Foreign Direct Investment and Company Incorporation in Nepal: What’s Allowed

Nepal has been actively reforming its foreign investment policies to attract international businesses. For foreign companies looking to expand into Nepal, it’s crucial to understand what’s allowed in terms of Foreign Direct Investment (FDI) and how to properly incorporate a company. This comprehensive guide provides an overview of Nepal’s FDI policy framework – including the Foreign Investment and Technology Transfer Act (FITTA) 2019 and the latest 2025 updates – and outlines the procedures, sectors open or closed to FDI, minimum capital requirements, approval routes, and key regulations (including Nepal Rastra Bank rules) that foreign investors should know.

Nepal’s FDI Policy Framework (FITTA 2019 and 2025 Updates)

Nepal’s FDI regime is governed primarily by the Foreign Investment and Technology Transfer Act 2019 (FITTA 2019). This act modernized the country’s approach to foreign investment, replacing older regulations and expanding the number of sectors open to FDI, simplifying approval processes, and guaranteeing investor rights such as profit repatriation and protection against arbitrary nationalization. Under FITTA 2019, foreign investors are to be treated on par with domestic investors (national treatment principle) and are assured that they can repatriate profits and capital, subject to tax clearance and other regulatory compliance.

Key recent updates (as of 2024–2025) to Nepal’s FDI policy have further liberalized and clarified investment rules:

• Automatic Approval Route: In 2023, Nepal introduced an automatic online approval system for FDI. Under this automatic route, foreign investors can apply through an online portal for certain sectors and investments up to NPR 500 million (approximately USD 4 million) and receive immediate preliminary approval. This eliminates the need for prior bureaucratic approval for many standard projects, significantly reducing processing time. The automatic route (launched during the 2024 Investment Summit) has been very successful – in the first nine months of FY 2024/25, roughly 97% of FDI commitments (nearly NPR 58 billion worth) came through this fast-track channel. For larger investments or projects in sensitive sectors not covered by the automatic route, a manual review (and in some cases cabinet approval) is still required.

• Lowered Minimum Capital Threshold: Initially, FITTA 2019 had set a high minimum investment requirement (reportedly NPR 50 million) for any foreign investment. This threshold was reduced to NPR 20 million (around USD 150,000) to encourage smaller-scale investments. Moreover, as of late 2023, the government removed the minimum capital requirement for investments in the Information Technology (IT) sector when using the automatic route. This means foreign investors can start an IT company in Nepal with no minimum FDI amount, making it much easier for tech startups to enter the market. (The IT sector was given special consideration to boost Nepal’s burgeoning tech industry.)

• Amendments to Allow Investment via Funds: In early 2025, an ordinance amended FITTA to allow foreign investors to invest in Nepali companies through venture capital funds or specialized investment funds registered with Nepal’s regulatory authorities. This opens the door for private equity and venture capital flows into Nepal, providing more flexibility in how foreign capital can participate in local industries.

• Other 2024 Regulatory Reforms: The government has clarified and expanded FDI possibilities in emerging business models. For instance, foreign investment up to 70% is now explicitly permitted in ride-sharing platforms (e.g., ridesharing apps), which previously fell in a grey area. “Contract manufacturing” has been fully allowed without previous limitations, and even technology transfer definitions have been broadened (recognizing practices like reverse engineering). These changes reflect Nepal’s commitment to adapt regulations in line with new business trends.

Nepal Rastra Bank (NRB), the central bank, also plays a role in the FDI framework by issuing regulations on foreign exchange. NRB ensures that foreign currency coming in as investment is recorded and that repatriation of funds (profits, dividends, or capital gains) is conducted smoothly. NRB has simplified procedures for approving investment inflows and outflows, aligning with the FITTA provisions to make the FDI process investor-friendly.

Sectors Open to Foreign Investment (and 100% Ownership)

Nepal welcomes foreign investment in most sectors of its economy. Outside of a few prohibited or restricted areas (covered in the next section), foreign investors can own up to 100% equity in Nepali companies. There is no general requirement to have a local partner in open sectors. This policy allows wholly foreign-owned subsidiaries or joint ventures as the investor prefers.

Major sectors open to 100% FDI include:

• Manufacturing Industries: Virtually all manufacturing and industrial production sectors are open to foreign investors. This ranges from textiles and garments, food and beverage processing, electronics assembly, pharmaceuticals, cement, steel, and consumer goods manufacturing. For example, Unilever Nepal (a subsidiary of a multinational consumer goods company) operates in Nepal’s manufacturing sector, and there are several foreign-invested garment and carpet factories.

• Information Technology and Business Process Outsourcing: As noted, IT is fully open and even incentivized. Software development companies, IT services, outsourcing/BPO centers, and tech startups can be 100% foreign-owned. Nepal’s growing tech talent pool and competitive wages make it attractive for IT and outsourcing operations. (Recent policy changes removing the investment minimum for IT underscore the government’s prioritization of this sector.)

• Tourism and Hospitality: Tourism is a major industry in Nepal, and foreign investment is encouraged in hotels (from boutique hotels to large five-star resorts), travel and tour companies, restaurants (including international franchise operations), and adventure tourism enterprises. Many international hotel chains (Marriott, Hyatt, Accor, etc.) have established or are opening properties in Nepal through foreign investment or joint ventures, indicating that hospitality is wide open to FDI. 100% foreign-owned hotels are allowed, or partnerships with local groups can also be formed.

