Foreign Investment and Property Ownership in Nepal
Foreign nationals face strict restrictions on property ownership in Nepal under the Land Act 1964. However, companies incorporated in Nepal can acquire property rights subject to specific legal conditions. The Foreign Investment and Technology Transfer Act (FITTA) 2019 governs foreign investment in Nepal and establishes the framework for company formation and property acquisition.
A company registered under the Companies Act 2063 (2006) becomes a separate legal entity with distinct rights from its shareholders. This legal separation allows foreign-invested companies to own property in Nepal, even when foreign nationals hold shares in the company. The company itself, not the foreign shareholders, holds the property title.
Legal Framework for Company Property Ownership
Companies Act 2063 (2006)
The Companies Act 2063 (2006) establishes that a company registered in Nepal is a separate legal person with perpetual succession. Section 3 of the Act states that a company shall be a body corporate with perpetual succession and a common seal. This legal personality enables companies to own, acquire, and dispose of property in their own name.
Foreign Investment and Technology Transfer Act 2019
FITTA 2019 permits foreign investment in Nepal through various business structures. Section 3 of FITTA 2019 allows foreign investors to make investments in Nepal by establishing industries or businesses. The Act permits foreign equity participation up to 100% in most sectors, except those listed in the negative list.
Land Act 1964 Restrictions
The Land Act 1964 Section 10 explicitly prohibits foreign nationals from acquiring land ownership in Nepal. However, this restriction applies to individuals, not to companies incorporated under Nepali law. A company registered in Nepal is considered a Nepali legal entity regardless of foreign shareholding.
Types of Companies That Can Own Property
| Company Type | Foreign Ownership Allowed | Property Ownership Rights | Minimum Capital Requirement |
|---|---|---|---|
| Private Limited Company | Up to 100% | Full ownership rights | NPR 100,000 |
| Public Limited Company | Up to 100% | Full ownership rights | NPR 10,000,000 |
| Joint Venture Company | Up to 100% | Full ownership rights | Sector-specific |
| Branch Office | 100% foreign | Limited rights | As per parent company |
| Liaison Office | 100% foreign | No ownership rights | Not applicable |
Private Limited Company
A private limited company requires a minimum of two shareholders and can have up to 101 shareholders. Foreign investors can hold up to 100% equity in a private limited company in most sectors. The company can purchase land and buildings for business operations after obtaining necessary approvals from the Department of Industry.
Public Limited Company
Public limited companies can issue shares to the general public and list on the Nepal Stock Exchange. These companies require a minimum of seven shareholders. Foreign ownership up to 100% is permitted in non-restricted sectors. Public companies have full property ownership rights for business purposes.
Joint Venture Company
Joint venture companies involve partnership between Nepali and foreign investors. These companies can own property in Nepal without restrictions when properly registered. The joint venture structure often facilitates easier approval processes for property acquisition in certain sectors.
Property Types Companies Can Acquire
Commercial Property
Companies incorporated in Nepal can purchase commercial properties including office buildings, retail spaces, warehouses, and industrial facilities. Section 3 of the Industrial Enterprises Act 2020 permits industries to acquire land necessary for establishing and operating industrial enterprises. Commercial property acquisition requires approval from the Department of Industry for foreign-invested companies.
Industrial Land
Industrial land acquisition is permitted for manufacturing and production facilities. The Industrial Enterprises Act 2020 facilitates land acquisition for industrial purposes. Companies must obtain industrial enterprise registration before purchasing industrial land. The Department of Industry issues recommendations for land purchase based on the project’s nature and investment size.
Residential Property for Business Use
Companies can acquire residential properties when used for business purposes such as staff housing, guest houses, or office conversions. The property must be registered under the company name and used for legitimate business activities. Personal use by shareholders is not permitted under company-owned residential property.
Step-by-Step Process for Company Property Acquisition
Step 1: Company Registration
Register the company at the Office of Company Registrar under the Companies Act 2063 (2006). Submit the memorandum of association, articles of association, and details of directors and shareholders. The registration process takes approximately 7-15 working days. Foreign investors must obtain prior approval from the Department of Industry before company registration.
