Understanding Nepal’s Company Laws for Foreign Investors

Legal Framework for Foreign Investment in Nepal

Nepal’s company laws for foreign investors operate under the Foreign Investment and Technology Transfer Act (FITTA) 2019 and the Companies Act 2063 (2006). The Department of Industry serves as the primary regulatory body for foreign investment registration and approval. Foreign investors must comply with both FITTA provisions and Companies Act requirements when establishing business operations in Nepal.

The Industrial Enterprises Act 2020 replaced the previous Industrial Enterprises Act 1992, providing additional guidelines for industrial operations. Foreign investors can establish companies in Nepal through various business structures, subject to sector-specific restrictions and minimum capital requirements outlined in FITTA 2019.

Types of Business Entities Available to Foreign Investors

Foreign investors can establish the following business structures in Nepal:

Private Limited Company

A private limited company represents the most common business structure for foreign investors in Nepal. Section 3 of the Companies Act 2063 defines a private company as having minimum two shareholders and maximum 101 shareholders. Foreign investors can hold 100% equity in most sectors, except those restricted under FITTA 2019. The minimum paid-up capital requirement varies by sector and investment type.

Public Limited Company

Public limited companies require minimum seven shareholders and can issue shares to the general public. Section 3 of the Companies Act 2063 governs public company formation. Foreign investors establishing public companies must comply with Securities Board of Nepal regulations and listing requirements if shares are publicly traded.

Branch Office and Liaison Office

Foreign companies can establish branch offices to conduct business operations in Nepal. Branch offices can engage in profit-generating activities, while liaison offices serve only coordination and communication purposes. The Department of Industry approves branch office establishment under FITTA 2019 provisions.

Joint Venture Companies

Joint venture arrangements between foreign and Nepali investors follow Companies Act 2063 provisions. The joint venture agreement must specify equity participation, profit-sharing ratios, and management responsibilities. FITTA 2019 encourages joint ventures in specific sectors through incentive provisions.

Sector-Specific Restrictions for Foreign Investment

Sector CategoryForeign Investment LimitLegal ProvisionCottage Industries0% (Prohibited)FITTA 2019, Schedule 1Personal Services0% (Prohibited)FITTA 2019, Schedule 1Arms and Ammunition0% (Prohibited)FITTA 2019, Schedule 1Radioactive Materials0% (Prohibited)FITTA 2019, Schedule 1Domestic Courier Services0% (Prohibited)FITTA 2019, Schedule 1Retail Business (under NPR 10 million)0% (Prohibited)FITTA 2019, Schedule 1Security Printing0% (Prohibited)FITTA 2019, Schedule 1Real Estate Business0% (Prohibited)FITTA 2019, Schedule 1Consultancy ServicesUp to 51%FITTA 2019, Schedule 2Tourism IndustryUp to 80%FITTA 2019, Schedule 2Film ProductionUp to 70%FITTA 2019, Schedule 2

Minimum Capital Requirements Under FITTA 2019

FITTA 2019 establishes specific minimum capital requirements for foreign investment projects:

• Foreign investors must invest minimum NPR 50 million (approximately USD 375,000) for technology-based industries and services.
• Foreign investors must invest minimum NPR 20 million (approximately USD 150,000) for energy-based industries with foreign investment up to 50%.
• Foreign investors must invest minimum NPR 50 million for consulting services where foreign equity participation is permitted.
• Foreign investors establishing industries in special economic zones must meet minimum capital requirements specified by the zone authority.

Section 3 of FITTA 2019 provides these capital thresholds, which the Department of Industry enforces during registration and approval processes.

Company Registration Process for Foreign Investors

Step 1: Obtain Foreign Investment Approval

Foreign investors must first register with the Department of Industry under FITTA 2019. The application requires submission of project details, proposed capital investment, technology transfer agreements (if applicable), and investor identification documents. The Department of Industry issues approval within 7 working days for automatic approval sectors and within 30 days for sectors requiring government approval.

Step 2: Reserve Company Name

The Office of Company Registrar (OCR) handles company name reservation under Section 8 of the Companies Act 2063. Applicants must submit three proposed names in order of preference. The OCR verifies name availability and approves names that do not conflict with existing registered companies or violate naming guidelines. Name reservation remains valid for 35 days from approval date.

