Overview of Foreign Investment Framework in Nepal
Nepal’s foreign investment regime operates under the Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019), which replaced the earlier 1992 legislation. The Act establishes a comprehensive legal framework for foreign direct investment, technology transfer, and repatriation of earnings. The Department of Industry serves as the primary regulatory authority for foreign investment approval and monitoring. Foreign investors can establish wholly-owned enterprises or joint ventures with Nepali partners across most sectors, subject to specific sectoral restrictions and minimum investment thresholds.
Legal Framework Governing Foreign Investment
Primary Legislation
The Foreign Investment and Technology Transfer Act, 2019 constitutes the principal law regulating foreign investment in Nepal. This Act provides provisions for investment approval, technology transfer agreements, profit repatriation, and dispute resolution mechanisms. The Industrial Enterprises Act, 2020 complements FITTA 2019 by establishing procedures for industrial registration and operation. Additionally, the Companies Act, 2006 governs corporate structure and governance requirements for foreign-invested companies operating in Nepal.
Regulatory Bodies
| Regulatory Authority | Primary Functions |
|---|---|
| Department of Industry | Issues foreign investment approvals and monitors compliance with investment conditions |
| Nepal Rastra Bank | Regulates foreign currency transactions and approves profit repatriation |
| Office of Company Registrar | Registers companies and maintains corporate records |
| Investment Board Nepal | Facilitates large-scale infrastructure and energy projects exceeding NPR 6 billion |
Sectors Open for Foreign Investment
Permitted Investment Areas
Foreign investors can invest in most sectors of Nepal’s economy under FITTA 2019. Manufacturing industries, tourism and hospitality, information technology, agriculture and livestock, education services, and healthcare facilities welcome foreign participation. The Act permits 100% foreign ownership in most sectors, eliminating previous restrictions that mandated Nepali partnership in certain industries. Energy sector projects, particularly hydropower development, attract significant foreign investment due to Nepal’s substantial hydroelectric potential.
Restricted and Prohibited Sectors
| Sector Category | Investment Restrictions |
|---|---|
| Cottage Industries | Foreign investment prohibited to protect traditional crafts |
| Arms and Ammunition | Completely restricted for foreign investors |
| Retail Trading | Limited to specific formats with minimum investment requirements |
| Consultancy Services | Requires partnership with Nepali professionals in certain fields |
| Real Estate | Foreign ownership of land prohibited; only leasehold rights available |
Minimum Investment Requirements
Capital Thresholds
Foreign investors must meet minimum investment thresholds specified under FITTA 2019. For foreign nationals investing individually, the minimum investment requirement stands at NPR 50 million (approximately USD 375,000). Foreign companies or institutional investors face a minimum threshold of NPR 50 million for initial investment. Technology-based industries and export-oriented enterprises may qualify for reduced minimum investment requirements. The Investment Board Nepal handles projects exceeding NPR 6 billion with special facilitation procedures.
Equity Contribution Standards
The law requires foreign investors to bring minimum equity capital through banking channels. At least 25% of the total project cost must constitute equity capital, with the remaining 75% available through debt financing. Foreign investors must transfer their equity contribution through authorized banking channels within specified timeframes. The Department of Industry verifies equity transfer documentation before issuing final investment approval certificates.
Investment Approval Process
Step 1: Application Submission
Foreign investors must submit applications to the Department of Industry through the online Industrial Enterprise Management System. The application requires detailed project information, including business plan, financial projections, technology transfer agreements, and environmental impact assessments where applicable. Investors must provide authenticated copies of passport, company registration certificates, and bank statements demonstrating financial capacity.
Step 2: Document Verification
The Department of Industry reviews submitted applications for completeness and compliance with legal requirements. Officials verify minimum investment thresholds, sectoral eligibility, and proposed business activities against restricted sector lists. The department may request additional information or clarifications during the review process. Complete applications receive priority processing under the department’s service delivery standards.
