Nepal has opened its economy to foreign investment across multiple sectors under the Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019). The Act replaced the previous 1992 legislation and provides a comprehensive framework for foreign company incorporation. Foreign investors can establish companies in Nepal through various business structures, including private limited companies, public limited companies, and branch offices. The Department of Industry (DOI) serves as the primary regulatory body for foreign investment approvals and company registration processes.
Legal Framework for Foreign Company Incorporation
The Foreign Investment and Technology Transfer Act, 2019 governs foreign direct investment in Nepal. According to Section 3 of FITTA 2019, foreign investors can invest in any industry except those specifically prohibited or restricted. The Act mandates that foreign investors obtain prior approval from the Department of Industry before establishing operations. The Companies Act, 2063 (2006) regulates the incorporation and operation of companies in Nepal, while sector-specific laws apply to industries such as banking, insurance, and telecommunications.
Tourism and Hospitality Industry
The tourism and hospitality sector represents one of the most attractive industries for foreign company incorporation in Nepal. Foreign investors can establish hotels, resorts, travel agencies, trekking companies, and adventure tourism businesses. According to the Industrial Enterprises Act, 2020, tourism projects receive various incentives including tax holidays and customs duty exemptions. The Tourism Act, 2035 (1978) and its regulations govern tourism-related businesses. Foreign investors can own up to 100% equity in tourism ventures. The Nepal Tourism Board actively promotes foreign investment in this sector through streamlined approval processes and investment facilitation services.
Investment CategoryMinimum InvestmentOwnership LimitStar HotelsNPR 50 million100% foreignTravel AgenciesNPR 5 million100% foreignTrekking CompaniesNPR 10 million100% foreignAdventure TourismNPR 20 million100% foreign
Hydropower and Renewable Energy Sector
Nepal’s hydropower potential exceeds 83,000 MW, making it a prime sector for foreign investment. The Electricity Act, 2049 (1992) and Water Resources Act, 2049 (1992) regulate hydropower development. Foreign investors can participate in generation, transmission, and distribution projects. The Department of Electricity Development issues licenses for hydropower projects. Projects above 25 MW require approval from the Investment Board Nepal. Foreign companies can own 100% equity in hydropower ventures. The government provides incentives including income tax exemptions for up to 10 years, customs duty waivers on equipment imports, and repatriation of profits.
Manufacturing and Processing Industries
Manufacturing represents a priority sector under Nepal’s industrial policy. Foreign investors can establish factories for producing textiles, garments, pharmaceuticals, food processing, cement, steel, and consumer goods. The Industrial Enterprises Act, 2020 classifies industries into micro, small, medium, and large categories. Export-oriented manufacturing units receive additional incentives. Special Economic Zones (SEZs) offer infrastructure facilities and tax benefits for manufacturing companies. Foreign ownership up to 100% is permitted in most manufacturing subsectors. The Department of Industry provides one-window services for obtaining necessary approvals and licenses.
Manufacturing SubsectorForeign OwnershipKey IncentivesTextile and Garments100%Tax holiday 5-7 yearsPharmaceuticals100%Customs duty exemptionFood Processing100%Export subsidiesCement Production100%Infrastructure support
Information Technology and Business Process Outsourcing
The IT and BPO sector has emerged as a growing industry for foreign investment. The Information Technology Policy, 2010 promotes software development, IT-enabled services, and digital infrastructure. Foreign companies can establish software development centers, call centers, data processing units, and technology consulting firms. The government offers tax incentives for IT companies operating in designated IT parks. Foreign investors can own 100% equity in IT ventures. The Nepal Telecommunications Authority regulates telecommunications-related IT services. Companies must register with the Department of Industry and obtain necessary operational licenses from relevant authorities.
