Maximizing Returns: Strategies for Foreign Trade Investment in Nepal

Entering Nepal’s fast-evolving market begins with one critical decision: Private vs public company in Nepal.

For foreign companies, this choice shapes ownership control, compliance exposure, capital access, and profit repatriation. It determines how easily you raise funds, manage governance, and exit the market.

Nepal’s regulatory framework has matured significantly in recent years. The Companies Act 2063 (2006), Foreign Investment and Technology Transfer Act (FITTA) 2075 (2019), and updated policies from the Department of Industry (DOI) and Nepal Rastra Bank (NRB) provide a clearer structure for foreign trade investment.

But structure determines strategy. And strategy determines return.

This guide breaks down everything foreign investors need to know — legally, financially, and operationally.

Understanding the Corporate Landscape in Nepal

Nepal recognizes two primary corporate forms under the Companies Act:

• Private Limited Company
• Public Limited Company

Both can receive foreign direct investment (FDI) under FITTA 2019, subject to sectoral caps and minimum thresholds.

According to Nepal’s Department of Industry, foreign investment is permitted in most sectors except those on the negative list (such as small retail trade and certain primary industries).

Choosing the correct corporate structure influences:

• Capital structure flexibility
• Governance obligations
• Disclosure requirements
• Investor perception
• Dividend distribution and repatriation

Let’s examine both.

Private vs Public Company in Nepal: Key Structural Differences

1. Private Limited Company in Nepal

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

Legal framework: Companies Act 2063
Minimum shareholders: 1
Maximum shareholders: 101
Public share offering: Not permitted
Director requirement: At least 1 director

Private companies are designed for closely held ownership. Shares cannot be freely transferred to the public.

Why Foreign Investors Prefer Private Companies

• Full ownership permitted in most sectors
• Faster incorporation process
• Lower compliance burden
• No mandatory public disclosures
• Better operational control

For strategic investors, control is usually more important than visibility.

2. Public Limited Company in Nepal

A public company may invite the public to subscribe to shares.

Legal framework: Companies Act 2063 + Securities Act
Minimum shareholders: 7
Maximum shareholders: Unlimited
Public share offering: Permitted (IPO)
Board requirements: At least 3 directors

Public companies are subject to oversight by the Securities Board of Nepal (SEBON).

When Public Structure Makes Sense

• Large capital requirements
• Infrastructure or energy projects
• Long-term domestic expansion
• Plans to list on Nepal Stock Exchange (NEPSE)

Public companies provide scale, but require transparency.

Comparison Table: Private vs Public Company in Nepal

Insight: For most foreign trade investment structures, a private limited company offers superior governance flexibility and lower administrative exposure.

Capital Requirements and FDI Thresholds

Under FITTA 2019, minimum FDI threshold is NPR 20 million per investor (subject to change by policy updates). Investors must obtain approval from:

• Department of Industry (DOI) for most sectors
• Investment Board Nepal (IBN) for large-scale investments

Funds must be remitted through formal banking channels.

NRB monitors foreign currency inflow and profit repatriation under foreign exchange regulations.

Foreign investors must align:

1. DOI approval letter
2. Capital remittance certificate
3. Company registration certificate
4. Tax registration (PAN/VAT)
5. Industry registration where applicable

Documentation precision prevents delays.

Taxation Considerations for Foreign Companies

Nepal’s corporate income tax (CIT) rate is generally 25% under the Income Tax Act 2058 (2002).

However, sectoral incentives apply:

• Hydropower: 20%
• Special Economic Zones (SEZ): tax holidays up to 5 years
• Manufacturing exports: reduced rates

Dividend repatriation requires:

• Audited financial statements
• Tax clearance certificate
• Withholding tax payment (generally 5%)

Nepal maintains double taxation avoidance agreements (DTAA) with several countries including China, India, and South Korea.

Public and private companies are taxed similarly. The difference lies in compliance intensity.

