Investing in Nepal: What to Register and Compliances

Overview of Foreign Investment in Nepal

Foreign investment in Nepal operates under the Foreign Investment and Technology Transfer Act (FITTA), 2019, which replaced the previous 1992 Act. The Act permits foreign investors to invest in most sectors of the Nepali economy, with certain restrictions in specific industries. Foreign investors can establish wholly-owned subsidiaries, joint ventures with Nepali partners, or acquire shares in existing Nepali companies. The Department of Industry (DOI) serves as the primary regulatory body for foreign investment registration and approval. All foreign investments must comply with sector-specific regulations, company registration requirements, and ongoing compliance obligations under Nepali law.

Types of Business Entities for Foreign Investors

Private Limited Company

A private limited company represents the most common business structure for foreign investors in Nepal. The Company Act, 2063 (2006) governs the formation and operation of private limited companies. Foreign investors can establish a wholly foreign-owned private limited company or form a joint venture with Nepali partners. The minimum paid-up capital requirement varies based on the nature of business and foreign ownership percentage. Private limited companies must have at least two shareholders and two directors, with at least one director being a Nepali resident.

Public Limited Company

Public limited companies can issue shares to the general public and list on the Nepal Stock Exchange. The Company Act, 2063 (2006) requires public companies to have a minimum of seven shareholders. Foreign investors typically choose this structure when planning large-scale operations or seeking to raise capital from the Nepali public. Public companies face stricter regulatory requirements, including mandatory audits, quarterly reporting, and compliance with Securities Board of Nepal (SEBON) regulations.

Branch Office

Foreign companies can establish branch offices in Nepal to conduct specific business activities. The Company Registrar’s Office registers branch offices under Section 70 of the Company Act, 2063 (2006). Branch offices cannot engage in manufacturing activities and primarily serve representative or liaison functions. The parent company remains fully liable for all obligations of the branch office in Nepal.

Liaison Office

Liaison offices serve purely representative functions and cannot engage in commercial activities or generate revenue in Nepal. These offices facilitate communication between the parent company and Nepali entities, conduct market research, and promote the parent company’s products or services. The Nepal Rastra Bank (NRB) provides approval for liaison offices of foreign banks and financial institutions.

Registration Process with Department of Industry

Step 1: Obtain Foreign Investment Approval

Foreign investors must first register their investment with the Department of Industry under FITTA, 2019. The application requires submission of a detailed project proposal, including investment amount, business activities, technology transfer agreements (if applicable), and projected employment generation. The DOI issues a foreign investment approval certificate within 7 working days for projects not requiring additional approvals from other ministries or departments.

Step 2: Company Name Reservation

Investors must reserve their proposed company name with the Office of Company Registrar (OCR). The name reservation application requires three alternative names in order of preference. The OCR verifies name availability and approves the reservation within 1-2 working days. The reserved name remains valid for 35 days from the date of approval.

Step 3: Company Registration

After obtaining DOI approval and name reservation, investors must register the company with the Office of Company Registrar. The registration process requires submission of the Memorandum of Association, Articles of Association, and other prescribed documents. The OCR issues a company registration certificate within 5 working days of complete application submission.

Required Documents for Company Registration

Documents from Foreign Investors

Foreign investors must provide the following documents for company registration in Nepal:

Valid passport copies of all foreign shareholders and directors with notarization from the respective country’s embassy or consulate in Nepal.
Board resolution from the parent company authorizing investment in Nepal and appointing authorized representatives.
Certificate of incorporation or business registration certificate of the parent company with apostille or embassy attestation.
Audited financial statements of the parent company for the last three years with proper authentication.
Bank solvency certificate or bank statement demonstrating the financial capacity to make the proposed investment.
Power of attorney authorizing a representative in Nepal to complete registration formalities on behalf of foreign investors.
Passport-sized photographs of all foreign shareholders and directors for official records.

Documents from Nepali Partners (if applicable)

Nepali partners in joint venture arrangements must submit:

Citizenship certificates of all Nepali shareholders and directors with recent issuance dates.
Recent passport-sized photographs of all Nepali shareholders and directors.
PAN (Permanent Account Number) registration certificates of all Nepali shareholders.
Bank account statements or property ownership documents demonstrating financial capacity for capital contribution.

Company Formation Documents

The following documents constitute the core company formation package:

Memorandum of Association stating the company’s objectives, authorized capital, and initial shareholding structure.
Articles of Association defining the internal management rules, director powers, and shareholder rights.
Consent letters from all proposed directors agreeing to serve on the company board.
Office lease agreement or property ownership documents proving the registered office address.
No objection certificate from the property owner allowing business operations at the registered address.