Step 2: Department of Industry Approval
Foreign-invested companies must register with the Department of Industry under FITTA 2019. Submit the business plan, investment details, and company registration certificate. The Department issues an industry registration certificate within 7 working days. This certificate is mandatory for property acquisition by foreign-invested companies.
Step 3: Tax Registration
Obtain a Permanent Account Number (PAN) from the Inland Revenue Department. Register for Value Added Tax (VAT) if the company’s annual turnover exceeds NPR 5,000,000. Tax registration is required before entering into property transactions. The PAN certificate serves as the primary tax identification document.
Step 4: Property Identification and Due Diligence
Identify suitable property and conduct thorough due diligence. Verify the property title at the Land Revenue Office. Check for any encumbrances, mortgages, or legal disputes. Engage a licensed surveyor to verify property boundaries and measurements. Review all property documents including ownership certificates, tax clearance certificates, and building permits.
Step 5: Land Revenue Office Approval
Submit an application to the Land Revenue Office for property transfer approval. Required documents include:
- The company registration certificate issued by the Office of Company Registrar must be submitted with official translation if necessary.
- The industry registration certificate from the Department of Industry demonstrates the company’s authorization to operate in Nepal.
- The tax clearance certificate from the Inland Revenue Department confirms the company has no outstanding tax liabilities.
- The board resolution authorizing property purchase must be properly executed and notarized by company directors.
- The property ownership certificate of the seller establishes clear title and ownership rights.
- The property valuation report from a licensed valuer determines fair market value for tax purposes.
Step 6: Property Transfer and Registration
Execute the sale deed before the Land Revenue Office. Pay applicable registration fees and stamp duty. The registration fee is 0.5% of the property value, and stamp duty is 4% for urban areas and 3% for rural areas. The Land Revenue Office updates the property records and issues a new ownership certificate in the company’s name.
Step 7: Post-Registration Compliance
Update company records with the Office of Company Registrar to reflect the property acquisition. Maintain proper accounting records of the property transaction. File annual returns showing the property as a company asset. Ensure property tax payments are made regularly to the local municipality.
Required Documents for Property Purchase
| Document Category | Specific Documents | Issuing Authority | Validity Period |
|---|---|---|---|
| Company Documents | Registration Certificate | Company Registrar | Permanent |
| Company Documents | Articles of Association | Company Registrar | Permanent |
| Company Documents | Board Resolution | Company Board | Transaction-specific |
| Industry Documents | Industry Registration | Department of Industry | Annual renewal |
| Tax Documents | PAN Certificate | Inland Revenue Department | Permanent |
| Tax Documents | Tax Clearance | Inland Revenue Department | 35 days |
| Property Documents | Ownership Certificate | Land Revenue Office | Current |
| Property Documents | Property Valuation | Licensed Valuer | 6 months |
Restrictions and Limitations on Company Property Ownership
Sector-Specific Restrictions
FITTA 2019 maintains a negative list of sectors where foreign investment is restricted or prohibited. These sectors include:
- The retail business with an investment of less than USD 5 million is restricted for foreign investors under Schedule 1 of FITTA 2019.
- The personal service business including beauty parlors, driving training, and tailoring services prohibits foreign investment completely.
- The arms and ammunition manufacturing and distribution sector is closed to foreign investment for national security reasons.
- The real estate business excluding construction of housing complexes and commercial buildings restricts foreign participation to prevent speculation.
Land Use Restrictions
Companies must use acquired property for the stated business purpose. The Land Act 1964 and Land Revenue Act 1977 regulate land use changes. Converting agricultural land to commercial use requires approval from the District Administration Office. Unauthorized land use changes can result in property confiscation and penalties.
Foreign Exchange Regulations
The Foreign Exchange Regulation Act 1962 governs foreign currency transactions. Companies must repatriate funds through banking channels. Property purchase payments must be made in Nepali Rupees. Foreign investors can repatriate profits and capital after paying applicable taxes, subject to Nepal Rastra Bank approval.
Tax Implications of Company Property Ownership
Property Transfer Tax
Property transfer attracts registration fees and stamp duty. The registration fee is 0.5% of the property value as per the Land Revenue Act 1977. Stamp duty rates are 4% for urban properties and 3% for rural properties. These taxes are payable at the time of property registration.
