The Foreign Investment and Technology Transfer Act 2019 (FITTA 2019) replaced the previous 1992 Act and established a comprehensive legal framework for foreign investment in Nepal. This legislation governs the registration, operation, and regulation of foreign companies seeking to establish business operations within Nepal. The Act came into effect on March 14, 2020, and provides clear guidelines for foreign investors regarding investment procedures, sectoral restrictions, and operational requirements.
FITTA 2019 aims to attract foreign direct investment by simplifying registration procedures and providing legal protection to foreign investors. The Department of Industry (DOI) serves as the primary regulatory authority responsible for processing foreign company registrations and ensuring compliance with the Act’s provisions.
Legal Framework for Foreign Company Registration
The legal framework for foreign company registration in Nepal consists of several interconnected laws and regulations. FITTA 2019 serves as the primary legislation, supported by the Foreign Investment and Technology Transfer Regulation 2020, which provides detailed procedural guidelines. The Companies Act 2063 (2006) governs corporate structure and operations, while sector-specific laws apply to industries such as banking, insurance, and telecommunications.
| Legal Instrument | Purpose | Administering Authority |
|---|---|---|
| FITTA 2019 | Primary foreign investment law | Department of Industry |
| FITR 2020 | Implementation regulations | Department of Industry |
| Companies Act 2063 | Corporate governance | Office of Company Registrar |
| Industrial Enterprises Act 2020 | Industrial operations | Department of Industry |
Types of Foreign Investment Permitted Under FITTA 2019
FITTA 2019 recognizes several forms of foreign investment in Nepal. Foreign investors can establish wholly-owned subsidiaries, joint ventures with Nepali partners, or acquire shares in existing Nepali companies. The Act permits foreign investment in most sectors except those specifically restricted or prohibited by law.
Wholly Foreign-Owned Companies
Foreign investors can establish companies with 100% foreign ownership in sectors not restricted by law. These companies must register with the Department of Industry and obtain necessary approvals before commencing operations. The minimum investment threshold varies depending on the sector and nature of business activities.
Joint Venture Companies
Joint ventures between foreign and Nepali investors are permitted under FITTA 2019. The Act does not mandate minimum Nepali equity participation except in specific sectors where sectoral laws impose such requirements. Joint venture agreements must be registered with the Department of Industry along with the company registration application.
Technology Transfer Arrangements
Foreign companies can enter into technology transfer agreements with Nepali entities without establishing a physical presence in Nepal. These agreements must be registered with the Department of Industry and comply with intellectual property laws and technology transfer regulations.
Restricted and Prohibited Sectors for Foreign Investment
FITTA 2019 maintains certain restrictions on foreign investment to protect national interests and promote domestic industries. The Act categorizes sectors into prohibited, restricted, and open categories based on strategic, security, and economic considerations.
Prohibited Sectors
Foreign investment is completely prohibited in the following sectors under FITTA 2019:
- Cottage industries are reserved exclusively for Nepali citizens and cannot receive foreign investment.
- Personal service businesses such as barber shops, beauty parlors, and driving training centers are prohibited for foreign investors.
- Arms and ammunition manufacturing requires special government approval and is generally closed to foreign investment.
- Radioactive materials production and processing are prohibited for foreign investors due to security concerns.
Restricted Sectors
Certain sectors allow foreign investment only up to specified equity limits or require special approvals:
- Domestic air transport services permit foreign investment up to 49% of total equity.
- Security printing services allow foreign investment with prior approval from the Nepal Rastra Bank.
- Production of alcoholic beverages permits foreign investment subject to excise regulations and licensing requirements.
- Tourism industries in certain protected areas require environmental clearances and may have equity restrictions.
