Investing in Nepal: Opportunities and Challenges for Foreigners

When evaluating private vs public company in Nepal, foreign investors face a strategic decision that shapes ownership, compliance, capital raising, and long-term scalability. Nepal is emerging as a compelling frontier market in South Asia. GDP growth has averaged around 4–6% in recent years, according to the World Bank. Infrastructure, hydropower, ICT, tourism, and manufacturing are expanding rapidly.

Yet, the legal structure you choose determines everything. It affects foreign ownership rights, governance obligations, disclosure requirements, and exit options.

This guide breaks down the differences clearly and practically. If you are a foreign company exploring market entry into Nepal, this article will help you decide the right vehicle for 2026 and beyond.

Nepal’s Legal Framework for Foreign Investors

Foreign investment in Nepal is governed primarily by:

• Companies Act, 2063 (2006)
• Foreign Investment and Technology Transfer Act (FITTA), 2019
• Industrial Enterprises Act, 2020
• Income Tax Act, 2002
• Regulations issued by the Office of Company Registrar (OCR)
• Approvals via the Department of Industry (DOI) or Investment Board Nepal (for large projects)

Nepal permits 100% foreign ownership in many sectors, subject to a negative list under FITTA.

Before incorporation, investors must:

1. Secure foreign investment approval.
2. Register the company.
3. Obtain PAN from the Inland Revenue Department.
4. Open a bank account.
5. Inject capital through formal banking channels.

The structure you choose influences how smoothly these steps unfold.

Private vs Public Company in Nepal: Core Differences Explained

Understanding private vs public company in Nepal begins with ownership, capital, and compliance.

What Is a Private Company in Nepal?

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

Under the Companies Act, 2063:

• Minimum 1 director.
• 1–101 shareholders.
• Shares cannot be publicly traded.
• No public subscription of shares.
• Simpler disclosure requirements.

This model suits SMEs, subsidiaries, and foreign parent-owned operations.

What Is a Public Company in Nepal?

A public limited company:

• Requires minimum 7 shareholders.
• Must have at least 3 directors.
• Can invite public subscription of shares.
• May list on the Nepal Stock Exchange (NEPSE).
• Subject to higher disclosure standards.
• Regulated additionally by the Securities Board of Nepal (SEBON).

Public companies are suitable for large infrastructure, banking, hydropower, and large industrial projects.

Comparison Table: Private vs Public Company in Nepal

Insight: For 90% of foreign SMEs entering Nepal, a private company structure is more efficient and cost-effective.

Ownership and FDI Considerations

Under FITTA 2019:

• Foreign investors may hold up to 100% equity in most sectors.
• Minimum FDI threshold is NPR 20 million (subject to updates).
• Repatriation of profits is allowed with central bank approval.

Private Company Advantage

• Easier board control.
• Faster approvals.
• Confidential shareholder arrangements.
• Simplified governance.

Public Company Advantage

• Access to local capital markets.
• Enhanced credibility.
• Potential for public financing.
• Broader investor base.

If your goal is operational control and efficiency, private structure wins.

If your goal is large-scale capital mobilization, public structure becomes strategic.

Taxation: Does Structure Affect Corporate Tax?

Under the Income Tax Act, 2002:

• Corporate Income Tax (CIT): Generally 25%.
• Special industries may receive concessions.
• SEZ companies may enjoy reduced rates.

Tax rates do not differ solely due to being private or public. However:

• Public companies face stricter reporting.
• Listed companies may attract scrutiny.
• Dividend distribution tax applies uniformly.

Key tax compliance steps:

1. PAN registration.
2. Monthly VAT filing if applicable.
3. Withholding tax compliance.
4. Annual audit and return submission.

Governance and Compliance Differences

Public companies must:

• Publish audited financials.
• Conduct annual general meetings publicly.
• Comply with SEBON guidelines.
• Appoint independent directors (in certain sectors).

Private companies must:

• Maintain statutory registers.
• Conduct annual general meetings.
• File annual returns with OCR.
• Maintain accounting records for at least five years.

Compliance costs for public companies are significantly higher.

Capital Raising Strategy

When a Private Company Works Best

• Foreign parent funds operations.
• Limited local capital needs.
• Expansion through reinvested profits.
• Controlled ownership structure.

When a Public Company Makes Sense

• Hydropower projects.
• Infrastructure PPPs.
• Banking and financial services.
• Large industrial ventures.
• Seeking IPO funding.

In Nepal’s growing hydropower sector, many projects convert from private to public before listing.

Market Perception and Credibility

Public companies may enjoy:

• Stronger market trust.
• Better supplier credibility.
• Easier institutional partnerships.
• Visibility in capital markets.

Private companies offer:

• Operational discretion.
• Faster decisions.
• Lower administrative burden.
• Strategic confidentiality.

For foreign investors entering cautiously, privacy often outweighs visibility.

Registration Process Overview

Step-by-Step Incorporation (Private Company)

1. Obtain foreign investment approval.
2. Reserve company name at OCR.
3. Draft Memorandum and Articles of Association.
4. Submit incorporation documents.
5. Receive Certificate of Incorporation.
6. Obtain PAN.
7. Inject capital via banking channel.

Public company registration includes additional regulatory approvals and prospectus requirements if issuing shares publicly.

Risk Assessment for Foreign Investors

Choosing between private vs public company in Nepal affects risk exposure.

Private Company Risks

• Limited access to capital markets.
• Potential funding dependency.
• Share transfer restrictions.

Public Company Risks

• Regulatory scrutiny.
• Higher compliance penalties.
• Market volatility.
• Disclosure obligations.

For first-time foreign entrants, the private route reduces regulatory risk.

Sector-Based Strategic Recommendations

Advantages of Investing in Nepal

• Strategic location between India and China.
• Competitive labor cost.
• Growing middle class.
• Hydropower potential exceeding 40,000 MW economically viable.
• Government incentives under Industrial Enterprises Act.

Nepal ranks favorably among frontier markets for cost efficiency.

Challenges Foreign Investors Face

• Bureaucratic delays.
• Regulatory interpretation differences.
• Infrastructure gaps.
• Currency repatriation procedures.
• Sector restrictions.

Having local advisory support reduces entry friction significantly.

Decision Framework: How to Choose

Ask yourself:

1. What is your capital requirement?
2. Do you need public funding?
3. How important is confidentiality?
4. What is your risk appetite?
5. Is your sector regulated?

If you answer “control and efficiency,” choose private.

If you answer “scale and public capital,” choose public.

FAQ: Private vs Public Company in Nepal

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

Yes. FITTA 2019 allows up to 100% foreign ownership in most sectors, subject to negative list restrictions.

2. Is a public company mandatory for large investments?

Not always. However, sectors like banking and large hydropower typically require public structure.

3. Which structure is faster to register?

Private companies are generally faster due to fewer regulatory layers.

4. Can a private company later become public?

Yes. Conversion is possible under the Companies Act with regulatory approval.

5. Are tax rates different for private vs public companies?

No. Corporate income tax rates generally remain the same unless sector incentives apply.

Final Thoughts: Private vs Public Company in Nepal

For most foreign SMEs and subsidiaries, a private vs public company in Nepal decision will favor private incorporation due to flexibility and lower compliance costs.

Public companies serve large-scale capital-intensive industries.

The right structure aligns with your capital strategy, governance appetite, and long-term expansion plan.

If you are considering entering Nepal, professional structuring advice ensures smoother approvals and faster execution.