• Energy and Infrastructure: Nepal’s infrastructure and energy sectors are hungry for investment. Hydropower projects (Nepal’s rivers offer huge hydropower potential) are a prime sector for foreign investors. While smaller hydropower projects can be wholly foreign-owned, very large projects may have some local ownership requirements (explained later) or government partnership models. Apart from hydropower, sectors like solar and wind energy, roads and highways, tunnels, airports, water supply, and urban infrastructure development are open to foreign companies. For example, foreign firms have invested in Nepal’s hydropower plants and in telecom infrastructure.

• Services and Others: Most service industries are open to FDI. This includes healthcare (hospitals, clinics), education (schools, colleges in certain categories), engineering and consulting services, logistics, software and IT services, finance (with some ownership caps), etc. For instance, in finance, several foreign banks operate joint-venture banks in Nepal (Standard Chartered, for example, is a major international bank with operations in Nepal) – banking has a cap on foreign equity (75%, see below). Similarly, the telecommunications sector is open with a cap (the largest private telecom operator, Ncell, is majority-foreign owned). Agriculture and agro-processing are also open to FDI at a commercial scale (large farms, seed production, food processing facilities).

The government also identifies “priority sectors” for investment that align with national development goals. These priority areas – such as export-oriented manufacturing, infrastructure, renewable energy, agribusiness, and industries that create significant employment – may receive additional incentives or faster approvals. Generally, if your industry is not on the official negative list or subject to specific equity limits, you can assume 100% foreign ownership is allowed.

Restricted and Prohibited Sectors for Foreign Investors

While Nepal is open to FDI in most areas, there is an official Negative List of industries where foreign investment is either prohibited or restricted. These rules exist to protect small domestic businesses, address security and cultural concerns, or ensure certain strategic sectors remain under Nepali control.

Prohibited sectors (no foreign investment allowed at all):

• Micro and Personal Businesses: Foreigners cannot invest in small-scale personal services and local trades. This includes businesses like rickshaw or taxi services, local bus services, barber shops and beauty parlors, domestic courier services, and small retail shops. These small businesses are reserved for Nepali nationals to protect livelihoods.

• Real Estate Trading (Land Trading): Non-Nepali entities are not allowed to engage in land speculation or trading of real estate properties outright. (However, foreign investment in real estate development projects – for example, building commercial complexes or housing projects – may be allowed under certain conditions, as long as it’s construction/development and not just buying and selling land.)

• Cottage Industries: Traditional cottage industries using local resources and skills are off-limits to foreign investors. This covers things like traditional handicrafts, some agricultural and craftworks that are considered part of the cultural heritage or small cottage sector of Nepal. For example, traditional handmade arts, crafts or small-scale rural industries (like straw products, handmade pottery, certain agro processing on a cottage scale) are typically not open to FDI.

• Weapons and Ammunition: The manufacturing of arms, ammunition, explosives, gunpowder, and other military or defense-related equipment is completely closed to foreign investment for national security reasons.

• Tobacco and Local Media: Some specific sectors like bidhi (indigenous cigarettes) or other tobacco product manufacturing might be restricted or require special permission (the policies on tobacco have been restrictive, although there are some large multinationals in tobacco via joint ventures historically). Also, print media focused on news (like publishing of local Nepali newspapers) and FM radio broadcasting are generally closed to foreign ownership, reflecting cultural and political sensitivities. Likewise, industries related to nuclear/radioactive materials are prohibited.

Restricted sectors (allowed with conditions or ownership caps):

Certain sectors are open to foreign investment but only up to a percentage or with special conditions. If investing in these fields, foreign companies must partner with Nepali investors or adhere to specific limitations:

• Banking and Financial Services: Foreign banks and financial institutions can operate or invest in Nepal, but foreign ownership in domestic banks is capped (currently at 75%). This means a foreign bank must have at least 25% Nepali ownership (often done by partnering with a local bank or Nepali shareholders). For instance, Standard Chartered Bank Nepal has a majority foreign share but also local public shareholders to meet this requirement. Similarly, in insurance companies, foreign ownership is capped at 51%, requiring nearly half the stake to be held by Nepali citizens or entities.

• Telecommunications: For basic telecom services (infrastructure-based telecom operations), foreign investment is allowed up to 80% of equity. The foreign investor must partner for the remaining 20% with Nepali investors. (In value-added telecom services or IT services, 100% is allowed, but core telecom networks have this cap.) Nepal’s major private telecom operator, Ncell, is an example where the majority stake is foreign (owned by a Malaysian group) and a local partner holds the rest.

• Civil Aviation (Domestic Airlines): Domestic airline companies (operating within Nepal) allow foreign investment but with a cap of 49%. Foreign airlines or investors can own up to 49% in a Nepali domestic carrier, ensuring that at least 51% remains in Nepali hands. This is to keep national control over airlines serving domestic routes. (International airlines flying into Nepal are not “investments” per se but foreign entities with landing rights; this cap refers to owning a Nepali airline.)