Minimum Capital Requirements

Business Type	Minimum Paid-Up Capital	Additional Requirements
Manufacturing Industry	NPR 50 million (foreign investment)	Must bring minimum 25% within first year
Service Sector	NPR 5 million (foreign investment)	Full amount must be invested within registration period
Tourism Industry	NPR 5 million (foreign investment)	Sector-specific licenses required
Consulting Services	NPR 500,000 (foreign investment)	Professional qualifications mandatory
Technology Services	NPR 5 million (foreign investment)	Technology transfer agreement if applicable
Trading Business	NPR 10 million (foreign investment)	Import/export licenses required

Tax Registration Requirements

Permanent Account Number (PAN)

Every company operating in Nepal must obtain a Permanent Account Number from the Inland Revenue Department within 30 days of company registration. The PAN serves as the primary tax identification number for all tax-related transactions. Companies must submit their company registration certificate, Memorandum of Association, Articles of Association, and citizenship certificates of directors to obtain PAN registration.

Value Added Tax (VAT) Registration

Companies with annual turnover exceeding NPR 5 million must register for VAT under the Value Added Tax Act, 2052 (1996). VAT registration requires submission of PAN certificate, company registration documents, and office lease agreement. The Inland Revenue Department issues VAT registration certificates within 7 working days of application submission. Registered businesses must charge 13% VAT on taxable supplies and file monthly or quarterly VAT returns.

Tax Clearance Certificate

Companies must obtain tax clearance certificates annually to demonstrate compliance with tax obligations. The certificate confirms that the company has filed all required tax returns and paid applicable taxes. Tax clearance certificates are mandatory for contract bidding, loan applications, and various government dealings.

Labor and Employment Compliance

Work Permit for Foreign Employees

Foreign nationals working in Nepal require work permits from the Department of Immigration. The employer company must first obtain approval from the Department of Industry for employing foreign nationals. The work permit application requires submission of the employment contract, academic certificates, experience letters, and medical fitness certificates. Work permits are typically issued for one year and can be renewed annually.

Social Security Fund Registration

The Social Security Act, 2074 (2018) mandates employers to register with the Social Security Fund and contribute on behalf of employees. Companies must register within 30 days of commencing operations or hiring the first employee. Both employers and employees contribute to the fund, with employer contributions at 20% and employee contributions at 11% of basic salary.

Labor Regulations Compliance

The Labor Act, 2074 (2017) governs employment relationships in Nepal. Companies must comply with provisions regarding:

Minimum wage requirements as prescribed by the government for different sectors and skill levels.
Working hours limitations of 8 hours per day and 48 hours per week for regular employees.
Overtime compensation at 1.5 times the regular hourly rate for work beyond standard hours.
Annual leave entitlements of 18 days for employees completing one year of service.
Festival allowances equivalent to one month’s basic salary payable before major festivals.
Provident fund contributions of 10% of basic salary from both employer and employee.

Sector-Specific Licenses and Approvals

Manufacturing Sector

Manufacturing businesses require industrial enterprise registration from the Department of Industry. Companies must obtain environmental clearance from the Ministry of Forest and Environment based on the project’s environmental impact category. Pollution control certificates from the Department of Environment are mandatory for industries generating waste or emissions.

Tourism Sector

Tourism businesses must register with the Department of Tourism and obtain tourism business licenses. Hotels require star classification from the Tourism Board. Travel agencies need membership in the Tourism Association of Nepal (TAAN) or Nepal Association of Tour and Travel Agents (NATTA).

Financial Services

Financial institutions require licenses from Nepal Rastra Bank under the Bank and Financial Institution Act, 2073 (2017). Insurance companies need approval from the Insurance Board under the Insurance Act, 2079 (2023). Payment service providers must obtain licenses from Nepal Rastra Bank for operating digital payment systems.

Education Sector

Educational institutions require affiliation from relevant universities or the Ministry of Education. Schools need approval from the District Education Office. Technical and vocational training institutes require registration with the Council for Technical Education and Vocational Training (CTEVT).

Annual Compliance Requirements

Annual General Meeting

Private limited companies must hold an Annual General Meeting within six months of the fiscal year end. The AGM approves annual financial statements, appoints auditors, and addresses other statutory matters. Companies must file AGM minutes with the Office of Company Registrar within 35 days of the meeting.

