NRB Regulations have now permitted Foreign Investment outside of Nepal. This article from Axion Partners explains, in simple terms, what the law actually allows, which authorities are involved, and what a Nepali investor must know before sending money abroad for investment purposes.
What Does Investing in a Foreign Company from Nepal Mean?
Investing in a foreign company from Nepal means a Nepali citizen, resident, or a company incorporated in Nepal puts money into a company registered outside Nepal. This can happen in different ways, such as:
- Buying shares of a foreign company
- Setting up a subsidiary or branch office abroad
- Contributing capital to a joint venture outside Nepal
- Acquiring ownership interest in a foreign business
This is commonly called outward foreign investment. It is the opposite of foreign direct investment coming into Nepal, which is governed mainly by the Foreign Investment and Technology Transfer Act, 2075 (FITTA). FITTA regulates investment made by foreign investors into Nepal. It does not create a general right for Nepali investors to invest abroad.
Is It Legal for a Nepali Citizen or Company to Invest in a Foreign Company?
This is the most important question, and the honest answer is that outward investment from Nepal is heavily restricted under existing law. Nepal follows a controlled foreign exchange regime. A Nepali citizen or company cannot simply transfer money abroad to buy shares in a foreign company without prior approval.
The core restriction comes from the Foreign Exchange (Regulation) Act, 2019, which gives Nepal Rastra Bank (NRB) authority to control how foreign currency is held, transferred, or used by residents of Nepal. Under this law, dealing in foreign exchange, including sending funds abroad for investment, generally requires permission from NRB.
In practice, this means:
- General outward portfolio investment, such as buying shares on a foreign stock exchange, is not freely permitted for ordinary Nepali residents.
- Outward investment for business purposes is possible only in specific categories that the Government of Nepal or NRB has permitted, and only with prior approval.
- Nepal does not currently have full capital account convertibility, so residents cannot move capital abroad as freely as in countries with open capital accounts.
Anyone considering this step should treat it as a regulated activity requiring case-by-case approval, not a routine transaction.
Which Laws Govern Outward Investment from Nepal?
Several laws and regulatory bodies are relevant, even though no single law is fully dedicated to outward investment. The main sources are summarized below.
Table: Laws and Authorities Relevant to Outward Investment from Nepal
| Law or Authority | Relevance to Outward Investment |
|---|---|
| Foreign Exchange (Regulation) Act, 2019 | Main law controlling foreign currency transactions, including outward remittance for investment |
| Nepal Rastra Bank Act, 2058 and NRB directives | Empowers NRB to issue rules, circulars, and approvals for foreign exchange dealings |
| Companies Act, 2063 | Governs Nepali companies, their objects clause, and internal approval process for investment decisions |
| Foreign Investment and Technology Transfer Act, 2075 | Primarily governs inward investment into Nepal; not a direct legal basis for outward investment |
| Income Tax Act, 2058 | Governs taxation of foreign-source income earned by Nepali residents |
| Department of Industry (DOI) | Administers approvals for inward foreign investment; generally not the approving authority for outward investment |
It is important not to confuse FITTA with a law permitting Nepali investors to invest abroad. FITTA is designed to attract investment into Nepal, not to authorize Nepali capital to leave the country.
What Approval Is Required from Nepal Rastra Bank for Outward Investment?
Since foreign exchange transactions are controlled, Nepal Rastra Bank is the central authority for any outward investment proposal. NRB approval is generally required before:
- Remitting capital abroad for share purchase or company formation
- Establishing a branch, liaison office, or subsidiary in another country
- Acquiring shares or ownership interest in an existing foreign company
NRB has, through specific directives and circulars issued from time to time, permitted limited categories of outward investment. One notable example is outward investment by export-oriented information technology and software companies, allowed under specific conditions and monetary limits set by NRB. These permissions are narrow, sector-specific, and subject to change, so they should not be treated as a general rule allowing all Nepali businesses to invest abroad.
Because NRB circulars are updated periodically, any Nepali company or individual considering outward investment should check the current position directly with Nepal Rastra Bank before proceeding. Details can be verified on the official Nepal Rastra Bank website.
Can a Nepali Company Invest in a Foreign Company Under the Companies Act, 2063?
A company incorporated in Nepal under the Companies Act, 2063 is a separate legal person and can, in principle, make investments if its memorandum of association permits such activity as one of its objects. Before considering outward investment, a company should confirm the following internal requirements:
- The objects clause in the memorandum of association must allow investment in shares of other companies, including foreign companies
- Any decision to invest company funds ordinarily requires approval of the board of directors, and in some cases shareholders, depending on the value and nature of the transaction and the company’s articles of association
- The investment must be reflected properly in the company’s financial statements and disclosed in its annual accounts, which are subject to audit under the Companies Act
However, satisfying internal company law requirements does not remove the separate requirement of foreign exchange approval from Nepal Rastra Bank. Both layers of compliance, corporate approval and foreign exchange approval, apply independently. A company cannot rely on Companies Act compliance alone to justify sending funds abroad.