Minimum Investment Requirements Under FITTA 2019
FITTA 2019 establishes minimum investment thresholds for foreign investors based on the nature and location of business activities. These requirements ensure that foreign investment contributes meaningfully to Nepal’s economic development and technology transfer objectives.
| Investment Category | Minimum Investment Amount | Applicable Sectors |
|---|---|---|
| Foreign Direct Investment | NPR 50 million | Manufacturing and service industries |
| Technology-Based Industries | NPR 20 million | Information technology and innovation sectors |
| Mountaineering and Trekking | USD 50,000 | Tourism and adventure sports |
| Consulting Services | USD 50,000 | Professional and technical services |
The minimum investment requirement can be fulfilled through equity capital, technology transfer valuation, or a combination of both. The Department of Industry may waive or reduce minimum investment requirements for projects in underdeveloped regions or priority sectors identified by the government.
Registration Process for Foreign Companies
The registration process for foreign companies under FITTA 2019 involves multiple steps and requires coordination between various government agencies. The Department of Industry serves as the single-window facility for processing foreign investment applications.
Step 1: Preliminary Approval Application
Foreign investors must submit an application for preliminary approval to the Department of Industry. The application must include detailed project information, proposed investment amount, business plan, and source of funds. The Department reviews the application within seven working days and issues preliminary approval if the project complies with FITTA 2019 requirements.
Step 2: Company Registration
After obtaining preliminary approval, investors must register the company with the Office of Company Registrar under the Companies Act 2063. The registration requires submission of memorandum and articles of association, details of directors and shareholders, and registered office address. The Company Registrar issues a certificate of incorporation upon successful registration.
Step 3: Final Approval and Industry Registration
Following company registration, investors must return to the Department of Industry for final approval and industry registration. The Department verifies compliance with preliminary approval conditions and issues an industry registration certificate. This certificate authorizes the company to commence business operations in Nepal.
Step 4: Tax Registration and Other Licenses
The registered company must obtain a Permanent Account Number (PAN) from the Inland Revenue Department for tax purposes. Additional licenses and permits may be required depending on the business sector, including municipal business licenses, environmental clearances, and sector-specific operating licenses.
Required Documents for Foreign Company Registration
The registration process requires submission of various documents to establish the legal identity of investors and verify the legitimacy of proposed business activities. All foreign documents must be authenticated by Nepali diplomatic missions abroad or apostilled under the Hague Convention.
Documents from Foreign Investors
- Passport copies of all foreign investors and directors must be notarized and authenticated by the Nepali embassy or consulate in the investor’s country of residence.
- Certificate of incorporation or business registration from the home country must be provided if the investor is a corporate entity.
- Board resolution authorizing investment in Nepal must be submitted by corporate investors, certified by company officials.
- Bank solvency certificate or financial statements for the past three years must demonstrate the investor’s financial capacity to make the proposed investment.
- Police clearance certificate from the home country may be required for individual investors to verify criminal background.
Documents from Nepali Partners (for Joint Ventures)
- Citizenship certificates of all Nepali partners must be submitted in original or certified copies.
- Tax clearance certificate from the Inland Revenue Department must be provided to verify tax compliance.
- Property ownership documents must be submitted if land or buildings are being contributed as equity.
- Partnership agreement or joint venture agreement must clearly specify equity ratios, management structure, and profit-sharing arrangements.
Project-Related Documents
- Detailed project report must include technical specifications, market analysis, financial projections, and implementation timeline.
- Environmental impact assessment may be required for projects in sensitive sectors or locations.
- Technology transfer agreement must be submitted if the project involves transfer of foreign technology or technical know-how.
- Proof of fund source must demonstrate that investment funds originate from legitimate sources and comply with anti-money laundering regulations.
Equity and Profit Repatriation Rights
FITTA 2019 provides comprehensive protection for foreign investors regarding repatriation of capital and profits. These provisions aim to assure foreign investors that they can freely transfer their legitimate earnings and capital out of Nepal.
Repatriable Amounts Under FITTA 2019
Foreign investors enjoy the right to repatriate the following amounts in convertible foreign currency:
- Net profit earned from the investment after payment of applicable taxes can be repatriated without restrictions.