Banking and Financial Services
The banking and financial sector operates under strict regulatory oversight. The Bank and Financial Institutions Act, 2073 (2017) governs commercial banks, development banks, and finance companies. Nepal Rastra Bank (NRB) serves as the central regulatory authority. Foreign investment in commercial banks is limited to 20% of total paid-up capital for individual investors and 50% for institutional investors. Insurance companies fall under the Insurance Act, 2049 (1992), with foreign ownership capped at 51%. Merchant banking, venture capital, and microfinance institutions have specific foreign investment limits. All financial institutions require prior approval from Nepal Rastra Bank.
Agriculture and Agribusiness
Agriculture and agribusiness offer substantial opportunities for foreign investors. The Agriculture Development Strategy (2015-2035) prioritizes commercial farming, agro-processing, and value chain development. Foreign companies can invest in contract farming, seed production, fertilizer manufacturing, cold storage facilities, and agricultural equipment. The Agri-Business Promotion Policy, 2063 provides incentives for agro-industries. Foreign ownership up to 100% is permitted in most agribusiness subsectors. The Ministry of Agriculture and Livestock Development oversees sector-specific approvals. Companies must comply with food safety standards and environmental regulations.
Healthcare and Pharmaceutical Industry
Healthcare services and pharmaceutical manufacturing attract foreign investment due to growing demand. The National Health Policy, 2071 encourages private sector participation in healthcare delivery. Foreign investors can establish hospitals, diagnostic centers, medical colleges, and pharmaceutical manufacturing units. The Department of Drug Administration regulates pharmaceutical companies under the Drug Act, 2035 (1978). Foreign ownership up to 100% is allowed in healthcare ventures. Medical institutions require approval from the Ministry of Health and Population. Pharmaceutical manufacturers must obtain Good Manufacturing Practice (GMP) certification and product registration for medicines.
Education and Training Services
The education sector permits foreign investment in schools, colleges, universities, and vocational training centers. The Education Act, 2028 (1971) and Private and Boarding Schools Organization Act, 2058 (2001) regulate educational institutions. Foreign investors can establish technical training institutes, language schools, and professional education centers. The University Grants Commission oversees higher education institutions. Foreign ownership limits vary by education level and type of institution. Educational institutions must obtain affiliation from recognized universities or boards. The Ministry of Education, Science and Technology grants operational approvals.
Construction and Infrastructure Development
Construction and infrastructure development represent priority sectors for foreign investment. The Public Procurement Act, 2063 (2007) governs public infrastructure projects. Foreign construction companies can participate in roads, bridges, airports, buildings, and urban development projects. The Department of Roads and Department of Urban Development and Building Construction issue contractor licenses. Foreign companies must register with the Department of Industry and obtain necessary construction permits. Joint ventures with local companies are common in large infrastructure projects. The Investment Board Nepal facilitates mega infrastructure projects exceeding NPR 10 billion.
Mining and Mineral Processing
Nepal’s mineral resources include limestone, marble, granite, copper, iron ore, and precious stones. The Mines and Minerals Act, 2056 (1999) regulates mining operations. Foreign investors can obtain exploration and extraction licenses for various minerals. The Department of Mines and Geology issues mining licenses and monitors operations. Foreign ownership up to 100% is permitted in mining ventures. Environmental Impact Assessment (EIA) approval is mandatory for mining projects. Companies must comply with environmental protection standards and local community consultation requirements. Export of minerals requires approval from the Department of Customs.
Telecommunications and Digital Services
The telecommunications sector operates under the Telecommunications Act, 2053 (1997). Nepal Telecommunications Authority (NTA) regulates telecom operators and service providers. Foreign investment in basic telecommunications services is restricted, with specific approval required from the government. Internet Service Providers (ISPs) can have foreign ownership up to 80%. Value-added services including mobile applications, digital payment systems, and content delivery platforms permit 100% foreign ownership. Companies must obtain licenses from NTA and comply with quality of service standards. The government promotes digital infrastructure development through policy incentives.