Step 3: Prepare Constitutional Documents

Foreign investors must prepare the Memorandum of Association and Articles of Association according to Companies Act 2063 requirements. The Memorandum must specify company objectives, authorized capital, and subscriber details. The Articles of Association outline internal management rules, director powers, and shareholder rights. Both documents require notarization before submission.

Step 4: Submit Registration Application

The company registration application to the OCR must include the following documents:

• The completed company registration form as prescribed by the OCR with all mandatory fields filled accurately.
• The approved company name reservation certificate issued by the OCR within the validity period.
• The notarized Memorandum of Association signed by all subscribers with their full details and signatures.
• The notarized Articles of Association containing company management and operational rules.
• The foreign investment approval certificate issued by the Department of Industry under FITTA 2019.
• The citizenship certificates or passport copies of all shareholders and directors with authentication.
• The consent letters from all proposed directors accepting their appointment and responsibilities.
• The proof of registered office address through rental agreement or ownership documents.
• The bank certificate confirming deposit of minimum paid-up capital in the company’s bank account.

Step 5: Pay Registration Fees

The Companies Act 2063 prescribes registration fees based on authorized capital amounts. Foreign investors must pay fees at designated banks and submit payment receipts with the registration application. The OCR processes applications only after fee payment verification.

Step 6: Obtain Company Registration Certificate

The OCR issues the company registration certificate within 7 working days of complete application submission under Section 10 of the Companies Act 2063. The certificate confirms legal company existence and enables the company to commence business operations after completing post-registration requirements.

Post-Registration Compliance Requirements

Tax Registration

Registered companies must obtain a Permanent Account Number (PAN) from the Inland Revenue Department within 30 days of registration. Section 85 of the Income Tax Act 2058 (2002) mandates PAN registration for all business entities. Companies must also register for Value Added Tax if annual turnover exceeds NPR 5 million, as per the Value Added Tax Act 2052 (1996).

Social Security Registration

The Social Security Act 2074 (2017) requires companies with one or more employees to register with the Social Security Fund. Employers must contribute 20% of basic salary (employer 10%, employee 10%) to the social security fund. Registration must occur within 30 days of employee hiring.

Labor Law Compliance

Companies must comply with the Labor Act 2074 (2017) regarding employment contracts, working hours, leave provisions, and termination procedures. Foreign investors employing foreign nationals must obtain work permits from the Department of Immigration under the Immigration Act 2049 (1992). Work permit applications require labor approval from the Department of Labor.

Annual Return Filing

Section 110 of the Companies Act 2063 requires all registered companies to file annual returns with the OCR within six months of fiscal year end. The annual return must include audited financial statements, director details, shareholder information, and company activity reports. Non-filing attracts penalties under Section 167 of the Companies Act 2063.

Director and Shareholder Requirements

Requirement TypePrivate Limited CompanyPublic Limited CompanyMinimum Directors1 Director3 DirectorsNepali Director RequirementNot mandatoryAt least 1 must be Nepali residentMinimum Shareholders2 Shareholders7 ShareholdersMaximum Shareholders101 ShareholdersUnlimitedForeign Director AllowedYes, with work permitYes, with work permitDirector ResidencyNo specific requirementAt least one resident director

Section 79 of the Companies Act 2063 establishes director qualifications and disqualifications. Directors must be at least 18 years old, not declared insolvent, and not convicted of moral turpitude offenses. Foreign directors require valid work permits and residential status in Nepal.

Dividend Repatriation and Profit Transfer

FITTA 2019 Section 9 guarantees foreign investors the right to repatriate profits, dividends, and proceeds from technology transfer. The Foreign Exchange (Regulation) Act 2019 governs foreign currency transactions and repatriation procedures. Foreign investors can repatriate funds after fulfilling tax obligations under the Income Tax Act 2058.

The Nepal Rastra Bank (central bank) regulates foreign exchange transactions through authorized commercial banks. Companies must submit audited financial statements, tax clearance certificates, and board resolutions approving dividend distribution. Banks verify compliance before processing repatriation requests.

