Understanding the Nepalese Investment Climate: Trends and Tips

If you are evaluating Private vs public company in Nepal, you are already asking the right strategic question. Your choice of structure shapes control, tax exposure, compliance burden, capital raising ability, and exit options.

Nepal’s investment climate has matured significantly under the Foreign Investment and Technology Transfer Act 2019 (FITTA), the Companies Act 2006, and the Industrial Enterprises Act 2020. These frameworks offer foreign investors clarity on ownership, repatriation, and governance.

Yet many foreign companies still default to the wrong structure.

This guide gives you a practical, board-level breakdown of:

• Private limited vs public limited company structures
• FDI eligibility and capital requirements
• Governance and compliance obligations
• Tax implications under the Income Tax Act 2002
• When each model strategically makes sense

If your goal is to enter Nepal with minimal risk and maximum control, read this carefully.

Nepal’s Investment Climate in 2026: What Foreign Companies Should Know

Nepal is transitioning from aid-driven growth to investment-led development. The government prioritizes:

• Hydropower and renewable energy
• IT and business process outsourcing
• Manufacturing and SEZ-based exports
• Tourism and hospitality
• Infrastructure and digital services

The Department of Industry (DOI) administers foreign investment approvals. The Office of Company Registrar (OCR) handles incorporation.

Key Regulatory Anchors

1. Companies Act 2006 – Governs incorporation and corporate governance
2. FITTA 2019 – Governs foreign investment and repatriation
3. Income Tax Act 2002 – Defines corporate tax obligations
4. Industrial Enterprises Act 2020 – Provides industry classification and incentives

Foreign investors may own 100% equity in most sectors unless restricted.

But structure matters.

Private vs Public Company in Nepal: Core Structural Differences

1. Private Limited Company (Pvt. Ltd.)

A private company is the most common structure for foreign investors.

Key characteristics:

• Minimum 1 shareholder
• Maximum 101 shareholders
• Shares not publicly traded
• Restricted share transfer
• Minimum 1 director

It is governed primarily by the Companies Act 2006.

2. Public Limited Company (Ltd.)

A public company is structured for larger capital raises.

Key characteristics:

• Minimum 7 shareholders
• No upper shareholder limit
• Can issue shares to the public
• Minimum 3 directors
• Subject to stricter disclosure rules

If listed, it is regulated by the Securities Board of Nepal (SEBON).

Comparison Table: Private vs Public Company in Nepal

Insight: 90% of foreign investors entering Nepal choose a private limited structure for operational control and simplicity.

When Should a Foreign Company Choose a Private Limited Company?

A private limited company works best when you want:

• 100% ownership control
• Faster incorporation
• Limited regulatory complexity
• Controlled share transfer
• Lower compliance costs

Ideal Use Cases

• IT outsourcing subsidiaries
• Manufacturing units
• Back-office operations
• Hydropower SPVs
• Joint ventures with defined partners

Advantages

• Easier decision-making
• Flexible shareholder agreements
• No mandatory public disclosures
• Faster board approvals

For most foreign investors, this is the default entry vehicle.

When Does a Public Company Make Strategic Sense?

A public company structure is suitable if:

• You plan to raise capital locally
• You require public equity participation
• You intend to list on NEPSE
• You operate in capital-intensive sectors

Typical Sectors

• Large hydropower projects
• Infrastructure concessions
• Banks and financial institutions
• Insurance companies

However, public companies face stricter governance standards.

Compliance and Governance: What Changes?

Private Company Compliance

• Annual general meeting
• Annual financial statements
• Tax filings
• Shareholder register maintenance

Public Company Compliance

• Quarterly reporting
• Audit committee requirements
• Disclosure to regulators
• Public financial transparency

The compliance load is significantly heavier for public companies.

Foreign Investment Process in Nepal

If you are a foreign company, incorporation requires two layers:

1. FDI approval from the Department of Industry
2. Company registration at OCR

Step-by-Step Process

1. Sector verification
2. Investment approval application
3. Capital commitment
4. Company registration
5. PAN and tax registration
6. Bank account opening
7. Industry license (if applicable)

Under FITTA 2019, repatriation of dividends and capital is permitted after tax compliance.

Tax Implications: Private vs Public Company in Nepal

Under the Income Tax Act 2002:

• Standard corporate tax: 25%
• Special rates for banks and financial institutions
• Dividend withholding tax: 5%

There is no tax difference purely because of private vs public status.

However, public companies may incur higher compliance costs.

Governance and Risk Considerations for Foreign Investors

Structure influences:

• Board control
• Minority protection
• Exit flexibility
• Investor confidence
• Capital structuring

Foreign companies typically prefer private limited structures to avoid unintended dilution.

Public structures introduce shareholder activism risk.

Market Trends: What Are Foreign Investors Choosing?

Recent patterns show:

• Technology firms choosing private subsidiaries
• Chinese infrastructure investors using public vehicles
• Indian manufacturers setting up private limited factories
• Hydropower developers using hybrid structures

The trend favors private companies for operational businesses.

Common Mistakes Foreign Investors Make

1. Choosing public structure without capital raising need
2. Ignoring shareholder agreement safeguards
3. Underestimating compliance costs
4. Misunderstanding repatriation rules
5. Not structuring governance clearly

Avoiding these errors protects long-term ROI.

Strategic Decision Framework

Ask yourself:

• Will we raise public capital?
• Do we require local investor participation?
• Is governance simplicity critical?
• Are we building a long-term operational subsidiary?

If your answer favors control and flexibility, choose private.

If your answer favors capital markets access, choose public.

FAQ: Private vs Public Company in Nepal

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

Yes. FITTA 2019 permits 100% foreign ownership in most sectors, subject to approval.

2. Is there a minimum capital requirement?

Sector-specific thresholds may apply. General incorporation does not impose excessive capital minimums.

3. Can a private company later convert into a public company?

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

4. Do public companies pay higher taxes?

No. Corporate tax rates are generally identical. Compliance costs differ.

5. Which structure is faster to register?

Private companies are typically faster and simpler to incorporate.

Final Recommendation: Private vs Public Company in Nepal

If your objective is operational control, regulatory clarity, and efficient market entry, a private limited company is usually the right structure.

If your objective is large-scale capital mobilization, investor participation, or public listing, a public company structure may be appropriate.

Understanding Private vs public company in Nepal is not merely legal. It is strategic.

Foreign investors who structure correctly from day one avoid costly restructuring later.