Registering a foreign company in Nepal involves navigating a complex mix of investment regulations, currency controls, and legal procedures. Nepal welcomes foreign direct investment (FDI) in most sectors, but investors must adhere to specific foreign currency rules and approval processes. This comprehensive guide provides an advisory overview of what foreign investors from any region need to know – from legal frameworks like the Foreign Exchange Regulation Act and FITTA 2019 to practical steps for injecting capital, repatriating profits, and mitigating common challenges. We include real-world examples, up-to-date data, and case studies to illustrate how foreign currency is handled when setting up a business in Nepal. By understanding these rules – especially those enforced by the Nepal Rastra Bank (NRB) and other authorities – investors can ensure a smoother incorporation and operation of their companies. Let’s explore the foreign currency regulations, tax implications, and best practices for successful foreign company registration in Nepal.
Nepal is a developing economy eager to attract foreign investment for growth. Over the years, the government has introduced reforms to make investing easier, while also safeguarding the local economy. As of 2025, Nepal has received foreign investment from over Fifty countries, with India and China ranking as the largest sources of FDI by paid-up capital. FDI stock in Nepal reached around NPR 295.5 billion (approximately USD $2.2 billion) by mid-2023. However, actual inflows often lag behind approvals – historically only about 35% of approved FDI actually materializes, due to project delays and other hurdles. This gap highlights the challenges investors face in converting approvals into operational businesses.
Key Investment Sectors: Major FDI sectors include energy (hydropower projects), manufacturing, tourism, and services (finance, IT, hotels). Nepal’s government encourages investment in infrastructure and export-oriented industries. Certain sectors, however, remain restricted or closed to foreigners (covered under a “Negative List” – more on that below). Generally, Nepal allows 100% foreign ownership in permitted industries, so a foreign investor can fully own a Nepali company unless the law specifies a cap.
Recent Reforms: Nepal updated its foreign investment law with the Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019), replacing an older 1992 law. FITTA 2019 introduced clearer rules on FDI approvals, minimum investment thresholds, and repatriation of funds. Initially, in 2019, the government raised the minimum investment requirement tenfold – from NPR 5 million to NPR 50 million – to discourage very small foreign ventures. However, by 2022 this was reconsidered: the threshold was cut by 60% to NPR 20 million (around USD $160,000). The reduction aimed to attract more small and medium-sized foreign ventures after feedback that the NPR 50 million (~$415,000) requirement was too restrictive. As a result, as of 2025 Nepal generally requires a foreign investor to bring in at least NPR 20 million in capital (approximately $150,000) per project. There are notable exceptions – for example, information technology startups now benefit from an “automatic route” that waives the minimum investment requirement in that sector, spurring a surge of micro-scale tech investments. In contrast, all other sectors still enforce the NPR 20 million minimum per investor. This flexible policy for IT is intended to encourage innovation and has led to a 20-fold jump in the number of foreign-funded IT companies in a year.
Despite these reforms, foreign investors must carefully plan their entry. Nepal’s foreign currency regulations, overseen largely by the central bank (NRB), affect how capital enters, circulates, and exits the country. Understanding the legal framework is the first step.
Foreign investment in Nepal is governed by a combination of laws and regulations. The most important ones are:
Foreign Exchange (Regulation) Act, 1962 (FERA) – This longstanding act empowers Nepal Rastra Bank to regulate all foreign exchange transactions. It defines what constitutes foreign currency and prohibits unlicensed dealings in foreign exchange. For foreign investors, FERA means that all cross-border money transfers (inward investment or outward remittances) must comply with NRB’s rules. Essentially, any convertible foreign currency coming into Nepal or leaving Nepal must go through official banking channels authorized by NRB. The Act makes it illegal to bypass banks or engage in informal currency trading, thereby centralizing control of foreign currency flows. When registering a company, investors will interface with FERA rules chiefly when converting foreign capital into Nepali rupees and when repatriating funds abroad.
Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019) – This is Nepal’s primary FDI law that outlines how foreign investments are approved, what conditions apply, and the rights of foreign investors. FITTA 2019 is investor-friendly in many ways: it guarantees no nationalization of foreign businesses (except with fair compensation for public interest) and affirms the right to repatriate profits and investment proceeds after fulfilling tax obligations. Under FITTA, all foreign investors must obtain prior approval from the designated government body before incorporating a company with foreign investment. This is essentially a screening process. The foreign investment approving body is either the Department of Industry (for most projects) or the Investment Board of Nepal (IBN) for large-scale projects above a certain capital threshold (e.g. investments exceeding NPR 6 billion fall under IBN as per the Public-Private Partnership and Investment Act). FITTA 2019 also delegates authority to create regulations (the Foreign Investment and Technology Transfer Rules) that provide procedural details for implementation.
Some key provisions of FITTA 2019 relevant to foreign currency include:
Minimum Investment: As noted, FITTA empowered the government to set a minimum FDI amount. Currently NPR 20 million is the norm for most sectors (with government notifications adjusting this as policy evolves).
Forms of Investment: FITTA allows FDI in various forms – equity shares (including buying shares of existing Nepali companies up to a prescribed limit), reinvestment of earnings, lease financing of equipment, venture capital funds, and even through technology transfer agreements. Each mode has its own approval requirements (for instance, technology transfer agreements must be approved and royalties capped as per regulations).
Joint or Sole Investment: Foreign investors may invest individually (100% foreign-owned company) or in joint venture with Nepali partners. There is no general requirement for local partners except in restricted sectors.
Negative List of Industries: A Schedule to FITTA lists sectors where foreign investment is prohibited or limited. These include small-scale domestic businesses like personal services (barbershops, local retail, farming for local market), real estate trading (except construction/development), arms and ammunition manufacturing, consultancy services in legal/accounting fields (reserved largely for Nepali nationals), and others. Before initiating an investment, foreigners must ensure their proposed activity is not on this negative list. If it is, no approval will be granted.
Capital Repatriation: FITTA’s Section 20 explicitly outlines that foreign investors can repatriate their investment and returns (profits, dividends, sale proceeds, loan repayments, royalties, compensation, etc.) in the foreign currency they invested or any convertible currency, after paying applicable Nepali taxes and obtaining NRB approval. This provision gives a legal guarantee of repatriation rights, which is crucial for investor confidence. We will discuss the repatriation process in detail later.
Dispute Settlement: FITTA permits arbitration and international dispute settlement mechanisms for FDI-related disputes, which can be reassuring for investors concerned about impartial enforcement.
Companies Act, 2006 – This act governs the incorporation and operation of companies in Nepal. A foreign investor will register a company under this Act (typically as a private limited company) once FDI approval is obtained. The Companies Act itself does not treat foreign-owned companies much differently from local ones in terms of corporate structure – the same requirements for having a local registered office, appointing directors, auditing accounts, etc., apply. However, foreign companies must additionally comply with FDI-specific conditions (like not issuing shares to foreign investors without approval). In practice, after you get the FDI approval, the Office of the Company Registrar will allow registration of the company with foreign shareholders. The act requires a minimum of one shareholder and one director (who can be foreign or Nepali), and certain formalities like submitting a Memorandum and Articles of Association. While the Companies Act is not specific to foreign currency, it’s a core part of the registration step.