Intellectual Property Protection

The Patent, Design and Trademark Act 2022 (1965) protects intellectual property rights in Nepal. Foreign investors can register patents, trademarks, and industrial designs with the Department of Industry. Copyright protection follows the Copyright Act 2059 (2002) provisions. Nepal’s membership in the World Intellectual Property Organization provides international IP protection frameworks.

Technology transfer agreements require registration with the Department of Industry under FITTA 2019 Section 6. The agreements must specify technology terms, royalty payments, and duration. Royalty repatriation follows Foreign Exchange Regulation Act provisions after tax deduction.

Dispute Resolution Mechanisms

Arbitration

The Arbitration Act 2055 (1999) provides the legal framework for domestic and international arbitration in Nepal. Foreign investors can include arbitration clauses in investment agreements specifying dispute resolution through arbitration. Nepal recognizes international arbitration awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Court Litigation

The Companies Act 2063 Section 164 establishes the Company Court for company-related disputes. Foreign investors can file cases in regular courts for contract disputes, property matters, and other civil claims. The Civil Code 2074 (2017) and Civil Procedure Code govern civil litigation procedures.

Investment Board Facilitation

The Investment Board Nepal, established under the Investment Board Act 2068 (2011), facilitates large-scale foreign investment projects exceeding NPR 6 billion. The Board provides one-window services, dispute resolution assistance, and investment facilitation for mega projects.

Tax Obligations for Foreign-Invested Companies

Tax TypeRateLegal ProvisionCorporate Income Tax25% (General)Income Tax Act 2058, Section 11Corporate Income Tax (Special Industries)20%Income Tax Act 2058, Section 11Dividend Tax (Resident)5%Income Tax Act 2058, Section 88Dividend Tax (Non-Resident)5%Income Tax Act 2058, Section 88Capital Gains Tax5-10%Income Tax Act 2058, Section 85Value Added Tax13%VAT Act 2052, Section 6Withholding Tax (Royalty)15%Income Tax Act 2058, Section 92Withholding Tax (Technical Service)15%Income Tax Act 2058, Section 92

The Income Tax Act 2058 (2002) governs corporate taxation in Nepal. Companies must file annual tax returns within three months of fiscal year end (mid-July). Advance tax payments occur quarterly based on estimated annual income.

Special Economic Zones and Industrial Estates

The Special Economic Zone Act 2073 (2016) establishes special economic zones offering enhanced facilities and incentives for foreign investors. SEZ benefits include:

• Foreign investors in SEZs receive customs duty exemptions on imported raw materials and capital goods for production purposes.
• SEZ-based companies enjoy income tax holidays ranging from 5 to 10 years depending on zone location and industry type.
• Foreign investors can hold 100% equity in SEZ enterprises without sector restrictions applicable outside SEZs.
• SEZ authorities provide one-window services for all regulatory approvals, licenses, and permits required for business operations.

The Industrial Enterprise Act 2020 classifies industries into micro, small, medium, and large categories with corresponding incentives. Foreign-invested industries in priority sectors receive additional tax benefits and infrastructure support.

Labor and Employment Regulations

The Labor Act 2074 (2017) establishes comprehensive employment regulations applicable to all companies in Nepal. Key provisions include:

• Employers must provide written employment contracts specifying job duties, salary, working hours, and termination conditions to all employees.
• The standard working week consists of 48 hours with provisions for overtime payment at 150% of regular wages.
• Employees receive 13 days annual leave, 13 days public holidays, and 12 days sick leave annually as minimum entitlements.
• The Labor Act prohibits discrimination based on gender, caste, religion, or disability in hiring, promotion, and termination decisions.
• Employers must provide three months’ notice or equivalent compensation for termination without cause after completing one year of service.

Foreign nationals working in Nepal require work permits from the Department of Immigration. The employer must demonstrate that qualified Nepali workers are unavailable for the position. Work permit validity ranges from one to five years with renewal options.

Foreign Exchange Regulations

The Foreign Exchange (Regulation) Act 2019 controls foreign currency transactions in Nepal. The Nepal Rastra Bank implements foreign exchange policies through authorized dealer banks. Key regulations include:

• Foreign investors must convert foreign currency investments into Nepali Rupees through authorized banks with proper documentation and approval certificates.
• Companies can maintain foreign currency accounts for import payments, export proceeds, and approved foreign currency transactions with central bank permission.
• All foreign currency transactions require underlying documentation proving legitimate business purposes and compliance with FITTA 2019 provisions.
• The Nepal Rastra Bank sets exchange rates and may impose restrictions on foreign currency transactions during balance of payment difficulties.

