Foreign investors can establish companies in Nepal without mandatory local partnership requirements in most sectors. The Companies Act, 2063 (2006) and Foreign Investment and Technology Transfer Act, 2075 (2019) govern foreign investment and company incorporation procedures. However, specific sectors maintain restrictions requiring Nepali partnership or limiting foreign equity participation.
Legal Framework for Foreign Investment in Nepal
The Foreign Investment and Technology Transfer Act (FITTA), 2075 (2019) provides the primary legal framework for foreign investment in Nepal. This legislation replaced the previous 1992 act and introduced more liberal provisions for foreign investors. The Act permits 100% foreign ownership in most business sectors without requiring a local partner.
The Companies Act, 2063 (2006) governs the incorporation and operation of companies in Nepal. Under Section 3 of the Companies Act, foreign nationals and entities can register private limited companies, public limited companies, and other corporate structures. The Industrial Enterprises Act, 2076 (2020) further regulates industrial establishments and provides additional provisions for foreign investment.
Sectors Allowing 100% Foreign Ownership
Foreign investors can establish wholly-owned subsidiaries in numerous sectors without local partnership requirements. The following table outlines key sectors permitting complete foreign ownership:
SectorForeign Ownership LimitRegulatory AuthorityManufacturing Industries100%Department of IndustryInformation Technology100%Department of IndustryTourism and Hospitality100%Department of TourismConsulting Services100%Office of Company RegistrarConstruction100%Department of IndustryEducation Services100%Ministry of EducationHealthcare Services100%Ministry of HealthRenewable Energy100%Department of Electricity Development
Restricted Sectors Requiring Local Partnership
The Foreign Investment and Technology Transfer Act, 2075 (2019) identifies specific sectors where foreign investment faces restrictions. Schedule 1 of FITTA lists industries closed to foreign investment, while Schedule 2 identifies sectors with conditional foreign investment permissions.
The following sectors require local partnership or have foreign equity limitations:
- Arms and ammunition production requires complete prohibition of foreign investment under Schedule 1 of FITTA.
- Retail trading with investment below NPR 100 million restricts foreign participation to protect small domestic businesses.
- Domestic courier services mandate Nepali partnership to ensure local employment and service continuity.
- Mass media operations including radio and television broadcasting require majority Nepali ownership under the Broadcasting Act.
- Personal service businesses such as barbershops and beauty parlors restrict foreign investment below specified thresholds.
Company Types Available for Foreign Investors
The Companies Act, 2063 (2006) recognizes several company structures suitable for foreign investment. Each structure offers different characteristics regarding liability, management, and operational requirements.
Private Limited Company
A private limited company represents the most common structure for foreign investors in Nepal. Section 4 of the Companies Act permits foreign nationals to establish private companies with minimum two shareholders and maximum 101 shareholders. The minimum authorized capital requirement stands at NPR 100,000, though foreign investors typically require higher capital based on FITTA provisions.
Public Limited Company
Public limited companies can issue shares to the general public and list on the Nepal Stock Exchange. Section 43 of the Companies Act requires minimum seven promoters for public company registration. Foreign investors can establish public companies without local partners, subject to sector-specific regulations.
Branch Office and Liaison Office
Foreign companies can establish branch offices or liaison offices in Nepal under Section 60 of the Companies Act. Branch offices can conduct business operations, while liaison offices perform only liaison and coordination activities without direct business transactions.
Minimum Investment Requirements for Foreign Investors
The Foreign Investment and Technology Transfer Act, 2075 (2019) establishes minimum investment thresholds for foreign investors. These requirements differ based on the nature of business and investment structure.
Investment TypeMinimum Capital RequirementForeign Direct Investment (General)NPR 50 millionTechnology-based IndustriesNPR 20 millionForeign Investment in Existing CompaniesNPR 50 millionExport-oriented IndustriesNPR 20 millionLeast Developed DistrictsNPR 20 million
Section 3 of FITTA specifies these minimum investment amounts. The Department of Industry may grant exemptions for technology-intensive or export-oriented ventures upon application and justification.
Step-by-Step Company Registration Process
Foreign investors can complete company registration without local partners by following the prescribed procedure under the Companies Act and FITTA.
Step 1: Reserve the company name through the Office of Company Registrar (OCR) by submitting an application with three proposed names in order of preference.
Step 2: Obtain foreign investment approval from the Department of Industry by submitting the investment proposal, feasibility study, and required documentation under FITTA.
Step 3: Prepare the Memorandum of Association and Articles of Association defining the company’s objectives, share structure, and governance provisions.