Step 3: Approval Issuance
Upon satisfactory review, the Department of Industry issues a foreign investment approval certificate within 7 working days for complete applications. The approval certificate specifies investment amount, business sector, project location, and any special conditions. Investors must commence business operations within the timeframe specified in the approval certificate. The certificate serves as the legal basis for company registration and subsequent regulatory approvals.
Company Registration Requirements
Registration with Office of Company Registrar
Foreign-invested companies must register with the Office of Company Registrar under the Companies Act, 2006. Investors can establish private limited companies, public limited companies, or branch offices of foreign companies. The registration application requires the foreign investment approval certificate, memorandum and articles of association, and shareholder details. Registration fees vary based on authorized capital, with additional charges for expedited processing services.
Required Documentation
- Foreign Investment Approval Certificate: The original certificate issued by the Department of Industry authorizing foreign investment in the proposed business sector.
- Memorandum of Association: A legal document defining the company’s objectives, authorized capital, and initial shareholding structure.
- Articles of Association: Internal governance rules specifying director powers, shareholder rights, and operational procedures.
- Shareholder Identification Documents: Authenticated passport copies for individual investors or incorporation certificates for corporate shareholders.
- Registered Office Proof: Rental agreement or ownership documents for the company’s registered office location in Nepal.
- Director Consent Letters: Written consent from proposed directors accepting their appointment and responsibilities.
Technology Transfer Agreements
Legal Requirements
FITTA 2019 permits foreign investors to enter technology transfer agreements with Nepali enterprises. Such agreements require approval from the Department of Industry before implementation. The Act defines technology transfer as the transfer of systematic knowledge for manufacturing products, applying production processes, or rendering services. Agreements must specify royalty rates, duration, training provisions, and intellectual property rights. Maximum royalty rates and agreement durations are subject to departmental guidelines.
Approval Process
Technology transfer agreements require submission to the Department of Industry with detailed terms and conditions. The department evaluates whether the technology is appropriate for Nepal’s development needs and whether royalty rates are reasonable. Approval consideration includes technology obsolescence, alternative availability, and contribution to skill development. The department issues approval within 15 working days for standard technology transfer agreements.
Profit Repatriation and Foreign Exchange
Repatriation Rights
Foreign investors enjoy guaranteed rights to repatriate profits, dividends, and capital under FITTA 2019. Section 9 of the Act specifically protects repatriation of amounts received from sale of shares, profits and dividends, and amounts received from technology transfer agreements. Investors can repatriate proceeds from liquidation of the enterprise after settling all liabilities. The Nepal Rastra Bank facilitates foreign exchange conversion and transfer through authorized commercial banks.
Repatriation Procedure
| Step | Requirement | Processing Authority |
|---|---|---|
| 1 | Submit repatriation application with audited financial statements | Commercial Bank |
| 2 | Provide tax clearance certificate from Inland Revenue Department | Nepal Rastra Bank |
| 3 | Present foreign investment approval certificate and company registration | Commercial Bank |
| 4 | Complete foreign exchange declaration forms | Nepal Rastra Bank |
| 5 | Receive approval and transfer funds to foreign account | Commercial Bank |
Tax Incentives and Benefits
Income Tax Provisions
The Income Tax Act, 2002 provides various incentives for foreign investors in priority sectors. Manufacturing industries located in special economic zones receive income tax exemptions for initial years of operation. Export-oriented industries qualify for reduced tax rates on export earnings. Hydropower projects enjoy tax holidays ranging from 7 to 15 years depending on project location and capacity. The Act permits accelerated depreciation for machinery and equipment in manufacturing sectors.
Customs Duty Exemptions
Foreign investors importing machinery, equipment, and raw materials for approved projects receive customs duty concessions. Industries established in special economic zones import capital goods duty-free during the project establishment phase. Export-oriented industries access duty drawback schemes for imported inputs used in exported products. The Customs Act, 2007 provides the legal framework for these exemptions, subject to Department of Industry certification.