Exit and Liquidation Procedures

Section 120 of the Companies Act 2063 provides voluntary liquidation procedures for companies. Foreign investors seeking to exit must follow these steps:

• The company board must pass a resolution recommending voluntary liquidation with reasons and financial position statements to shareholders.
• Shareholders must approve liquidation through special resolution requiring 75% majority vote in a general meeting called specifically for this purpose.
• The company must appoint a liquidator approved by the Office of Company Registrar to manage asset disposal and creditor payments.
• The liquidator must publish liquidation notices in national newspapers and the Nepal Gazette informing creditors and stakeholders about the liquidation.
• After settling all debts and liabilities, the liquidator distributes remaining assets to shareholders according to their shareholding proportions.
• The liquidator submits final accounts to the OCR, which issues a dissolution certificate completing the company’s legal existence termination.

Foreign investors can repatriate liquidation proceeds after tax clearance and Nepal Rastra Bank approval under FITTA 2019 Section 9 provisions.

Investment Protection and Guarantees

FITTA 2019 provides comprehensive investment protection guarantees to foreign investors:

• Section 8 prohibits nationalization or expropriation of foreign investments except for public interest with fair compensation at market value.
• Foreign investors receive national treatment equal to domestic investors in similar circumstances without discriminatory restrictions or requirements.
• The government guarantees foreign investors’ rights to repatriate invested capital, profits, dividends, and proceeds from asset sales after tax obligations.
• Foreign investors can transfer shares to other foreign or domestic investors without government approval in non-restricted sectors.

Nepal has signed Bilateral Investment Promotion and Protection Agreements (BIPPAs) with multiple countries providing additional investment protection and dispute resolution mechanisms through international arbitration.

Frequently Asked Questions

What is the minimum capital requirement for foreign investment in Nepal?

Foreign investors must invest minimum NPR 50 million for technology-based industries and services, or NPR 20 million for energy-based industries with up to 50% foreign equity under FITTA 2019 Section 3 provisions.

Can foreign investors own 100% equity in Nepali companies?

Foreign investors can hold 100% equity in most sectors except those listed in FITTA 2019 prohibited and restricted schedules, which include cottage industries, personal services, and certain consultancy services with equity caps.

How long does company registration take in Nepal?

The Office of Company Registrar issues company registration certificates within 7 working days of complete application submission under Companies Act 2063 Section 10, following Department of Industry approval under FITTA 2019.

Are foreign directors required to reside in Nepal?

Foreign directors do not require permanent residency but need valid work permits from the Department of Immigration. Public companies must have at least one resident director under Companies Act 2063 provisions.

What taxes apply to foreign-invested companies?

Foreign-invested companies pay 25% corporate income tax, 13% VAT, 5% dividend tax, and 15% withholding tax on royalties and technical services under the Income Tax Act 2058 and VAT Act 2052.

Can foreign investors repatriate profits from Nepal?

FITTA 2019 Section 9 guarantees profit repatriation rights after fulfilling tax obligations. Foreign investors process repatriation through authorized banks with Nepal Rastra Bank approval under Foreign Exchange Regulation Act 2019.

Which sectors are prohibited for foreign investment?

FITTA 2019 Schedule 1 prohibits foreign investment in cottage industries, personal services, arms and ammunition, radioactive materials, domestic courier services, retail business under NPR 10 million, security printing, and real estate business.

Do companies need Nepali partners for business operations?

Foreign investors can operate without Nepali partners in non-restricted sectors. Certain sectors like consultancy services require Nepali partnership with foreign equity limited to 51% under FITTA 2019 Schedule 2 provisions.

What is the process for obtaining work permits for foreign employees?

Employers must obtain labor approval from the Department of Labor demonstrating unavailability of qualified Nepali workers, then apply to the Department of Immigration for work permits valid from one to five years.

How are disputes between foreign investors and the government resolved?

Disputes can be resolved through arbitration under the Arbitration Act 2055, court litigation, or international arbitration under bilateral investment treaties. The Investment Board Nepal facilitates dispute resolution for large projects.