Prohibited and Restricted Sectors for Foreign Investment
FITTA 2019 prohibits foreign investment in certain sectors to protect national interests and local industries. Schedule 1 of the Act lists prohibited industries including cottage industries, personal service businesses, arms and ammunition manufacturing, and industries reserved for Nepali citizens. Restricted sectors require special approval or have foreign ownership limitations. These include industries affecting national security, cultural heritage, and small-scale enterprises. Foreign investors must verify sector eligibility before initiating incorporation procedures. The Department of Industry maintains updated lists of prohibited and restricted sectors.
Sector CategoryForeign Investment StatusApproval AuthorityCottage IndustriesProhibitedNot applicableArms ManufacturingProhibitedNot applicableBasic TelecommunicationsRestricted (requires approval)CabinetCommercial BankingRestricted (max 50%)Nepal Rastra BankInsuranceRestricted (max 51%)Insurance Board
Minimum Investment Requirements
Foreign investors must meet minimum capital requirements specified under FITTA 2019. Section 3(2) of the Act mandates minimum foreign investment of NPR 50 million for foreign nationals and NPR 20 million for Non-Resident Nepalis (NRNs) and foreign companies with Nepali shareholding. These thresholds apply to initial investment in equity capital. Certain sectors have higher minimum investment requirements based on industry-specific regulations. The Industrial Enterprises Act, 2020 classifies industries by investment size, affecting available incentives. Foreign investors must maintain the minimum investment throughout the company’s operation.
Company Incorporation Process for Foreign Investors
The incorporation process begins with obtaining foreign investment approval from the Department of Industry. Foreign investors must submit a detailed project proposal, feasibility study, and required documents. The approval process typically takes 15-30 working days. After receiving approval, investors must register the company with the Office of Company Registrar (OCR) under the Companies Act, 2063 (2006). The registration requires submission of memorandum and articles of association, shareholder details, and director information. Companies must obtain a Permanent Account Number (PAN) from the Inland Revenue Department and register for Value Added Tax (VAT) if applicable.
Step-by-Step Incorporation Procedure
Step 1: Foreign investors must reserve a company name through the Office of Company Registrar’s online system or by submitting a physical application with proposed names in order of preference.
Step 2: Prepare and submit the foreign investment approval application to the Department of Industry with the project proposal, feasibility study, shareholder information, and source of funds documentation.
Step 3: Obtain foreign investment approval certificate from the Department of Industry, which typically takes 15-30 working days depending on the project complexity and sector.
Step 4: Open a bank account in Nepal and deposit the minimum required capital as specified in the foreign investment approval certificate and applicable laws.
Step 5: Submit company registration documents to the Office of Company Registrar including memorandum of association, articles of association, foreign investment approval, and bank deposit certificate.
Step 6: Obtain company registration certificate from the Office of Company Registrar, which serves as proof of legal incorporation and authorization to commence business operations.
Step 7: Register with the Inland Revenue Department for Permanent Account Number (PAN) and Value Added Tax (VAT) registration if the company’s annual turnover exceeds NPR 5 million.
Step 8: Obtain sector-specific licenses and permits from relevant regulatory authorities based on the nature of business operations and industry requirements.
Required Documents for Foreign Company Registration
Foreign investors must prepare comprehensive documentation for company incorporation. The document requirements vary based on company type and business sector. All foreign documents require authentication from the Nepali embassy or consulate in the country of origin. Documents in languages other than English or Nepali must be translated and notarized. The Department of Industry and Office of Company Registrar verify document authenticity before processing applications.
Essential Documentation List
- Foreign investment approval application form duly filled and signed by all foreign investors with complete details of the proposed business venture.
- Detailed project proposal containing business plan, market analysis, financial projections, employment generation estimates, and technology transfer details if applicable.
- Passport copies of all foreign investors and proposed directors with valid visa status and authentication from relevant authorities.
- Board resolution or authorization letter from the parent company if the investor is a corporate entity, certified by company secretary or authorized signatory.
