Key Strategies for Successful Foreign Direct Investment in Nepal

Foreign investors exploring South Asia often ask one critical question first: Private vs public company in Nepal — which structure is right for my investment?

It is a strategic decision.

Your choice affects control, capital raising, compliance, reporting, taxation, and exit planning. It also determines how regulators view your foreign direct investment (FDI).

Nepal is positioning itself as an emerging investment destination. According to the Department of Industry, FDI approvals have grown steadily across manufacturing, IT services, tourism, hydropower, and trade sectors. The legal framework is governed primarily by:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019 (FITTA)
• Income Tax Act 2058

Understanding how private and public companies operate under these laws is essential before deploying capital.

This guide explains everything foreign companies need to know — clearly, practically, and strategically.

Nepal’s Investment Landscape in 2026

Nepal sits between India and China. It has preferential trade access to India. It also benefits from WTO membership and SAARC frameworks.

The government has simplified FDI approvals under FITTA 2019. Minimum FDI thresholds were revised. Certain sectors are fully open. Others are partially restricted.

Common foreign-invested sectors include:

• IT and BPO services
• Hydropower and renewable energy
• Manufacturing
• Tourism and hospitality
• Education and healthcare
• Trading companies

Before structuring your entity, you must determine whether a private limited company or a public limited company best aligns with your capital and growth plan.

Private vs Public Company in Nepal – Legal Structure Explained

Under the Companies Act 2006, companies are categorized primarily into:

1. Private Limited Company
2. Public Limited Company

Both can receive foreign investment under the Foreign Investment and Technology Transfer Act 2019, subject to sector eligibility.

Let’s break them down.

What Is a Private Limited Company in Nepal?

A private limited company:

• Limits share transfers
• Cannot invite the public to subscribe to shares
• Has a minimum of 1 and maximum of 101 shareholders
• Requires at least 1 director
• Can be 100% foreign-owned (subject to sector rules)

This is the most common structure for foreign investors.

It provides:

• Full control
• Flexible governance
• Faster incorporation
• Lower compliance burden
• Privacy in financial disclosures

Most foreign-owned IT companies and service firms choose this structure.

What Is a Public Limited Company in Nepal?

A public limited company:

• Can issue shares to the public
• Requires a minimum of 7 shareholders
• Requires at least 3 directors
• Must comply with stricter reporting standards
• May be listed on Nepal Stock Exchange

Public companies are common in:

• Banking and financial institutions
• Hydropower projects
• Large infrastructure ventures
• Insurance companies

This structure suits capital-intensive industries seeking local investor participation.

Key Strategic Differences: A Comparison Table

Below is an original investor-focused comparison designed specifically for foreign companies.

Strategic insight:
If your objective is operational control and phased scaling, a private company is usually optimal.
If your objective is large-scale capital mobilization and long-term public participation, a public company is better suited.

Legal and Regulatory Framework for Foreign Investors

Foreign investors must obtain:

1. FDI approval from the Department of Industry or Investment Board (depending on project size).
2. Company registration under the Companies Act 2006.
3. PAN registration under the Income Tax Act 2058.
4. Industry registration (if applicable).
5. NRB approval for foreign currency inflow via Nepal Rastra Bank.

Dividend repatriation is permitted under FITTA, subject to tax clearance and central bank approval.

Taxation Differences: Private vs Public

Corporate tax rates under the Income Tax Act 2058 generally stand at:

• 25% standard corporate tax
• Lower rates for certain industries
• 15% for special sectors (e.g., IT exports in certain conditions)

There is no fundamental tax rate difference between private and public companies.

However:

• Public companies face greater audit scrutiny.
• Listed companies must comply with securities regulations.
• Public reporting requirements are more extensive.

For foreign investors focused on tax efficiency, structure matters less than sector classification and incentives.

When Should Foreign Investors Choose a Private Company?

Choose a private limited company if:

• You want 100% ownership.
• You are entering Nepal for the first time.
• Your capital investment is under large infrastructure scale.
• You need operational agility.
• You prefer confidential financials.

This is ideal for:

• IT outsourcing firms
• Consulting companies
• Trading subsidiaries
• BPO and back-office operations
• Manufacturing SMEs

Most foreign companies start private and later convert to public if scaling requires it.

When Is a Public Company the Better Strategy?

