Incentives and Benefits for Foreign Companies in Nepal

Overview of Foreign Investment Framework

Nepal offers a structured framework for foreign direct investment through various legislative provisions and incentive schemes. The Foreign Investment and Technology Transfer Act, 2075 B.S. (2019) establishes the legal foundation for foreign company operations. The government provides tax holidays, customs duty exemptions, and sector-specific benefits to encourage foreign investment. These incentives apply across manufacturing, tourism, hydropower, and technology sectors. Foreign companies receive national treatment equivalent to domestic enterprises under Nepali law. The Board of Investment and Nepal Investment Bank facilitate investment registration and provide ongoing support services.

Tax Incentives for Foreign Companies

Corporate Income Tax Holidays

Foreign companies operating in Nepal benefit from corporate income tax exemptions during specified periods. Manufacturing enterprises receive a five-year tax holiday from the date of commercial operation. Export-oriented industries qualify for extended tax benefits under the Industrial Enterprises Act, 2076 B.S. (2020). Tourism and hydropower projects receive sector-specific tax concessions. Companies engaged in priority sectors obtain additional deductions on capital expenditure. Tax holidays apply to reinvested profits in certain circumstances. The Board of Investment determines eligibility based on project classification and investment amount.

Customs Duty Exemptions

Benefit Category	Applicable Items	Exemption / Duty Rate
Capital Machinery	Plant and equipment	100% duty exemption
Raw Materials	Production inputs	Reduced rates (0–5%)
Technology Transfer	Equipment and software	Full exemption
Export Processing	Imported goods for export	Complete exemption

Foreign companies importing capital machinery for manufacturing receive full customs duty exemptions. Raw materials used in production qualify for reduced duty rates. Technology transfer equipment obtains exemption under specific conditions. Export-oriented enterprises receive complete exemption on imported goods designated for export production.

Sector-Specific Incentives

Manufacturing and Industrial Development

Manufacturing enterprises receive the following benefits:

Foreign companies establishing manufacturing units obtain five-year corporate income tax holidays from commercial operation commencement.
Capital machinery imports receive 100 percent customs duty exemption under the Industrial Enterprises Act, 2076 B.S.
Value-added tax exemption applies to capital goods imported for manufacturing purposes.
Companies reinvesting profits in business expansion qualify for additional tax deductions.
Industrial zones provide infrastructure facilities and utility services at concessional rates.

Hydropower and Energy Sector

Hydropower projects receive substantial incentives under the Hydropower Development Policy:

Corporate income tax exemption extends for seven years from commercial operation commencement for projects exceeding 100 megawatts capacity.
Customs duty exemption applies to all imported equipment and materials for hydropower construction.
Value-added tax exemption covers capital goods and equipment imports.
Foreign investors obtain guaranteed power purchase agreements with Nepal Electricity Authority.
Royalty rates remain fixed at 12 percent of gross revenue for hydropower projects.

Tourism and Hospitality

Tourism enterprises qualify for the following benefits:

Three-year corporate income tax holiday applies to hotels, resorts, and tourism infrastructure projects.
Customs duty exemption covers imported furniture, fixtures, and equipment for tourism establishments.
Value-added tax exemption applies to capital goods and construction materials.
Foreign tourism operators obtain simplified visa and work permit procedures.
Tourism zones provide land at concessional rates with infrastructure development support.

Investment Registration and Approval Process

Board of Investment Registration

The Board of Investment registers foreign companies and processes investment applications. Registration requires submission of project proposals, financial statements, and technical specifications. The approval process typically completes within 30 days for standard applications. Foreign companies receive investment certificates upon approval. The Board provides post-investment support and dispute resolution services. Registration establishes legal recognition and eligibility for incentive benefits.

Required Documentation

Foreign companies must submit the following documents for investment registration:

Completed application form with detailed project description and financial projections.
Certificate of incorporation or business registration from the home country.
Audited financial statements for the preceding three years.
Technical specifications and equipment details for manufacturing or industrial projects.
Environmental impact assessment report for projects exceeding specified investment thresholds.
Proof of capital commitment and funding sources.