• Media and Publishing: While certain forms of media are completely off-limits as noted above, other media-related businesses might allow minority foreign stakes. For example, television broadcasting or print media (non-news or magazines) might allow some foreign investment but usually not majority control. The exact ownership limits can vary by specific regulation, but generally, anything in news media or broadcasting has strict domestic ownership requirements.

• Agriculture and Forestry: Primary agriculture (like owning and farming land) is generally restricted. However, commercial farming and agro-processing with technology and capital is encouraged in joint venture mode. Often foreign investors must engage with local farmer cooperatives or do contract farming rather than outright own farmland. In forestry, similar principles apply: direct forestry exploitation is restricted, but processing or forest-based industries might be allowed with government consent and often requiring joint ventures.

• Retail Trade: Small retail is prohibited, but large-scale retail or wholesale trade may be permitted if certain thresholds are met. For instance, establishing a large international retail chain or a departmental store may require a minimum investment amount (to ensure it’s truly a large operation) and possibly government approval. The policy intention is to bar foreign investment in petty retail trading (to protect small Nepali shopkeepers) while allowing it in larger wholesale or distribution businesses that can benefit consumers.

• Security Services: Private security service businesses (e.g., security guard companies) typically have ownership caps (around 49% foreign max) due to security sensitivities.

In addition to these, Nepal may subject any investment to a “security/strategic review” if it’s in a sensitive location (like border areas) or in sectors critical to national security (defense, large infrastructure, etc.). Generally, if your sector isn’t explicitly prohibited or capped, you can proceed with 100% foreign ownership. But it’s always wise to consult the latest negative list (published by the Department of Industry or Ministry of Industry, Commerce and Supplies) for any changes or specific conditions.

Minimum Capital Requirements for FDI

One of the first questions foreign investors ask is: How much capital is required to invest in Nepal?

Currently, the general minimum FDI capital requirement is NPR 20 million (approximately USD 150,000) for each foreign investment project. This means that, in most sectors, a foreign investor must bring in at least that amount as equity investment in the company. This threshold is meant to ensure that foreign investments are substantive and contribute meaningfully to the economy.

However, there are important nuances and exceptions:

• No Minimum for IT Sector: As mentioned earlier, the government has lifted the minimum investment requirement for information technology-based industries (software companies, IT services, etc.) when processed through the automatic route. This change (announced in late 2023) allows, for example, a foreign software startup to incorporate in Nepal with, say, just NPR 1 million or 5 million capital if that suffices for the business plan – something that was not possible before. It’s a big boost to attract tech startups and smaller IT firms.

• Sector-Specific Guidelines: While NPR 20 million is the blanket rule, certain sectors inherently demand larger investment to be viable or to obtain sector-specific approvals. For instance:

  • To establish a hotel of a certain standard, the tourism authorities might expect a sizeable project cost (for example, a five-star hotel project might run into millions of dollars, and indeed many such projects involve investments of USD 5 million or more).

  • A manufacturing plant will typically require several hundred thousands of dollars; many foreign manufacturing projects in Nepal are well above the minimum anyway (often in the range of USD 0.5 million and up).

  • Infrastructure or energy projects often require multi-million dollar investments (hydropower projects can be tens or hundreds of millions). While smaller scale projects can meet the NPR 20 million minimum, larger projects obviously involve higher capital by nature.

  • Service sector businesses might be possible at closer to the minimum (e.g., a consultancy or software firm could start at or not far above $150k), whereas a financial institution or a hospital would need significantly more capital (because regulators require higher paid-up capital for those industries).

  The key point is that Nepal’s laws set the floor, but depending on the industry, practical and regulatory considerations may set a higher effective minimum. Always check if the line ministry or regulator for your industry has any capital requirements (for example, banks have a separate minimum capital requirement imposed by the central bank far higher than NPR 20 million, but such a license wouldn’t be relevant unless you plan to open a bank).

• Automatic vs. Approval Route Capital Limits: The new automatic approval portal accepts investments up to NPR 500 million (~USD 4 million) for fast-track processing. If your proposed investment (equity) is larger than NPR 500 million, you will likely go through the standard (manual) route with the Department of Industry or Investment Board (which entails more detailed scrutiny). Note that NPR 500 million is not a maximum cap on FDI – it’s only a threshold for automatic online processing. Projects above that size are absolutely allowed; they just follow a different approval process.

• Incremental Capital Injections: After the initial minimum investment, additional capital can be brought in as needed. Nepal does require that once you get an investment approval for a certain amount, you bring in a portion of it within a stipulated time (usually at least 25% within 6 months of approval, and the rest within a few years). These timelines ensure the investor actually implements the project. Extensions can be requested if delays occur, but failing to bring in the committed funds could lead to the approval being canceled.

In summary, for most typical foreign business setups, you should plan to invest at least NPR 20 million upfront. It’s advisable to invest amounts that make sense for the scale of your business – Nepal wants to avoid very tiny FDI projects that might undercut local small businesses. The reduction of the threshold from NPR 50M to NPR 20M (and removal for IT) shows a flexibility to encourage more diverse investments, including small and medium enterprises.