Special Economic Zones
Legal Framework
The Special Economic Zone Act, 2016 establishes dedicated zones offering enhanced incentives for foreign investors. These zones provide streamlined regulatory procedures, superior infrastructure, and additional tax benefits. The Act designates specific geographic areas as special economic zones with sector-specific focus. Zone authorities provide one-stop services for investment approval, company registration, and operational permits.
Available Incentives
- Extended Tax Holidays: Manufacturing units in special economic zones receive income tax exemptions for up to 10 years from commercial production commencement.
- Duty-Free Imports: Zone enterprises import all machinery, equipment, raw materials, and intermediate goods without customs duties.
- Simplified Procedures: Single-window clearance systems reduce bureaucratic requirements and processing times for all regulatory approvals.
- Infrastructure Support: Zones provide ready-built factory spaces, reliable utilities, and modern logistics facilities at competitive rates.
- Foreign Exchange Flexibility: Zone enterprises maintain foreign currency accounts and conduct international transactions with minimal restrictions.
Intellectual Property Protection
Legal Framework
Nepal’s intellectual property regime comprises the Patent, Design and Trademark Act, 1965, and the Copyright Act, 2002. Foreign investors receive national treatment for intellectual property protection. The Department of Industry maintains patent and trademark registries. Nepal’s membership in the World Intellectual Property Organization provides international protection frameworks. The Industrial Property Rights Regulations, 2008 establish detailed procedures for registration and enforcement.
Registration Procedures
Foreign investors must register patents, trademarks, and designs with the Department of Industry for legal protection. Patent applications require detailed specifications, claims, and prior art searches. Trademark registration protects brand names, logos, and distinctive signs for 10-year renewable periods. Copyright protection arises automatically upon creation but registration provides evidentiary advantages. The department processes intellectual property applications within 60 days for complete submissions.
Dispute Resolution Mechanisms
Arbitration Provisions
FITTA 2019 Section 29 provides for dispute resolution through arbitration or mediation. Foreign investors can include arbitration clauses in investment agreements and technology transfer contracts. The Arbitration Act, 1999 governs domestic arbitration proceedings in Nepal. International arbitration under UNCITRAL rules or institutional rules remains available for cross-border disputes. Arbitral awards receive recognition and enforcement under the Arbitration Act and Nepal’s international treaty obligations.
Investment Protection Treaties
Nepal has concluded Bilateral Investment Promotion and Protection Agreements (BIPPAs) with multiple countries. These treaties provide additional protections including fair and equitable treatment, protection against expropriation, and access to international arbitration. Foreign investors from treaty countries can invoke BIPPA protections for investment disputes. The treaties typically provide for investor-state dispute settlement through international arbitration forums like ICSID.
Labor and Employment Regulations
Foreign Employee Permits
The Foreign Employment Act, 2007 and Immigration Act, 1992 regulate foreign employee work permits. Foreign-invested companies can employ foreign nationals in technical, managerial, and specialized positions. Work permit applications require submission to the Department of Immigration with company registration documents and employment contracts. The law limits foreign employees to positions where qualified Nepali nationals are unavailable. Work permits are issued for one-year periods with annual renewal options.
Local Employment Requirements
Foreign-invested enterprises must prioritize employment of Nepali citizens for positions where qualified locals are available. Companies must provide skills training to Nepali employees to facilitate technology transfer and capacity building. The Labor Act, 2017 establishes minimum wage requirements, working hour limits, and employee benefit standards. Foreign investors must comply with social security contributions under the Social Security Act, 2017 for all employees.
Environmental Compliance
Environmental Impact Assessment
The Environment Protection Act, 1997 requires environmental impact assessments for projects with potential environmental effects. Foreign investors must submit initial environmental examinations or detailed environmental impact assessments based on project scale. The Ministry of Forest and Environment reviews and approves environmental assessments. Projects cannot commence without environmental approval certificates. The Act imposes penalties for environmental violations and requires ongoing environmental monitoring.
