Repatriation of Profits from Nepal

Legal Framework for Profit Repatriation in Nepal

The repatriation of profits from Nepal is governed by the Foreign Exchange (Regulation) Act, 2019 and the Foreign Investment and Technology Transfer Act, 2019 (FITTA). These laws establish the legal framework for foreign investors to transfer their earnings, dividends, and capital gains outside Nepal. The Nepal Rastra Bank (NRB), as the central monetary authority, regulates all foreign exchange transactions and profit repatriation procedures through its directives and circulars.

Foreign investors operating in Nepal have the legal right to repatriate their legitimate earnings after fulfilling tax obligations and obtaining necessary approvals. The Industrial Enterprises Act, 2020 also provides provisions for profit repatriation for industries registered under this legislation. The legal framework ensures that foreign investors can transfer their profits while maintaining Nepal’s foreign exchange reserves and economic stability.

Eligibility Criteria for Profit Repatriation

Foreign investors must meet specific eligibility requirements to repatriate profits from Nepal. The investment must be registered with the Department of Industry (DOI) or relevant sector regulators, and the foreign investment must comply with FITTA provisions. Only legally earned profits through legitimate business operations qualify for repatriation under Nepali law.

Requirements for Eligible Investors

• The foreign investor must have made investment through proper banking channels with documented proof of foreign currency inflow.
• The business entity must be registered with the Office of Company Registrar and possess valid tax clearance certificates.
• The investor must have fulfilled all tax obligations including corporate income tax, withholding tax, and other applicable levies.
• The company must maintain proper accounting records audited by registered chartered accountants in Nepal.
• The investment must not fall under the negative list specified in Foreign Investment and Technology Transfer Act, 2019.

Types of Repatriable Funds from Nepal

Foreign investors can repatriate various categories of funds from Nepal subject to compliance with legal requirements and tax obligations. The Foreign Investment and Technology Transfer Act, 2019 specifically permits repatriation of different types of earnings and capital.

Type of Repatriable Fund	Description	Legal Basis
Dividend	Profits distributed to shareholders after tax payment	FITTA Section 8(1)(a)
Profit from Sale of Shares	Capital gains from transfer of equity to other investors	FITTA Section 8(1)(b)
Proceeds from Liquidation	Amount received after company dissolution and asset sale	FITTA Section 8(1)(c)
Royalty and Fees	Technical service fees, management fees, and royalty payments	FITTA Section 8(1)(d)
Loan Repayment	Principal and interest on foreign loans approved by NRB	Foreign Exchange Regulation Act

Tax Obligations Before Profit Repatriation

The Income Tax Act, 2058 (2002) mandates payment of applicable taxes before any profit repatriation from Nepal. Foreign investors must comply with corporate income tax at the rate of 25% on taxable income, though certain sectors enjoy concessional rates. Dividend distribution attracts withholding tax at 5% for resident companies and 10% for non-resident shareholders under standard provisions.

Capital gains from sale of shares are subject to taxation under the Income Tax Act. The seller must pay capital gains tax before repatriating proceeds from share transfers. Technical service fees, royalty payments, and management fees attract withholding tax at rates specified in the Income Tax Act or applicable Double Taxation Avoidance Agreements (DTAAs).

Tax Clearance Requirements

• The company must obtain a tax clearance certificate from the Inland Revenue Department confirming all tax payments.
• Withholding tax certificates must be issued for dividend payments and other repatriable amounts.
• The company must file annual income tax returns and settle any outstanding tax liabilities.
• Advance tax payments must be completed as per the Income Tax Act provisions.

Step-by-Step Process for Profit Repatriation

Step 1: Prepare audited financial statements of the company certified by a registered chartered accountant showing the profit available for distribution.

Step 2: Conduct a board meeting and pass a resolution for profit distribution or dividend declaration as per the Companies Act, 2063.

Step 3: Calculate and deposit applicable withholding tax on dividends or other repatriable amounts with the Inland Revenue Department.

Step 4: Obtain a tax clearance certificate from the Inland Revenue Department confirming payment of all applicable taxes.

Step 5: Submit an application to the authorized commercial bank with required documents including board resolution, audited financial statements, and tax clearance certificate.

Step 6: The commercial bank verifies the documents and forwards the application to Nepal Rastra Bank for approval if the amount exceeds the bank’s authority limit.