FDI Approval Authorities: Department of Industry vs. Investment Board Nepal

Depending on the scale and nature of the foreign investment, different government bodies in Nepal may be involved in the approval process:

• Department of Industry (DoI): This is the primary agency under the Ministry of Industry, Commerce, and Supplies that approves and facilitates foreign investments in most sectors. Traditionally, the DoI handled FDI projects up to NPR 6 billion in project cost. The vast majority of foreign investments fall into this range, so most investors will work with the DoI. The DoI houses a Foreign Investment Section (often functioning as a one-stop service center for investors) that processes applications under FITTA. By law, the DoI is supposed to decide on investment approval applications within 7 days of submission of a complete application. In practice, it usually takes about 1-2 weeks to get the approval letter (which is still relatively quick by regional standards). The introduction of the online automatic route has essentially made DoI’s process instant for qualifying investments (issuing a provisional approval via the portal).

• Investment Board Nepal (IBN): The Investment Board is a high-level government body chaired by the Prime Minister, intended to facilitate large-scale and strategic investments. Under the Public-Private Partnership and Investment Act, IBN’s mandate has been to handle projects above NPR 6 billion (roughly USD 50 million), particularly mega infrastructure projects, large energy projects (like big hydropower plants above a certain capacity), and other projects of national importance. If a foreign company plans a very large investment, they may apply directly to IBN for approval. IBN provides more hands-on investment facilitation for such big projects, including help with inter-ministerial coordination, project development agreements, etc. The timeline for IBN approvals can be longer (often 45-60 days or more) due to the scale and complexity of projects it handles – and many large projects may also require cabinet approval or negotiation of detailed conditions.

• Recent Changes: In an amendment to FITTA (effective mid-2024), the Department of Industry was given authority to approve foreign investments without an upper limit, seemingly overlapping with IBN’s previous threshold. In theory, this means DoI could approve any project of any size. However, in practice, the division of responsibilities is likely to remain: IBN continues to take the lead on very large projects and PPP (public-private partnership) deals, while DoI handles regular business investments. The legal inconsistency is expected to be resolved with clarifying regulations, but as an investor, you will typically be directed to IBN if your project is enormous in scale or falls under sectors IBN specifically oversees (for example, large hydropower projects above a certain megawatt capacity, large toll-road projects, etc.).

In summary, for most foreign company incorporations and FDI in Nepal, the Department of Industry is your primary interface. Only if you are investing tens of millions of dollars or in a large infrastructure venture would the Investment Board come into play. It’s also worth noting that Nepal has established a One-Stop Service Center at the Department of Industry to streamline processes – it coordinates with other agencies like the Company Registrar, tax office, central bank, immigration (for work visas), etc., so that investors can get many necessary approvals in one place. This is part of the government’s effort to improve the ease of doing business.

Step-by-Step Process for Company Incorporation in Nepal (FDI)

For a foreign investor, incorporating a company in Nepal involves a series of steps and approvals. Below is a step-by-step guide on how foreign companies can register and start a business in Nepal:

1. Obtain FDI Approval (Investment Approval):
The first step is to get approval for your foreign investment under FITTA. You (or a local representative/consultant on your behalf) will submit an application to the Department of Industry (or to Investment Board Nepal if it’s a large project). The application includes details such as the particulars of the foreign investor(s), the proposed company name and business activities, the amount of investment, and a brief business plan or project proposal. Along with the application form, you need to provide supporting documents like:

• Investor documents: copies of passports of individual investors; or incorporation certificate and board resolution of the parent company if the investor is a company.

• Project documents: a business plan or project report outlining what the company will do, how much capital will be invested, and projected financials; and any sector-specific feasibility studies if relevant.

• Financial proof: some evidence of the investor’s financial capacity (this could be a bank statement or audited financial report of the investing company).

• Joint venture agreement: if you are partnering with a Nepali co-investor, a JV agreement or at least an understanding/MOU is usually required. (Not needed for 100% foreign-owned ventures.)

• Technology transfer or trademark agreements: if you plan to have any technology transfer or licensing as part of the investment, draft agreements might be attached.

Once submitted, the DoI will review the application. Under the automatic route, this process is done via an online portal – you upload digital copies of these documents and typically receive an approval (or query) within days via email. For the manual route, the application is reviewed by DoI officials and sometimes by an inter-ministerial committee for certain sectors. If everything is in order, the DoI issues a Foreign Investment Approval Letter (also called an Industry Registration Certificate in some cases), specifying the approved investment amount, the business scope, and any conditions. This approval is an important document – you will need it for subsequent steps, like opening a bank account to bring in the funds.

2. Company Registration with OCR:
With the FDI approval in hand, the next step is to legally incorporate the company. All companies in Nepal (local or foreign-owned) must be registered with the Office of the Company Registrar (OCR) under the Companies Act. The process is as follows:

• Name Reservation: You propose a company name and reserve it on the OCR’s online registration portal. The name must be unique in Nepal and not conflict with existing names or trademarks. Upon approval (usually within a day or two), the name is reserved for you.

• Prepare Constitutive Documents: Draft the Memorandum of Association and Articles of Association (MoA/AoA) for the company. These documents define the company’s name, registered address, objectives (which should align with what was approved by DoI), share capital structure, and internal governance rules. Nepal allows companies to be incorporated with a single shareholder and a single director if needed (one-person company), although you may have multiple investors and directors as well. The MoA/AoA should be signed by the shareholders (or their authorized representatives). If signed abroad, documents may need notarization and a Nepali embassy attestation or Apostille.