- Certificate of incorporation and memorandum of association of the foreign parent company, authenticated by the Nepali embassy or consulate.
- Bank reference letter or financial statements of foreign investors demonstrating financial capability to make the proposed investment in Nepal.
- Memorandum of association and articles of association of the proposed Nepali company drafted according to the Companies Act, 2063 (2006).
- Consent letters from proposed directors accepting their appointment and confirming they are not disqualified under the Companies Act.
- Office lease agreement or ownership documents for the proposed registered office address in Nepal with landlord’s citizenship certificate.
- Bank deposit certificate showing the deposit of minimum required capital in a Nepali bank account opened in the company’s name.
Tax Incentives and Benefits
The Industrial Enterprises Act, 2020 provides various tax incentives for foreign investors. Income tax exemptions range from 5 to 10 years depending on the project location and industry type. Industries established in less developed regions receive longer tax holidays. Export-oriented industries enjoy additional benefits including customs duty exemptions on raw materials and capital goods. The Income Tax Act, 2058 (2002) allows accelerated depreciation for certain assets. Special Economic Zones offer comprehensive tax packages including exemption from customs duties, excise duties, and VAT on imports. Companies must fulfill conditions specified in approval letters to maintain incentive eligibility.
Incentive TypeBenefit PeriodApplicable SectorsIncome Tax Holiday5-10 yearsManufacturing, Tourism, HydropowerCustoms Duty ExemptionProject durationExport industries, SEZ unitsVAT ExemptionProject durationExport sales, SEZ operationsAccelerated DepreciationAsset lifeAll industries
Repatriation of Profits and Capital
FITTA 2019 guarantees foreign investors the right to repatriate profits, dividends, and invested capital. Section 9 of the Act permits repatriation of amounts received from sale of shares, profits and dividends, and amounts received after liquidation. Foreign investors can repatriate funds after paying applicable taxes. Nepal Rastra Bank regulates foreign exchange transactions under the Foreign Exchange (Regulation) Act, 2019. Companies must maintain proper accounting records and obtain tax clearance certificates. Repatriation requests require submission of audited financial statements, tax payment receipts, and board resolutions. Banks process repatriation applications after verifying compliance with legal requirements.
Investment Protection and Dispute Resolution
Nepal provides legal protection for foreign investments through domestic laws and international agreements. FITTA 2019 prohibits nationalization and expropriation of foreign investments except for public purposes with fair compensation. Nepal has signed Bilateral Investment Promotion and Protection Agreements (BIPPAs) with multiple countries. The Act allows international arbitration for investment disputes. Investors can seek arbitration under UNCITRAL rules or through institutions like the International Centre for Settlement of Investment Disputes (ICSID). The Arbitration Act, 2055 (1999) governs domestic arbitration proceedings. Foreign investors have equal access to Nepali courts for legal remedies.
Special Economic Zones and Industrial Estates
Nepal has established Special Economic Zones to attract foreign investment with enhanced infrastructure and incentives. The Special Economic Zone Act, 2073 (2016) governs SEZ operations. Companies operating in SEZs receive comprehensive tax benefits, simplified customs procedures, and one-window services. Industrial estates developed by the Industrial District Management Limited provide ready infrastructure for manufacturing units. The Bhairahawa SEZ focuses on export-oriented industries and logistics. Foreign companies in SEZs can import raw materials and capital goods duty-free for manufacturing export products. SEZ units must export at least 75% of production to maintain benefits.
Employment and Labor Regulations
Foreign companies must comply with the Labor Act, 2074 (2017) regarding employment practices. The Act mandates written employment contracts, minimum wages, working hours, and social security benefits. Foreign investors can employ foreign nationals in technical and managerial positions with work permits from the Department of Immigration. The ratio of foreign to local employees is typically restricted, with preference for Nepali workers. Companies must contribute to the Social Security Fund for eligible employees. The Act provides for occupational safety standards, leave entitlements, and termination procedures. Labor disputes are resolved through the Labor Court.