Step 7: Upon receiving approval, the bank processes the foreign exchange transaction and transfers the amount to the foreign investor’s designated account abroad.

Step 8: The bank reports the transaction to Nepal Rastra Bank as per foreign exchange reporting requirements.

Required Documents for Profit Repatriation

Foreign investors must submit comprehensive documentation to authorized commercial banks for processing profit repatriation requests. The documentation requirements ensure compliance with foreign exchange regulations and tax laws.

Primary Documents

• The company must provide audited financial statements for the relevant fiscal year certified by a registered chartered accountant.
• A certified copy of the board resolution authorizing profit distribution or dividend declaration must be submitted.
• Tax clearance certificate from the Inland Revenue Department confirming payment of all applicable taxes is mandatory.
• Withholding tax deposit receipt showing payment of dividend tax or other applicable withholding taxes must be provided.
• Certificate of foreign investment registration from the Department of Industry or relevant sector regulator is required.

Supporting Documents

• The investor must submit proof of original foreign investment inflow through banking channels with foreign currency conversion records.
• A copy of the company registration certificate from the Office of Company Registrar must be provided.
• The company must furnish its Permanent Account Number (PAN) certificate and tax registration documents.
• Bank statements showing the profit amount available in the company’s account are necessary.
• For share sale proceeds, the share transfer agreement and approval from relevant authorities must be submitted.

Role of Nepal Rastra Bank in Repatriation

Nepal Rastra Bank serves as the primary regulatory authority for all foreign exchange transactions including profit repatriation. The NRB issues directives and circulars governing foreign exchange operations and monitors compliance by commercial banks. Under the Nepal Rastra Bank Act, 2058, the central bank has authority to regulate foreign currency transactions and maintain foreign exchange reserves.

Commercial banks authorized by NRB can approve profit repatriation up to specified limits without prior NRB approval. For amounts exceeding these limits, banks must obtain specific approval from Nepal Rastra Bank. The NRB reviews applications to ensure compliance with foreign exchange regulations and verifies that the repatriation does not adversely affect Nepal’s foreign exchange position.

Restrictions and Limitations on Repatriation

The Foreign Exchange (Regulation) Act, 2019 imposes certain restrictions on profit repatriation to protect Nepal’s foreign exchange reserves and economic interests. Repatriation is permitted only for legally earned profits from registered foreign investments. The government may impose temporary restrictions during foreign exchange crises or balance of payment difficulties.

Sector-Specific Restrictions

• Foreign investment in certain sectors listed in the negative list under FITTA is prohibited, and consequently, profit repatriation from such sectors is not permitted.
• The government may impose additional conditions on profit repatriation for investments in strategic sectors.
• Repatriation of profits from informal or unregistered business activities is strictly prohibited under Nepali law.

Double Taxation Avoidance Agreements

Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with multiple countries to prevent double taxation on income and facilitate international investment. These agreements provide reduced withholding tax rates on dividends, interest, and royalties for investors from treaty countries. Foreign investors can claim benefits under applicable DTAAs by submitting tax residency certificates from their home countries.

Country	Dividend Tax Rate (%)	Royalty Tax Rate (%)	Interest Tax Rate (%)
India	5 / 10	15	10
China	10	10	10
Thailand	10 / 15	15	10 / 15
Austria	5 / 10	10	10
Norway	5 / 15	15	10

The rates vary based on ownership percentage and nature of payment. Investors must apply for tax clearance at treaty rates by submitting proper documentation to the Inland Revenue Department.

Timeline for Profit Repatriation Process

The profit repatriation process typically requires two to four weeks from application submission to fund transfer, depending on the complexity and amount involved. Commercial banks process applications within their authority limits more quickly than those requiring Nepal Rastra Bank approval.

Processing Timeline

• Document preparation and tax clearance certificate acquisition takes approximately five to seven working days.
• Bank verification and processing of applications within bank authority limits requires three to five working days.
• Applications requiring Nepal Rastra Bank approval may take an additional ten to fifteen working days.
• Foreign currency arrangement and international transfer execution takes two to three working days after approval.

Compliance Requirements for Foreign Investors

Foreign investors must maintain ongoing compliance with Nepali laws to ensure smooth profit repatriation. The Companies Act, 2063 requires companies to maintain proper books of accounts and prepare annual financial statements. Regular filing of tax returns and timely payment of taxes is mandatory under the Income Tax Act.