• Submit Registration Application: Fill out the company registration form (available online on the OCR portal), and submit it along with the MoA, AoA, copies of investor passports, the DoI’s FDI approval letter, and any other required information (like details of the company’s registered address in Nepal, which you will need to arrange).

• Pay Registration Fees: The government charges a nominal registration fee based on the authorized capital of the company. This fee ranges from as low as NPR 1,000 for small companies (authorized capital up to NPR 1 million) and scales upward modestly for larger capital. Even a fairly large company with, say, NPR 100 million capital would pay under NPR 50,000 in fees. These fees can be paid at the designated bank or electronically if the system allows.

• Obtain the Certificate of Incorporation: Once the OCR reviews and approves your documents, they will issue a Certificate of Incorporation and assign a company registration number. Your company is now a legal entity in Nepal. The incorporation process, if documents are in order, usually takes around 7 to 10 days (and can be done simultaneously while you’re waiting on final FDI approval if you time it right).

3. Bring in the Investment Capital:
After incorporation, you need to bring the committed foreign capital into Nepal. The Nepal Rastra Bank (NRB) oversees all foreign currency transfers. The procedure is:

• Open a bank account in the name of the new company at a commercial bank in Nepal.

• Apply to NRB for a Foreign Investment Inflow Approval (sometimes called a Capital Transfer Approval). You’ll submit the DoI’s approval letter, the company incorporation certificate, and details of the incoming amount and source. NRB’s approval is often a formality for registered FDI projects; they basically record the details so that later, when you want to repatriate funds, they know the legitimate inflow that came in.

• Once NRB grants permission (or an acknowledgement), you can remit the funds from your home country into the Nepali company’s bank account. The money must come in as equity (not a loan, unless separately approved as a foreign loan).

• The bank will issue a receipt/credit advice for the foreign currency received, which you will then report back to the Department of Industry. The DoI and NRB coordinate to ensure the inward remittance matches the approved investment. If you fail to bring in the minimum required amount within the set timeframe (usually within one year for the full amount if it’s just the minimum, or per the schedule given if larger), you might need to request an extension from DoI.

4. Industry Specific Licenses/Permits (if applicable):
Depending on your sector, you might need additional licenses or permits:

• If you are in a regulated sector (e.g., a hospital, a school, a banking or financial service, a telecom company, etc.), you will need to obtain the necessary operating license from the relevant ministry or regulatory body. This can sometimes be done in parallel or right after incorporation. For instance, a hospital would need Ministry of Health permissions, a telecom company needs a license from the Nepal Telecommunications Authority, and so on.

• For manufacturing industries, you may need to register your industry with the Department of Industry (to get an Industry Registration Certificate if not already provided with the FDI approval) and obtain environmental clearances if required. Big projects typically must do an Environmental Impact Assessment (EIA) or Initial Environmental Examination.

• Businesses in tourism (travel agencies, hotels) require registration or recommendation from the Department of Tourism or Tourism Board, etc.

Many of these sectoral registrations are streamlined by virtue of having the FDI approval, but they still require separate follow-up. Nepal is moving towards a one-stop service, but as of 2025, not all processes are unified, so you’ll tackle some additional permits on a case-by-case basis.

5. Tax and Administrative Registrations:
Once the company is set up, it must be registered with the Inland Revenue Department (IRD) to obtain a Permanent Account Number (PAN) for tax purposes. This registration is mandatory for all businesses and is needed to legally conduct transactions, issue invoices, and pay taxes. If your company will engage in activities that require VAT (Value Added Tax) registration (e.g., trading or services above a certain turnover), you should also register for VAT. The PAN/VAT registration is straightforward – you submit the application with copies of your incorporation certificate, FDI approval, and some information on the business location, and the tax office issues the PAN (and VAT certificate if applicable) usually within a few days.

Additionally, you may need to register with local government (municipality) especially if you’re setting up a physical office or factory, for local level taxes or simply for records. And if you plan to hire employees (which most will), you will later register with the social security fund and other labor-related offices.

6. Post-Incorporation Compliance and Operations:
With all the above done, you can formally commence business operations in Nepal. Key post-incorporation steps often include:

• Hiring Staff: You can hire local employees freely. For foreign nationals you wish to hire as expat staff, you’ll need to obtain work permits and resident visas. Typically, after the company is established, you can apply to the Department of Labor and Immigration Department for work permits for a limited number of foreign experts or managerial persons (justified by the business need).

• Annual Compliance: Ensure to maintain proper accounts, and file annual financial statements and tax returns. The OCR requires an annual return and the IRD requires annual tax filings, as well as monthly/quarterly tax compliance for VAT or withholding taxes.

• Additional Funding: If you plan to bring in additional investment beyond the initially approved amount, you must get approval for a capital increase from DoI and follow the NRB process again. If the company seeks to take a foreign loan, that too requires NRB approval in advance.

