Foreign Investment in Nepal: Trends, Opportunities, and Regulations

If you are evaluating private vs public company in Nepal, you are already thinking like a serious investor. Structure determines control. Control determines risk. And risk determines return.

Foreign investment in Nepal is evolving fast. Regulatory reforms, infrastructure growth, and digital sector expansion are changing the landscape. But before capital moves, the first strategic decision is legal structure.

Should you incorporate a private limited company?
Should you consider a public company?
Or is another vehicle more appropriate?

This guide provides a clear, investor-focused breakdown designed specifically for foreign companies exploring Nepal.

Why Structure Matters for Foreign Investment in Nepal

Nepal regulates foreign investment primarily under:

• Foreign Investment and Technology Transfer Act (FITTA) 2019
• Companies Act 2006
• Industrial Enterprises Act 2020
• Income Tax Act 2058 (2002)
• Nepal Rastra Bank (NRB) Foreign Exchange Guidelines

The choice between a private and public company affects:

• Shareholding flexibility
• Capital raising ability
• Governance requirements
• Disclosure obligations
• Tax planning
• Exit and repatriation strategy

Foreign investors must align structure with long-term strategy.

Private vs Public Company in Nepal: Core Legal Differences

Under the Companies Act 2006, Nepal recognizes both private and public limited companies. The distinction is more than naming.

Definition Under Nepal Law

• Private Limited Company (Pvt. Ltd.)
  • Minimum 1 shareholder
  • Maximum 101 shareholders
  • Cannot invite the public to subscribe shares
  • Restricted share transfer
• Public Limited Company (Ltd.)
  • Minimum 7 shareholders
  • No maximum limit
  • May issue shares to the public
  • Eligible for stock exchange listing

Let’s break this down strategically.

Private vs Public Company in Nepal – Strategic Comparison for Foreign Investors

Insight:
Over 90% of foreign investors entering Nepal choose a private limited structure. Public companies are typically used for banking, hydropower, and large infrastructure projects.

Why Most Foreign Companies Choose a Private Limited Company

When analyzing private vs public company in Nepal, foreign investors prioritize control and simplicity.

Key Advantages of Private Limited Structure

• Full ownership possible (subject to sector caps)
• Faster incorporation
• Lower compliance burden
• Simpler governance
• Controlled share transfer
• Easier dividend management

Private companies are ideal for:

• Technology firms
• Manufacturing units
• Outsourcing operations
• Representative subsidiaries
• Joint ventures

Nepal allows 100% foreign ownership in most sectors under FITTA 2019.

When a Public Company Structure Makes Sense

Public companies are not common for initial market entry. But they serve specific strategic goals.

Situations Where Public Structure Is Beneficial

1. Large capital-intensive infrastructure projects
2. Hydropower projects requiring domestic equity
3. Financial institutions
4. IPO strategy within Nepal
5. Government-partnered enterprises

Public companies are regulated more heavily. They must comply with:

• Securities Board of Nepal (SEBON)
• Nepal Stock Exchange (NEPSE) if listed
• Enhanced audit and disclosure standards

This increases cost but improves capital access.

Foreign Investment Trends in Nepal

According to Nepal Rastra Bank and Department of Industry data:

• FDI approvals have increased in ICT, tourism, hydropower, and manufacturing.
• China, India, and the United States are leading investors.
• ICT and services are seeing strong growth post-2022 reforms.

The removal of prior central bank approval for dividend repatriation in recent amendments has improved investor confidence.

Foreign investors now focus on:

• Profit repatriation clarity
• Tax predictability
• Regulatory stability
• Sectoral incentives

Regulatory Framework Governing Foreign Companies in Nepal

1. FITTA 2019

The Foreign Investment and Technology Transfer Act allows:

• Equity investment
• Technology transfer agreements
• Repatriation of dividends
• Repatriation of capital gains
• Loan repayment repatriation

2. Income Tax Act 2058 (2002)

Corporate Income Tax (CIT):

• Standard rate: 25%
• Reduced rates for certain industries
• Withholding tax on dividends: typically 5%

3. Industrial Enterprises Act 2020

Provides tax holidays and incentives for:

• Export industries
• SEZ-based businesses
• Priority sectors

Governance and Compliance: Private vs Public Company in Nepal

Private Company Compliance

• Annual audit
• Annual general meeting
• Tax filing
• Shareholder resolution records
• Minimal disclosure

Public Company Compliance

• Independent directors
• Audit committee
• Mandatory disclosures
• Securities reporting
• Public transparency

Foreign investors must evaluate internal capacity before choosing a public structure.

Capital Structure and Fundraising

A private company cannot publicly issue shares. It can raise capital through:

• Shareholder equity injection
• Foreign loans (subject to NRB approval)
• Joint venture capital

A public company can:

• Issue shares to the public
• List on Nepal Stock Exchange
• Raise large-scale domestic capital

However, listing requires significant compliance preparation.

Tax and Dividend Considerations

For foreign investors, tax and repatriation matter most.

Key Points:

• Dividend withholding tax generally 5%.
• Capital gains tax applies on share transfer.
• Tax clearance required before repatriation.
• Repatriation processed via commercial banks under NRB guidelines.

Private companies offer smoother dividend control due to limited shareholder complexity.

Risk Matrix: Choosing the Right Structure

Structure must align with operational model.

Step-by-Step Incorporation Process in Nepal

For Private Limited Company

1. Name reservation with Office of Company Registrar
2. Draft Memorandum & Articles of Association
3. Obtain Department of Industry approval (if FDI)
4. Capital injection via banking channel
5. PAN and VAT registration
6. Industry registration
7. Social Security Fund registration

For Public Company

Additional steps include:

• Prospectus preparation
• SEBON approval
• Public share issuance process

Control Architecture for Foreign Investors

Foreign companies often overlook governance architecture.

Key structural considerations:

• Board composition
• Power of Attorney structure
• Bank signatory controls
• IP ownership flow-back
• Exit clauses in joint venture agreements

In a private company, control mechanisms are easier to embed.

Long-Term Exit Strategy

Public companies allow IPO-based exit.
Private companies allow share transfer or strategic sale.

Exit planning should be built into the Articles of Association.

Practical Recommendation for Foreign Companies

When evaluating private vs public company in Nepal, ask:

• Do we need public capital?
• Are we ready for heavy disclosure?
• Is local investor participation necessary?
• Is this a long-term institutional investment?

If not, private limited is usually the optimal entry vehicle.

Conclusion: Private vs Public Company in Nepal – Final Verdict

For most foreign companies, the answer to private vs public company in Nepal is clear.

Start private. Scale later if needed.

A private limited company provides:

• Control
• Compliance efficiency
• Lower cost
• Faster execution
• Easier profit repatriation

Public companies are strategic tools, not entry-level structures.

If you are planning market entry into Nepal, structure should not be an afterthought. It is your foundation.

Frequently Asked Questions (People Also Ask)

1. Can a foreigner own 100% of 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. What is the minimum capital requirement for a public company in Nepal?

Nepal law requires minimum paid-up capital as prescribed under the Companies Act and sector regulators. It is significantly higher than private companies.

3. Is a public company mandatory for large projects?

Not always. Only certain regulated sectors like banking require a public structure. Infrastructure may require public participation depending on policy.

4. How long does incorporation take in Nepal?

Private company incorporation typically takes 3–6 weeks, depending on FDI approval and documentation readiness.

5. Can profits be repatriated easily?

Yes, provided tax clearance is obtained and documentation aligns with NRB and FITTA requirements.