Step 4: Open a bank account in Nepal and deposit the minimum required capital as specified under FITTA and provide the bank certificate to OCR.
Step 5: Submit the company registration application to OCR with all required documents including approved investment proposal, constitutional documents, and shareholder details.
Step 6: Obtain the company registration certificate from OCR upon verification of documents and payment of registration fees as prescribed under the Companies Act.
Step 7: Register with the Inland Revenue Department for Permanent Account Number (PAN) and Value Added Tax (VAT) registration within specified timeframes.
Step 8: Register with the Department of Industry to obtain the industry registration certificate for manufacturing or industrial operations.
Required Documents for Company Incorporation
Foreign investors must prepare comprehensive documentation for company registration without local partners. The Office of Company Registrar requires the following documents:
- Passport copies of all foreign shareholders and directors with notarization and authentication from the Nepali embassy or consulate in the home country.
- Board resolution from the parent company authorizing the establishment of a subsidiary in Nepal and appointing authorized representatives.
- Memorandum of Association and Articles of Association drafted according to Schedule 1 and Schedule 2 of the Companies Act, 2063.
- Bank certificate confirming deposit of minimum capital in a Nepali bank account opened in the company’s name.
- Foreign investment approval letter issued by the Department of Industry under the Foreign Investment and Technology Transfer Act.
- Proof of registered office address in Nepal through a rental agreement or property ownership documents with recent tax payment receipts.
- Character certificates for all directors issued by relevant authorities in their home countries with proper authentication.
- Feasibility study and business plan demonstrating the viability and economic contribution of the proposed investment.
Tax Implications for Foreign-Owned Companies
The Income Tax Act, 2058 (2002) applies uniform tax treatment to all companies registered in Nepal regardless of ownership structure. Foreign-owned companies without local partners face the same tax obligations as domestic companies.
Tax TypeRateLegal BasisCorporate Income Tax25%Income Tax Act, 2058 Section 11Dividend Distribution Tax5%Income Tax Act, 2058 Section 88Value Added Tax13%Value Added Tax Act, 2052Withholding Tax on Royalties15%Income Tax Act, 2058 Section 92Capital Gains Tax5-10%Income Tax Act, 2058 Section 96
Section 11 of the Income Tax Act provides special tax rates for specific industries including manufacturing (20% for first five years) and export-oriented businesses (various incentives).
Repatriation Rights for Foreign Investors
The Foreign Investment and Technology Transfer Act, 2075 (2019) guarantees repatriation rights for foreign investors operating without local partners. Section 9 of FITTA provides comprehensive repatriation provisions.
Foreign investors can repatriate the following amounts in convertible foreign currency:
- The amount received from the sale of shares or partial sale of the foreign investment after payment of applicable taxes.
- Profits and dividends earned from the investment after deduction of income tax and other applicable levies.
- Principal and interest payments on foreign loans approved by Nepal Rastra Bank under the Foreign Exchange Regulation Act.
- Payments for technology transfer fees, royalties, and technical service fees as specified in approved agreements.
- Proceeds from the sale or liquidation of the company after settling all liabilities and tax obligations in Nepal.
Nepal Rastra Bank regulates foreign exchange transactions under the Foreign Exchange Regulation Act, 2019. Foreign investors must obtain approval from authorized banks for repatriation transactions exceeding specified thresholds.
Employment and Work Permit Requirements
Foreign investors establishing companies without local partners can employ foreign nationals in technical and managerial positions. The Foreign Employment Act, 2064 (2007) and Immigration Act, 2049 (1992) govern work permits and visa requirements.
The Department of Immigration issues work permits based on recommendations from the Department of Industry or relevant sector authorities. Companies must demonstrate that the foreign employee possesses specialized skills unavailable in the local labor market.
Work permit requirements include:
- Valid passport with minimum six months validity beyond the intended stay period in Nepal.
- Employment contract between the company and foreign employee specifying position, salary, and duration of employment.
- Company registration certificate and tax registration documents proving the legal existence of the employing entity.
- Recommendation letter from the Department of Industry or relevant ministry endorsing the employment of the foreign national.
- Educational certificates and professional qualifications demonstrating the technical expertise of the foreign employee.
- Medical certificate from recognized health institutions confirming fitness for employment in Nepal.
Advantages of Incorporating Without Local Partners
Foreign investors choosing to establish wholly-owned subsidiaries in Nepal gain several operational and strategic advantages under the current legal framework.
