Nepal's Investment Climate: What Foreigners Need to Know

If you are evaluating Private vs public company in Nepal, you are already thinking strategically about market entry. That decision shapes your ownership rights, compliance burden, fundraising options, and long-term exit strategy.

Nepal’s investment climate is evolving rapidly. Reforms under the Foreign Investment and Technology Transfer Act (FITTA 2019) and the Companies Act (Companies Act 2063) have clarified structures for foreign companies. At the same time, regulators like the Office of the Company Registrar (OCR) and the Department of Industry (DOI) are modernizing processes.

But structure still determines success.

Should you register a private limited company?
Is a public company necessary for large capital raises?
How do foreign shareholding rules apply?

This comprehensive guide answers those questions clearly and practically.

Understanding Private vs Public Company in Nepal

When foreign investors compare structures, the debate typically centers around:

• Control
• Capital raising flexibility
• Compliance requirements
• Public disclosure
• Exit strategy

Under Nepal’s legal framework, companies are incorporated under the Companies Act 2063 (2006). Foreign investment approval is governed by FITTA 2019. Taxation falls under the Income Tax Act (Income Tax Act 2002).

Let’s break this down.

What Is a Private Company in Nepal?

A private company (Private Limited – “Pvt. Ltd.”) is the most common structure for foreign investors.

Key Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite the public to subscribe to shares
• Shares are restricted and transferable with board approval
• No mandatory public listing

Why Foreign Investors Prefer Private Companies

1. Faster incorporation process
2. Lower regulatory burden
3. Greater control over ownership
4. Limited disclosure requirements
5. Suitable for SMEs, subsidiaries, and joint ventures

Foreign investors typically incorporate a private limited company after obtaining FDI approval from DOI and approval from Nepal Rastra Bank (NRB) for capital inflow.

What Is a Public Company in Nepal?

A public company (Limited – “Ltd.”) is designed for larger enterprises seeking public capital.

Key Characteristics

• Minimum 7 shareholders
• No maximum shareholder limit
• May issue shares to the public
• Subject to higher disclosure obligations
• Often regulated by Securities Board of Nepal (SEBON)
• Can list on the Nepal Stock Exchange (NEPSE)

When Is a Public Company Appropriate?

• Infrastructure projects
• Banking and financial institutions
• Insurance companies
• Hydropower projects seeking IPO
• Large-scale industrial ventures

Public companies face stricter reporting and governance standards.

Private vs Public Company in Nepal: Side-by-Side Comparison

Strategic Insight for Foreign Companies

For 80% of foreign investors entering Nepal, a private limited company is more efficient. Public companies make sense only if public capital is required.

Regulatory Framework Governing Companies in Nepal

Foreign investors must navigate three primary legal pillars:

1. Companies Act 2063 (2006)

Governs incorporation, governance, directors, and shareholder rights.

2. FITTA 2019

Defines foreign investment thresholds and approval processes.

3. Income Tax Act 2002

Defines corporate taxation, withholding taxes, and repatriation rules.

Corporate tax in Nepal is generally 25%, though certain sectors may receive concessions.

Foreign Direct Investment (FDI) Considerations

Under FITTA 2019:

• Minimum FDI threshold applies (as periodically revised by government notification)
• 100% foreign ownership is allowed in most sectors
• Certain sectors remain restricted or capped
• Capital repatriation is permitted after tax clearance

Foreign investors must:

1. Obtain DOI approval
2. Incorporate with OCR
3. Open a bank account
4. Inject capital through banking channels
5. Register for PAN and tax
6. Comply with sector-specific licensing

Governance and Compliance Differences

Private Company Compliance

• Annual general meeting
• Annual audit
• Annual filing with OCR
• Tax returns with Inland Revenue Department

Public Company Compliance

In addition to the above:

• Quarterly financial reporting
• SEBON compliance
• Public disclosure obligations
• Shareholder transparency requirements

Public companies require a more robust board structure and independent directors.

Capital Raising Strategy

If your business model requires:

• Venture capital
• Strategic investor entry
• Private placements

A private company works well.

If your model requires:

• IPO
• Mass retail investor funding
• Public trading liquidity

A public company is necessary.

Taxation and Repatriation

Nepal permits profit repatriation for foreign investors under FITTA 2019.

Repatriable components include:

• Dividends
• Loan principal and interest
• Royalties
• Technology transfer fees

However, tax clearance is mandatory before repatriation.

Corporate Income Tax: ~25%
Dividend withholding tax: typically 5% (subject to revision)

Risk Factors in Nepal’s Investment Climate

Foreign investors should evaluate:

• Regulatory interpretation differences
• Sector restrictions
• Currency convertibility timelines
• Bureaucratic processing delays

However, recent reforms have improved predictability.

Nepal ranks competitively in South Asia for hydropower and tourism FDI potential.

When Should a Foreign Company Choose a Private Company?

Choose private limited if:

• You want full ownership control
• You are entering as a wholly owned subsidiary
• You do not need public funding
• You want lower compliance overhead
• You prioritize speed of setup

When Should a Foreign Company Choose a Public Company?

Choose public limited if:

• You plan an IPO
• You require large domestic capital
• You are in regulated sectors
• You want market visibility
• You anticipate future listing

Real-World Scenario Analysis

Scenario 1: Australian Mortgage Processing Back Office

A foreign service provider entering Nepal for cost optimization.

Best structure: Private Limited Company.

Scenario 2: Hydropower Project with IPO Plan

Capital-intensive. Requires public investment.

Best structure: Public Limited Company.

Private vs Public Company in Nepal: Long-Term Strategy Considerations

Before deciding, ask:

1. What is my five-year exit plan?
2. Will I need domestic investors?
3. Is regulatory burden manageable?
4. How sensitive is my sector?
5. What governance level does my board prefer?

Structure should align with capital and control strategy.

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, subject to approval.

2. Is a public company mandatory for large projects?

Not always. Only sectors requiring public fundraising or regulatory mandates need public status.

3. What is the corporate tax rate in Nepal?

Generally 25%, though specific industries may vary.

4. Can profits be repatriated?

Yes. After tax clearance and central bank approval.

5. Is compliance significantly higher for public companies?

Yes. Public companies face SEBON oversight and enhanced disclosure rules.

Conclusion: Choosing the Right Structure in Nepal

Understanding Private vs public company in Nepal is not just a legal exercise. It is a strategic decision that affects governance, taxation, investor control, and capital flexibility.

For most foreign companies entering Nepal in 2026, a private limited company provides agility and control. Public companies are suitable for large-scale, capital-intensive ventures seeking domestic investors.

The right choice aligns with your capital strategy and regulatory tolerance.