Nepal Rastra Bank Regulations and Guidelines – Nepal’s central bank, NRB, plays a critical role in enforcing foreign exchange rules. NRB issues directives, circulars, and bylaws under the authority of the NRB Act and FERA. One key regulation is the Foreign Investment and Foreign Loan Management Bylaw, which outlines procedures for bringing foreign currency into Nepal and taking it out. Notably, NRB’s current rules do not require prior NRB approval to inwardly remit the approved foreign investment – once you have the FDI approval from DOI/IBN, you can send the money directly into Nepal through banking channels without a separate central bank permit. The investor (or the Nepali company) must, however, inform NRB in writing before remitting the funds and then again register the investment with NRB after the funds arrive. This registration with NRB is crucial: the bank provides a certification of the amount of foreign currency received, which will later be required for repatriation of dividends or capital. NRB regulations also set the terms for foreign loans, the use of foreign currency accounts, and the approval process for outward remittances. Essentially, NRB acts as the gatekeeper for any money flowing in or out of Nepal in foreign currency. Banks in Nepal will not convert or transfer large sums for a company unless NRB’s guidelines are satisfied.
Foreign Exchange (Forex) Controls and Currency Law – In addition to FERA, NRB uses its directives to enforce that almost all domestic transactions in Nepal must occur in Nepali Rupees (NPR). It is generally not permitted for local businesses to quote prices or accept payment in foreign currency from residents. This means once your foreign capital is in Nepal, you will typically convert it to NPR to actually spend on operations (salaries, rent, local purchases). There are exceptions for certain transactions like paying a foreign supplier or an expat employee directly in foreign currency, but those require NRB approval or fall under specific facility provisions (e.g., Facility of Foreign Currency for paying foreign experts – discussed under Section 26 of FITTA). The Nepali Rupee is pegged to the Indian Rupee at a fixed rate (NPR 1.6 = INR 1) and is only partially convertible internationally. NRB’s controls ensure that convertible foreign currencies (USD, EUR, etc.) are rationed prudently to maintain Nepal’s foreign exchange reserves.
In summary, foreign investors in Nepal must maneuver within this legal framework: obtain approvals per FITTA, abide by NRB’s forex rules per FERA, incorporate under the Companies Act, and adhere to any sector-specific laws. Next, we will walk through how these laws come into play during the company registration and capital injection process.
Registering a foreign-owned company in Nepal is a multi-step process that integrates company law procedures with foreign investment approvals. Understanding this process is vital because certain steps involve handling foreign currency and securing regulatory clearances. Here’s an overview of how a typical foreign company registration proceeds:
1. Investment Proposal and Approval (FITTA Approval): Before a company can be formed, the foreign investor must obtain FDI approval from the government. This involves submitting an application detailing the proposed company’s business activity, total investment amount, source of funds, technology transfer (if any), and other particulars. For most investments up to NPR 6 billion, the Department of Industry (DoI) is the approving authority; larger projects go to the Investment Board. The application is reviewed to ensure the sector is open to FDI and the investor meets the criteria (e.g. minimum capital). Upon approval, the investor receives a Foreign Investment Approval Letter specifying the allowed investment amount and any conditions. Notably, the approval is time-bound – typically, the investor must bring in the committed funds within a certain timeframe or the approval could lapse. (We discuss these timelines below under “Capital Injection”.)
Real-world example: Suppose an investor from Germany plans to open a specialty coffee roasting company in Kathmandu with an investment of $200,000 (approximately NPR 26 million). They would submit an FDI proposal to the Department of Industry including a business plan and showing they exceed the NPR 20 million minimum. If the coffee roasting sector is not on the negative list (it isn’t), DoI would likely approve the investment and issue a letter stating the investor can bring in $200,000 for a 100% foreign-owned company in Nepal.
2. Company Registration at Office of Company Registrar (OCR): Armed with the approval letter, the investor can proceed to register the company under the Companies Act. This involves reserving a company name, drafting the Memorandum and Articles of Association (MoA/AoA), and submitting incorporation forms listing the directors and shareholders. The MoA/AoA will reflect the foreign shareholder(s) and the amount of authorized and issued capital (which should align with the approved investment). The OCR will typically ask to see the FDI approval letter to ensure the company with foreign shareholders is authorized. Once the paperwork is in order, the company is officially incorporated and a Certificate of Incorporation is issued. At this point, the company is a legal entity in Nepal, but it cannot yet start business operations fully because it still needs to bring in the foreign capital and meet post-incorporation requirements.
3. Capital Injection (Remitting Foreign Currency): After incorporation, the foreign investor must transfer the investment funds into Nepal. This is done via the banking system. The company will open a bank account in Nepal (often a temporary capital account). The investor then remits the approved foreign currency amount from abroad into this account. Nepal’s rules mandate that the money must come through formal banking channels into Nepal in a convertible currency. For example, the investor in our example would wire USD 200,000 from their bank abroad to the Nepali company’s bank account, typically quoting the FDI approval reference. No prior NRB permission is needed for this inward remittance, but the central bank requires notification via the bank. The receiving bank in Nepal will credit the funds and issue a Telegraphic Transfer (TT) receipt or inward remittance certificate as evidence of the foreign currency received. This document is crucial as it is used to record the FDI with Nepal Rastra Bank and will be needed for future repatriation requests.
During injection, currency conversion comes into play. The funds can be held in the account in the original currency or converted to Nepali Rupees. In practice, if the company needs to spend the money locally, it will convert to NPR (either immediately or over time). NRB allows the company to open a foreign currency account in Nepal (for example, a USD account) if needed, with NRB approval. Section 25 of FITTA 2019 permits industries with foreign investment to maintain an account in a convertible foreign currency at a licensed bank, but the company must obtain NRB’s nod to actually operate it in foreign currency. This facility is often used by companies that have to make overseas payments (e.g. importing machinery or paying foreign technical experts) so they can hold dollars or other currency and pay out without double conversion. If a company’s expenses are mostly in Nepal, it will convert the incoming dollars into Nepali Rupees upon arrival. The conversion is done at the prevailing market exchange rate, and the NRB requires that repatriations later also use the open market exchange rate at the time of conversion.