Complete management control allows foreign investors to implement corporate policies and operational procedures without requiring consensus from local partners. Section 76 of the Companies Act grants shareholders full authority over company management through board appointments.
Simplified decision-making processes result from unified ownership structure. Foreign investors can execute strategic decisions, approve investments, and modify business operations without partnership negotiations or potential conflicts.
Intellectual property protection becomes more effective when foreign investors maintain complete ownership. Technology transfer agreements and proprietary processes remain under direct control without disclosure requirements to local partners.
Profit retention and distribution follow the sole discretion of foreign shareholders subject only to statutory requirements. Section 47 of the Companies Act permits dividend distribution based on shareholder resolutions without partnership profit-sharing obligations.
Challenges and Considerations
Foreign investors establishing companies without local partners face specific operational challenges in the Nepali business environment. Understanding these factors helps in planning and risk mitigation.
The minimum capital requirement of NPR 50 million under FITTA represents a substantial investment threshold compared to domestic investors. This requirement may exceed the actual capital needs for certain business operations.
Local market knowledge and business networks require development time for foreign investors operating independently. Establishing relationships with suppliers, customers, and government agencies demands additional resources without local partner facilitation.
Cultural and language barriers affect daily operations and regulatory compliance. Foreign investors must employ competent local staff or consultants to manage government interactions and business communications.
Regulatory compliance monitoring requires dedicated resources as Nepal’s legal framework continues evolving. The Companies Act, FITTA, and sector-specific regulations undergo periodic amendments affecting foreign investment operations.
Sector-Specific Licensing Requirements
Beyond company registration, foreign investors must obtain sector-specific licenses and approvals based on their business activities. Different ministries and departments regulate various industries under specialized legislation.
Manufacturing industries require registration with the Department of Industry under the Industrial Enterprises Act, 2076 (2020). The registration process involves submitting project details, environmental compliance plans, and investment documentation.
Tourism businesses including hotels, travel agencies, and trekking companies need licenses from the Department of Tourism under the Tourism Act, 2035 (1978). The licensing requirements vary based on the category and scale of tourism operations.
Financial services including banking, insurance, and securities require approval from Nepal Rastra Bank or Insurance Board under respective regulatory frameworks. These sectors maintain strict capital requirements and operational standards.
Healthcare facilities must obtain registration from the Ministry of Health and Population under the Private Health Institution Operation Act, 2053 (1997). Medical practitioners require separate licensing from the Nepal Medical Council.
Ongoing Compliance Obligations
Companies incorporated by foreign investors without local partners must maintain continuous compliance with statutory requirements under multiple laws and regulations.
Annual general meetings must occur within six months of the fiscal year end as mandated by Section 77 of the Companies Act. The company must prepare and approve annual financial statements during these meetings.
Tax filing obligations include annual income tax returns within three months of fiscal year end under Section 96 of the Income Tax Act. Monthly VAT returns require submission by the 25th of the following month.
Annual returns must be filed with the Office of Company Registrar within one month of the annual general meeting under Section 82 of the Companies Act. The return includes updated shareholder information, director details, and financial summaries.
Foreign investment reporting to the Department of Industry occurs annually, providing updates on investment utilization, employment generation, and operational status under FITTA implementation guidelines.
Dispute Resolution Mechanisms
The legal framework provides multiple dispute resolution mechanisms for foreign investors operating without local partners in Nepal. Understanding these options helps in contract drafting and conflict management.
The Arbitration Act, 2055 (1999) permits domestic and international arbitration for commercial disputes. Section 2 of the Act recognizes arbitration agreements and enforces arbitral awards. Foreign investors can specify arbitration clauses in contracts with Nepali or international arbitration venues.
The Foreign Investment and Technology Transfer Act, 2075 (2019) includes specific dispute resolution provisions in Section 17. Disputes between foreign investors and the government may be resolved through mutual consultation, domestic arbitration, or international arbitration as agreed.
Nepal is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Foreign investors from member countries can access ICSID arbitration for investment disputes with the government.
Commercial courts established under the Administration of Justice Act provide specialized forums for business disputes. These courts handle company law matters, contract disputes, and commercial transactions with expedited procedures.
Comparison with Regional Investment Regimes
Nepal’s foreign investment regime demonstrates competitive features compared to neighboring South Asian countries regarding local partnership requirements.
