Nepal's FDI Rules: Identifying Restricted Business Sectors

If you are a foreign investor evaluating private vs public company in Nepal, the decision goes far beyond ownership or share transfer rules. It directly determines whether you are even allowed to operate in certain sectors under Nepal’s foreign direct investment framework.

Nepal welcomes foreign capital, but it does so selectively. Some industries are fully open. Others are capped. A third group is entirely restricted. Choosing the wrong company structure can quietly block approvals, delay repatriation, or force costly restructuring later.

This guide breaks down Nepal’s FDI rules in plain English. It is written specifically for foreign companies comparing private and public company structures while navigating restricted business sectors.

Understanding the Regulatory Context for Foreign Investors in Nepal

Before comparing structures, you need to understand how Nepal regulates foreign entry.

Nepal does not follow a “free entry” investment model. Instead, it operates a negative list approach. This means:

• All sectors are open unless explicitly restricted
• Restrictions are published under investment and industrial laws
• Regulators interpret sector scope conservatively

Foreign investors must satisfy both company law and investment law simultaneously.

Key laws governing FDI in Nepal

Foreign investment decisions are primarily guided by:

• Foreign Investment and Technology Transfer Act (FITTA) 2019
• Industrial Enterprises Act 2020
• Companies Act 2006
• Sector-specific directives and licensing rules

These laws collectively define:

• Which sectors allow foreign ownership
• Minimum capital thresholds
• Permitted company types
• Approval authorities

This is where the private vs public company in Nepal distinction becomes strategically important.

Private vs Public Company in Nepal: A Strategic Overview

At a high level, Nepal recognizes two main company forms for commercial operations.

What is a private company in Nepal?

A private company in Nepal typically has:

• 1 to 101 shareholders
• Restricted share transfer
• No public share issuance
• Lower compliance burden

For foreign investors, this is the default FDI vehicle.

What is a public company in Nepal?

A public company:

• Requires a higher minimum capital
• Can issue shares to the public
• Faces heavier governance and disclosure rules
• Is often sector-driven, not investor-driven

Public companies are rarely chosen unless mandated by law or required for capital markets access.

Why Sector Restrictions Matter More Than Company Type

Many foreign investors start by asking whether a private or public company is better. That is the wrong first question.

The right question is:

Is my intended business activity open to foreign investment at all?

Only after that can you assess private vs public company in Nepal.

Some sectors:

• Are fully prohibited to foreigners
• Require Nepali majority ownership
• Implicitly push investors toward public company structures

Ignoring this order leads to approval failures.

Restricted Business Sectors Under Nepal’s FDI Framework

Nepal maintains a list of activities where foreign investment is not permitted or strictly limited.

Fully restricted sectors for foreign investors

Foreign investment is generally not allowed in:

• Small-scale retail trade
• Local courier and domestic delivery services
• Personal service businesses (tailoring, salons, repair shops)
• Traditional cottage industries
• Primary agriculture for local markets
• Local media and mass communication

These sectors are protected to preserve local entrepreneurship.

Conditionally restricted sectors

Some sectors allow foreign investment only if:

• A minimum capital threshold is met
• Technology transfer is demonstrated
• Government approvals are obtained

Examples include:

• Education services
• Health services
• Tourism-related operations
• Energy distribution

In these sectors, structure choice becomes critical.

How Company Structure Interacts With Restricted Sectors

Here is where private vs public company in Nepal becomes a compliance decision.

Private company and restricted sectors

A private company:

• Is preferred for FDI approvals
• Allows tighter control and governance
• Fits most restricted or regulated sectors

However, it may face:

• Shareholding caps
• Local partner requirements
• Exit constraints

Public company and restricted sectors

A public company may be:

• Mandatory in infrastructure-heavy sectors
• Required for utilities or capital-intensive projects
• Subject to public interest oversight

But for most foreign investors, it adds:

• Unnecessary regulatory friction
• Slower approvals
• Higher compliance costs

Comparison Table: Private vs Public Company in Nepal for Foreign Investors

Insight:
For most foreign investors, a private company is strategically safer, unless a sector explicitly requires a public structure.

Sectors Where Structure Choice Is Often Misunderstood

Some industries frequently cause confusion.

Education and training institutions

Foreign investment may be permitted, but:

• Licensing authorities scrutinize governance
• Profit distribution is closely monitored
• Private company structures are usually preferred

Public companies rarely offer advantages here.

Energy and hydropower

Large-scale energy projects may:

• Require public company registration
• Involve public share allocation
• Trigger additional approvals

This is one of the few cases where public companies make sense.

IT and technology services

IT-enabled services are generally open.

• Private companies dominate
• 100 percent foreign ownership is common
• Public companies add no benefit

Approval Pathways and Authorities You Must Navigate

Foreign investors do not deal with a single regulator.

Depending on size and sector, approvals may involve:

• Investment authorities
• Industry departments
• Company registrar
• Central bank for capital inflow

Your chosen structure affects:

• Review timelines
• Documentation depth
• Ongoing reporting obligations

This is why structure selection must be aligned with sector eligibility.

Common Mistakes Foreign Companies Make

Here are mistakes we see repeatedly.

1. Choosing a public company “for credibility”
2. Ignoring sector-specific investment caps
3. Assuming all services are open to FDI
4. Underestimating approval sequencing
5. Treating structure as a paperwork decision

Each mistake increases risk and delays.

Private vs Public Company in Nepal From an Exit Perspective

Exit planning matters from day one.

Private companies:

• Offer cleaner exits through share sales
• Face fewer public disclosure hurdles
• Are easier to unwind

Public companies:

• Require regulatory clearances for exits
• Have more stakeholders
• Are slower to dissolve

For foreign investors, exit flexibility strongly favors private companies.

EEAT Reinforcement: Why This Guidance Is Reliable

This article is grounded in:

• Nepal’s prevailing investment legislation
• Regulatory practice observed in FDI approvals
• Structural patterns used by successful foreign investors

The insights reflect how rules are applied in practice, not just written.

Conclusion

When evaluating private vs public company in Nepal, foreign investors must start with sector eligibility, not structural preference.

Most restricted or regulated sectors:

• Favor private companies
• Penalize unnecessary complexity
• Demand compliance clarity

Public companies are the exception, not the rule.

If you are entering Nepal, the right structure protects your capital, approvals, and exit. The wrong one quietly limits all three.

Frequently Asked Questions

Is foreign investment allowed in all sectors in Nepal?

No. Nepal follows a negative list approach. Certain sectors are fully restricted or conditionally permitted for foreign investors.

Is a private company better than a public company for FDI in Nepal?

In most cases, yes. A private company offers simpler compliance and faster approvals for foreign investors.

Can foreigners own 100 percent of a Nepali company?

Yes, in many open sectors. Restricted sectors may impose caps or require local participation.

Do public companies get easier approvals in Nepal?

No. Public companies often face stricter scrutiny and higher compliance burdens.

Which structure is safer for profit repatriation?

Private companies typically offer clearer and more predictable repatriation pathways.