4. Registration of FDI with Nepal Rastra Bank: Once the money is in Nepal, the company must formally notify NRB and have the investment registered. The bank that received the funds typically forwards the details to NRB’s Foreign Exchange department, but the company/investor also needs to file an application for FDI recording. NRB will issue a Foreign Investment Registration Certificate or a confirmation letter that NPR X (equivalent of Y USD) has been received as foreign investment for that company. This record-keeping is essential for two reasons: (a) It certifies that the capital is now legally recognized as FDI, which is a precondition for repatriating that capital or any earnings on it in the future; (b) It ensures the company cannot repatriate more than what was brought in, except in the case of earned profits. NRB’s registration process essentially ties the foreign currency inflow to the company’s share capital or loan, creating a paper trail in line with FERA. Note: If an investor fails to report and register the inflow with NRB, they may face difficulties later when trying to send money out, as there would be no official record of the investment.
5. Additional Registrations and Permits: In parallel with the above, the company will complete other post-incorporation steps like PAN registration for tax, VAT registration if applicable, and obtaining any sector-specific licenses. If the business is an “industry” (manufacturing, hotel, etc.), it may also register with the Department of Industry for an industry registration certificate, which can confer certain tax concessions per the Industrial Enterprises Act. While these steps are more about general business setup, they are worth noting as part of the overall timeline (usually, company registration plus these formalities can take a few weeks to a couple of months in Nepal’s current scenario).
6. Compliance with Investment Timeline: Nepal’s regulations impose a timeline for bringing the committed foreign capital. Under the FITTA 2019 regulations, investors must bring at least a portion of the pledged investment within the first year of approval. For smaller projects (around the minimum threshold), at least 25% of the capital must be remitted in the first year. Larger projects have slightly lower immediate requirements (e.g. 10–15% for very large commitments) within the first year, recognizing that big projects take time. Moreover, 70% of the total investment must be brought in before the start of commercial operations, and the remaining 30% within two years of commencing operations. These rules are designed to ensure that approved FDI actually comes through promptly rather than remaining idle approvals. For instance, if our coffee roasting company got approval for $200k, it would likely need to bring at least $50k in year one and the rest before it begins full operations (if not sooner). If an investor cannot meet the deadline, they should apply to the approving agency for an extension of the time limit, which then is also notified to NRB. It’s important to comply with these timelines; otherwise, the approval can be revoked. In practice, authorities have shown some flexibility through extensions if there are genuine reasons (e.g. project implementation delays), but this is discretionary.
By the end of these steps, the foreign investor has a fully registered Nepali company with the capital injected and recorded. The company can then proceed to conduct business – buy/rent property, hire employees, start operations, etc. From here on, the focus shifts to operating compliantly, which includes managing any foreign currency transactions during operations and eventually handling profits. In the next section, we examine how foreign currency is regulated during the operation of the business in Nepal.
Once the foreign capital is in the Nepali company’s bank account, how can it be used? Understanding the foreign currency rules during operations will help investors manage finances and avoid violations. Nepal’s system generally functions on the principle that local expenses are paid in local currency (NPR), while certain approved foreign expenses can be paid in foreign currency.
Mandatory Conversion for Local Expenses: For day-to-day expenses within Nepal – such as paying salaries to Nepali staff, buying raw materials locally, office rent, etc. – the company will use Nepali Rupees. If the company still has funds in USD or other currency in its bank account, it will convert the necessary amount to NPR through the bank to make domestic payments. Nepali law forbids making payments inside Nepal in foreign currency between residents. Therefore, even a foreign-owned company cannot, say, pay its Nepali vendor in US dollars – it must pay in NPR after converting. This means foreign investors carry an exchange rate risk: the value of their capital in NPR will fluctuate with the USD-NPR exchange rate. The NRB does not protect against exchange loss or gain on the capital; the conversion will be at market rate at the time of each conversion. Notably, FITTA clarifies that repatriation out of Nepal will use the prevailing exchange rate at the time of repatriation, which again underscores that investors ultimately bear exchange rate movements.
Foreign Currency Accounts and Transactions: There are cases where a company might legitimately need to pay in foreign currency – for example, importing machinery from abroad, paying a foreign consultant, or repaying a foreign currency loan. Nepal Rastra Bank provides mechanisms for this: with appropriate approvals, the company can maintain a foreign currency account and make outward payments in foreign currency. As mentioned, Section 25 of FITTA allows a foreign-invested company to open a foreign currency account in Nepal with a licensed bank. However, the company must obtain explicit approval from NRB to actually use that account for transactions. Typically, one would apply to NRB citing the purpose (e.g. “to hold USD funds for importing equipment for the project”). Once granted, the company can retain a portion of its funds in USD/EUR etc., and when an import payment is due, the bank can transfer from that account abroad.
Additionally, Section 26 of FITTA provides specific foreign exchange facilities to foreign-invested companies, on recommendation of the investment approving body and with NRB’s nod, for the following purposes:
Paying salaries or benefits in foreign currency to any approved foreign experts or expatriate employees (after paying local income taxes). For example, if you have an expat specialist whose contract says they can repatriate 50% of their salary in USD, the company can obtain NRB approval for that arrangement. FITTA explicitly allows foreign employees to repatriate their net-of-tax earnings in convertible currency.
Paying principal and interest on any bonds or debentures issued as part of the foreign investment (though this scenario is rare, as most investments are equity or loans rather than local bonds held by foreigners).
Repatriating the approved foreign investment and dividends (essentially, allowing the company to buy the required foreign currency to send out profits or the investment sum when divesting, which we cover in the next section).
In effect, once the company secures NRB approval for these, it can use the money from its foreign currency account or convert NPR to foreign currency through the bank to make the payment. It’s important to note that all these transactions are tightly regulated – the company must document the purpose and amount, and often NRB approvals are case-specific (e.g., you get an approval to remit $10,000 as dividend this year, and you must apply fresh next year for new dividends, etc.).
Risk Mitigation Tools: One concern for foreign investors is currency fluctuation. If the Nepali Rupee depreciates against the investor’s home currency, the value of their investment and returns in home-currency terms falls. Conversely, an appreciation could benefit them, though historically the NPR has been relatively stable due to the peg with Indian Rupee, which itself gradually depreciates against USD. Nepal actually permits some hedging: FITTA 2019 allows companies with foreign investment to use approved derivative instruments to hedge foreign exchange risk. This means an investor could, for instance, enter into a forward contract or currency swap through a Nepali bank to protect against currency swings. However, in practice the availability of sophisticated hedging in Nepal’s financial market is limited. Only recently have banks started offering forward exchange facilities on a limited basis. Still, the legal provision is notable – it signals that Nepal acknowledges FX risk and is open to investors managing it.
Local Borrowing and Financing: After establishing in Nepal, can a foreign-owned company take loans locally? Generally, yes – once a company is incorporated in Nepal (even if foreign-owned), it is treated as a Nepali entity. It can borrow from Nepali banks in NPR, subject to standard lending criteria. However, certain sectors or large borrowings might require approval. More relevantly, foreign currency loans from abroad are another aspect of foreign investment. FITTA 2019 explicitly allowed foreign-invested companies to borrow from foreign banks or parent companies with prior NRB approval. This is common in project financing: e.g., a hydropower project might get a loan in USD from an international lender. NRB’s foreign loan policy requires that the loan terms (interest rate, tenure) are reasonable and often that the borrowing is within certain debt-to-equity limits. If approved, the company can bring in the loan funds similar to equity and later repay interest and principal in foreign currency. We include this here because it falls under foreign currency use – paying interest to a foreign lender is an outward remittance that needs clearance. Investors should know that any foreign debt has to be sanctioned by NRB or the government; you cannot simply have your overseas parent company send a loan amount without going through approval, as that would violate FERA.