Country100% Foreign OwnershipMinimum InvestmentRestricted SectorsNepalPermitted in most sectorsNPR 50 millionLimited listIndiaPermitted with conditionsVaries by sectorExtensive listBangladeshPermitted in most sectorsNo minimumModerate listSri LankaPermitted in most sectorsUSD 100,000Limited listPakistanPermitted with conditionsVaries by sectorModerate list
Nepal’s Foreign Investment and Technology Transfer Act, 2075 (2019) provides more liberal provisions than the previous 1992 legislation, aligning with regional trends toward investment facilitation.
Recent Legal Developments
The Government of Nepal has implemented several legal reforms affecting foreign investment and company incorporation procedures in recent years.
The Foreign Investment and Technology Transfer Act, 2075 (2019) replaced the 1992 Act, introducing streamlined approval processes and expanded repatriation rights. The new Act reduced bureaucratic requirements and clarified sector restrictions.
The Industrial Enterprises Act, 2076 (2020) consolidated previous industrial legislation and introduced online registration systems. The Act simplified licensing procedures for manufacturing and industrial operations.
The Companies Act amendment process continues with proposed revisions to enhance corporate governance standards and align with international best practices. The Office of Company Registrar has digitized several registration procedures.
Nepal Rastra Bank issued revised Foreign Exchange Management Regulations in 2020, clarifying repatriation procedures and foreign currency account operations for foreign investors.
Professional Assistance and Service Providers
Foreign investors establishing companies without local partners typically engage professional service providers to manage legal compliance and registration procedures.
Law firms specializing in corporate and investment law provide comprehensive services including company registration, foreign investment approval, and ongoing compliance management. These firms maintain expertise in Nepal’s legal framework and regulatory procedures.
Chartered accountant firms offer tax registration, accounting system establishment, and financial compliance services. These professionals ensure adherence to the Income Tax Act and VAT regulations.
Business consulting firms provide market research, feasibility studies, and operational setup assistance. These consultants help foreign investors understand local business practices and regulatory requirements.
The Office of Company Registrar maintains a list of registered company secretaries who can assist with statutory compliance and corporate governance matters under the Companies Act.
Frequently Asked Questions
Can a single foreign individual incorporate a company in Nepal?
Yes, a single foreign individual can incorporate a private limited company in Nepal with a minimum of two shareholders. The foreign investor can hold 99% shares while another shareholder holds the remaining 1% to meet the minimum shareholder requirement under Section 4 of the Companies Act, 2063.
What is the minimum capital requirement for foreign investors?
The Foreign Investment and Technology Transfer Act, 2075 (2019) requires a minimum investment of NPR 50 million for general foreign direct investment. Technology-based and export-oriented industries require NPR 20 million minimum capital under Section 3 of FITTA.
How long does company registration take in Nepal?
Company registration typically takes 15-30 working days after obtaining foreign investment approval from the Department of Industry. The Office of Company Registrar processes applications within 7-10 days once all required documents are submitted with proper authentication.
Do foreign-owned companies pay higher taxes?
No, foreign-owned companies pay the same tax rates as domestic companies under the Income Tax Act, 2058 (2002). Section 11 applies a uniform 25% corporate income tax rate regardless of ownership structure, with special rates for specific industries.
Can foreign investors own land in Nepal?
Foreign individuals and companies cannot own land in Nepal under the Land Act, 2021 (1964). However, foreign-owned companies registered in Nepal can lease land for up to 50 years for industrial and commercial purposes with government approval.
Is local partnership mandatory for service businesses?
Local partnership is not mandatory for most service businesses in Nepal. Foreign investors can establish 100% foreign-owned consulting, IT services, education, and healthcare companies without local partners, subject to minimum capital requirements under FITTA.
What sectors are completely closed to foreign investment?
Arms and ammunition production, retail trading below NPR 100 million investment, domestic courier services, and certain personal service businesses are closed or restricted to foreign investment under Schedule 1 and Schedule 2 of FITTA, 2075.
Can foreign investors repatriate profits freely?
Yes, Section 9 of the Foreign Investment and Technology Transfer Act, 2075 guarantees profit repatriation rights. Foreign investors can repatriate dividends, capital gains, and proceeds from share sales after paying applicable taxes through authorized banks.
Are there special economic zones in Nepal?
Nepal has established Special Economic Zones under the Special Economic Zone Act, 2073 (2016). These zones offer additional incentives including tax holidays, simplified customs procedures, and infrastructure facilities for foreign investors establishing manufacturing and export-oriented businesses.
What happens if the company violates foreign investment regulations?
Violations of foreign investment regulations may result in penalties, license cancellation, or company dissolution under Section 18 of FITTA. The Department of Industry can impose fines up to NPR 500,000 and require corrective actions for regulatory non-compliance.