Companies must submit annual reports to the Office of Company Registrar and renew their business registration periodically. Foreign investment enterprises must file annual reports with the Department of Industry detailing their operations, employment, and financial performance. Non-compliance with these requirements can result in delays or rejection of profit repatriation applications.

Banking Procedures for Fund Transfer

Authorized commercial banks in Nepal handle profit repatriation transactions following Nepal Rastra Bank guidelines. Banks verify the authenticity of documents and ensure compliance with foreign exchange regulations before processing repatriation requests. The bank converts Nepali Rupees to foreign currency at the prevailing exchange rate on the transaction date.

Bank Processing Steps

• The bank’s foreign exchange department receives and reviews the repatriation application with supporting documents.
• The compliance team verifies tax clearance certificates and ensures all regulatory requirements are met.
• The bank checks the availability of foreign currency and arranges funds if necessary.
• For amounts exceeding authority limits, the bank forwards the application to Nepal Rastra Bank with its recommendation.
• Upon approval, the bank executes the SWIFT transfer to the beneficiary’s foreign bank account.
• The bank maintains records of the transaction and reports to Nepal Rastra Bank as per reporting requirements.

Special Provisions for Different Investment Types

The Foreign Investment and Technology Transfer Act, 2019 provides different provisions for various types of foreign investments. Joint venture companies with foreign equity participation can repatriate profits proportionate to their shareholding. Wholly foreign-owned enterprises can repatriate entire profits after tax payment and regulatory compliance.

Technology transfer agreements allow repatriation of royalty and technical fees as per approved agreements. The Department of Industry approves technology transfer terms including royalty rates and payment schedules. Foreign loans approved by Nepal Rastra Bank can be repaid with interest as per loan agreements.

Penalties for Non-Compliance

The Foreign Exchange (Regulation) Act, 2019 prescribes penalties for violations of foreign exchange regulations. Unauthorized foreign exchange transactions attract fines up to NPR 1,000,000 or imprisonment up to five years, or both. Companies attempting to repatriate funds without proper authorization face severe penalties and potential business license cancellation.

Tax evasion related to profit repatriation results in penalties under the Income Tax Act including fines, interest on unpaid taxes, and potential criminal prosecution. The Inland Revenue Department can impose penalties up to 100% of the tax evaded plus interest. Providing false information in repatriation applications constitutes a criminal offense under Nepali law.

Recent Regulatory Changes

Nepal Rastra Bank periodically updates foreign exchange regulations to align with economic conditions and international best practices. Recent amendments to the Foreign Exchange (Regulation) Act, 2019 have streamlined certain procedures and increased transparency in foreign exchange transactions. The government has simplified documentation requirements for routine profit repatriation to facilitate foreign investment.

The Industrial Enterprises Act, 2020 introduced new provisions for industrial sector investments including simplified repatriation procedures for manufacturing enterprises. Nepal Rastra Bank has increased the authority limits for commercial banks to approve repatriation without prior central bank approval, reducing processing time for investors.

Practical Considerations for Investors

Foreign investors should maintain meticulous records of their initial investment inflow and subsequent business transactions. Proper documentation of foreign currency conversion and investment registration facilitates smooth profit repatriation. Engaging qualified chartered accountants and legal advisors ensures compliance with complex regulatory requirements.

Investors should plan repatriation timing considering tax obligations and foreign exchange availability. Maintaining good relationships with authorized commercial banks expedites the repatriation process. Regular communication with the Department of Industry and tax authorities helps address compliance issues proactively.

Comparison with Regional Countries

Nepal’s profit repatriation regime is comparable to other South Asian countries with some variations in procedures and restrictions. India allows profit repatriation for foreign direct investment without prior approval subject to tax compliance. Bangladesh requires central bank approval for profit repatriation exceeding certain thresholds.

Country	Prior Approval Required	Typical Processing Time	Withholding Tax on Dividends
Nepal	Required for amounts above bank limits	2–4 weeks	5–10%
India	Generally not required	1–2 weeks	20% (reduced under DTAAs)
Bangladesh	Required for large remittances	3–4 weeks	20–30%
Sri Lanka	Not required	1–2 weeks	14%
Pakistan	Not required	2–3 weeks	15–25%

Nepal’s system balances investor interests with foreign exchange management needs, providing reasonable access to profit repatriation while maintaining regulatory oversight.