In summary, during the operational phase, foreign investors should: keep most transactions in NPR; obtain necessary permissions for any foreign currency needs; and maintain good records of all such transactions. The central bank monitors foreign currency usage closely, and compliance ensures your business can function without penalties or delays. Next, we turn to the ultimate goal for many investors – taking profits back home – and the rules governing that.
One of the most critical aspects of foreign investment is the ability to repatriate profits and invested capital. Nepal’s laws do allow repatriation, but it must be done in a regulated manner, with all taxes paid. In this section, we detail how foreign investors can convert their Nepali earnings into foreign currency and send it abroad, and what tax implications arise.
Repatriation of Profits (Dividends): After a foreign-owned company in Nepal starts earning profits, those profits can be distributed to the foreign shareholder(s) as dividends and repatriated. To do this, the company must follow a step-by-step approval process:
Pay Corporate Taxes: First, the company must pay all applicable taxes on its profits to the Nepali government. Nepal’s corporate income tax rate is generally 25% on net profits for most industries (it can vary for special cases like banks or telecoms). Only post-tax profits can be distributed as dividends. Additionally, when dividends are declared, Nepal imposes a dividend distribution tax (a type of withholding tax) of 5% on the dividend amount. This 5% is a final tax for the shareholder in Nepal. So effectively, profits are taxed and then a small additional tax on the act of distribution. After these taxes, the net amount is what can be repatriated.
Board Resolution and Shareholder Approval: The company’s Board of Directors must resolve to distribute dividends, and often an Annual General Meeting (AGM) of shareholders will approve the dividend. For repatriation, regulators will ask for a copy of the board resolution and AGM minutes approving the dividend to ensure the payout is duly authorized.
Application to DOI/IBN (Approving Agency): The company applies to the original FDI approving agency (Department of Industry or IBN) for approval to repatriate the dividend. The application is made in a prescribed format (as per FITTA Regulation) and must include supporting documents such as: the audited financial statements of the year, tax clearance certificate from the Inland Revenue Department, proof of the original FDI approval, details of the shareholders, and the board/AGM decisions mentioned above. Essentially, the authorities want to verify that the company indeed made profits, paid taxes on them, and now the proper corporate process has been followed to declare those profits for the foreign investor.
Approval from DOI/IBN: The agency reviews the application. If everything is in order, it issues an approval letter for repatriation of profit. This letter will specify the amount of dividend (in NPR and equivalent foreign currency) that is approved to be remitted abroad to the foreign investor. They might coordinate with NRB at this stage or at least inform NRB.
Application to Nepal Rastra Bank: Next, the company takes the approval letter to NRB and applies for final permission to purchase foreign currency and remit it. NRB will require some overlapping documents (to double-check compliance), including the DOI/IBN approval letter, evidence of tax payment (tax clearance and, often, evidence of the 5% dividend tax paid), audited accounts, and a copy of the NRB’s own initial FDI registration letter (to ensure the repatriation amount does not exceed what was invested or what is proportionate). NRB also typically asks for a declaration that the company has no outstanding loans in Nepali banks and is not blacklisted (a standard anti-abuse measure). Once satisfied, NRB grants approval and authorizes the company’s bank to execute the remittance.
Repatriation through Bank: With NRB’s approval, the company’s bank will convert the NPR dividends into the desired foreign currency (usually the currency of the original investment or US dollars) at the prevailing exchange rate and transfer the funds to the foreign shareholder’s overseas account. As per law, repatriation can be done in the same currency originally invested or any other convertible currency, but if it’s a different currency than originally invested, NRB will explicitly approve that on request. For example, if the investment came in Euro but the investor wants to repatriate in US Dollars, NRB can allow it; otherwise, by default one might expect repatriation in the currency of investment.
This entire process can take some time – often a few weeks to a couple of months – but Nepal has tried to streamline it. FITTA 2019 introduced a clause that the approving agency (DOI/IBN) and NRB should decide on repatriation applications within 15 days of receiving a complete application. In practice, it might take a bit longer if documents are missing or during bureaucratic delays, but many investors report completing profit repatriation in about 1 to 2 months total. The existence of a clear procedure and time frame is a positive aspect – it indicates that repatriation is not an arbitrary privilege but a routine process if all compliance is met. Indeed, recent data show significant amounts are repatriated each year (for instance, nearly NPR 9.5 billion in dividends were sent abroad in FY 2022/23), demonstrating that foreign investors are able to realize returns.
Repatriation of Investment (Capital): Beyond profits, investors may eventually want to take back their initial capital – for example, if they sell the company or liquidate it. This too is permitted under Nepali law. FITTA allows repatriation of the amount received from selling whole or part of the company shares or the assets of the company, after paying all due taxes and liabilities. The procedure is similar: the investor would apply to DOI/IBN for approval to repatriate the sale proceeds. An important point here is tax on capital gains: Nepal will tax gains made by the foreign investor on the sale of shares of a Nepali entity. Currently, capital gains tax for foreign investors on unlisted shares is around 25% of the gain (treated as business income), though if the shares are listed on the stock exchange, a lower rate (5-10%) applies. A high-profile case in 2016 involving the sale of a telecom company (Ncell) underscored that Nepal will pursue capital gains tax even if the sale is structured offshore. So, a foreign investor selling their Nepali company should budget for Nepali CGT. Once taxes are cleared and approval obtained, the capital can be repatriated in the same way as dividends.
If the company is being liquidated or wound up, Nepal allows repatriation of any remaining funds after settling all local liabilities. For example, if after paying off debts and taxes, a company being liquidated has NPR 10 million left from the initial investment, that can be taken out by the foreign owner with approvals. In such cases, usually an auditor’s confirmation of liquidation and clearance from creditors is needed.
Other Repatriable Funds: In addition to equity and dividends, foreign investors might earn other incomes from Nepal:
Royalties and Technical Fees: If the foreign investor provides technology or a brand to the Nepali company under a technology transfer or franchise agreement, they might be entitled to royalty payments. These royalties can be remitted abroad as well, subject to ceilings (the FITTA Regulations impose caps like 5% of sales or 15% of profit for royalties within Nepal, higher for exports) and with tax paid (royalty payments to foreign entities are typically subject to a 15% withholding tax in Nepal). After paying tax, the company can apply to remit the royalty. Many manufacturing JVs use this for trademark licensing fees etc.
