Trends and Prospects of Foreign Direct Investment in Nepal

If you are evaluating Private vs public company in Nepal, you are already thinking strategically about your market entry. Structure determines control, compliance, capital flexibility, and long-term exit options.

For foreign companies entering Nepal under the Foreign Investment and Technology Transfer Act (FITTA) 2019, choosing the right corporate vehicle is not administrative. It is strategic.

Nepal is positioning itself as an emerging South Asian investment destination. According to official data from the Department of Industry, foreign direct investment (FDI) commitments have steadily increased over the past decade. Policy reforms, improved repatriation clarity, and sector liberalization have strengthened investor confidence.

But one question remains central:

Should you establish a private company or a public company in Nepal?

This guide provides a detailed, regulation-backed comparison tailored specifically for foreign investors.

Understanding the Legal Framework in Nepal

Before comparing structures, you must understand the regulatory backbone.

Key Governing Laws

Foreign companies must comply with:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019
• Income Tax Act 2002
• Nepal Rastra Bank regulations
• Securities Board of Nepal guidelines (for public companies)

These laws define:

• Shareholding structure
• Reporting obligations
• Dividend repatriation
• Foreign currency approvals
• Governance standards

Now, let’s examine the core differences.

Private vs Public Company in Nepal: Core Structural Differences

1. Shareholding and Ownership Structure

Private Company in Nepal

A private limited company:

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite public subscription
• Shares are restricted in transfer

This model is preferred by foreign investors seeking:

• Full control
• Simpler compliance
• Faster decision-making

Public Company in Nepal

A public limited company:

• Minimum 7 shareholders
• No maximum limit
• Can issue shares to the public
• Must comply with capital market regulations

This structure is suitable for:

• Large infrastructure projects
• Banking and insurance sectors
• Companies planning IPO listing

2. Capital Requirements

Under Nepal’s Companies Act:

Foreign investors in manufacturing, IT, hydropower, and consulting typically begin as private companies due to lower capital rigidity.

3. Governance and Compliance Burden

This is where many foreign investors underestimate complexity.

Private Company

• Fewer board formalities
• No mandatory public disclosures
• Limited annual compliance filings
• No listing requirements

Public Company

• Mandatory independent directors
• Public disclosure requirements
• Quarterly financial reporting
• Audit committee obligations
• SEBON reporting

For foreign investors seeking operational efficiency, private companies reduce compliance overhead significantly.

4. Control and Decision-Making

Private companies offer:

• Centralized control
• Easier shareholder agreements
• Simplified amendment procedures

Public companies require:

• Broader shareholder consent
• Regulatory approvals
• Formalized governance structure

If control retention is critical, private company formation is more aligned.

5. Foreign Direct Investment (FDI) Considerations

Under FITTA 2019:

• Minimum FDI threshold: NPR 20 million
• Dividend repatriation permitted after tax clearance
• Technology transfer agreements allowed
• Equity transfer subject to approval

Both private and public companies can receive FDI. However:

• Most foreign investors choose private structures initially
• Public structures are typically adopted post-expansion

When Should a Foreign Company Choose a Private Company?

A private limited company is ideal if:

• You want 100% foreign ownership
• You are entering the Nepal market cautiously
• You require operational flexibility
• You plan to scale gradually
• You prefer simpler exit mechanics

Typical Sectors Choosing Private Structure

• IT outsourcing
• Consulting
• Manufacturing
• Hydropower SPVs (initial stage)
• Back-office support operations

When Does a Public Company Make Strategic Sense?

A public company is suitable when:

1. You need large capital mobilization.
2. You plan to list on the Nepal Stock Exchange.
3. Regulatory frameworks require public structure (e.g., banks).
4. You aim for institutional investment participation.

Public companies are common in:

• Banking
• Insurance
• Large hydropower
• Infrastructure concessions

Comparative Insight: Strategic Investment Lens

Foreign investors typically adopt a phased approach:

• Phase 1: Incorporate as private company
• Phase 2: Stabilize operations
• Phase 3: Convert to public company if capital expansion required

This reduces early-stage risk.

Tax Implications

Under the Income Tax Act 2002:

• Corporate tax: Generally 25%
• Hydropower incentives apply
• SEZ entities may enjoy tax concessions
• Dividend tax: 5% withholding

Tax treatment does not differ significantly between private and public companies. However, public companies may face additional audit scrutiny.

Compliance Timeline Overview

Private Company Annual Obligations

• Annual General Meeting
• Tax return filing
• Audit report submission
• PAN/VAT compliance

Public Company Additional Obligations

• Quarterly reporting
• SEBON disclosure
• Public notices
• Corporate governance reporting

The compliance cost differential can be substantial.

Risk Considerations for Foreign Investors

Foreign companies entering Nepal should evaluate:

• Regulatory risk
• FX repatriation risk
• Governance transparency
• Political policy changes

The Nepal Rastra Bank plays a central role in foreign currency approval and dividend repatriation. Proper structuring at incorporation stage reduces friction later.

Trends and Prospects of Foreign Direct Investment in Nepal

Nepal is strategically positioned between India and China. Infrastructure expansion, hydropower growth, and digital services are driving FDI interest.

Recent trends show:

• Increased FDI in hydropower
• Growth in IT outsourcing
• Manufacturing diversification
• Expansion of hospitality sector

Government reforms aim to:

• Simplify approval processes
• Improve single-window systems
• Streamline repatriation

Foreign investors increasingly prefer private companies for initial entry, then restructure when scaling.

Strategic Recommendation Framework

When deciding between private vs public company in Nepal, evaluate:

1. Capital requirement
2. Control priority
3. Exit strategy
4. Regulatory tolerance
5. Sector requirement

If your goal is market testing with controlled exposure, private is safer.

If your objective is capital markets access, public is stronger.

Frequently Asked Questions (People Also Ask)

1. Can a foreigner own 100% of a private company in Nepal?

Yes. Under FITTA 2019, foreign investors can hold 100% equity in most sectors, subject to minimum investment thresholds and sector restrictions.

2. What is the minimum capital requirement for a public company in Nepal?

Generally NPR 10 million paid-up capital is required, though sector-specific regulations may impose higher thresholds.

3. Is dividend repatriation allowed in Nepal?

Yes. Dividends can be repatriated after tax clearance and approval from Nepal Rastra Bank.

4. Can a private company convert into a public company in Nepal?

Yes. Upon meeting statutory requirements and capital thresholds, a private company can convert into a public limited company.

5. Which structure is better for foreign startups?

Most foreign startups prefer private limited companies due to flexibility, lower compliance burden, and full ownership control.

Conclusion

Choosing between Private vs public company in Nepal is a foundational strategic decision.

Private companies offer control, speed, and flexibility. Public companies provide scale, capital access, and institutional credibility.

For most foreign investors entering Nepal, private incorporation is the practical first step. Public structuring becomes relevant during expansion or capital market strategy.

If you are evaluating entry into Nepal, structure should align with your capital plan, governance philosophy, and long-term vision. Proper structuring at the beginning prevents costly restructuring later.

A well-designed corporate framework ensures regulatory compliance, efficient repatriation, and scalable growth in Nepal’s evolving investment environment.