Compliance Requirements
- Pollution Control Measures: Industries must install pollution control equipment meeting national environmental standards for air, water, and noise emissions.
- Waste Management Systems: Companies must establish proper waste segregation, treatment, and disposal systems complying with hazardous waste management rules.
- Environmental Monitoring: Regular environmental monitoring reports must be submitted to the Ministry of Forest and Environment demonstrating compliance.
- Environmental Audits: Periodic environmental audits by certified auditors verify ongoing compliance with environmental conditions and standards.
Land and Property Rights
Land Acquisition Restrictions
The Land Act, 1964 prohibits foreign nationals and foreign companies from owning land in Nepal. Foreign investors can acquire land use rights through long-term lease arrangements with Nepali citizens or government entities. Industrial land leases can extend up to 50 years with renewal options. Special economic zones provide leasehold land specifically designated for industrial purposes. The Land Revenue Act, 1977 governs land registration and transfer procedures.
Leasehold Arrangements
Foreign-invested companies enter land lease agreements with Nepali landowners or government authorities. Lease agreements require registration with local land revenue offices for legal validity. Industrial districts and special economic zones offer standardized lease terms and competitive rates. Lease agreements should specify rent amounts, payment schedules, renewal terms, and termination conditions. Companies can construct buildings and infrastructure on leased land subject to building code compliance.
Banking and Financial Regulations
Foreign Currency Accounts
The Foreign Exchange Regulation Act, 1962 and Nepal Rastra Bank regulations govern foreign currency transactions. Foreign-invested companies can maintain foreign currency accounts with authorized commercial banks. These accounts facilitate international transactions, profit repatriation, and foreign loan servicing. Nepal Rastra Bank approval is required for certain foreign currency transactions exceeding specified thresholds. Banks must report foreign currency transactions to Nepal Rastra Bank for monitoring purposes.
Foreign Loan Regulations
Foreign investors can bring foreign loans for project financing subject to Nepal Rastra Bank approval. The central bank evaluates loan terms, interest rates, and repayment schedules for reasonableness. Foreign loans must be registered with Nepal Rastra Bank within 15 days of agreement execution. Loan proceeds must be used for approved project purposes only. Principal and interest payments on foreign loans can be remitted through banking channels with proper documentation.
Reporting and Compliance Obligations
Annual Reporting Requirements
Foreign-invested companies must submit annual reports to the Department of Industry detailing operational and financial performance. Reports must include audited financial statements, production volumes, employment statistics, and technology transfer progress. The department monitors compliance with investment approval conditions and minimum investment commitments. Companies must report any changes in shareholding structure, business activities, or registered office location. Non-compliance with reporting requirements may result in penalties or approval cancellation.
Tax Compliance
The Inland Revenue Department administers income tax, value-added tax, and other fiscal obligations. Foreign-invested companies must register for tax identification numbers and file periodic tax returns. Annual income tax returns require submission within three months of fiscal year end. Value-added tax registered entities file monthly or quarterly returns depending on turnover. Companies must maintain proper accounting records and supporting documentation for tax audits.
Exit and Liquidation Procedures
Voluntary Liquidation
Foreign investors can voluntarily liquidate their enterprises under the Companies Act, 2006 provisions. The liquidation process requires shareholder resolution, creditor notification, and asset realization. Companies must settle all outstanding liabilities including employee dues, tax obligations, and creditor claims. The Office of Company Registrar supervises liquidation proceedings and approves final dissolution. Foreign investors can repatriate remaining proceeds after settling all liabilities and obtaining tax clearance.
Asset Transfer
Foreign investors selling their shares or business assets must comply with FITTA 2019 transfer provisions. Share transfers require Department of Industry notification and may need approval for certain sectors. The transferee must meet minimum investment requirements and sectoral eligibility criteria. Capital gains from share sales are subject to income tax under the Income Tax Act. Proceeds from asset sales can be repatriated after tax payment and regulatory compliance.
