions. Currently operational SEZs include Bhairahawa and planned zones in other regions.