While the list above may seem lengthy, Nepal’s reforms (like the online systems and one-stop center) have made the process more straightforward than in the past. Many investors are able to complete the incorporation and approval steps within about 3-4 weeks (not counting sector-specific licenses which can vary). Engaging a local law or consulting firm to navigate the process is common and can help ensure all requirements are met efficiently.

100% Foreign Ownership vs Joint Ventures

Nepal, as mentioned, allows 100% foreign ownership in most permitted sectors. Foreign companies are not required to have a local partner or shareholder if the sector is fully open. This is advantageous for investors who prefer full control over their operations and equity. Many businesses in Nepal are set up as wholly foreign-owned subsidiaries of the parent company abroad.

However, in practice, some foreign investors do choose to take on a local partner, even if not mandated, for various strategic reasons:

• A local partner can bring market knowledge, navigate bureaucratic processes, and handle cultural or local networking aspects of the business.

• In businesses that rely on government contracts or local distribution networks, a local partner can be very helpful.

• Sometimes a joint venture is formed because the foreign investor might not want to invest the full capital alone or because a Nepali company is already operating in the space and they decide to partner.

In restricted sectors with ownership caps, joint ventures are not just an option but a necessity. For example:

• In a new bank or insurance company, a foreign investor can only hold up to the maximum allowed percentage (75% in banking, 51% in insurance), so the remainder of the equity must come from Nepali individuals or institutions. This automatically means a JV structure. (Often, local shares in such cases are held by domestic firms, the general public, or government entities depending on the deal.)

• In an airline, a foreign airline or investor might team up with a Nepali investor group where the Nepali side owns at least 51%. For instance, there have been joint ventures in the past for start-up airlines where foreign investors bring capital and technical expertise while local investors meet the ownership requirement.

Legal structure: Virtually all foreign investments are established as private limited companies in Nepal (or public limited if planning to go public, but that’s rarer for new ventures). The private limited company structure offers limited liability and flexibility in ownership. Branch offices of foreign companies are allowed in certain cases, but branches are typically restricted to specific activities (like a liaison office, or projects of finite duration) and cannot engage in full business operations freely. Most investors therefore prefer incorporating a local company rather than operating as a foreign branch.

Joint Venture Agreements: If you do opt for a JV, it’s recommended to have a clear joint venture agreement spelling out roles, profit-sharing, management control, exit options, etc., to avoid disputes down the line. The government doesn’t interfere in the commercial terms of JV agreements as long as ownership percentages are within legal limits and the company’s constitutional documents reflect the agreed arrangement.

In summary, Nepal imposes joint venture requirements only in a handful of sectors. Otherwise, foreigners can start their own fully-owned company. The flexibility to have 100% ownership, combined with a relatively liberal remittance of profits policy, makes Nepal quite attractive for investors who want full control of their investment.

Repatriation of Profits and Capital

One of the most important assurances for foreign investors is the ability to repatriate profits and their capital. Nepal’s laws explicitly guarantee the right of foreign investors to repatriate dividends, profits, and the proceeds from the sale or liquidation of the business, provided that applicable taxes have been paid and certain procedures are followed.

Here’s how repatriation works in practice:

• Profit Repatriation (Dividends): If your company in Nepal earns profits, you are free to distribute dividends to the foreign shareholder(s) annually (or any period) as declared by the company’s board and AGM. Before distributing, the company must pay all due taxes on its profits (corporate income tax). Once net profit is determined and you declare a dividend, you will need to obtain a tax clearance certificate from the Inland Revenue Department (confirming all taxes are paid, including the 5% dividend tax—see Taxation section). An auditor will typically verify the accounts and dividend declaration. Then, you apply to Nepal Rastra Bank for approval to remit the dividend. You provide NRB with the audited financial statements, board resolution declaring the dividend, tax clearance, and some forms. NRB then grants permission to the company’s bank to wire the dividend in foreign currency to the investor’s account abroad. This process ensures that the money leaving Nepal corresponds to legitimate profit and has been taxed. In general, as long as paperwork is in order, NRB approval for profit repatriation is routine.

• Repatriation of Investment (Capital Repatriation): If a foreign investor sells shares in the company (either to a Nepali or another foreigner) or liquidates the company entirely, the investor can take back the original investment and any capital gains. For this, one needs to get a valuation of the shares/business by a licensed auditor or valuation expert to establish the transaction price. If selling shares, you might need approval from the DoI for the share transfer (to record the change in foreign investment, especially if selling to a Nepali which reduces foreign investment). Capital gains tax, if any, must be paid (currently, a 5% tax on capital gains for transactions of shares of non-public companies by foreign investors, or as applicable per tax law/treaties). After that, NRB will approve the repatriation of the sales proceeds. In case of liquidation, after settling all liabilities and taxes, the remaining funds can be repatriated similarly. Essentially, foreign investors are entitled to get back their investment amount and any gains, in foreign currency.

• Royalties, Fees, and Other Payments: Not only profits, but payments for things like royalties (for example, if your Nepali company is paying a royalty or technical service fee to the foreign parent), technical service fees, interest on foreign loans, etc., can also be remitted. These require relevant agreements to be in place (which often should be pre-approved by DoI or NRB under technology transfer agreements or loan approvals) and taxes withheld as required. NRB processes these remittances too. For instance, a royalty or technical service fee to a foreign party would typically incur a 15% withholding tax in Nepal, and after paying that, NRB would allow the net amount to be sent out.