Annual Return Filing

Companies must file annual returns with the Office of Company Registrar within one month of the AGM. The annual return includes details of shareholders, directors, registered office, and share capital. Late filing attracts penalties as prescribed under the Company Act, 2063 (2006).

Tax Return Filing

Companies must file annual income tax returns with the Inland Revenue Department within three months of the fiscal year end (by mid-October for fiscal year ending mid-July). The Income Tax Act, 2058 (2002) requires submission of audited financial statements along with tax returns for companies with annual turnover exceeding NPR 20 million.

Audit Requirements

All companies must conduct annual audits by chartered accountants registered with the Institute of Chartered Accountants of Nepal (ICAN). The auditor examines financial statements, verifies compliance with accounting standards, and issues an audit report. Companies must submit audited financial statements to the Office of Company Registrar and Inland Revenue Department.

Foreign Exchange Regulations

Repatriation of Profits

The Foreign Exchange (Regulation) Act, 2019 permits foreign investors to repatriate profits, dividends, and proceeds from share sales after paying applicable taxes. Companies must obtain approval from Nepal Rastra Bank for profit repatriation. The repatriation application requires submission of audited financial statements, tax clearance certificates, and proof of tax payment on distributed profits.

Foreign Currency Accounts

Foreign investors can maintain foreign currency accounts in Nepal with prior approval from Nepal Rastra Bank. These accounts facilitate international transactions and dividend repatriation. Banks require submission of foreign investment approval certificates and company registration documents for opening foreign currency accounts.

Capital Repatriation

Foreign investors can repatriate their invested capital upon business closure or share sale. The Foreign Investment and Technology Transfer Act, 2019 guarantees capital repatriation rights. Investors must settle all tax liabilities, obtain tax clearance, and complete company deregistration procedures before capital repatriation.

Intellectual Property Protection

Trademark Registration

Companies can register trademarks with the Department of Industry under the Patent, Design and Trademark Act, 2022 (1965). Trademark registration provides exclusive rights to use the mark for ten years, renewable indefinitely. The registration process requires submission of trademark applications with specimen marks and payment of prescribed fees.

Patent Registration

Inventors can register patents for new inventions, processes, or products with the Department of Industry. Patent protection lasts for seven years from the registration date. The application must include detailed descriptions, drawings, and claims defining the invention’s scope.

Copyright Protection

The Copyright Act, 2059 (2002) automatically protects original literary, artistic, and musical works upon creation. Copyright registration with the Copyright Registrar’s Office provides additional legal evidence of ownership. Copyright protection extends for the author’s lifetime plus 50 years.

Technology Transfer Agreements

Foreign investors bringing technology to Nepal must register technology transfer agreements with the Department of Industry. The Foreign Investment and Technology Transfer Act, 2019 regulates technology transfer arrangements. Agreements must specify the technology being transferred, royalty rates, duration, and training provisions. The DOI reviews agreements to ensure fair terms and technology appropriateness for Nepal’s development needs.

Environmental Compliance

Initial Environmental Examination (IEE)

Projects categorized as Schedule 1 under the Environmental Protection Regulations, 2054 (1997) require Initial Environmental Examination. The IEE assesses potential environmental impacts and proposes mitigation measures. Companies must submit IEE reports to the Ministry of Forest and Environment for approval before commencing operations.

Environmental Impact Assessment (EIA)

Large-scale projects listed in Schedule 2 require comprehensive Environmental Impact Assessment. The EIA process involves detailed studies of environmental, social, and economic impacts. Public consultations and stakeholder engagement form mandatory components of the EIA process. The Ministry of Forest and Environment reviews and approves EIA reports before issuing environmental clearance.

Pollution Control Measures

Industries must implement pollution control measures as prescribed by the Environment Protection Act, 2076 (2019). Regular monitoring of air emissions, water discharge, and solid waste management is mandatory. Companies must submit periodic compliance reports to the Department of Environment demonstrating adherence to pollution standards.

Customs and Import Procedures

Import License

Importers must obtain import licenses from the Department of Commerce for restricted items. The Customs Act, 2064 (2007) governs import procedures and duty calculations. Companies must register with the Customs Department and obtain an importer code before commencing import activities.

Customs Clearance

Import consignments require customs clearance at designated customs points. Importers must submit bills of lading, commercial invoices, packing lists, and certificates of origin. Customs duties vary based on product classification under the Harmonized System Code. The Customs Department assesses duties and releases goods upon payment.