- Principal amount invested in the company can be repatriated upon liquidation or sale of investment.
- Proceeds from sale of shares to Nepali or other foreign investors can be transferred abroad after tax payment.
- Compensation received for nationalization or acquisition of investment by the government is fully repatriable.
- Foreign employees can repatriate their salaries and benefits after deducting applicable taxes and social security contributions.
Repatriation Procedures
The Nepal Rastra Bank regulates foreign exchange transactions and repatriation procedures. Investors must submit repatriation applications to authorized commercial banks with supporting documents including audited financial statements, tax clearance certificates, and proof of original investment. The bank processes the application and transfers funds abroad after verifying compliance with foreign exchange regulations.
Work Permits and Visa Requirements for Foreign Employees
Foreign companies operating in Nepal can employ foreign nationals in technical, managerial, and specialized positions. The Department of Immigration regulates work permits and visa issuance for foreign employees working in Nepal.
Work Permit Categories
| Permit Type | Validity Period | Eligible Positions |
|---|---|---|
| Business Visa | Up to 5 years | Investors and directors |
| Work Visa | Up to 5 years | Technical and managerial staff |
| Non-Tourist Visa | 1 year, renewable | General employment |
Work Permit Application Process
Step 1: The employing company must obtain approval from the Department of Labor and Occupational Safety for hiring foreign employees. The application must justify the need for foreign expertise and demonstrate that qualified Nepali workers are unavailable.
Step 2: After labor approval, the company applies to the Department of Immigration for a work permit recommendation letter. The application must include employment contract, educational certificates, and experience documents of the foreign employee.
Step 3: The foreign employee applies for a work visa at the Nepali embassy or consulate in their home country using the recommendation letter. Alternatively, they can apply for visa conversion after entering Nepal on a tourist visa.
Step 4: Upon arrival in Nepal, the employee must complete work permit registration at the Department of Immigration and obtain a residence permit valid for the duration of employment.
Tax Implications for Foreign Companies
Foreign companies operating in Nepal are subject to various taxes under Nepali tax laws. The Income Tax Act 2058 (2002) governs corporate taxation, while the Value Added Tax Act 2052 (1996) regulates indirect taxation.
Corporate Income Tax
Foreign companies registered in Nepal pay corporate income tax at the rate of 25% on taxable income. Special industries such as banking and insurance pay higher rates, while export-oriented industries may qualify for tax holidays or reduced rates. Companies must file annual tax returns and pay advance tax in three installments during the fiscal year.
Withholding Tax on Repatriation
Dividend payments to foreign shareholders are subject to withholding tax at rates specified in applicable tax treaties or domestic law. Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with several countries, which may provide reduced withholding tax rates. Interest payments, royalties, and technical service fees paid to foreign entities are also subject to withholding tax.
Value Added Tax
Companies engaged in taxable supplies of goods and services must register for VAT if their annual turnover exceeds NPR 5 million. The standard VAT rate is 13%, with certain goods and services subject to zero-rating or exemption. Registered businesses must file monthly VAT returns and maintain proper accounting records.
Facilities and Incentives for Foreign Investors
FITTA 2019 and related legislation provide various facilities and incentives to attract foreign investment in priority sectors and underdeveloped regions. These incentives aim to promote technology transfer, employment generation, and balanced regional development.
Tax Holidays and Exemptions
Industries established in special economic zones or underdeveloped regions qualify for income tax holidays ranging from five to seven years. Export-oriented industries receive additional tax benefits including exemption from customs duties on imported raw materials and capital goods. The Industrial Enterprises Act 2020 specifies detailed criteria for qualifying for tax incentives.
Infrastructure and Utility Support
The government provides infrastructure support for industries established in industrial estates and special economic zones. This includes access to reliable electricity, water supply, telecommunications, and transportation facilities at subsidized rates. Priority industries may receive additional support for skill development and technology upgradation.
