For foreign companies looking to expand into South Asia, company incorporation in Nepal is becoming an increasingly attractive option. With its young workforce, strategic location between India and China, and a growing digital economy, Nepal offers significant potential. However, understanding Nepal’s foreign investment laws is crucial before making a commitment. These laws govern everything from sectoral restrictions and capital requirements to repatriation of profits and dispute resolution.
This guide provides a comprehensive overview of the foreign investment regulatory framework in Nepal, helping international investors avoid pitfalls and make informed decisions.
Foreign investment in Nepal is regulated primarily under the following acts:
Foreign Investment and Technology Transfer Act (FITTA), 2019
Industrial Enterprises Act, 2020
Companies Act, 2006
Foreign Exchange (Regulation) Act, 1962
These laws collectively define how foreign capital can be invested, repatriated, and protected in Nepal. FITTA, in particular, is the backbone of the foreign investment regime and outlines key procedural requirements.
Foreign nationals, companies, and international organizations can invest in Nepal, either through:
Equity investment in new or existing companies
Technology transfer arrangements
Lease financing or investment in infrastructure projects
Investors can hold up to 100% equity in most sectors unless otherwise restricted.
To promote serious and long-term investments, Nepal has set a minimum foreign investment threshold of NPR 20 million (approximately USD 150,000). This includes both cash and machinery contributions.
This policy change, implemented to discourage shell companies and passive investors, is critical for any foreign entity considering company incorporation in Nepal.
While Nepal is open to FDI in many areas, there are certain prohibited sectors, such as:
Arms and ammunition
Tobacco and alcohol production
Real estate business (except for tourism-related construction)
Gambling and casinos (for locals)
Currency and coin minting
Additionally, some sectors allow foreign investment but require joint ventures or local partnerships.
The approval process is governed by the Department of Industry (DoI) or the Investment Board Nepal (IBN), depending on the size and nature of the investment.
Steps typically include:
Submission of a detailed proposal including company structure, capital breakdown, and industry type.
Approval of foreign investment by the relevant authority.
Company registration with the Office of the Company Registrar (OCR).
Tax registration and obtaining a PAN/VAT number.
Opening a foreign currency account with an approved Nepali bank to route capital investment.
Timing: Under the latest reforms, the investment approval process aims to be completed within 7–21 working days.
One of the most appealing features of company incorporation in Nepal is the clear legal pathway for repatriation of:
Profits and dividends
Interest on loans
Royalties and fees
Sale proceeds and liquidation value
Repatriation is allowed in convertible foreign currency after tax obligations are fulfilled, and with approval from Nepal Rastra Bank (NRB).
Nepal offers various tax incentives for foreign investors depending on the industry and geographic location. For example:
Special Economic Zones (SEZs) provide tax holidays for up to 10 years.
Certain sectors, like hydropower and tourism, may qualify for custom duty exemptions.
Accelerated depreciation and capital gains tax exemptions may apply under specific conditions.
However, all companies are subject to the standard corporate tax rate of 25%, with sector-specific variations.
When incorporating, foreign companies must also consider:
Work permits for foreign staff
Compliance with local labor laws
Audit and reporting requirements under the Companies Act
IP protection under local law
Double Taxation Avoidance Agreements (DTAAs) with several countries
These factors will impact not only incorporation but also long-term operational efficiency and compliance.
Foreign investors are legally protected under both Nepalese law and international conventions. Disputes can be settled through:
Nepalese courts
Arbitration clauses in contracts
Bilateral Investment Treaties (BITs) Nepal has signed with several countries
Provisions under the ICSID Convention, to which Nepal is a signatory
This provides reassurance that investments are protected against arbitrary expropriation.
Nepal allows 100% foreign ownership in most sectors.
A minimum investment of NPR 20 million is required.
Clear pathways exist for profit repatriation and legal protections.
Some industries remain restricted or require joint ventures.
SEZs and other incentives can offer significant tax and regulatory benefits.
Before you move forward with company incorporation in Nepal, understanding the legal environment surrounding foreign investment is essential. While Nepal is becoming a more open and investor-friendly destination, success depends on thorough planning, compliance, and choosing the right local partners.
By aligning with the right advisors and understanding Nepal’s foreign investment laws early, international companies can confidently enter the Nepali market with a strong legal and strategic foundation.