Repatriation and Profit Transfer Rights

Foreign investors retain the right to repatriate profits, dividends, and capital under the Foreign Investment and Technology Transfer Act, 2075 B.S. The Nepal Rastra Bank permits foreign currency conversion for profit repatriation at prevailing exchange rates. Dividend payments to foreign shareholders receive tax treatment equivalent to domestic investors. Capital repatriation occurs upon project completion or investment liquidation. No restrictions apply to technology royalty payments or management fee transfers. Foreign companies must comply with foreign exchange regulations and reporting requirements.

Labor and Employment Benefits

Foreign companies obtain simplified procedures for hiring expatriate staff. Work permits for foreign nationals process within 15 days through the Department of Labor. Foreign investors receive exemption from local employment quotas for specialized technical positions. Training and development programs for Nepali employees qualify for tax deductions. Foreign companies establish provident funds and employee welfare schemes under Nepali labor law. The Foreign Employment Act, 2075 B.S. (2018) regulates expatriate employment procedures.

Infrastructure and Land Facilities

Industrial Zones and Special Economic Zones

Nepal operates industrial zones providing infrastructure support to foreign companies:

Industrial zones supply reliable electricity, water, and telecommunications infrastructure.
Land leases extend for 50 years with renewal options available.
Concessional utility rates apply to zone-based enterprises.
Common facilities include warehousing, testing laboratories, and waste management systems.
Zone authorities provide security and maintenance services.

Land Acquisition and Lease Terms

Foreign companies acquire land through lease arrangements under Nepali property law. Land leases extend for 50 years with renewal provisions. Agricultural land conversion to industrial use requires government approval. Foreign investors obtain land use rights equivalent to domestic enterprises. Lease agreements specify development obligations and timeline requirements.

Intellectual Property Protection

Nepal provides intellectual property protection through the Copyright Act, 2059 B.S., Patents, Designs and Trademarks Act, 2065 B.S., and related legislation. Foreign companies register patents, trademarks, and designs with the Department of Industry. Nepal adheres to international intellectual property conventions including the Paris Convention and TRIPS Agreement. Patent protection extends for 15 years from filing date. Trademark registration provides 10-year protection with renewal options. Copyright protection covers literary, artistic, and software works.

Frequently Asked Questions

What is the minimum investment amount required for foreign companies in Nepal?

The Foreign Investment and Technology Transfer Act, 2075 B.S. does not specify a minimum investment threshold. However, certain incentives apply to projects exceeding specified amounts determined by the Board of Investment based on sector classification.

How long does the investment registration process take?

The Board of Investment typically completes registration within 30 days for standard applications. Complex projects may require extended review periods. Applicants receive provisional approval during processing.

Can foreign companies own land in Nepal?

Foreign companies acquire land through long-term lease arrangements extending 50 years with renewal options. Direct land ownership by foreign entities remains restricted under Nepali property law.

What tax rate applies to dividend payments to foreign shareholders?

Dividend payments to foreign shareholders face a 5 percent withholding tax under the Income Tax Act, 2058 B.S. Certain bilateral tax treaties may provide reduced rates.

Are foreign companies subject to local employment quotas?

Foreign companies obtain exemption from local employment quotas for specialized technical positions. General employment positions must comply with local hiring preferences under labor regulations.

What dispute resolution mechanisms exist for foreign investors?

The Foreign Investment and Technology Transfer Act, 2075 B.S. provides arbitration procedures through the Board of Investment. International arbitration under UNCITRAL rules applies to investor-state disputes.

Conclusion

Nepal provides comprehensive incentives and benefits for foreign companies across multiple sectors. Tax holidays, customs duty exemptions, and sector-specific concessions reduce operational costs. The Foreign Investment and Technology Transfer Act, 2075 B.S. establishes legal protections and profit repatriation rights. The Board of Investment facilitates registration and provides ongoing support. Foreign investors obtain treatment equivalent to domestic enterprises under Nepali law. Infrastructure facilities, intellectual property protection, and simplified labor procedures enhance investment viability. Foreign companies should consult legal advisors regarding specific incentive eligibility and compliance requirements.