Foreign Loan Repayment: If the company has an approved foreign loan, it will periodically need to remit interest and eventually principal to the lender. These remittances also require NRB approval each time. The loan agreement would be on record, and as long as the company has the Nepali Rupees to buy the required foreign currency, NRB generally allows scheduled payments. Withholding tax on interest (15%) needs to be deducted and paid in Nepal before remitting interest abroad (unless reduced by a tax treaty). In fact, FITTA and NRB rules explicitly list interest on foreign loans as an approved remittable item. Lenders can thus get their dues in foreign currency.
Salaries of Expatriates: As mentioned earlier, expatriate employees can repatriate their savings from salary. Typically, an expat working in Nepal will be paid in NPR locally (and pay Nepali income tax, which is progressive, up to ~30%). They can then convert and send abroad the portion they save after tax. This too requires showing the tax payment and often a simple application through the bank to NRB. FITTA sec. 26(3) guarantees this right for foreign employees.
Tax Considerations and Treaties: Foreign investors should be aware of double taxation issues. Nepal taxes the income at source (as described), but the investor’s home country might also tax foreign income. To mitigate double taxation, Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with several countries (including India, China, Mauritius, and others). If a DTAA is in place, it can limit the tax rates on dividends, interest, or royalties. For example, under some treaties the dividend withholding tax might be reduced to 5% or 10% instead of Nepal’s standard 5% (Nepal’s domestic rate is already low though). Investors should consult tax advisors to use treaty benefits where available – usually by obtaining a tax residency certificate and claiming treaty rates in Nepal. The repatriation process will still require proof of tax payment, but if the treaty applies, the tax paid is lower to begin with.
It’s also worth noting that once the money is out, Nepal doesn’t impose any extra exit taxes. The main taxes are those on profits or gains within Nepal. Planning the mode of investment (equity vs loan vs royalties) can have different tax outcomes, so many investors structure their capital in a tax-efficient way. For instance, sometimes a moderate interest-bearing foreign loan is used alongside equity – interest is tax-deductible for the company, lowering taxable profit, though interest remittance has its own tax. There is a thin line to tread given NRB’s debt-equity guidelines, but some optimization is possible.
Real-world case study: A multinational hotel in Nepal made substantial profits in 2022. After paying 25% corporate tax, it had NPR 100 million distributable profit. It declared an NPR 100M dividend to its foreign parent. It paid NPR 5 million (5%) as dividend tax to Nepal. The remaining NPR 95 million was cleared for repatriation. The Department of Industry approved it, and NRB allowed the hotel to convert NPR 95M into approximately USD $800,000 (at prevailing rates) to remit to the parent company abroad. The entire process took about 6 weeks. Such examples show that as long as taxes are paid and paperwork is in order, taking profits out is feasible. Indeed, in recent years, repatriation outflows have been significant, indicating the system is functioning – e.g., in a recent fiscal period, dividend repatriation by foreign companies actually increased to about NPR 9.5 billion (≈$80 million), reflecting healthy profits being sent back. This is a good sign for investors as it demonstrates that Nepal honors its repatriation commitments, which boosts investor confidence.
In conclusion, profit repatriation in Nepal, while bureaucratic, is clearly mapped out. The keys are: ensure all due taxes are paid, maintain transparent financial records, and strictly follow the approval steps. Many challenges that foreign businesses face in Nepal relate to these administrative processes and compliance requirements, which we will discuss next, along with strategies to overcome them.
Investing in Nepal offers significant opportunities – a growing market, strategic location between India and China, and untapped sectors – but it also comes with challenges. Many of these challenges are tied to regulatory procedures, economic factors, and infrastructural or bureaucratic limitations. Foreign companies should be prepared for the following hurdles and plan accordingly:
1. Bureaucratic Processes and Delays: As outlined, obtaining approvals (for FDI, repatriation, etc.) involves multiple steps and agencies. While laws stipulate timelines (like 15 days for decisions), in practice approvals can take longer, especially if any document is missing or clarification is needed. Investors often find the paperwork heavy – for example, repatriating profits required a dozen different documents and letters in the process. Navigating government offices, dealing with occasional changes in personnel or policy interpretation, and following up diligently are part of the reality. This can be challenging for foreigners not used to Nepal’s system or language. Delays in approvals can affect project schedules (e.g., waiting extra months for an industrial license or construction permit).
2. Foreign Exchange Constraints: Nepal as a country maintains limited foreign currency reserves. In times of economic stress (such as during a balance of payments deficit), NRB may become more stringent in allowing outward remittances. While legally investors have the right to repatriate, practically there could be delays if the banking system faces a shortage of USD liquidity. For instance, there have been periods where importers faced difficulties opening L/Cs due to low USD reserves. A foreign company looking to remit a large dividend during such a time might experience slower processing as authorities manage forex outflows carefully. Additionally, the Nepali rupee’s peg to the Indian rupee means Nepal doesn’t have an independent monetary policy for its currency; if the Indian rupee weakens, the Nepali rupee automatically weakens, which can erode the value of an investor’s returns in global terms.
3. Changing Regulations and Policy Uncertainty: Nepal’s investment policies have seen frequent changes as the government experiments with different strategies. For example, the minimum investment threshold was suddenly raised in 2019, then reduced in 2022. Similarly, new routes like the “automatic approval” for certain sectors were introduced in 2023. These changes can catch investors off guard – someone planning a small consultancy in 2018 with $50k may have shelved it when the threshold jumped to $500k in 2019, only to find in 2022 that $150k is enough. Such unpredictability in rules is a challenge. Foreign businesses must stay updated on the latest laws and often need local advisors to interpret new policies.
4. Restricted Sectors and Local Partnerships: Although most sectors are open, those that are restricted can be a point of frustration for would-be investors. For example, foreign entities cannot engage in retail trading of consumer goods in Nepal or operate simple services like local travel agencies – these are reserved for Nepali nationals. In some professional services (engineering, banking, media), foreigners may only invest up to a certain equity percentage. A foreign company that inadvertently starts a restricted activity can face license cancellation. Moreover, where local partnership is required, finding a reliable Nepali partner and structuring the joint venture in a trustworthy way becomes a challenge (concerns about intellectual property, control, profit sharing, etc., can arise).
5. Infrastructure and Operational Hurdles: Doing business in Nepal comes with some practical difficulties – power supply, transportation, and internet infrastructure have historically been underdeveloped, though improving. While not a currency “rule” issue, these factors impact foreign businesses. For instance, manufacturing companies have to cope with logistical challenges of importing raw materials (customs delays) and exporting products out of a land-locked country. Such challenges can indirectly affect financial plans and the timeline of investment returns.
6. Compliance Burden: Foreign companies are scrutinized relatively more in some respects. They must comply with not only general laws but additional reporting – e.g., filing regular reports to DOI about progress on investment, renewing visas for foreign staff, and adhering to labor regulations that may require justification for hiring expatriates (FITTA requires positions be filled by Nepalis unless skills are unavailable locally). Non-compliance can lead to fines or difficulties in getting permissions (like NRB might not approve remittances if a company hasn’t submitted its annual FDI updates or is blacklisted for a bank loan default).