Nepal Rastra Bank’s role: NRB essentially functions as the gatekeeper for foreign exchange. Every dollar that comes in as FDI is recorded, and every dollar going out as repatriation is matched against what came in or what profit was earned. Nepal maintains capital controls to some degree, so one cannot freely convert Nepali rupees to USD and send out money unless it’s for an approved purpose. Fortunately, FDI-related transfers are an approved purpose. If a company follows the rules, foreign investors can freely remit dividends and capital. Delays or issues typically only arise if documentation is incomplete or if there are outstanding disputes (like unpaid taxes or pending legal issues).

It’s advisable for foreign investors to work closely with a local bank and perhaps a financial advisor or consultant when planning repatriation to ensure all steps are covered. Also, be mindful that repatriation requests can take a few weeks to process at times, so plan ahead (don’t expect to pull out money on a day’s notice).

Taxation for Foreign-Invested Companies

Foreign-invested companies in Nepal are subject to the same tax regime as Nepali companies (national treatment). Key aspects of Nepal’s tax policy that FDI companies should know include:

• Corporate Income Tax: The standard corporate tax rate in Nepal is 25% of net profits for most businesses. Certain industries have special rates: for example, banks and financial institutions face a higher rate (around 30%), and companies engaged exclusively in exports or IT may enjoy a slightly reduced rate (some export income can be taxed at 20%). Tax is assessed on profits earned in Nepal. Nepal’s tax year runs with the Nepali fiscal year (mid-July to mid-July), and companies must file an annual return.

• Withholding Taxes: When repatriating dividends to foreign shareholders, a 5% tax is imposed on the dividend amount. This is a final withholding tax and is relatively low by international standards (many countries have higher dividend taxes). Similarly, other payments abroad have withholding taxes: 15% on royalties, interest, and technical service fees paid to foreign entities (unless reduced by a tax treaty). These rates can sometimes be lowered if Nepal has a Double Taxation Avoidance Agreement (DTAA) with the investor’s home country; for example, the Nepal-India tax treaty or Nepal-China treaty might set different rates.

• Value Added Tax (VAT): Nepal imposes a 13% VAT on the supply of most goods and services. Businesses have to register for VAT if their annual turnover exceeds a threshold (around NPR 5 million currently). Export of goods and certain services from Nepal is zero-rated (0% VAT), meaning if you are exporting (e.g., IT services delivered abroad or goods shipped out), those sales aren’t taxed, and you can even claim refunds on input VAT. Many manufacturing companies and hotels, etc., will be VAT registered and must charge VAT on local sales.

• Personal Taxes and Others: If you assign foreign staff to Nepal, their personal salary income in Nepal would be taxed according to Nepali income tax law (graduated rates up to 36% for high incomes). However, if they stay short term or are paid from abroad, tax treaties might provide exemptions. The company will also contribute to social security funds for employees (including Nepali staff).

Nepal has signed DTAA (tax treaties) with several countries (including India, China, UK, Germany, France, Singapore, etc.), which can help avoid double taxation of the same income and provide clarity on taxing rights and reduced rates for certain cross-border payments. It’s useful to consult these treaties when structuring payments to the parent company or investors abroad.

Incentives for FDI-Based Companies

To attract FDI, Nepal offers various incentives and benefits to foreign investors, especially in priority sectors and less-developed regions. Some of the key incentives include:

• Tax Holidays: Certain industries and locations qualify for tax exemptions for a number of years. For instance, industries established in Special Economic Zones (SEZs) enjoy a 5-year corporate tax holiday (and 50% tax reduction for several years thereafter). Similarly, exporters of goods or services can get an income tax holiday (or a reduced rate of 50%) for up to 5 years if they meet criteria. Hydropower projects and agriculture-based industries often enjoy tax holidays (e.g., hydropower projects typically get a 10-year tax holiday from start of generation and 50% off for the next 5 years). Moreover, industries set up in very undeveloped areas of Nepal get extra tax breaks compared to those in Kathmandu or other cities.

• Customs and Duty Exemptions: Import duties and VAT on imported machinery, equipment, and raw materials can be exempted or refunded for industries. For example, a manufacturing company may import its production machinery without paying custom duties under an incentive scheme, or an exporter can get duties refunded on raw materials used for export production (duty drawback). This significantly lowers the cost of setting up plants.

• Repatriation Incentives: While not a direct “incentive”, the smooth repatriation framework itself is a facilitation – knowing that you can repatriate profits with only a 5% tax encourages investment. Additionally, dividends paid by industries in certain prioritized sectors may even be exempted from that 5% tax for some years (for example, industries in SEZs pay no dividend tax for some period).

• Investment Protection: Nepal is a signatory to the Multilateral Investment Guarantee Agency (MIGA) and has investment protection agreements with a few countries, which means qualifying investments can get insurance against non-commercial risks. While not a fiscal incentive, it adds to foreign investors’ confidence.

• Other Non-Tax Incentives:

  • The government has set up a One Stop Service Center as mentioned, to assist investors in dealing with all required permits efficiently.

  • Investors in certain large projects may get help like fast-track visa approvals for foreign technicians and executives, and smoother import/export clearances.