Duty Drawback Schemes

Export-oriented industries can claim duty drawbacks on imported raw materials used in export production. The Customs Act, 2064 (2007) provides for duty exemptions and refunds to promote exports. Companies must maintain detailed records of imported materials and exported finished goods to claim duty drawbacks.

Dispute Resolution Mechanisms

Arbitration

The Arbitration Act, 2055 (1999) provides the legal framework for domestic and international arbitration in Nepal. Parties can include arbitration clauses in commercial contracts specifying arbitration as the dispute resolution method. The Nepal Council of Arbitration facilitates arbitration proceedings and enforces arbitration awards.

Mediation

The Mediation Act, 2068 (2011) promotes mediation as an alternative dispute resolution mechanism. Mediation centers operate in district courts across Nepal. Commercial disputes can be resolved through mediation with the assistance of trained mediators, resulting in faster and cost-effective settlements.

Court Litigation

Commercial disputes fall under the jurisdiction of district courts, with appeals to High Courts and the Supreme Court. The Civil Procedure Code, 2074 (2017) governs civil litigation procedures. Foreign judgments can be enforced in Nepal under reciprocal arrangements or through fresh suits.

Investment Protection and Guarantees

The Foreign Investment and Technology Transfer Act, 2019 provides several protections to foreign investors:

Protection against nationalization except for public interest with fair compensation as determined by law.
Equal treatment with domestic investors in similar circumstances without discrimination based on nationality.
Right to repatriate invested capital, profits, dividends, and proceeds from share sales after tax payment.
Access to industrial property rights protection through trademark, patent, and copyright registration.
Facility to resolve disputes through arbitration in accordance with international arbitration rules.
Automatic approval for foreign investment in non-restricted sectors without case-by-case evaluation.

Restricted and Prohibited Sectors

Sector Category	Investment Restrictions	Legal Basis
Arms and Ammunition	Prohibited for foreign investment	Industrial Enterprises Act, 2076 (2020)
Retail Trading	Prohibited for foreign investment	Foreign Investment Policy
Domestic Courier Services	Prohibited for foreign investment	Foreign Investment Policy
Personal Services	Prohibited for foreign investment	Foreign Investment Policy
Atomic Energy	Prohibited for foreign investment	Industrial Enterprises Act, 2076 (2020)
Cottage Industries	Reserved for Nepali citizens	Industrial Enterprises Act, 2076 (2020)
Real Estate Business	Restricted with conditions	Foreign Investment Policy
Security Services	Restricted with conditions	Foreign Investment Policy

Banking and Financial Transactions

Opening Bank Accounts

Companies must open bank accounts in Nepal for conducting business transactions. Banks require submission of company registration certificates, PAN certificates, board resolutions, and identification documents of authorized signatories. Both Nepali and foreign currency accounts can be maintained subject to Nepal Rastra Bank regulations.

Letter of Credit Facilities

Banks provide letter of credit facilities for import transactions. Companies must establish credit relationships with banks and provide collateral security. The Negotiable Instruments Act, 2034 (1977) governs negotiable instruments including letters of credit and bank guarantees.

Foreign Currency Loans

Foreign investors can bring foreign loans to Nepal with prior approval from Nepal Rastra Bank. The Foreign Exchange (Regulation) Act, 2019 requires registration of foreign loans. Companies must submit loan agreements, lender information, and project details for approval. Approved foreign loans can be serviced through authorized banking channels.

Real Estate and Property Matters

Property Ownership Restrictions

The Land Act, 2021 (1964) prohibits foreign nationals and foreign-owned companies from owning land in Nepal. However, companies with majority Nepali ownership can purchase land for business purposes. Foreign investors typically lease property for business operations through long-term lease agreements.

Lease Agreements

Commercial lease agreements must be registered with the Land Revenue Office. Lease registration requires submission of property ownership documents, lease agreements, and payment of stamp duty. Registered leases provide legal protection and enforceability in case of disputes.

Property Tax

Property owners must pay annual property tax to local municipalities. The Local Government Operation Act, 2074 (2017) empowers local governments to levy property taxes. Tax rates vary based on property location, size, and usage type.

Insurance Requirements

Mandatory Insurance

The Labor Act, 2074 (2017) requires employers to provide accidental insurance coverage for employees. Companies operating vehicles must obtain third-party liability insurance under the Motor Vehicles and Transport Management Act, 2049 (1993). Certain industries require professional indemnity insurance based on sector-specific regulations.