Companies can review registration and compliance requirements through the Office of Company Registrar, which maintains records of all companies incorporated in Nepal.
What Are the Tax Implications of Investing in a Foreign Company from Nepal?
Tax treatment of outward investment depends on the residency status of the investor and the nature of income received. Under the Income Tax Act, 2058, a person who qualifies as a resident of Nepal is generally taxed on worldwide income, which includes income earned from foreign sources such as dividends or capital gains from a foreign company.
Key points to understand:
- A resident natural person or resident entity must report foreign-source income, such as dividends received from a foreign company, in their Nepal tax return
- Where foreign tax has already been paid on the same income in the foreign country, the Income Tax Act, 2058 allows a foreign tax credit under its provisions dealing with relief against double taxation, subject to conditions and limits set by the Act
- Repatriation of dividends or profits from a foreign company back into Nepal may also require reporting to Nepal Rastra Bank as part of foreign exchange compliance
Because tax treatment can vary depending on the type of income, the country involved, and whether a double taxation avoidance agreement applies, it is advisable to obtain guidance from the Inland Revenue Department or a qualified tax professional before finalizing an outward investment structure.
What Documents Are Required for Outward Investment Approval?
While exact documentation requirements depend on the nature of the investment and the specific NRB circular applicable at the time, applicants are generally expected to prepare documents that establish the identity of the investor, the purpose of investment, and the source of funds. Common categories include the following.
Table: General Categories of Documents Typically Required
| Document Category | Purpose |
|---|---|
| Company registration documents | To confirm the Nepali company’s legal existence and objects clause |
| Board or shareholder resolution | To confirm internal approval for the investment decision |
| Details of the foreign company | To identify the entity receiving the investment |
| Source of funds evidence | To confirm that funds proposed for investment are legitimately available |
| Application to Nepal Rastra Bank | To formally request permission for outward remittance |
| Tax clearance or related tax documents | To confirm compliance with domestic tax obligations |
This list is general in nature. The specific documents, forms, and procedure applicable to a particular case should be confirmed directly with Nepal Rastra Bank, since requirements can be updated through circulars.
What Are the Risks and Restrictions for Nepali Investors Investing Abroad?
Because outward investment sits outside the normal course of business activity permitted under Nepal’s foreign exchange regime, investors should be aware of the following risks:
- Sending money abroad without NRB approval may amount to a violation of the Foreign Exchange (Regulation) Act, 2019, which can lead to regulatory action
- Foreign investments made without proper approval may create difficulty when trying to repatriate profits or sale proceeds back into Nepal through banking channels
- Since general portfolio investment abroad is not permitted for ordinary residents, informal arrangements to invest in foreign shares or platforms carry legal and compliance risk
- Tax obligations relating to foreign-source income remain even if the investment itself was not properly approved
Given these risks, Nepali companies interested in cross-border expansion, such as software companies wanting to open a foreign subsidiary, should first confirm whether their specific activity falls within any category currently permitted by Nepal Rastra Bank, rather than assuming general permission exists.
Axion Partners assists Nepali companies in reviewing their proposed outward investment structure against current company law and foreign exchange requirements, and in preparing documentation for the applicable regulatory approvals, where such approvals are available under current NRB policy.
Can a Nepali citizen buy shares of a foreign company directly?
Generally, no. Nepal’s foreign exchange law restricts residents from freely remitting funds abroad for share purchases. Direct investment in foreign company shares by an individual Nepali citizen typically requires specific permission from Nepal Rastra Bank, which is not granted for ordinary retail investment purposes.
Does Nepal allow investment in foreign stock markets?
Nepal does not currently provide a general legal framework allowing residents to invest freely in foreign stock exchanges. Foreign exchange controls under the Foreign Exchange (Regulation) Act, 2019 restrict such outward capital movement unless specifically permitted by Nepal Rastra Bank.
Is there a limit on the amount a Nepali company can invest abroad?
Any monetary limit depends on the specific category of outward investment permitted by Nepal Rastra Bank at a given time, such as limits applicable to IT or export-oriented companies. These limits are set through NRB circulars and can change, so current limits must be confirmed directly with NRB.
What happens if a Nepali resident invests abroad without NRB approval?
Investing abroad without required NRB approval may violate the Foreign Exchange (Regulation) Act, 2019. This can expose the investor to regulatory action and may also create difficulty in legally repatriating investment proceeds, dividends, or sale amounts back into Nepal through banking channels.
Can IT and startup companies in Nepal invest in foreign subsidiaries?
Nepal Rastra Bank has, through specific directives, allowed limited categories of export-oriented information technology companies to invest abroad under defined conditions. This permission is sector-specific and subject to change, so eligibility must be verified with NRB before proceeding.
For further reference, readers may consult the official websites of the Department of Industry at https://doind.gov.np/, the Office of Company Registrar at https://ocr.gov.np/, and Nepal Rastra Bank at https://www.nrb.org.np/, along with the Inland Revenue Department for tax-related guidance.