Environmental and Social Compliance
Environmental Impact Assessment (EIA) is mandatory for projects specified in the Environment Protection Act, 2053 (1997). The Ministry of Forests and Environment reviews and approves EIA reports. Projects are classified into different categories based on environmental sensitivity. Industries must obtain environmental clearance before commencing operations. Companies must implement pollution control measures and waste management systems. Social safeguards include community consultation, resettlement plans if applicable, and corporate social responsibility initiatives. Regular environmental monitoring and reporting are required. Non-compliance can result in penalties, suspension of operations, or license cancellation.
Intellectual Property Protection
Nepal provides legal protection for intellectual property rights through various laws. The Patent, Design and Trademark Act, 2022 (1965) protects industrial property rights. The Copyright Act, 2059 (2002) safeguards literary and artistic works. The Department of Industry maintains registers for patents, trademarks, and industrial designs. Foreign companies can register their intellectual property in Nepal. Nepal is a member of the World Intellectual Property Organization (WIPO) and has acceded to several international IP conventions. Technology transfer agreements require registration with the Department of Industry. Companies can enforce IP rights through civil and criminal proceedings.
Frequently Asked Questions
What is the minimum investment required for foreign company incorporation in Nepal?
Foreign nationals must invest a minimum of NPR 50 million in equity capital, while Non-Resident Nepalis require NPR 20 million minimum investment. Certain sectors may have higher minimum investment requirements based on industry-specific regulations and licensing conditions.
Which sectors are completely prohibited for foreign investment in Nepal?
Cottage industries, personal service businesses, arms and ammunition manufacturing, and small-scale industries reserved for Nepali citizens are prohibited for foreign investment under Schedule 1 of the Foreign Investment and Technology Transfer Act, 2019.
Can foreign investors own 100% equity in Nepali companies?
Foreign investors can own 100% equity in most sectors except restricted industries like commercial banking (maximum 50% foreign ownership), insurance (maximum 51%), and basic telecommunications services which require special government approval.
How long does the company incorporation process take in Nepal?
The complete incorporation process typically takes 30-45 working days, including 15-30 days for foreign investment approval from the Department of Industry and 7-15 days for company registration with the Office of Company Registrar.
What tax incentives are available for foreign investors in Nepal?
Foreign investors receive income tax holidays ranging from 5-10 years depending on location and sector, customs duty exemptions on capital goods, VAT exemptions for export-oriented industries, and accelerated depreciation benefits under the Industrial Enterprises Act, 2020.
Can foreign companies repatriate profits from Nepal?
Yes, foreign companies can repatriate profits, dividends, and invested capital after paying applicable taxes. The Foreign Investment and Technology Transfer Act, 2019 guarantees repatriation rights, subject to Nepal Rastra Bank regulations and proper documentation.
Do foreign investors need local partners in Nepal?
Foreign investors do not require local partners in most sectors and can establish wholly-owned subsidiaries. However, joint ventures with local partners may be beneficial for market knowledge, regulatory compliance, and accessing certain restricted sectors.
What is the process for obtaining work permits for foreign employees?
Foreign employees must obtain work permits from the Department of Immigration after the company receives foreign investment approval. The application requires employment contracts, academic qualifications, experience certificates, and proof that similar skilled Nepali workers are unavailable.
Are there any restrictions on profit repatriation from Nepal?
Profit repatriation is permitted after paying applicable income taxes and obtaining tax clearance certificates. Companies must maintain proper accounting records, submit audited financial statements, and comply with Nepal Rastra Bank’s foreign exchange regulations.
What dispute resolution mechanisms are available for foreign investors?
Foreign investors can access domestic courts, domestic arbitration under the Arbitration Act, 2055 (1999), or international arbitration under UNCITRAL rules. Nepal has signed Bilateral Investment Protection Agreements with multiple countries providing additional dispute resolution options.
