Foreign Direct Investment in Nepal: Emerging Opportunities for Global Investors

Foreign Direct Investment in Nepal is accelerating. Yet before entering the market, every foreign investor must understand private vs public company in Nepal structures.

The choice impacts capital raising, compliance burden, governance, profit repatriation, and long-term exit strategy.

This guide breaks it down clearly. No fluff. No generic summaries. Only what global investors need to know to make an informed decision.

If you are evaluating Nepal for manufacturing, IT outsourcing, hydropower, trading, fintech, or services, this article will give you strategic clarity.

Why Company Structure Matters for Foreign Direct Investment in Nepal

Nepal’s investment regime is governed primarily by:

• Foreign Investment and Technology Transfer Act (FITTA), 2019
• Companies Act, 2006 (2063)
• Industrial Enterprises Act, 2020
• Income Tax Act, 2002 (2058)
• Regulations issued by Department of Industry (DOI) and Nepal Rastra Bank (NRB)

Under FITTA 2019, foreign investors can establish:

• A private limited company
• A public limited company
• A branch office (in limited cases)

However, the vast majority of foreign investors choose between private vs public company in Nepal.

Why?

Because the structure determines:

1. Minimum shareholders
2. Capital raising flexibility
3. Regulatory scrutiny
4. Reporting obligations
5. Listing options
6. Governance complexity
7. Long-term scalability

Let’s break this down in practical terms.

Private vs Public Company in Nepal: Legal Definition and Core Differences

What Is a Private Limited Company in Nepal?

Under the Companies Act 2006:

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite the public to subscribe shares
• Shares are restricted in transfer
• Not listed on stock exchange

Private companies are the most common structure for foreign investors entering Nepal.

They offer control, flexibility, and lower compliance complexity.

What Is a Public Limited Company in Nepal?

A public company must:

• Have minimum 7 shareholders
• No maximum shareholder limit
• Be allowed to issue shares to the public
• Comply with Securities Board of Nepal (SEBON) regulations
• Meet stricter governance requirements
• Have minimum paid-up capital requirements (as prescribed)

Public companies may list on the Nepal Stock Exchange (NEPSE).

Comparison Table: Private vs Public Company in Nepal

For most foreign companies entering Nepal, the private structure provides strategic simplicity.

But there are exceptions. Let’s explore them.

When Should Foreign Investors Choose a Private Company in Nepal?

A private limited company is typically ideal when:

• You are setting up a wholly owned subsidiary
• You want tight shareholder control
• You are entering Nepal for operational expansion
• You want faster incorporation
• You prefer lower regulatory exposure
• You are not planning immediate IPO

This structure works well for:

• Manufacturing FDI projects
• IT and BPO services
• Hydropower SPVs
• Trading and export companies
• Offshore service centers

From a practical standpoint, 90%+ of foreign companies entering Nepal choose private limited structures.

When Does a Public Company Make Strategic Sense?

A public company may be suitable if:

• You plan to raise capital from Nepali investors
• You aim to list on NEPSE
• You want local shareholder participation
• You are building a large infrastructure project
• You want stronger public credibility

Public companies are common in:

• Banking and financial institutions
• Large hydropower projects
• Insurance companies
• Capital-intensive industrial ventures

However, public companies come with significant compliance obligations.

Compliance and Regulatory Burden: What Foreign Investors Must Know

The compliance difference is substantial.

Private Company Compliance Includes:

• Annual general meeting
• Annual return filing with Company Registrar
• Tax filings under Income Tax Act 2002
• Audit by licensed Nepali auditor
• FDI reporting to NRB

Public Company Compliance Includes:

• Quarterly reporting
• SEBON disclosures
• Board committees (Audit Committee mandatory)
• Prospectus approval for share issue
• Share registry compliance
• Greater transparency obligations

For foreign companies seeking operational efficiency, private structure reduces friction.

Capital Raising and Investment Strategy

One of the most important differences in private vs public company in Nepal lies in capital flexibility.

Private Company Capital Strategy

• Funded via shareholder equity
• Foreign loan subject to NRB approval
• Private placement possible
• No public share offering

Public Company Capital Strategy

• Can issue IPO
• Can issue debentures publicly
• Access to retail investors
• Greater fundraising scale

If your Nepal strategy requires mass domestic participation, public structure becomes relevant.

Otherwise, private is more efficient.

Tax Considerations for Private vs Public Companies in Nepal

Under the Income Tax Act 2002:

• Corporate tax generally 25% (sector specific variations apply)
• Dividend distribution tax applicable
• Withholding taxes apply to payments

There is no fundamental corporate tax difference between private and public companies.

However:

• Public companies may have additional compliance cost.
• Listed companies may enjoy perception benefits.
• Certain sectors (hydropower, special industries) may have tax holidays under Industrial Enterprises Act 2020.

Tax incentives depend on sector, not company type.

Governance and Control: A Critical Factor for Foreign Investors

Foreign companies often prioritize control.

Private Company Advantages

• Fewer directors required
• Share transfer restrictions protect ownership
• No public interference
• Board flexibility
• Easier restructuring

Public Company Governance Requirements

• Minimum three directors
• Independent directors in some cases
• Audit committees
• Mandatory transparency
• Shareholder activism risk

For foreign parent companies, maintaining control is usually easier under private structure.

Incorporation Process Overview

The process involves:

1. FDI approval from Department of Industry
2. Company registration with Office of Company Registrar
3. PAN registration
4. Bank account opening
5. Capital injection through banking channel
6. NRB reporting
7. Business license depending on sector

Whether private or public, FDI approval under FITTA 2019 is required.

Public companies may require additional regulatory clearances.

Timeline and Cost Comparison

Private Company

• Timeline: 4–8 weeks (FDI dependent)
• Lower legal cost
• Moderate documentation
• Faster operational readiness

Public Company

• Timeline: 3–6 months
• Higher advisory costs
• SEBON coordination
• Prospectus preparation (if public offering)

If speed to market matters, private wins.

Strategic Insight: What Most Foreign Investors Get Wrong

Many global companies assume public company status equals credibility.

In Nepal, credibility comes from:

• Compliance record
• Banking relationships
• Tax transparency
• Strong governance documentation

A well-structured private company can operate at institutional standards.

Public listing is not necessary for operational success.

Risk Assessment: Private vs Public Company in Nepal

Private Company Risks

• Limited liquidity
• Harder minority exits
• Capital raising constraints

Public Company Risks

• Higher compliance exposure
• Regulatory penalties
• Share price volatility
• Increased scrutiny

Foreign investors must align structure with risk appetite.

Decision Framework for Global Investors

Ask yourself:

1. Do we need domestic public capital?
2. Is IPO part of our 5-year plan?
3. Do we require local shareholder participation?
4. Are we comfortable with regulatory transparency?
5. Is speed to launch critical?

If the answer is mostly “no,” private structure is optimal.

Frequently Asked Questions (People Also Ask)

1. Can a foreign investor fully own a private company in Nepal?

Yes. Under FITTA 2019, 100% foreign ownership is permitted in most sectors, except restricted industries listed by the government.

2. Is a public company mandatory for large FDI projects?

No. Most large FDI projects operate as private companies unless they seek public capital.

3. How long does company registration take in Nepal?

Private company registration usually takes 4–8 weeks after FDI approval. Public companies take longer.

4. Can a private company convert into a public company later?

Yes. Conversion is permitted under the Companies Act, subject to regulatory compliance.

5. Is NEPSE listing mandatory for public companies?

No. A public company does not automatically need listing, but listing requires SEBON approval and compliance.