Recent Amendments and Updates
FITTA 2019 Provisions
The Foreign Investment and Technology Transfer Act, 2019 introduced significant reforms to Nepal’s investment regime. The Act reduced minimum investment thresholds, expanded sectors open for foreign investment, and streamlined approval procedures. New provisions guarantee profit repatriation rights and strengthen investor protection mechanisms. The Act established clearer technology transfer guidelines and intellectual property provisions. Implementation regulations issued in 2020 provide detailed procedural requirements for various investment activities.
Industrial Enterprises Act 2020
The Industrial Enterprises Act, 2020 replaced the Industrial Enterprises Act, 1992, modernizing industrial policy frameworks. The new Act classifies industries by size and provides differentiated incentives accordingly. Provisions for industrial villages and special economic zones received enhanced legal backing. The Act simplified industrial registration procedures and reduced bureaucratic requirements. Foreign investors benefit from clearer operational guidelines and improved regulatory certainty.
What is the minimum investment required for foreign investors in Nepal?
Foreign nationals must invest at least NPR 50 million (approximately USD 375,000) to establish a business in Nepal. This threshold applies to individual foreign investors and foreign companies. Technology-based and export-oriented industries may qualify for reduced minimum investment requirements under specific circumstances.
Can foreign investors own 100% equity in Nepali companies?
Yes, FITTA 2019 permits 100% foreign ownership in most sectors except those specifically restricted or prohibited. Cottage industries, arms manufacturing, and certain consultancy services have foreign investment restrictions. Retail trading requires minimum investment thresholds for foreign participation.
How long does the investment approval process take?
The Department of Industry processes complete foreign investment applications within 7 working days. Additional time may be required for incomplete applications or those requiring inter-agency coordination. Large projects handled by Investment Board Nepal may have different processing timelines.
Are foreign investors allowed to repatriate profits from Nepal?
Yes, FITTA 2019 guarantees foreign investors’ rights to repatriate profits, dividends, and capital. Repatriation requires tax clearance certificates and compliance with Nepal Rastra Bank regulations. Commercial banks facilitate foreign exchange conversion and international transfers for approved repatriation requests.
Can foreign nationals own land in Nepal?
No, foreign nationals and foreign companies cannot own land in Nepal under the Land Act, 1964. Foreign investors can acquire long-term leasehold rights for up to 50 years with renewal options. Special economic zones and industrial districts provide leasehold land for industrial purposes.
What sectors are completely prohibited for foreign investment?
Cottage industries producing traditional handicrafts are completely prohibited for foreign investment. Arms and ammunition manufacturing remains restricted to protect national security interests. Certain personal service businesses and small-scale retail operations exclude foreign participation.
Do foreign investors need local partners in Nepal?
No, foreign investors can establish wholly-owned subsidiaries without Nepali partners in most sectors. Previous requirements for mandatory local partnership have been eliminated under FITTA 2019. However, certain professional services may require partnership with licensed Nepali professionals.
What tax incentives are available for foreign investors?
Foreign investors receive income tax holidays ranging from 5 to 15 years depending on sector and location. Special economic zone enterprises enjoy extended tax exemptions and customs duty waivers. Export-oriented industries qualify for reduced tax rates on export earnings and duty drawback schemes.
How are investment disputes resolved in Nepal?
Investment disputes can be resolved through arbitration, mediation, or court proceedings. FITTA 2019 permits arbitration clauses in investment agreements. Foreign investors from BIPPA signatory countries can access international arbitration for investment disputes.
What are the requirements for employing foreign nationals?
Foreign-invested companies can employ foreign nationals in technical and managerial positions where qualified Nepali citizens are unavailable. Work permits require Department of Immigration approval with supporting documentation. Permits are issued for one-year periods with annual renewal options subject to continued need demonstration.
