Government Incentives for Startups and New Businesses in Nepal

If you are planning to start a business in Nepal, understanding government incentives can dramatically improve your entry strategy. Nepal actively encourages foreign companies through tax holidays, investment protection, sector-specific benefits, and simplified approval frameworks. For startups and new businesses, these incentives reduce cost, risk, and time to market.

This guide is written specifically for foreign founders, multinational startups, and overseas investors looking for a clear, authoritative explanation of Nepal’s incentive landscape in 2026.

Why Nepal Is Encouraging Foreign Startups

Nepal’s policy direction focuses on employment creation, technology transfer, and export growth. To achieve this, the government has aligned fiscal, tax, and regulatory incentives with foreign direct investment priorities.

Key policy drivers include:

• Youth employment and skills development

• Digital transformation and IT exports

• Import substitution and export-oriented industries

• Regional development outside Kathmandu Valley

Institutions such as Investment Board Nepal and Department of Industry play a central role in implementing these incentives.

Types of Government Incentives When You Start a Business in Nepal

When you start a business in Nepal as a foreign company, incentives generally fall into four categories.

1. Tax-Based Incentives

2. Capital & Investment Incentives

3. Operational & Employment Incentives

4. Sector-Specific Startup Incentives

Each category is explained in detail below.

Tax Incentives for Startups and New Businesses in Nepal

Corporate Income Tax Holidays

Nepal offers partial or full corporate income tax exemptions depending on sector, location, and business model.

Typical incentives include:

• 100 percent tax exemption for initial years in priority sectors

• 50 percent tax reduction for subsequent years

• Reduced tax rates for export-oriented industries

These benefits are governed under the Income Tax Act 2002 and annual Finance Acts.

VAT and Customs Duty Exemptions

Foreign startups often qualify for:

• VAT exemptions on machinery and equipment

• Customs duty concessions on capital goods

• Zero VAT on IT and software exports

This is especially relevant for technology, manufacturing, and renewable energy startups.

Withholding Tax Relief

In specific sectors, Nepal provides:

• Reduced withholding tax on dividends

• Tax relief on interest repatriation

• Lower tax on service exports

This makes Nepal attractive for regional headquarters and shared service centers.

Investment Incentives for Foreign Companies

FDI Protection and Guarantees

Under the Foreign Investment and Technology Transfer Act 2019, foreign startups benefit from:

• Full repatriation of profits

• Protection against nationalization

• Legal guarantee of investment security

These provisions significantly reduce sovereign and regulatory risk.

Minimum Investment Threshold Relaxation

Nepal has relaxed minimum FDI thresholds for:

• IT and digital startups

• Knowledge-based service companies

• Export-focused enterprises

This allows smaller foreign startups to enter without heavy upfront capital.

One-Window Approval Mechanism

Foreign companies can access a coordinated approval process through:

• Investment Board Nepal

• Department of Industry

• Nepal Rastra Bank

This minimizes bureaucratic delays for incorporation, visas, and capital inflow.

Employment and HR Incentives

Work Visa and Expat Quota Benefits

When you start a business in Nepal, you can sponsor:

• Business visas for founders

• Non-tourist visas for foreign managers

• Technical visas for specialists

Priority sectors enjoy faster visa approvals and higher expat quotas.

Social Security and Payroll Optimization

Startups benefit from predictable payroll compliance under:

• Social Security Fund framework

• Standardized contribution rates

• Clear employer-employee cost visibility

This improves long-term workforce planning for foreign employers.

Sector-Specific Incentives for Startups in Nepal

IT and Software Startups

Nepal strongly promotes IT exports.

Key incentives include:

• Income tax exemptions on software exports

• Zero VAT on international IT services

• Simplified foreign currency earnings repatriation

These policies align with Nepal’s ambition to become a regional IT outsourcing hub.

Manufacturing and Industrial Startups

Manufacturers operating in industrial zones receive:

• Land lease concessions

• Power tariff discounts

• Infrastructure support

This is governed under the Industrial Enterprises Act 2020.

Renewable Energy and Green Startups

Foreign startups in renewable energy enjoy:

• Customs duty exemptions

• Power purchase guarantees

• Long-term tax holidays

This aligns with Nepal’s national energy strategy.

Startup Incentives by Location: Kathmandu vs Outside Valley

Foreign companies often maximize incentives by operating outside Kathmandu.

Numbered List: How to Access Government Incentives Step-by-Step

1. Select an incentive-eligible sector

2. Choose optimal business structure

3. Register company with Department of Industry

4. Obtain FDI approval and capital injection

5. Apply for tax and customs incentives

6. Register with tax and labor authorities

7. Maintain ongoing compliance

Missing a step can invalidate incentives.

Common Mistakes Foreign Startups Make

• Assuming incentives apply automatically

• Choosing the wrong entity structure

• Not aligning business activity with incentive category

• Failing post-registration compliance

Professional structuring is critical when you start a business in Nepal.

How Incentives Impact Total Startup Cost

Government incentives can reduce:

• Initial setup cost by 20–40 percent

• Corporate tax burden by up to 100 percent

• Equipment import costs significantly

This improves cash flow during early growth stages.

EEAT Reinforcement: Legal and Policy Frameworks Referenced

This guide aligns with:

• Foreign Investment and Technology Transfer Act 2019

• Industrial Enterprises Act 2020

• Income Tax Act 2002

• Annual Finance Acts of Nepal

These are enforced by Investment Board Nepal, Department of Industry, and Nepal Rastra Bank.

Frequently Asked Questions

Is Nepal offering tax holidays for foreign startups?

Yes. Nepal offers full or partial tax holidays depending on sector, location, and export orientation. Priority industries enjoy the highest benefits.

Can foreign founders repatriate profits from Nepal?

Yes. Nepal legally guarantees full profit and capital repatriation under foreign investment law, subject to tax compliance.

Do IT startups get special incentives in Nepal?

Yes. IT and software startups receive tax exemptions, zero VAT on exports, and simplified foreign currency regulations.

Are incentives available for small foreign investors?

Yes. Nepal has relaxed minimum investment thresholds for IT, services, and knowledge-based startups.

How long do incentives last after registration?

Incentive duration ranges from 5 to 15 years, depending on sector and location.

Conclusion: Why Incentives Matter When You Start a Business in Nepal

Government incentives significantly lower the risk and cost when you start a business in Nepal. For foreign companies, they provide financial relief, legal certainty, and long-term scalability. With proper structuring, Nepal can become a highly competitive base for South Asia operations.

Call to Action

If you are planning to start a business in Nepal, the right incentive strategy can save you years of cost and compliance risk.
Book a consultation to receive a personalized incentive map, entity structure recommendation, and compliance roadmap tailored to your business.