7. Currency Exchange Risk: As discussed, since investors must ultimately deal in Nepali Rupees for local expenses and then convert back to foreign currency for repatriation, they face exchange rate risk. If an investor’s home currency strengthens dramatically against NPR, their returns when converted could diminish. This is a financial challenge that requires mitigation strategies (which we will address next).
8. Repatriation Documentation and Limits: While repatriation is allowed, it is tied to the amount invested and profits earned. A challenge some investors face is if they try to repatriate funds in excess of what records show was invested or earned legitimately, approvals will be denied. For example, if an investor failed to register part of their capital with NRB, later they effectively lose the ability to take that part out because NRB won’t acknowledge it. Similarly, if an investor advanced funds as a shareholder loan without approval, repaying that loan from Nepal becomes complicated. The system is not forgiving of lapses in initial compliance – a challenge for those who might not have navigated it correctly at the start.
9. Perception and Market Knowledge: New foreign entrants may find it challenging to understand local market dynamics, consumer behavior, or regulatory nuances. Sometimes, due to these knowledge gaps, projects fail to perform as expected financially, making it harder to justify staying invested. Exiting (selling the business) then becomes the next challenge – finding buyers in a small market can be tough, and the process of share transfer to another foreign party triggers a fresh approval cycle.
Despite these challenges, many foreign businesses have succeeded in Nepal by being well-prepared and patient. Companies like Unilever, Standard Chartered, and Marriott (to name a few big ones) have operated in Nepal for decades, navigating profitably through the landscape. The key is often local insight and support, which leads us to mitigation strategies and the support services available.
Foreign investors in Nepal can take proactive steps to mitigate the above challenges and ensure a smoother experience. Here are some strategies and best practices:
1. Engage Knowledgeable Local Advisors: Perhaps the single most effective step is to work with experienced local consulting firms, lawyers, or advisors who understand Nepal’s bureaucratic maze. They can assist in preparing correct documentation, following up with ministries, and keeping the process on track. For instance, having a local consultant handle the FDI approval application can prevent common mistakes that cause delays. Similarly, when repatriating funds, a consultant or legal advisor can compile the dossier of required documents in the way authorities expect, expediting approval. Digital Consulting Ventures (introduced in the next section) is one example of a firm providing such end-to-end support, which can greatly reduce the friction for foreign businesses.
2. Plan Investments and Repatriation with Compliance in Mind: From the outset, structure your capital injection in line with the rules. Always route funds through banks and get that NRB registration letter for every tranche of investment. Maintain meticulous records of every foreign currency transaction. When it comes to profit repatriation, plan ahead by ensuring the annual audit and tax filings are done timely – since you’ll need the audit report and tax clearance for repatriation, any delay in those could hold up your dividend remittance. It’s wise to schedule dividend applications shortly after finalizing accounts for the year so that funds can be moved early, reducing exposure to any sudden policy changes.
3. Utilize Allowances (Hedging, FCY Accounts, Automatic Routes): Take advantage of the flexibilities the law does provide. For example, if you anticipate currency fluctuations, speak to your bank about forward contracts or options (if available) to lock in rates. If your business model involves regular import/export, apply for a foreign currency account early on – this can save conversion costs and give you more control over timing of conversions. Likewise, if you’re in the IT/tech sector, know that you can use the automatic FDI route with no minimum investment, which significantly lowers the barrier to entry; however, also be mindful that misuse of this route just to obtain business visas is being watched by regulators, so ensure your business plan is genuine.
4. Local Partnerships and Networks: If you are in a sector where you need a local partner or even if not, building a strong local network helps. A reliable local partner can handle on-ground issues, government relations, and cultural nuances. Many foreign investors also join organizations like the Nepalese Chambers of Commerce or the Nepal Business Forum to stay connected with policy discussions. These networks can give early warnings about regulatory changes or provide channels to voice concerns to the government. For example, the reduction of the FDI threshold in 2022 was influenced by feedback from business communities that the earlier hike was counterproductive. Being part of the dialogue through industry groups can ensure your concerns are heard.
5. Phased Investment and Conservative Planning: Given that there are timelines to bring in capital, plan a phased infusion of funds aligned with project milestones. Nepal allows some flexibility (you don’t have to bring 100% immediately, just the required percentage). So you might commit a larger amount but bring it in tranches as needed. This mitigates both exchange risk and exposure – if the project hits an unexpected snag, you haven’t sent all your money yet. However, don’t cut it too fine; ensure you meet the minimum required injections to keep the approval valid.
6. Currency Risk Management: Apart from hedging tools, even operational strategies can reduce currency risk. For instance, if your revenue is in foreign currency (say you export goods or provide services billed in USD), that naturally hedges some risk as you earn FX to cover FX expenses or to repatriate profits. If possible, structure your sales to generate some forex (tourism businesses do this by targeting foreign tourists who pay in convertible currency). Another tactic is to convert local currency to USD in stages when planning a big repatriation, rather than on one day – this can average out any short-term volatility, though Nepal’s exchange rate is relatively stable day-to-day.
7. Patience and Relationship Building: Operating in Nepal may require a higher degree of patience and relationship management with government bodies. Being respectful and persistent in follow-ups with officials, and perhaps hiring local staff who specialize in regulatory liaisons (PROs or government relations managers), can smooth the process. While rules are rules, in Nepal personal rapport and clear communication can sometimes expedite things or at least ensure your file doesn’t get overlooked.
8. Compliance and Ethics: Ensure full compliance with local laws, including anti-corruption statutes. Trying to shortcut procedures through unofficial means can lead to legal troubles or reputational damage. The Nepal government has been tightening measures on money laundering and corruption. Every foreign currency transaction is scrutinized to comply with international AML (Anti-Money Laundering) norms. In fact, NRB now often requires a declaration from the investor that the funds are clean, taxes are paid, and no laws will be breached. Embracing a transparent approach not only keeps you out of trouble but also builds goodwill with regulators.
By implementing these strategies, many challenges can be significantly mitigated. The goal is to make the foreign investor’s journey – from company setup to repatriating returns – as predictable and hurdle-free as possible. Fortunately, there are professional services in Nepal dedicated to assisting foreign investors with exactly this, such as Digital Consulting Ventures, which we discuss next.
Digital Consulting Ventures (DCV) is a Nepal-based consulting firm that specializes in helping foreign investors establish and grow their businesses in Nepal. As an end-to-end service provider, DCV has tailored solutions for navigating every stage of the incorporation and post-incorporation process – particularly valuable for foreign companies unfamiliar with local regulations.
Services Offered: Digital Consulting Ventures offers comprehensive support that covers:
Pre-Investment Advisory: DCV advises investors on the feasibility of their project, sector-specific regulations, and the optimum investment structure. For example, if you’re unsure whether your planned business is allowed for 100% FDI or requires a local partner, DCV will clarify this upfront by referring to the latest negative list and policies. They also help in preparing a robust investment proposal that aligns with FITTA requirements, increasing the chances of quick approval.