Governance and Compliance Obligations

Private Company Compliance

• Annual General Meeting (AGM)
• Annual return filing
• Financial audit
• Tax filings

Public Company Compliance

• Quarterly reporting
• SEBON disclosures
• Public share registry
• Independent directors
• Audit committee requirements

Compliance cost scales rapidly with public structure.

When Should Foreign Companies Choose a Private Company?

A private limited company is ideal if you:

1. Want 100% foreign ownership
2. Prefer centralized board control
3. Plan to reinvest profits
4. Do not require public capital markets
5. Seek faster operational setup

Most foreign investors entering Nepal’s IT, manufacturing, consulting, or service sectors adopt this structure.

When Does a Public Company Deliver Higher Returns?

Public companies may unlock:

• Larger capital pools
• Brand credibility
• Infrastructure financing
• Long-term equity expansion

However, foreign majority control becomes harder post-IPO.

For strategic foreign trade investment, public status is often a second-phase strategy.

Risk Analysis: What Foreign Investors Often Overlook

Foreign companies sometimes focus only on tax rates. Structure matters more.

Common oversights include:

• Board composition requirements
• Resident director rules
• Profit repatriation timing
• Share transfer restrictions
• Regulatory approval layers

A private company simplifies most of these risks.

Strategic Entry Path for Foreign Trade Investment in Nepal

Foreign investors typically follow this phased approach:

Phase 1: Market Validation

• Sector eligibility review
• FITTA compliance check
• Capital structuring

Phase 2: Private Company Incorporation

• DOI approval
• Company registration
• Bank account setup
• Capital injection

Phase 3: Operational Scaling

• Local hiring
• Industry licensing
• Tax compliance setup

Phase 4: Expansion Decision

• Remain private
• Convert to public
• Joint venture structuring

Conversion from private to public is legally permissible under the Companies Act.

Regulatory Authorities You Must Understand

Foreign investors interact with:

• Office of Company Registrar
• Department of Industry
• Nepal Rastra Bank
• Inland Revenue Department
• Securities Board of Nepal

Each plays a distinct role.

Alignment across agencies ensures smooth operations.

Cost Comparison: Private vs Public Company

Public structures can cost 2–3x more in compliance over time.

Exit Strategy Considerations

Private companies offer:

• Share transfer agreements
• Strategic buyouts
• Parent company acquisition

Public companies allow:

• Secondary market sale
• Institutional exit
• Broader liquidity

However, liquidity comes with loss of concentrated control.

Economic Context: Why Nepal Is Attracting Foreign Investment

According to World Bank data, Nepal has maintained steady GDP growth averaging above 4% in recent years, excluding pandemic shocks.

Remittance inflows represent over 20% of GDP, strengthening consumption-driven sectors.

The government actively promotes:

• Hydropower development
• Manufacturing exports
• IT outsourcing
• Tourism infrastructure

Foreign companies positioned correctly can capture first-mover advantages.

Decision Matrix for Foreign Companies

Ask yourself:

• Do we need public capital?
• Is governance transparency a strategic advantage?
• Do we plan IPO within five years?
• Is capital requirement above USD 5–10 million?
• Do we need strong domestic brand positioning?

If most answers are “no,” a private limited company likely maximizes returns.

Frequently Asked Questions (FAQ)

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 restricted list.

2. What is the minimum capital requirement for foreign investment?

The general minimum FDI threshold is NPR 20 million per investor, subject to sector regulations.

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

Yes. The Companies Act allows conversion, subject to regulatory approval and compliance upgrades.

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

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

5. Is profit repatriation allowed?

Yes. Profits and dividends can be repatriated after tax clearance and NRB procedural compliance.

Final Thoughts: Private vs Public Company in Nepal

Choosing between Private vs public company in Nepal is not merely legal structuring. It is capital architecture.

For most foreign trade investment strategies, the private limited structure delivers:

• Higher control
• Faster setup
• Lower compliance burden
• Predictable repatriation

Public structures unlock scale but increase exposure.

Foreign investors who align structure with long-term return strategy outperform those who simply chase tax incentives.

The right structure does not just protect capital. It multiplies it.