Investment Protection Guarantees
FITTA 2019 prohibits nationalization or acquisition of foreign investment except for public purposes and with fair compensation. The Act guarantees non-discriminatory treatment of foreign investors and provides legal recourse through arbitration for investment disputes. Nepal is a signatory to bilateral investment protection agreements with multiple countries, providing additional safeguards for foreign investors.
Dispute Resolution Mechanisms
FITTA 2019 establishes clear mechanisms for resolving disputes between foreign investors and the government or local partners. These provisions ensure that investors have access to fair and impartial dispute resolution procedures.
Domestic Dispute Resolution
Investment disputes can be resolved through negotiation, mediation, or arbitration as specified in investment agreements. The Arbitration Act 2055 (1999) governs domestic arbitration proceedings. Parties can also approach civil courts for resolution of contractual disputes, though judicial proceedings may be time-consuming.
International Arbitration
FITTA 2019 permits foreign investors to seek international arbitration for investment disputes. Nepal is a member of the International Centre for Settlement of Investment Disputes (ICSID) and recognizes arbitration awards under the New York Convention. Investment agreements can specify arbitration venues and applicable procedural rules.
Reporting and Compliance Requirements
Foreign companies must comply with ongoing reporting requirements to maintain their registration and operating licenses. The Department of Industry, Office of Company Registrar, and tax authorities require periodic submission of various reports and documents.
Annual Reporting to Department of Industry
Registered foreign companies must submit annual progress reports to the Department of Industry within three months of the fiscal year end. The report must include details of investment brought into Nepal, production or service delivery statistics, employment data, and technology transfer activities. Companies must also report any changes in shareholding, directors, or registered office address.
Company Law Compliance
All companies must file annual returns with the Office of Company Registrar including audited financial statements, list of shareholders and directors, and details of share transactions. Companies must hold annual general meetings and maintain statutory registers at their registered office. Non-compliance may result in penalties or cancellation of company registration.
Tax Compliance and Audits
Companies must maintain proper books of accounts and supporting documents for at least six years. Annual financial statements must be audited by chartered accountants registered with the Institute of Chartered Accountants of Nepal. Tax authorities conduct periodic audits to verify compliance with tax laws and may impose penalties for underreporting or late filing.
Amendment and Renewal Procedures
Foreign companies may need to amend their registration details or renew licenses periodically to reflect changes in business operations or comply with regulatory requirements.
Amendment of Investment Approval
Changes in investment amount, business activities, or shareholding structure require prior approval from the Department of Industry. The company must submit an amendment application with supporting documents justifying the proposed changes. The Department reviews the application and issues amended approval if the changes comply with FITTA 2019 provisions.
License Renewals
Industry registration certificates and sector-specific licenses require periodic renewal. Companies must submit renewal applications before license expiry with updated financial statements, tax clearance certificates, and compliance reports. Timely renewal ensures uninterrupted business operations and maintains good standing with regulatory authorities.
Recent Amendments and Policy Updates
The government periodically updates foreign investment policies to address emerging challenges and align with international best practices. Recent amendments have focused on simplifying procedures, expanding open sectors, and strengthening investor protection.
The Foreign Investment and Technology Transfer Regulation 2020 introduced online application systems and reduced processing times for investment approvals. The Industrial Enterprises Act 2020 consolidated various industrial laws and provided clearer guidelines for industrial operations and incentives. The government has also announced plans to establish additional special economic zones and industrial parks with enhanced facilities for foreign investors.
Sector-Specific Regulations and Requirements
Certain sectors have additional regulatory requirements beyond general foreign investment regulations. Foreign investors must comply with sector-specific laws and obtain necessary approvals from relevant regulatory authorities.
Financial Services Sector
Foreign investment in banks and financial institutions is regulated by the Nepal Rastra Bank under the Banks and Financial Institutions Act 2073 (2017). Foreign investors can hold up to 20% equity in commercial banks individually and 50% collectively. Insurance companies are regulated by the Insurance Board under the Insurance Act 2079 (2023), which permits foreign investment up to 51% of total equity.