FDI Approval Process: DCV handles the entire application process for obtaining foreign investment approval from the Department of Industry or Investment Board. This includes compiling all required documents, filling out government forms, liaising with the One-Stop Service Center (which is an office set up to streamline FDI processing), and responding to any queries from officials. With professionals who understand the bureaucratic expectations, DCV can significantly cut down the time and hassle to secure an approval.
Company Incorporation: Once FDI approval is in hand, DCV assists with registering the company at the Office of Company Registrar. They help draft the Memorandum and Articles of Association in compliance with Nepali law and ensure the foreign shareholder details are accurately reflected. Because they’ve done this many times, they know the pitfalls to avoid (like correctly notarizing documents from abroad, or translating documents into Nepali where required).
Post-Incorporation Setup: DCV’s support continues after the company is formed. They facilitate setting up corporate bank accounts, including advising on foreign currency account options if needed. They can coordinate with banks to make sure inbound remittances are handled correctly and get the NRB Foreign Investment Registration certificate on your behalf. Additionally, they help with tax registrations (PAN/VAT), social security registrations, and any sectoral licenses your business might need. If your business needs to register with local municipalities or obtain additional permits (for construction, environmental clearance, etc.), DCV can guide those processes as well.
Regulatory Compliance and Ongoing Support: A major value DCV provides is acting as a long-term partner for compliance. They keep clients updated on changes in laws or procedures. For instance, if NRB issues a new circular affecting dividend repatriation, DCV will inform you and adjust the strategy accordingly. They can also manage annual compliance filings – such as submitting FDI progress reports to DOI, renewing any industry registrations, or facilitating audits. When it comes time for profit repatriation, DCV prepares the necessary applications for DOI and NRB, ensuring all supporting documents (board resolutions, audited accounts, tax certificates) are in order. Essentially, they act as your liaison with Nepali authorities so you can focus on business operations.
Talent and Operational Support: As their name suggests, Digital Consulting Ventures also has expertise in areas like outsourced staffing and digital solutions. They can help foreign companies recruit local talent or even set up outsourcing operations. For example, a foreign IT company setting up in Nepal could use DCV’s services to hire software developers and manage HR compliance. This is an added benefit as HR and labor compliance for foreigners (work permits, visas, etc.) can be another challenging area DCV navigates.
Why Use a Firm like DCV: The advisory tone of this article emphasizes being prepared and compliant – DCV embodies that principle by being on the ground, knowing the ins and outs of Nepali regulations. Foreign investors who engage such services often find that the entire setup process becomes more predictable and faster. It reduces the risk of costly errors (like missing a deadline to remit capital or improperly filing a document). Moreover, having local experts handle paperwork means fewer trips to government offices for the foreign principals, which is especially valuable if you’re managing the setup remotely from overseas.
Digital Consulting Ventures prides itself on providing a “one-stop” solution – they coordinate with lawyers, accountants, and government officers as needed, so the investor doesn’t have to assemble a team from scratch. For example, if you need legal verification of documents or notary services, DCV arranges it. If you need an introduction to a bank that’s foreign-investor friendly, they have relationships to leverage. This network effect can expedite processes that might otherwise linger.
In summary, firms like Digital Consulting Ventures offer the on-ground expertise and practical assistance that foreign investors need to successfully incorporate and operate in Nepal. By handling the heavy lifting of bureaucratic procedures, DCV enables investors to focus on their core business strategy. Their role is especially crucial in a jurisdiction like Nepal where knowing the informal workflow of the system (whom to talk to, how to format requests, when to follow up) can make a big difference. Many foreign ventures in Nepal attribute a smooth start to having such local support.
Q1: Can a foreign investor own 100% of a company in Nepal?
A: Yes, in most permitted sectors a foreign investor can own 100% of a Nepali company. Nepal allows wholly foreign-owned companies except in sectors listed as restricted (the “Negative List”). For example, you cannot have any foreign ownership in small retail trade, real estate brokerage, or personal services like local taxis – those are reserved for Nepalis. In a few sectors like banking, telecom, or media, there may be foreign ownership caps set by sectoral laws. But generally, if your industry is open to FDI, you can incorporate a fully foreign-owned private limited company. Always check the latest negative list under FITTA to be sure your sector is allowed for 100% FDI. If it is, you do not need a local partner by law (though you might still choose one for local expertise).
Q2: What is the minimum capital requirement for foreign company registration in Nepal?
A: As of current regulations, the minimum investment is NPR 20 million (approximately USD $150,000) per foreign investor, per company. This is the general threshold set by the government. However, an exception exists for Information Technology (IT) and software-related ventures under an automatic route introduced in 2023 – those IT startups have no set minimum, meaning even a few thousand dollars could qualify. Apart from that special case, all other sectors require the NPR 20 million minimum. Keep in mind this is the minimum approved investment; your actual paid-up capital can be brought in stages, but you must ultimately bring in at least that amount. Also, certain large projects might inherently require more capital (e.g., a hydropower plant will be tens of millions of dollars by nature). Always verify if any recent policy changes have adjusted the threshold, as it has changed before.
Q3: Do I need approval from Nepal Rastra Bank to bring in foreign capital or to take money out?
A: Inbound: You do not need prior NRB approval to bring foreign investment into Nepal once you have the FDI approval from the Department of Industry/IBN. You simply send the money through normal banking channels, then inform NRB and register it. Outbound: Yes, to remit money out of Nepal (whether profits, capital, royalties, etc.), you need NRB’s approval each time. The process involves first getting approval from the relevant government department (for the type of payment), and then NRB gives final permission to convert NPR to foreign currency and remit. NRB’s role is to ensure the foreign exchange regulations are followed. The commercial bank will not execute an outward remittance without showing NRB’s approval documents. So, think of NRB as a necessary checkpoint for any outward transfer of funds in foreign currency.
Q4: How are foreign company profits taxed in Nepal, and is there a tax on funds repatriated abroad?
A: Foreign-owned companies are taxed the same as local companies on their profits – generally a 25% corporate income tax on net profit. Once that is paid, if profits are distributed as dividends to foreign shareholders, Nepal levies a 5% dividend tax (withholding). That 5% is the only tax specifically on repatriation; it’s deducted at source and after that the net dividend can be sent abroad. There is no additional “repatriation tax,” but you must clear all regular taxes (income tax, VAT if applicable, etc.) before remitting. If you are repatriating capital gains (from selling your company shares), those gains will be subject to capital gains tax (rate can be ~25% for non-resident sellers on private companies). Royalties and interest paid abroad incur a 15% withholding tax in most cases. Nepal has tax treaties with several countries which might reduce these tax rates, so you should check if your home country has a DTAA with Nepal. For instance, under some treaties the tax on dividends or interest is capped at 10%. To benefit from a treaty, you’ll need to provide a tax residency certificate and follow procedures, but it can avoid double taxation.