Annual Property Tax
Municipalities levy annual property tax on land and buildings. The Local Government Operation Act 2074 (2017) authorizes local governments to collect property tax. Tax rates vary by municipality, typically ranging from 0.01% to 0.5% of property value. Companies must pay property tax annually to avoid penalties.
Capital Gains Tax
The Income Tax Act 2058 (2002) imposes capital gains tax on property sales. Section 51 of the Act taxes gains from property transfer at 2.5% of the transaction value or 10% of the actual gain, whichever is higher. Companies must file capital gains tax returns within 30 days of property transfer.
Corporate Income Tax
Property rental income is subject to corporate income tax. The standard corporate tax rate is 25% for most companies. Banks and financial institutions pay 30% corporate tax. Special industries may qualify for tax holidays under the Industrial Enterprises Act 2020.
Advantages of Property Ownership Through Company Structure
Legal Protection
A company structure provides limited liability protection to shareholders. Section 5 of the Companies Act 2063 (2006) states that shareholders’ liability is limited to their unpaid share capital. Personal assets of foreign investors remain protected from company liabilities. This legal separation reduces investment risk significantly.
Perpetual Succession
Companies have perpetual succession regardless of changes in shareholding. Property ownership continues uninterrupted when shareholders change. This stability benefits long-term business operations and property investments. The company can hold property indefinitely without succession issues.
Transferability of Shares
Foreign investors can exit investments by selling company shares. Share transfers are simpler than property transfers. The Companies Act 2063 (2006) permits share transfers subject to articles of association. This flexibility enhances investment liquidity and exit options.
Business Expansion
Company-owned property facilitates business expansion and operations. Properties can be mortgaged for business financing. Banks readily accept company-owned property as collateral. This access to credit supports business growth and development.
Compliance Requirements for Foreign-Invested Companies
Annual Return Filing
Companies must file annual returns with the Office of Company Registrar. Section 110 of the Companies Act 2063 (2006) requires annual return submission within six months of the fiscal year end. The annual return includes financial statements, director details, and shareholding information. Late filing attracts penalties of NPR 1,000 per month.
Industry Registration Renewal
Foreign-invested companies must renew industry registration annually. The Department of Industry requires submission of annual progress reports. Companies must report investment amounts, employment figures, and production details. Renewal applications must be submitted before the registration expiry date.
Tax Compliance
Companies must file annual income tax returns by mid-December following the fiscal year end. The Income Tax Act 2058 (2002) requires maintenance of proper accounting records. Companies must conduct annual audits by registered auditors. Tax payments must be made quarterly as advance tax.
Foreign Investment Reporting
The Nepal Rastra Bank requires foreign investment reporting. Companies must report foreign equity investments within 15 days. Repatriation of profits requires prior approval from Nepal Rastra Bank. Annual foreign investment surveys must be completed accurately and timely.
Comparison: Individual vs. Company Property Ownership
| Aspect | Foreign Individual | Nepali Company with Foreign Investment |
|---|---|---|
| Legal Eligibility | Prohibited under Land Act 1964 | Permitted with approvals |
| Ownership Rights | Cannot own property | Full ownership rights |
| Property Types | Not applicable | Commercial, industrial, residential |
| Transfer Process | Not applicable | Standard company procedures |
| Tax Treatment | Not applicable | Corporate tax rates apply |
| Liability | Not applicable | Limited to share capital |
| Succession | Not applicable | Perpetual succession |
| Exit Options | Not applicable | Share sale or liquidation |
Practical Considerations for Foreign Investors
Choosing the Right Company Structure
Foreign investors should evaluate business objectives before selecting company structure. Private limited companies suit small to medium investments. Public limited companies benefit large-scale projects requiring public funding. Joint ventures facilitate local partnerships and market access. Professional legal advice ensures optimal structure selection.
Capital Requirements and Funding
FITTA 2019 requires minimum foreign investment of NPR 50 million for foreign-invested companies. Certain sectors have higher capital requirements. The Department of Industry may waive minimum capital for technology transfer projects. Investors must demonstrate fund sources and repatriation plans.