Telecommunications and Broadcasting
The Nepal Telecommunications Authority regulates foreign investment in telecommunications services under the Telecommunications Act 2053 (1997). Foreign investors can participate in telecommunications infrastructure and service provision subject to licensing requirements and equity restrictions. Broadcasting services are regulated by separate legislation with specific content and ownership requirements.
Energy and Infrastructure
Hydropower and renewable energy projects are priority sectors for foreign investment. The Electricity Act 2049 (1992) and related regulations govern power generation, transmission, and distribution. Foreign investors can develop hydropower projects through build-own-operate-transfer (BOOT) or other models with power purchase agreements from the Nepal Electricity Authority.
What is the minimum investment required for foreign company registration in Nepal?
The minimum investment requirement is NPR 50 million for most manufacturing and service industries under FITTA 2019. Technology-based industries require NPR 20 million, while tourism and consulting services require USD 50,000. The Department of Industry may reduce requirements for projects in underdeveloped regions.
Can foreign investors own 100% equity in Nepali companies?
Yes, foreign investors can establish wholly-owned subsidiaries with 100% foreign equity in sectors not restricted by law. Certain sectors like domestic airlines, security services, and cottage industries have equity restrictions or are prohibited for foreign investment under FITTA 2019.
How long does the foreign company registration process take?
The Department of Industry issues preliminary approval within seven working days of application submission. Complete registration including company incorporation and final approval typically takes four to six weeks, depending on document completeness and sector-specific requirements.
Are foreign investors allowed to repatriate profits from Nepal?
Yes, FITTA 2019 guarantees full repatriation rights for foreign investors. Net profits, invested capital, proceeds from share sales, and compensation can be repatriated in convertible foreign currency after payment of applicable taxes through authorized commercial banks.
What sectors are completely prohibited for foreign investment?
Cottage industries, personal service businesses like barber shops and beauty parlors, arms and ammunition manufacturing, and radioactive materials production are completely prohibited for foreign investment under FITTA 2019 to protect national interests and promote domestic entrepreneurship.
Do foreign companies need to hire Nepali employees?
While FITTA 2019 does not mandate specific ratios, the Department of Labor encourages employment of Nepali workers. Foreign employees can be hired for technical, managerial, and specialized positions where qualified Nepali workers are unavailable, subject to work permit approval.
What taxes do foreign companies pay in Nepal?
Foreign companies pay 25% corporate income tax on taxable income, 13% value added tax on taxable supplies, and withholding taxes on dividend, interest, and royalty payments. Tax rates may vary for special industries and tax treaty provisions may apply.
Can foreign investors purchase land in Nepal?
Foreign individuals and companies cannot own land in Nepal under the Land Act. However, foreign companies registered in Nepal can lease land for up to 50 years for industrial purposes and can own buildings and structures constructed on leased land.
What happens if investment disputes arise?
FITTA 2019 provides for dispute resolution through negotiation, mediation, domestic arbitration, or international arbitration. Foreign investors can seek international arbitration under bilateral investment treaties or ICSID convention for disputes with the government.
Is technology transfer mandatory for foreign investment?
Technology transfer is not mandatory for all foreign investments under FITTA 2019. However, technology-based industries and projects seeking special incentives must demonstrate technology transfer components. Technology transfer agreements must be registered with the Department of Industry.
How are foreign exchange transactions regulated?
The Nepal Rastra Bank regulates all foreign exchange transactions under the Foreign Exchange Regulation Act 2019. Foreign investors can bring investment funds through banking channels and repatriate legitimate earnings after obtaining necessary approvals and tax clearances.
What environmental clearances are required?
Projects with potential environmental impact must obtain Initial Environmental Examination (IEE) or Environmental Impact Assessment (EIA) approval from the Ministry of Forest and Environment before commencing operations. The requirement depends on project size, location, and nature of activities.