  • For IT companies, as a recent initiative, the government announced special facilities for any IT company investing over NPR 1 billion (approx $8 million) – these could include enhanced infrastructure support or dedicated government liaison to help the company grow.

  • In industrial estates or designated industrial zones, companies might get access to readymade factory shells, subsidized utilities, or other support.

• Sector-Specific Programs:

  • Tourism sector: The government sometimes provides lease of public land for resort projects at concessionary rates or offers grants for tourism infrastructure development.

  • Agriculture: Special grants or soft loans might be available for commercial farming projects, and agriculture machinery imports often have reduced tax.

  • Renewable Energy: Hydropower projects have had licensing fees waived or reduced, guaranteed power purchase agreements (ensuring the project can sell electricity to the national grid at fixed rates), and sometimes interest subsidies via government programs.

Before investing, it’s worth researching or asking Nepal’s investment promotion bodies (like Invest Nepal Office or IBN) about any current incentive schemes that might apply to your project. Nepal’s policies continue to evolve, and new incentives (or refinements to existing ones) are often introduced via annual budgets.

Recent FDI Trends and Outlook

Nepal’s FDI inflow has been modest compared to larger Asian economies, but it has been on a growth trajectory thanks to policy reforms. In the fiscal year 2022/23, Nepal approved around NPR 7.22 billion (~USD 54 million) in foreign investments. The sectoral distribution of these investments was telling: about 41% went into the services sector, another 41% into tourism (reflecting a surge in hotel and hospitality projects post-pandemic), around 9% into manufacturing, 5% into IT, and the rest into areas like infrastructure and agriculture. This indicates strong interest in Nepal’s tourism and service industries recently, likely due to rising visitor numbers and opportunities in sectors like hotels, aviation, and banking.

With the introduction of the automatic FDI route and lower entry barriers, the first part of 2024/25 saw a nearly 93% increase in FDI commitment compared to the previous year – a very positive sign. Small and medium-scale investments, particularly from neighboring India, China, as well as from diaspora investors, have increased. There’s also a growing interest from investors in countries like Bangladesh, South Korea, and the Middle East in sectors such as hydroelectric projects, cement manufacturing, and consumer goods.

Major investments and examples: Notable foreign-invested companies in Nepal include:

• Ncell (Telecom) – Majority owned by Axiata (Malaysia), providing mobile services nationwide.

• Standard Chartered Bank Nepal – Part of Standard Chartered plc (UK), operating as a joint-venture bank.

• Unilever Nepal – Joint venture with Unilever, manufacturing consumer products for the local market.

• Surya Nepal – A manufacturing joint venture (with Indian tobacco giant ITC) known for cigarettes and garments.

• Hotel Marriott Kathmandu, Hyatt Regency, Vivanta by Taj, etc. – high-end hotels with foreign investment or management.

• Huawei Technologies Nepal, ZTE – Chinese companies investing in telecom infrastructure and services.

• Various Hydropower JV projects – e.g., projects with Chinese investment like the Tamakoshi hydro project, or Indian-invested Arun III hydropower project, etc., which bring in significant FDI in energy.

The outlook is optimistic: the government of Nepal has set ambitious targets to improve its ranking in ease-of-doing-business and to attract larger FDI volumes to support economic growth. Future plans include further digitalization of approval processes, stronger legal frameworks for special economic zones and industrial parks, and efforts to sign more trade and investment agreements for investor protection. Additionally, as Nepal graduates from least-developed country (LDC) status, it aims to boost export industries – and FDI can play a key role in building export capacity.

Challenges: Despite improvements, foreign investors should be aware of a few ongoing challenges: bureaucratic delays can still occur, infrastructure (like electricity and transport) while improving, may not be as reliable in all areas, and hiring skilled manpower can be competitive in certain sectors. Currency convertibility is generally fine for official transactions, but Nepal does have a constrained foreign currency reserve situation at times, which can slow down some outward remittances if the economy faces stress. That said, normal profit repatriation has so far been maintained smoothly by NRB.

Conclusion

Nepal’s evolving FDI landscape offers increasing opportunities for foreign companies across a spectrum of industries. The country’s policies now allow full foreign ownership in most sectors, provide clear guidelines on what’s not allowed, and have streamlined many procedures for company incorporation in Nepal. From obtaining the initial investment approval under FITTA to registering your company and ultimately repatriating your profits, the process has become much more investor-friendly after the 2019 law and subsequent 2023–2025 reforms.

By understanding the sectors open to FDI, abiding by the minimum capital norms (now more accommodating than before), and following the set procedures, foreign investors can successfully establish and operate businesses in Nepal. Moreover, with incentives like tax holidays, duty exemptions, and the promise of hassle-free profit repatriation, Nepal is signaling that it wants quality foreign investment that can bring in capital, technology, and jobs.

For foreign entrepreneurs and companies eyeing Nepal – whether it’s to tap the tourism boom, harness hydropower potential, leverage IT talent, or introduce new consumer products – the investment climate is the best it’s ever been. As always, conducting due diligence and perhaps consulting legal experts in Nepal is advisable to navigate any complexities. But overall, Nepal is open for business, and knowing “what’s allowed” is the first step to making a successful entry into this emerging market.