The Comprehensive Guide to Navigating Foreign Direct Investment in Nepal

Foreign investors evaluating private vs public company in Nepal often focus on tax rates or setup time. But the real decision goes deeper. It affects capital strategy, governance, compliance exposure, and long-term exit options.

Nepal is positioning itself as a competitive South Asian investment destination. The legal framework has matured. Regulatory clarity has improved. Foreign Direct Investment (FDI) approvals are increasingly streamlined through the Department of Industry and Investment Board Nepal.

If you are entering Nepal for trade, services, manufacturing, IT, or outsourcing, your choice of entity structure will shape your risk profile and scalability.

This guide gives you a clear, strategic, and legally grounded answer.

Why Entity Structure Matters for Foreign Direct Investment in Nepal

Foreign Direct Investment in Nepal is governed primarily by:

• Foreign Investment and Technology Transfer Act (FITTA) 2019
• Companies Act 2006
• Industrial Enterprises Act 2020
• Income Tax Act 2058 (2002)
• Regulations of Nepal Rastra Bank (NRB)

Your structure affects:

• Minimum shareholder requirements
• Capital raising flexibility
• Disclosure obligations
• Dividend repatriation
• Public listing eligibility
• Exit valuation

Choosing correctly at the beginning avoids costly restructuring later.

Understanding Company Types Under Nepal’s Companies Act

Under the Companies Act 2006, companies are broadly classified as:

1. Private Limited Company
2. Public Limited Company

Both can receive FDI approval. But they operate differently.

Let’s break it down.

Private vs Public Company in Nepal: Core Legal Differences

This comparison reflects Companies Act 2006 requirements and Securities Board of Nepal (SEBON) regulations.

Private Limited Company in Nepal (Most Common for FDI)

Why Foreign Companies Prefer Private Entities

More than 90% of foreign investors entering Nepal choose a private limited structure.

Here’s why:

• Controlled ownership
• Flexible governance
• Lower compliance cost
• No public reporting requirements
• Faster incorporation timeline

Key Features

• Minimum 1 shareholder (can be foreign).
• Maximum 101 shareholders.
• Director requirement: at least 1.
• Shares cannot be publicly traded.
• Share transfer restrictions apply.

When a Private Company Makes Strategic Sense

Choose this model if:

• You want 100% foreign ownership.
• You are setting up a subsidiary.
• You want tight board control.
• You plan long-term operational control.

For most service-based FDI models, including IT outsourcing, manufacturing, and back-office operations, private companies are optimal.

Public Limited Company in Nepal (Capital Expansion Model)

Public companies are suitable for scale.

Legal Requirements

• Minimum 7 shareholders.
• At least 3 directors.
• Mandatory compliance with SEBON.
• Prospectus approval for public share issuance.

Advantages

• Access to domestic capital markets.
• Higher corporate credibility.
• Easier equity exit.
• Institutional investor participation.

Disadvantages

• Higher audit standards.
• Continuous disclosure requirements.
• Annual reporting obligations.
• Increased regulatory oversight.

Public structures are common in hydropower, infrastructure, and large industrial ventures.

Foreign Direct Investment Approval Process in Nepal

Regardless of private vs public company in Nepal, the FDI process generally follows these steps:

Step-by-Step FDI Procedure

1. Project proposal submission.
2. FDI approval from Department of Industry (DOI) or Investment Board Nepal (IBN).
3. Company incorporation at Office of Company Registrar (OCR).
4. NRB approval for foreign currency inflow.
5. Capital injection through authorized banking channel.
6. Industry registration.
7. PAN/VAT registration.

FDI minimum threshold under FITTA 2019 is NPR 20 million (subject to sectoral classification).

Tax Considerations for Foreign Investors

Corporate income tax in Nepal is generally:

• 25% standard rate
• 20% for certain manufacturing industries
• Tax holidays for SEZ enterprises (Industrial Enterprises Act 2020)

Dividend tax: 5% withholding (final tax).

Capital gains tax applies on share transfer.

Private vs public company does not significantly change tax rate. However, public companies face higher compliance scrutiny.

Governance & Compliance Exposure

Private Company Compliance

• Annual General Meeting (AGM)
• Annual audit
• Financial filing with OCR
• Tax return submission

Public Company Compliance

• All of the above plus:
• Quarterly financial disclosure
• Prospectus filing
• SEBON monitoring
• Public reporting obligations

Compliance cost difference can be substantial.

For smaller FDI projects, public status creates unnecessary burden.

Capital Raising Strategy: Long-Term Vision

If your strategy includes:

• IPO within 5–7 years
• Domestic investor participation
• Infrastructure financing
• Hydropower licensing

A public company structure may be justified.

Otherwise, private limited companies offer stronger operational efficiency.

Strategic Decision Framework for Foreign Investors

Use this decision matrix:

Choose Private Limited If:

• You want full ownership control.
• Capital is internally funded.
• You operate in services or trading.
• You prioritize confidentiality.

Choose Public Limited If:

• You require large domestic capital.
• You intend to list on NEPSE.
• You operate in regulated capital-heavy sectors.
• You seek institutional credibility.

Risk Factors to Consider

Regulatory Risk

Nepal’s regulatory system is improving. But public companies face tighter scrutiny.

Currency Repatriation

NRB approval is required for dividend repatriation. Proper documentation is essential.

Sectoral Restrictions

Certain sectors remain restricted under FITTA schedules.

Real-World Insight: What Most Foreign Companies Actually Do

In practice:

• Tech companies → Private Limited
• Manufacturing exporters → Private Limited
• Hydropower developers → Public Limited
• Large industrial parks → Public Limited

Private entities dominate because control and simplicity matter.

Private vs Public Company in Nepal: Which Is Better for You?

There is no universal answer.

But for most foreign direct investors entering Nepal for:

• Outsourcing
• Trade
• Manufacturing
• Service delivery
• Regional back-office hubs

A private limited company is structurally superior.

Public companies are strategic financing tools, not operational defaults.

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 permitted sectors. Certain industries remain restricted.

2. Is public company mandatory for FDI in Nepal?

No. FDI can be structured through private limited companies.

3. What is the minimum capital for FDI in Nepal?

The minimum FDI threshold is NPR 20 million, subject to sector rules.

4. Can a private company later become public in Nepal?

Yes. Conversion is allowed under the Companies Act 2006, subject to regulatory approval.

5. Which structure is easier for dividend repatriation?

Both allow repatriation. Compliance quality matters more than structure.

Final Thoughts: Making the Right Choice

When analyzing private vs public company in Nepal, the decision is not about prestige. It is about strategic alignment.

Private companies provide control, efficiency, and lower compliance exposure.
Public companies provide capital scalability and market access.

Foreign investors should align structure with:

• Capital strategy
• Governance appetite
• Exit timeline
• Regulatory comfort

Nepal offers significant opportunity. But structure determines sustainability.

If you are evaluating FDI entry into Nepal and need tailored structuring guidance, strategic tax alignment, or regulatory risk mapping, professional advisory support is essential.

The right entity structure is not just legal compliance. It is competitive positioning