Q5: How long does it take to register a foreign company and start operations in Nepal?
A: The timeline can vary, but generally: Obtaining FDI approval may take anywhere from 2 to 4 weeks (if all documents are in order). Company incorporation at OCR is relatively quick once you have approval – about a week or two. Post-registration tasks (bank account, PAN registration, etc.) might take another couple of weeks. So, in a smooth case, a foreign investor could register and be ready to inject capital within 1 to 2 months. However, delays can occur if additional sectoral clearances are needed or if paperwork needs revision. For example, if your business needs an extra license (say a tourism operating license, or industry registration for manufacturing), that might add a few more weeks. Hence, a realistic range is about 2 to 3 months to be fully set up and operational. Working with a one-stop facilitator like Digital Consulting Ventures can compress this timeline, as they’ll parallel process many requirements. Keep in mind, if physical setup (office lease, hiring staff) is considered, you might need additional time. Also, bringing in the funds and getting them registered with NRB should be done soon after incorporation; while that itself is quick (a bank transfer might take a few days), you should allocate time for the administrative steps around it. Overall, Nepal has been streamlining procedures (with the government even committing to decisions on FDI approval within 7 days for automatic route cases), so the process now is faster than it was a decade ago.
Q6: Are foreign investors allowed to take loans from abroad or get local financing in Nepal?
A: Yes, foreign investors can use both local and foreign financing, but with conditions. Local banks in Nepal can lend to your company in Nepali Rupees once your company is established, based on their credit assessments – foreign-owned companies are not barred from borrowing locally. For foreign loans (like from your parent company or an international bank), Nepal Rastra Bank’s approval is required before taking the loan. FITTA 2019 and NRB regulations allow foreign currency loans for companies with FDI as long as the loan terms are approved. You’d need to apply to NRB providing details of the loan amount, interest rate, repayment schedule and justifying the need for foreign borrowing (often done for longer-term or larger loans that local banks can’t provide). If approved, the loan amount comes in via banking channel and gets recorded just like equity. The company can then later remit interest and principal payments as per the approval schedule. Many large projects (like hydropower plants) use this route to secure foreign debt financing. One thing to note: excessively high-interest loans might not be approved because NRB wants to ensure the country isn’t drained by exorbitant debt repayments. Loans from the foreign parent are also common (sometimes termed shareholder loans) – these too need NRB approval but can be a way to finance operations beyond the initial equity. Always seek professional advice to structure it correctly, because an unapproved foreign loan would be treated as an unauthorized transaction under forex laws.
Q7: What are some incentives for foreign investors in Nepal?
A: Nepal offers certain incentives to both domestic and foreign investors, mostly through the Industrial Enterprise Act and periodic Finance Acts. Key incentives include tax benefits like tax holidays or rebates for industries in less developed regions or in sectors like agriculture, tourism, energy, etc. For example, an industry established in a very undeveloped area might get 100% income tax exemption for the first 5 years and 50% for next 3 years (just an indicative figure; actual incentives depend on government announcements). Similarly, exporting industries may get partial rebates or lower customs duties on import of machinery. Foreign investors are treated the same as local investors regarding these incentives – FITTA ensures no discrimination (national treatment) in providing concessions. Additionally, investments above certain sizes might get fast-track services or concessions in land acquisition. Another incentive is that losses can be carried forward for certain years to offset future profits for tax purposes. Nepal also has Special Economic Zones (SEZs) for export-oriented industries that offer zero tax for first 5 years and low tax thereafter, and other benefits like easier customs. While not exclusive to foreign investors, these can be attractive. It’s advisable to ask authorities or consultants about current incentives applicable to your sector – they can change with each year’s budget announcement.
Q8: How easy is it to exit and pull out my investment if things don’t work out?
A: Exiting a foreign investment in Nepal is possible, but it involves the formal process of approvals similar to when repatriating profits. If you decide to close the business or sell it off, you would need to clear all local liabilities (employee dues, taxes, creditors). Then, for repatriating your remaining capital or sale proceeds, you apply to DOI/IBN and NRB as described earlier. Nepal allows repatriation of the investment amount after such closure or sale, after verifying that everything locally has been settled. The ease of exit also depends on finding a buyer if you’re selling. Selling to another foreign investor would require that new investor to get FDI approval to take over your shares. Selling to a Nepali buyer may be simpler in that they just purchase shares (subject to any sectoral cap), but you still need approval to send the money you received abroad. If fully liquidating, you might have to go through a formal liquidation process under the Companies Act which can be time-consuming if done through court, but many just wind down operations and show the audited accounts with remaining cash to distribute. In short, pulling out your investment can be done, but it’s not instantaneous – expect a process that might take a few months to get all clearances. The government does not want to trap investors, but they do ensure compliance at exit just as at entry. Success stories exist – e.g., a foreign investor in a manufacturing company exited by selling shares to a Nepali firm, and was able to repatriate the sale money after about 3 months of paperwork. Planning the exit in advance and consulting with legal advisors can smoothen the way.
These FAQs address some of the most common queries new foreign investors have. Each investor’s situation can have unique aspects, so it’s recommended to seek personalized advice for complex cases. Nepal’s framework is evolving to be more investor-friendly, and being well-informed is the best way to make the most of the opportunities while avoiding pitfalls.
Foreign Exchange (Regulation) Act, 1962 (Nepal) – Legislation establishing Nepal Rastra Bank’s authority over foreign currency transactions and prohibiting unapproved forex dealingslawbhandari.com.
Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019) – Main law governing FDI in Nepal, detailing approval process, investor rights (repatriation, non-nationalization), and obligationslawbhandari.comlawbhandari.com.
Foreign Investment and Technology Transfer Rules, 2077 (2021) – Implementing regulations under FITTA, outlining procedural details like investment timelines and royalty capsrepository.samriddhi.orgrepository.samriddhi.org.
Public-Private Partnership and Investment Act, 2019 – Law designating approval authorities (Department of Industry up to NPR 6 billion, Investment Board beyond that) and facilitating large investmentsnepaleconomicforum.org.
Companies Act, 2006 (Nepal) – Law under which companies (including those with foreign shareholders) are incorporated and regulated in Nepal.
Income Tax Act, 2002 (Nepal) – Governs taxation of corporate profits, dividends, interest, and capital gains for companies and investors.
Nepal Rastra Bank Foreign Investment and Foreign Loan Management Bylaw, 2021 – NRB’s rules for handling foreign currency in investment, including provisions on remittance reporting and approval requirementsnrb.org.npnrb.org.np.
Kathmandu Post (Aug 31, 2024) – “Nepal’s FDI stock rose 11.8 percent to Rs 295.50 billion.” (Report on NRB FDI survey, including data on FDI inflows and repatriation)kathmandupost.comkathmandupost.com.