Local Partnership Considerations
Joint ventures with Nepali partners can facilitate approvals and operations. Local partners provide market knowledge and government relations. Partnership agreements should clearly define roles, responsibilities, and profit sharing. Legal documentation must protect foreign investor interests adequately.
Professional Assistance
Engaging qualified professionals ensures compliance and smooth transactions. Licensed lawyers handle legal documentation and approvals. Chartered accountants manage tax compliance and financial reporting. Real estate consultants assist with property identification and valuation. Professional fees are worthwhile investments for foreign investors.
Recent Developments and Policy Changes
Industrial Enterprises Act 2020
The Industrial Enterprises Act 2020 replaced the Industrial Enterprises Act 1992. The new Act simplifies industrial registration and land acquisition procedures. Section 15 permits industries to acquire necessary land for operations. The Act provides tax incentives for priority sector investments.
Foreign Investment Policy Reforms
The Government of Nepal continues liberalizing foreign investment policies. Recent amendments to FITTA 2019 expanded sectors open to foreign investment. The Department of Industry streamlined approval processes through online systems. These reforms aim to attract increased foreign direct investment.
Digital Land Records
The Government is implementing digital land records systems nationwide. The Land Management Information System (LMIS) digitizes property records. Online property verification reduces transaction time and fraud risks. Foreign investors benefit from improved transparency and efficiency.
Read More:
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- https://lawaxion.com/registration-of-it-business-in-nepal-through-fdi/
- https://lawaxion.com/process-of-obtaining-a-work-permit-in-nepal/
- https://lawaxion.com/data-protection-and-privacy-law-in-nepal/
- https://lawaxion.com/franchising-in-nepal-process-time-cost-laws/
Frequently Asked Questions
Can a 100% foreign-owned company buy property in Nepal?
Yes, a 100% foreign-owned company registered in Nepal can purchase property for business purposes. The company must obtain industry registration from the Department of Industry and comply with sector-specific regulations under FITTA 2019.
What is the minimum investment required for foreign companies?
The minimum foreign investment is NPR 50 million under FITTA 2019. However, the Department of Industry may waive this requirement for technology transfer projects or investments in priority sectors as specified in the Industrial Enterprises Act 2020.
How long does property registration take for companies?
Property registration typically takes 15-30 working days after obtaining all required approvals. The timeline includes Land Revenue Office processing, document verification, and title transfer. Complex transactions may require additional time for due diligence and clearances.
Can companies purchase agricultural land in Nepal?
Companies can purchase agricultural land only for approved industrial or commercial purposes. The Land Act 1964 restricts agricultural land conversion. Companies must obtain permission from the District Administration Office to convert agricultural land to non-agricultural use.
What happens to property if the company is liquidated?
Upon liquidation, company property is sold to settle liabilities under the Companies Act 2063 (2006). Remaining assets are distributed to shareholders according to their shareholding. Foreign shareholders can repatriate their share after paying applicable taxes and obtaining Nepal Rastra Bank approval.
Are there restrictions on property resale by companies?
Companies can sell property freely subject to capital gains tax. The Income Tax Act 2058 (2002) imposes 2.5% tax on transaction value or 10% on actual gains. Foreign-invested companies must report property sales to the Department of Industry and Nepal Rastra Bank.
Can company property be used as loan collateral?
Yes, company-owned property can be mortgaged for business loans. Banks and financial institutions accept company property as collateral. The mortgage must be registered at the Land Revenue Office. The company board must authorize property mortgaging through proper resolution.
What are the ongoing compliance costs for property-owning companies?
Annual compliance costs include company registration renewal fees, industry registration renewal, audit fees, tax filing costs, and property tax. Total costs vary based on company size and property value, typically ranging from NPR 100,000 to NPR 500,000 annually.
Can foreign shareholders use company-owned residential property?
Foreign shareholders cannot use company-owned residential property for personal purposes. The property must be used for legitimate business activities such as staff accommodation or guest houses. Personal use violates company law and tax regulations.
How can foreign investors exit property investments?
Foreign investors can exit by selling company shares to other investors or liquidating the company. Share sales are simpler and faster than property sales. Alternatively, the company can sell the property and distribute proceeds to shareholders after taxation.
