Understanding Nepal's Legal Framework for Foreign Direct Investment

If you are evaluating Private vs public company in Nepal, you are already thinking like a serious foreign investor.

Structure determines control. It affects tax exposure. It shapes compliance risk.

Nepal’s legal framework for foreign direct investment (FDI) is clear but procedural. The right vehicle can reduce regulatory friction, protect repatriation rights, and simplify governance.

This guide explains everything foreign companies need to know. It draws on the:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019 (FITTA)
• Department of Industry
• Nepal Rastra Bank
• Office of Company Registrar

We will compare ownership, capital structure, governance, compliance obligations, and investor suitability.

If your goal is stable, compliant, and scalable entry into Nepal, this article is written for you.

Nepal’s Legal Framework for Foreign Direct Investment

Before comparing a private vs public company in Nepal, it is critical to understand the regulatory architecture.

Nepal regulates FDI through three core layers:

1. Company Law

The Companies Act 2006 governs incorporation, shareholder rights, directors’ duties, reporting, and liquidation.

2. Foreign Investment Law

The Foreign Investment and Technology Transfer Act 2019 defines:

• Minimum foreign investment thresholds
• Repatriation rights
• Technology transfer rules
• Sectoral eligibility

3. Central Bank Regulation

Nepal Rastra Bank controls:

• Capital inflow approvals
• Dividend repatriation
• Loan registration
• Foreign currency transactions

Foreign investors must obtain approval before capital injection.

This structure applies whether you choose a private or public company.

What Is a Private Company in Nepal?

A private limited company is the most common FDI vehicle.

Under the Companies Act 2006:

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot publicly invite share subscription
• Share transfer restrictions apply

Foreign investors usually incorporate through the Department of Industry or Investment Board (for large projects).

Key Characteristics

• Controlled ownership
• Limited liability
• Flexible governance
• Faster registration

For most foreign SMEs, this is the preferred route.

What Is a Public Company in Nepal?

A public limited company:

• Requires minimum 7 shareholders
• Can issue shares to the public
• Has stricter governance requirements
• Faces higher disclosure obligations

Public companies are often listed on the Nepal Stock Exchange (NEPSE).

They are typically used for:

• Banks
• Insurance companies
• Hydropower projects
• Large infrastructure ventures

For foreign investors, this structure is complex but powerful when raising local capital.

Private vs Public Company in Nepal – Core Structural Differences

Below is a clear comparison tailored for foreign investors.

Insight for Foreign Companies

If control and speed matter, choose private.
If capital raising from Nepali investors matters, consider public.

Shareholding and Foreign Ownership Rules

Under FITTA 2019:

• 100% foreign ownership is allowed in most sectors.
• Certain sectors are restricted (e.g., small retail trade).
• Minimum FDI threshold applies (check latest DOI notification).

Foreign investors must:

1. Obtain FDI approval.
2. Inject capital through banking channels.
3. Register shares after capital certification.

Nepal Rastra Bank must verify foreign currency inflow before shares are issued.

This applies to both private and public companies.

Governance Requirements Compared

Private Company Governance

• At least 1 director
• No mandatory independent directors
• Fewer disclosure requirements
• AGM required annually

Public Company Governance

• Minimum 3 directors
• Audit committee required
• Stricter financial disclosures
• Public reporting standards

Public companies face higher regulatory scrutiny.

For foreign strategic investors, governance flexibility is often decisive.

Compliance Obligations for Foreign Investors

Regardless of structure, compliance includes:

• Annual audit
• Tax filing under the Income Tax Act 2058
• VAT registration (if applicable)
• Labor law compliance
• Social Security Fund contributions

Public companies must additionally comply with securities regulations.

Failure to comply may restrict dividend repatriation.

Tax Considerations

Corporate tax rates vary by sector.

Standard corporate tax rate: 25% (subject to sectoral variations).

Dividends distributed to foreign shareholders are subject to withholding tax.

Repatriation is allowed under FITTA 2019 after:

• Audit completion
• Tax clearance
• NRB approval

Private vs public status does not significantly alter tax rates.

But public companies often face more complex reporting.

Capital Raising Strategy: Which Structure Wins?

If your objective is:

1. Full Strategic Control

Choose private.

2. Joint Venture With Nepali Investors

Either structure works.

3. Large-Scale Infrastructure Financing

Public company is better suited.

4. Stock Exchange Listing

Public company required.

5. Quick Market Entry

Private company is faster.

Operational Speed and Registration Timeline

Typical incorporation timeline:

• Name reservation: 1–2 days
• Company registration: 3–7 days
• FDI approval: 2–4 weeks
• NRB capital approval: 1–2 weeks

Public company registration may take longer due to documentation requirements.

Foreign investors usually prefer private companies for speed.

Risk Profile Comparison

Public companies increase transparency but also exposure.

Sector Suitability

Private Company Is Ideal For:

• IT outsourcing
• Consulting firms
• Manufacturing subsidiaries
• Trading businesses
• Service centers

Public Company Is Ideal For:

• Banking
• Insurance
• Hydropower
• Large industrial projects
• Capital-intensive ventures

Foreign companies entering Nepal for operational expansion typically use private limited companies.

Repatriation and Exit Planning

Under FITTA 2019, foreign investors may repatriate:

• Dividends
• Sale proceeds
• Loan repayments
• Royalties

Approval from Nepal Rastra Bank is required.

Private companies provide cleaner exit structuring because shareholder numbers are limited.

Public companies allow share sale through NEPSE but require compliance with securities rules.

Strategic Recommendation for Foreign Companies

If you are:

• An Australian services firm
• A technology company
• A manufacturing group
• A regional expansion subsidiary

The private limited company structure is usually optimal.

It provides:

• Control
• Regulatory simplicity
• Lower compliance burden
• Faster setup

Public companies make sense only when raising local capital is central to your strategy.

Frequently Asked Questions

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

Yes. FITTA 2019 permits 100% foreign ownership in most sectors. Some sectors remain restricted. Approval is required before capital injection.

2. Is it mandatory to list a public company on NEPSE?

No. Listing is optional. However, public companies are structured to enable public share issuance.

3. Which structure is easier for dividend repatriation?

Both allow repatriation under FITTA. Private companies are administratively simpler.

4. What is the minimum capital requirement?

Minimum FDI threshold is defined by regulation. It may change. Always verify with DOI before filing.

5. Can a private company convert into a public company?

Yes. Conversion is permitted under the Companies Act 2006, subject to compliance requirements.

Final Thoughts: Private vs Public Company in Nepal for Foreign Investors

Choosing between a Private vs public company in Nepal is not merely legal. It is strategic.

Private companies offer control, simplicity, and speed.
Public companies offer capital access and scale.

Most foreign investors entering Nepal prefer private limited companies.
Public structures are suitable for capital-intensive sectors.

The decision should align with:

• Investment size
• Sector
• Capital strategy
• Governance appetite
• Exit horizon

If you are planning market entry, a structured compliance roadmap is critical.

Nepal offers opportunity.
The right structure ensures you capture it without regulatory friction.