Foreign Investment in Nepal: Restricted Sectors and Industries

Private vs public company in Nepal is one of the first strategic questions foreign companies face when exploring market entry. The answer shapes everything that follows. Ownership control. Capital requirements. Regulatory scrutiny. Even whether investment is legally allowed in the first place.

Nepal welcomes foreign investment. But not everywhere. Several sectors remain restricted or partially closed to foreign companies. Choosing the wrong company type or sector can stall approvals or permanently block profit repatriation.

This guide gives you a clear, authoritative breakdown. We explain private vs public companies in Nepal. We map restricted and prohibited industries. We connect the dots between legal structure, FDI eligibility, and long-term control. No jargon. No guesswork.

Understanding Company Types in Nepal

Before looking at restricted sectors, you need clarity on the two core legal vehicles available to foreign investors.

What Is a Private Company in Nepal?

A private company in Nepal is the most common structure used by foreign investors.

Key characteristics:

• Minimum shareholders: 1
• Maximum shareholders: 101
• No public share issuance
• Controlled ownership structure
• Lower disclosure burden

For most foreign companies, a private limited company is the default entry vehicle.

What Is a Public Company in Nepal?

A public company is designed for large-scale operations and capital markets.

Key characteristics:

• Minimum shareholders: 7
• No maximum shareholders
• Can issue shares to the public
• Higher compliance and disclosure
• Mandatory governance standards

Public companies are rare for first-time foreign entrants.

Private vs Public Company in Nepal: Core Differences

Insight:
For foreign companies, the decision is rarely about size. It is about regulatory flexibility and capital control.

Why Company Structure Matters for Foreign Investment

Nepal’s foreign investment regime is structure-sensitive.

The wrong structure can:

• Delay DOI approval
• Trigger additional NRB scrutiny
• Restrict dividend repatriation
• Complicate exit and share transfers

In practice, over 90 percent of foreign direct investment approvals use private companies.

Nepal’s Foreign Investment Legal Framework

Foreign investment in Nepal is governed by a layered legal framework.

Key instruments include:

• Foreign Investment and Technology Transfer Act 2019
• Industrial Enterprises Act 2020
• Companies Act 2006
• Nepal Rastra Bank foreign exchange directives

These laws collectively determine:

• Which sectors allow FDI
• Which company types are permitted
• Capital thresholds
• Repatriation rules

Restricted and Prohibited Sectors for Foreign Companies in Nepal

Not all industries are open to foreign investors. Nepal maintains a “negative list” approach.

Fully Prohibited Sectors for Foreign Investment

Foreign companies cannot invest in the following areas, regardless of company type:

• Small retail trade
• Personal services
• Domestic courier services
• Poultry farming and fisheries for local markets
• Arms and ammunition manufacturing

These restrictions apply equally to private and public companies.

Conditionally Restricted Sectors

Some sectors allow foreign investment only under specific conditions.

Common restrictions include:

• Minimum capital thresholds
• Joint venture requirements
• Technology transfer obligations
• Sector-specific approvals

Examples include:

• Media and mass communication
• Domestic aviation services
• Certain agricultural processing activities

Sector Sensitivity vs Company Structure

Here is the nuance many investors miss.

A sector may be open to foreign investment. But only via a private company. Or only above a certain capital level.

Examples of Structure-Sensitive Sectors

• Hydropower: Public companies preferred for large projects
• Manufacturing: Private companies dominate
• IT and software: Private companies almost universal
• Infrastructure: Mixed, depending on scale

Private vs Public Company in Nepal for Restricted Sectors

Why Private Companies Are Favored

Private companies offer:

• Faster approvals
• Clear shareholder control
• Easier capital injection tracking
• Simpler profit repatriation

For restricted or sensitive sectors, regulators prefer clarity and control.

When Public Companies Make Sense

Public companies are typically used when:

1. Capital requirements exceed private thresholds
2. Government participation is expected
3. Infrastructure scale requires public fundraising

These cases are the exception, not the rule.

Foreign Ownership Limits and Control

Nepal does not impose a universal foreign ownership cap. Limits are sector-specific.

Typical patterns:

• 100 percent foreign ownership allowed in most industries
• Partial ownership in sensitive sectors
• Mandatory local partners in select services

Ownership rules apply regardless of private or public status.

Capital Requirements for Foreign Companies

Capital thresholds differ by sector, not company type.

General benchmarks:

• NPR 20 million for most service sectors
• Higher thresholds for manufacturing
• Significantly higher for infrastructure

Public companies often face higher practical capital expectations.

Repatriation of Profits and Dividends

Profit repatriation is permitted under Nepal law.

Allowed repatriation includes:

• Dividends
• Royalties
• Technical fees
• Share sale proceeds

Private companies usually face fewer delays due to simpler ownership structures.

Compliance and Reporting Obligations

Private Company Compliance

• Annual returns
• Tax filings
• Audit reports
• NRB reporting for foreign transactions

Public Company Compliance

• Everything above
• Plus public disclosures
• Board committees
• Shareholder reporting

For foreign investors, compliance complexity matters more than headline tax rates.

Tax Considerations for Foreign Companies

Nepal applies uniform corporate tax rates.

However:

• Incentives apply by sector and location
• SEZ-based companies receive tax holidays
• Public companies do not receive automatic tax advantages

Structure alone does not reduce tax. Planning does.

Exit Strategy Considerations

Exit is where early decisions matter most.

Private companies allow:

• Share transfers with approval
• Controlled exits
• Cleaner valuation

Public companies involve:

• Market exposure
• Regulatory approvals
• Longer unwind timelines

Foreign investors almost always prefer private exits.

Common Mistakes Foreign Companies Make

1. Choosing a public company too early
2. Entering restricted sectors without clarity
3. Underestimating compliance timelines
4. Ignoring repatriation mechanics
5. Relying on informal local advice

These mistakes are costly and avoidable.

How to Choose the Right Structure

Ask three questions:

• Is my sector fully open to foreign investment?
• Do I need public capital in Nepal?
• How important is control and exit flexibility?

For most, the answer leads to a private company.

Conclusion

Private vs public company in Nepal is not a theoretical debate. It is a risk decision.

For foreign companies, private limited companies provide:

• Faster market entry
• Better control
• Easier compliance
• Cleaner exits

Public companies serve specific, large-scale use cases. Restricted sectors demand even greater structural precision.

Choosing the right structure from day one protects your capital, your timeline, and your future flexibility.

Frequently Asked Questions

Is a private company better than a public company in Nepal for foreigners?

Yes. Most foreign investors use private companies due to simpler compliance, faster approvals, and stronger ownership control.

Can foreigners fully own a company in Nepal?

In most sectors, yes. Ownership limits apply only in restricted industries defined by law.

Are public companies mandatory for large projects?

Not always. Large projects can use private companies unless sector rules require public participation.

Which sectors are closed to foreign investment in Nepal?

Small retail, personal services, and certain local industries remain fully restricted.

Can profits be repatriated from Nepal?

Yes. Dividends, royalties, and sale proceeds can be repatriated after tax and approvals.