Business Insurance

Companies can obtain comprehensive business insurance covering property damage, business interruption, and liability risks. Insurance companies licensed by the Insurance Board provide various commercial insurance products. Premium rates depend on business type, coverage amount, and risk assessment.

Voluntary Liquidation

Companies can voluntarily liquidate under Section 137 of the Company Act, 2063 (2006). The process requires shareholder approval through special resolution, appointment of liquidators, and settlement of all liabilities. The liquidator files a final report with the Office of Company Registrar for company dissolution.

Compulsory Liquidation

Courts can order compulsory liquidation if companies fail to commence business within one year of incorporation, suspend business for one year, or become unable to pay debts. Creditors or shareholders can file liquidation petitions with the court.

Deregistration Process

After completing liquidation, companies must apply for deregistration with the Office of Company Registrar. The application requires submission of liquidation reports, tax clearance certificates, and proof of debt settlement. The OCR removes the company from the register upon satisfaction of all requirements.

Recent Regulatory Changes

The Government of Nepal has implemented several regulatory reforms to improve the investment climate:

Introduction of online company registration system reducing registration time to 5 working days from previous 15-20 days.
Establishment of one-stop service centers at the Department of Industry for consolidated approvals and clearances.
Reduction in minimum capital requirements for certain service sectors to encourage small and medium enterprises.
Simplification of tax return filing procedures through online tax filing systems operated by Inland Revenue Department.
Implementation of electronic payment systems for government fees and taxes reducing processing time and corruption.
Revision of foreign investment policies allowing 100% foreign ownership in additional sectors previously restricted.

What is the minimum investment required for foreign investors in Nepal?

The minimum investment requirement varies by sector, ranging from NPR 500,000 for consulting services to NPR 50 million for manufacturing industries. Service sectors generally require NPR 5 million minimum investment. The Foreign Investment and Technology Transfer Act, 2019 specifies sector-wise minimum capital requirements.

How long does company registration take in Nepal?

Company registration typically takes 7-15 working days from application submission. The Department of Industry issues foreign investment approval within 7 days, name reservation takes 1-2 days, and the Office of Company Registrar completes registration within 5 days of receiving complete documentation.

Can foreign investors own 100% equity in Nepali companies?

Foreign investors can own 100% equity in most sectors except those specifically restricted or prohibited. Retail trading, personal services, and cottage industries are prohibited for foreign investment. Real estate and security services have conditional restrictions requiring Nepali partnership.

What taxes do companies pay in Nepal?

Companies pay corporate income tax at 25% of taxable income, VAT at 13% on taxable supplies, and withholding taxes on various payments. Dividend distribution attracts 5% tax for residents and 10% for non-residents. The Income Tax Act, 2058 (2002) governs all tax provisions.

Are there tax incentives for foreign investors?

The Income Tax Act, 2058 (2002) provides tax holidays ranging from 5-10 years for industries established in specified regions. Export-oriented industries receive additional tax benefits. Special Economic Zones offer customs duty exemptions and reduced tax rates for qualifying businesses.

How can foreign investors repatriate profits from Nepal?

Foreign investors can repatriate profits after paying applicable taxes by obtaining approval from Nepal Rastra Bank. The repatriation application requires audited financial statements, tax clearance certificates, and proof of tax payment. The Foreign Exchange (Regulation) Act, 2019 guarantees repatriation rights.

What employment restrictions exist for foreign workers?

Companies can employ foreign workers with work permits from the Department of Immigration. The Foreign Investment and Technology Transfer Act, 2019 requires companies to gradually replace foreign employees with trained Nepali workers. Work permits are issued for specific positions and durations.

Is arbitration recognized for dispute resolution in Nepal?

The Arbitration Act, 2055 (1999) recognizes both domestic and international arbitration. Nepal is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Arbitration awards are enforceable in Nepali courts subject to limited grounds for challenge.

What environmental clearances are required for businesses?

Projects require Initial Environmental Examination or Environmental Impact Assessment based on their environmental impact category. The Ministry of Forest and Environment issues environmental clearance certificates. Industries must obtain pollution control certificates from the Department of Environment before commencing operations.

Can foreign companies open branch offices in Nepal?

Foreign companies can establish branch offices by registering with the Office of Company Registrar under Section 70 of the Company Act, 2063 (2006). Branch offices cannot engage in manufacturing activities and primarily serve representative functions. The parent company remains liable for branch obligations.