How the FITTA Act Affects Company Incorporation in Nepal

For any foreign business aiming for company incorporation in Nepal, understanding the local regulatory landscape is critical. At the center of this framework is the Foreign Investment and Technology Transfer Act (FITTA), 2019, which governs foreign investment inflows and the conditions under which foreign companies can operate in Nepal. FITTA’s influence is substantial—it determines what kind of investment is permitted, the approval process, sectors open to investment, repatriation rules, and much more.

This guide provides a comprehensive overview of FITTA and its practical implications for foreign investors considering setting up a company in Nepal.

What is FITTA?

The Foreign Investment and Technology Transfer Act (FITTA), 2019 is the principal legislation governing all foreign direct investments (FDIs) in Nepal. It replaced the earlier Foreign Investment and One Window Policy to simplify, modernize, and make Nepal’s investment climate more competitive.

The FITTA Act outlines:

• Conditions for foreign investment

• Sectors open or restricted to foreign investment

• Requirements for technology transfer

• Approval and registration processes

• Repatriation of investment and profits

Key Provisions That Impact Company Incorporation in Nepal

1. Minimum Investment Threshold

FITTA mandates that foreign investors must invest a minimum of NPR 20 million (approximately USD 150,000) to incorporate a company in Nepal. This is a critical entry requirement for foreign businesses and directly impacts incorporation plans.

Implication: Startups or smaller ventures must ensure they meet this threshold to qualify.

2. Approval Requirement from the Government

All foreign investments must be approved by the Department of Industry (DOI) or the Investment Board Nepal (IBN) depending on the scale and nature of the investment. Unlike local investors, foreign companies cannot simply register through the Office of the Company Registrar without this prior approval.

Implication: The company incorporation process for foreign entities involves a two-tier system—investment approval first, then company registration.

3. Sectoral Restrictions

While Nepal has opened many sectors to foreign investment, some remain restricted (e.g., retail, security services, tobacco, arms and ammunition, etc.), and others are conditional (e.g., hydroelectricity, banking, aviation).

Implication: Foreign investors must carefully assess whether their target industry is open for investment before initiating incorporation procedures.

4. Technology Transfer Clauses

Foreign companies that enter into technology licensing or franchise agreements are also governed by FITTA’s Technology Transfer provisions. Such agreements must be registered with the Department of Industry.

Implication: If you’re entering Nepal through licensing, franchising, or joint ventures, the agreement must be vetted and approved under FITTA.

5. Repatriation of Profits and Capital

FITTA allows for the repatriation of profits, dividends, and capital back to the home country, provided that taxes have been paid and documentation has been maintained. These include:

• Dividends from equity investment

• Interest from loans

• Technology transfer fees

• Sale proceeds of shares

Implication: FITTA provides legal assurance to foreign companies that they can remit earnings abroad, which is vital for investment viability.

6. Timeline and Compliance

The FITTA process adds a 3 to 6-week timeline to the company incorporation process, depending on the clarity of the business proposal, documentation, and responsiveness of the authorities.

Implication: Foreign companies should plan for additional time and documentation when budgeting for setup and launch.

How FITTA Interacts with Other Laws

FITTA works in tandem with:

• Companies Act, 2006 – Governs incorporation procedures for all companies.

• Industrial Enterprises Act, 2020 – Provides incentives and classifications.

• Income Tax Act, 2058 (2002) – Governs taxation for foreign and domestic companies.

• Labor Act, 2017 – Affects staffing, contracts, and HR compliance for newly incorporated companies.

Foreign investors need to navigate all these in harmony with FITTA for a compliant incorporation.

Key Documents Required under FITTA for Incorporation

• Project proposal/business plan

• Financial commitment documents

• Investor’s identification and passport copies

• Technology transfer agreement (if applicable)

• Joint venture agreement (if applicable)

• Board resolution from the parent company approving the investment

Common Challenges Faced by Foreign Companies

1. Delays in approval due to bureaucracy or incomplete documentation.

2. Misalignment between FITTA and sector-specific laws.

3. Limited awareness of post-approval compliance, including repatriation reporting and annual disclosures.

Solution: Partnering with a local consulting or accounting firm familiar with FITTA can greatly smooth the incorporation journey.

Conclusion

For foreign businesses, understanding FITTA is non-negotiable when pursuing company incorporation in Nepal. From investment thresholds to profit repatriation rights, the Act governs critical elements that directly impact operational, financial, and legal aspects of doing business in Nepal. Proper due diligence, expert guidance, and compliance with FITTA can unlock Nepal’s growing market for global investors.