Foreign Trade Investment in Nepal: Understanding the Legal Landscape

Entering a new market demands clarity. When foreign investors evaluate private vs public company in Nepal, the decision shapes control, taxation, compliance, capital raising, and exit strategy.

Nepal’s regulatory environment has modernized significantly under the Companies Act 2006 and the Foreign Investment and Technology Transfer Act 2019 (FITTA).

But structure still determines control.

And control determines risk.

This guide explains the legal, regulatory, tax, and strategic differences between private and public companies in Nepal — specifically for foreign companies considering foreign trade investment.

Why Structure Matters in Foreign Trade Investment in Nepal

Nepal permits 100% foreign ownership in most sectors.

However, the choice between a private limited company and a public limited company affects:

• Capital raising flexibility
• Board composition
• Share transfer restrictions
• Public disclosure obligations
• Regulatory reporting burden
• Exit pathways
• Dividend repatriation mechanics

Foreign investors often underestimate structural implications. That can create compliance risk later.

Let’s break it down clearly.

Private vs Public Company in Nepal: Legal Framework Overview

Under the Companies Act 2006, companies in Nepal are primarily categorized as:

1. Private Limited Company
2. Public Limited Company

Both are governed by the Office of Company Registrar (OCR).

Foreign equity approval is regulated under the Foreign Investment and Technology Transfer Act 2019.

Banking and capital inflows are supervised by Nepal Rastra Bank.

Now, let’s compare them from a foreign investor’s lens.

What Is a Private Limited Company in Nepal?

A private limited company is the most common entry vehicle for foreign investors.

Key Legal Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite the public to subscribe shares
• Shares are restricted in transfer
• “Private Limited” must appear in name

Why Foreign Companies Prefer It

• Full ownership control possible
• Limited disclosure obligations
• Faster incorporation
• Lower regulatory burden
• Easier board structuring

Most foreign subsidiaries in Nepal operate as private limited entities.

What Is a Public Limited Company in Nepal?

A public limited company can raise capital from the public.

Key Legal Characteristics

• Minimum 7 shareholders
• No maximum shareholder limit
• Can issue shares to public
• Mandatory higher compliance
• Subject to securities regulation

Public companies intending to list must comply with the Securities Board of Nepal and stock exchange requirements.

Public companies are typically used by:

• Large infrastructure projects
• Banks and financial institutions
• Hydropower developers
• Companies seeking IPO

Core Differences: Private vs Public Company in Nepal (Comparison Table)

Strategic Insight:
For 90% of foreign companies entering Nepal, a private limited company provides optimal balance between control and compliance.

Capital Structure & Foreign Equity Rules

Under FITTA 2019:

• Minimum FDI threshold applies (as notified by the Government).
• 100% foreign ownership permitted in most sectors.
• Negative list sectors remain restricted.

Foreign capital must enter through formal banking channels.

Inward remittance certificates are mandatory for capital confirmation.

Approval authorities include:

• Department of Industry (DOI)
• Investment Board Nepal (IBN) for large projects

Governance & Board Control Considerations

Foreign investors must evaluate:

• Resident director requirements
• Power of Attorney structures
• Bank signatory controls
• Shareholder agreement protections

Private companies allow tighter governance control.

Public companies require broader transparency and board diversity.

For strategic investors, board composition directly impacts operational safety.

Compliance Requirements: Private vs Public Company

Private Company Compliance

• Annual General Meeting (AGM)
• Annual financial filing
• Tax return submission
• Audit (if threshold met)
• Share register maintenance

Public Company Compliance

Includes everything above plus:

• Quarterly disclosures
• SEBON reporting
• Prospectus compliance
• Corporate governance standards
• Independent directors

Public compliance costs are significantly higher.

Taxation Overview

Corporate tax is governed by the Income Tax Act 2002.

General Corporate Income Tax (CIT)

• Standard rate: 25% (sector-specific variations apply)

Dividend Repatriation

• Subject to withholding tax
• Requires audited financials
• Requires tax clearance certificate
• Must follow banking compliance through NRB

Recent reforms simplified dividend repatriation by allowing processing through commercial banks upon compliance documentation.

When Should a Foreign Company Choose a Private Limited Company?

Choose private limited if:

• You want 100% foreign ownership
• You do not plan immediate IPO
• You want tight control
• You want lower compliance costs
• You prefer flexible shareholder agreements

Most tech companies, service firms, consulting firms, and manufacturing subsidiaries adopt this route.

When Should a Foreign Company Choose a Public Company?

Choose public company if:

• You require large capital infusion
• You plan IPO
• You operate infrastructure or hydropower
• You need public participation
• Regulatory framework demands it

Public structures make sense for scale.

But they require governance maturity.

Strategic Entry Models for Foreign Trade Investment

Foreign companies typically consider:

1. Private Limited Subsidiary
2. Public Limited Company
3. Branch Office
4. Liaison Office

Each has distinct regulatory consequences.

Subsidiary structures are legally separate entities.
Branches are extensions of foreign parent.

Choosing wrongly can complicate repatriation.

Risk Matrix: Structural Decision Impact

Foreign investors must align structure with capital strategy.

Practical Scenario Analysis

Scenario 1: Australian Tech Firm

Goal: Offshore development center.
Best structure: Private Limited Company.

Reason: Full control. No IPO need.

Scenario 2: Chinese Hydropower Developer

Goal: Raise local equity.
Best structure: Public Limited Company.

Reason: Capital mobilization.

Scenario 3: Indian Manufacturing Group

Goal: Export-oriented production.
Best structure: Private Limited Company (SEZ eligible).

Structure depends on long-term capital plan.

Common Mistakes Foreign Investors Make

• Choosing public structure too early
• Ignoring shareholder agreement drafting
• Weak bank signatory control
• Poor tax repatriation planning
• Not aligning structure with exit strategy

Structure is not just incorporation.

It is strategic architecture.

Regulatory Bodies Involved

Foreign investors interact with:

• Office of Company Registrar (OCR)
• Department of Industry (DOI)
• Investment Board Nepal (for large projects)
• Nepal Rastra Bank
• Securities Board of Nepal (for public companies)

Understanding institutional roles prevents delays.

Frequently Asked Questions (People Also Ask)

1. Can a foreigner own 100% of a private company in Nepal?

Yes. FITTA 2019 allows 100% foreign ownership in most sectors, except those on the negative list.

2. Is a public company mandatory for large foreign investment?

No. Large investments can operate as private companies unless capital market participation is required.

3. How long does incorporation take in Nepal?

Private company registration typically takes a few weeks, subject to documentation and FDI approval.

4. Are dividend repatriations difficult in Nepal?

They require tax clearance and audited financials but are streamlined through commercial banks upon compliance.

5. Which structure is better for foreign subsidiaries?

For most foreign subsidiaries, private limited company offers better control and lower compliance burden.

Final Thoughts: Choosing Between Private vs Public Company in Nepal

The decision between private vs public company in Nepal is not administrative.

It is strategic.

For most foreign trade investment, a private limited structure delivers:

• Control
• Efficiency
• Lower compliance cost
• Simplified governance

Public companies are powerful tools for capital mobilization.

But they demand transparency and institutional readiness.

Before investing, align:

• Capital strategy
• Exit planning
• Governance expectations
• Regulatory tolerance

Foreign investors who structure correctly at entry stage avoid restructuring costs later.