A public limited company may be better if:

• You require capital above USD 10–20 million.
• Your sector mandates public participation (e.g., banking).
• You plan to list on Nepal Stock Exchange.
• You want local institutional investors.
• Your project involves hydropower or infrastructure.

Public structures are common in Nepal’s energy sector, especially in hydropower projects attracting domestic investors.

Step-by-Step FDI Entry Strategy (Numbered Guide)

Here is a simplified roadmap for foreign companies:

1. Conduct sector eligibility analysis under FITTA.
2. Choose company structure (private vs public).
3. Prepare project report and financial model.
4. Apply for FDI approval at Department of Industry.
5. Register company under Companies Act 2006.
6. Open bank account and remit capital via Nepal Rastra Bank channel.
7. Obtain tax registration (PAN/VAT if required).
8. Start operations after industry license.

Execution quality determines approval speed.

Capital Raising Strategy: Private vs Public

Private Company Capital Raising Options:

• Foreign shareholder equity
• Inter-company loans
• Private placements
• Strategic investors

Public Company Capital Raising Options:

• Initial Public Offering (IPO)
• Rights issue
• Debentures
• Institutional placements

Public companies can access deeper domestic capital markets.
Private companies retain speed and control.

Governance and Board Structure Considerations

Private Company Governance:

• Flexible board composition
• Shareholder agreements define rights
• Easier restructuring

Public Company Governance:

• Mandatory independent directors (in certain sectors)
• Audit committee requirements
• Annual public disclosures
• Securities regulation compliance

Foreign investors who prioritize tight control often prefer private structures.

Risk Management Perspective

Private Company Risks:

• Limited local capital access
• Founder dependency
• Scaling constraints

Public Company Risks:

• Regulatory scrutiny
• Public disclosure exposure
• Dilution of control
• Market volatility

From a strategic advisory standpoint, most first-time FDI entrants choose private incorporation.

Exit Strategy Planning

Private companies exit via:

• Share transfer
• Strategic sale
• Merger

Public companies exit via:

• Market sale
• Secondary offering
• Institutional acquisition

Liquidity is higher in public markets but governance obligations are heavier.

Compliance and Reporting Burden Comparison

Private Company Annual Requirements:

• Annual general meeting
• Financial statements filing
• Tax filing
• Audit

Public Company Additional Requirements:

• Securities reporting
• Public disclosures
• Shareholder reporting
• Listing compliance

Compliance cost can be 2–3x higher for public entities.

Investment Climate Data and EEAT Considerations

Nepal’s FDI framework is governed by:

• Foreign Investment and Technology Transfer Act 2019
• Companies Act 2006
• Income Tax Act 2058

The World Bank’s historical Doing Business indicators highlight improvements in business registration and minority investor protection.

Foreign investors benefit from:

• 100% profit repatriation (post-tax)
• No discrimination between domestic and foreign investors
• Legal protection under Nepali law

However, execution requires local regulatory navigation expertise.

Final Strategic Recommendation: Private vs Public Company in Nepal

When evaluating Private vs public company in Nepal, foreign companies should prioritize:

• Control
• Capital strategy
• Compliance appetite
• Long-term scaling vision

For most foreign entrants, a private limited company is the optimal starting structure.

Public structures are powerful but suitable mainly for capital-heavy, multi-investor projects.

Your structure is not just legal — it defines your governance DNA in Nepal.

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 open sectors, subject to approval from the Department of Industry.

2. Is there a minimum capital requirement for foreign investors?

Yes. The minimum FDI threshold applies under current regulations and may change. Always verify with the Department of Industry.

3. Can a private company convert into a public company later?

Yes. Conversion is allowed under the Companies Act 2006, subject to compliance and shareholder approval.

4. Are corporate tax rates different for private and public companies?

No. Corporate tax rates are generally the same under the Income Tax Act 2058.

5. Is listing mandatory for public companies?

No. A public company may remain unlisted but must comply with additional regulatory obligations.

Conclusion

Choosing between a Private vs public company in Nepal is one of the most important decisions foreign investors will make.

Private companies offer control, flexibility, and efficiency.
Public companies offer scale and capital access.

The right structure depends on your industry, capital needs, and governance strategy.

If you are planning foreign direct investment in Nepal, professional structuring advice can significantly reduce risk and accelerate approval timelines.