Foreign direct investment in Nepal is a permitted, regulated activity. A foreign national, foreign company, or non-resident Nepali may hold shares in a Nepali company only after obtaining prior approval from the competent authority. This guide, prepared by CompanyNP, explains the legal basis of FDI approval in Nepal, the approving bodies, eligibility thresholds, restricted sectors, documentation, and post-approval obligations, strictly on the basis of the Foreign Investment and Technology Transfer Act, 2075 (2019) (“FITTA”), the Companies Act, 2063 (2006), the Industrial Enterprises Act, 2076 (2020), the Income Tax Act, 2058 (2002), and the published procedures of the Department of Industry.
What Is FDI Approval in Nepal and Which Laws Govern It?
FDI approval is the written consent issued by the competent Government authority permitting a foreign investor to invest a specified amount, in a specified sector, in a specified Nepali company or industry. Without this consent, share subscription by a foreigner is not lawful, and the Office of the Company Registrar will not record foreign shareholding.
Which statutes and regulations apply to foreign investors?
The framework consists of several instruments, each with a distinct function:
- Foreign Investment and Technology Transfer Act, 2075 (2019) — the principal law on foreign investment approval, technology transfer, repatriation, visas, and the negative list.
- Foreign Investment and Technology Transfer Rules, 2077 (2021) — application forms, procedures, and timelines.
- Companies Act, 2063 (2006) — incorporation, shareholding, directors, and annual filings of the investee company.
- Industrial Enterprises Act, 2076 (2020) — classification and registration of industries, and available facilities and concessions.
- Foreign Exchange (Regulation) Act, 2019 (1962) and Nepal Rastra Bank’s Foreign Investment and Foreign Loan Management Bylaws, 2078 — inward remittance recording and outward repatriation.
- Income Tax Act, 2058 (2002) and Value Added Tax Act, 2052 (1996) — corporate income tax, withholding tax, and VAT obligations.
- Immigration Act, 2049 (1992) and Rules — business and residential visas for investors.
What qualifies as “foreign investment” under FITTA?
Section 2 read with Section 6 of FITTA recognises foreign investment in the following forms:
- Equity investment in shares of a Nepali company, in convertible foreign currency.
- Reinvestment of dividends, profits, or proceeds earned from an existing approved investment.
- Investment made through the purchase of shares of an existing Nepali company.
- Investment in listed securities through the secondary market, as permitted.
- Lease finance of specified equipment such as aircraft, ships, machinery, and construction plant.
- Investment made through venture capital funds, and investment in a branch established for industrial purposes.
- Investment through technology transfer agreements, including patents, trademarks, know-how, franchise, and technical or management service arrangements.
Who may act as a foreign investor?
A foreign individual, a firm or company incorporated abroad, a foreign government or international agency, and a non-resident Nepali may all invest, provided the source of funds is lawful and the investment enters Nepal through banking channels in convertible foreign currency.
Who Approves Foreign Direct Investment in Nepal?
Approval jurisdiction depends on the size and nature of the project. Selecting the wrong authority is a common cause of delay.
When does the Department of Industry grant approval?
The Department of Industry, under the Ministry of Industry, Commerce and Supplies, is the general approving authority for foreign investment proposals falling below the threshold reserved for the Investment Board. The Department also registers the industry, issues the industry registration certificate, and later recommends repatriation and visas. The Department operates a single-point service centre intended to coordinate registration, tax, and visa formalities.
When does the Investment Board Nepal grant approval?
Under the Investment Board Act, 2068 (2011) and its regulations, the Investment Board Nepal approves large projects, including hydropower projects above the prescribed capacity and projects whose total investment exceeds the statutory ceiling assigned to the Board. Investors planning large infrastructure, energy, cement, or special economic zone projects should confirm jurisdiction before filing.
What is the automatic route, and who can use it?
The Government has issued a procedure permitting approval through an automatic route for specified sectors and for investment amounts up to a prescribed ceiling. Under this route, the application is processed on the basis of self-declaration and system verification, which shortens processing time. Because the eligible sectors and ceiling are revised by notice, investors should verify the current position with the Department of Industry before relying on this route.
Who Is Eligible, and Which Sectors Are Restricted?
Eligibility has two dimensions: the amount invested and the sector chosen.
What is the minimum foreign investment threshold?
Section 9 of FITTA empowers the Government to prescribe a minimum amount of foreign investment by notification in the Nepal Gazette. The threshold has been revised over time and currently stands at NPR 20 million per foreign investor for most sectors, reduced from the earlier figure by Government notice. The Government has additionally relaxed or exempted the threshold for certain information technology–based industries. The threshold applies per investor, not per company, and must be maintained; partial withdrawal below the minimum is not permitted without approval.
Which sectors appear on the negative list?
Schedule 1 of FITTA lists sectors closed to foreign investment. These include, among others:
- Primary agriculture and allied services such as poultry, fisheries, bee-keeping, and horticulture up to primary production.
- Cottage and small industries as classified by law.
- Personal service businesses, including hair cutting, beauty parlour, tailoring, and driving training.
- Arms, ammunition, explosives, gunpowder, and radioactive materials.
- Real estate business, excluding construction industries.
- Retail business, except international chain retail operating in at least two other countries.
- Internal courier service, money changer, and remittance services.
- Travel agency, trekking agency, tourist guiding, rural tourism, and homestay.
- Mass media, including newspapers, radio, television, and online news portals.
- Management, accounting, engineering, and legal consultancy services beyond fifty-one percent foreign shareholding.
Are there sectoral ownership caps?
Yes. Sector-specific laws impose caps and licensing conditions, for example in banking and financial institutions, insurance, telecommunications, and civil aviation. Approval under FITTA does not replace the sectoral licence required from the concerned regulator.
What Is the Step-by-Step Procedure to Obtain FDI Approval?
The procedure is sequential. Each step produces a document required for the next.
Step one: name reservation and project preparation
The proposed company name is reserved online with the Office of the Company Registrar. Simultaneously, the investor prepares a project report describing the proposed industry, capital structure, employment, technology, and market. Where two or more parties invest, a joint venture agreement is executed.
Step two: filing the foreign investment application
The application is filed with the Department of Industry in the prescribed form under the Foreign Investment and Technology Transfer Rules, 2077, accompanied by the supporting documents. The Department examines eligibility, sector permissibility, minimum threshold, and source of funds, and may seek clarification.
What documents are ordinarily required?
- Duly completed application in the prescribed format, signed by the investor or an authorised attorney.
- Project report or feasibility study with proposed capital and implementation schedule.
- Copy of passport of the individual investor, or certificate of incorporation, charter documents, and board resolution of the corporate investor, duly notarised and, where applicable, authenticated.
- Financial credibility certificate issued by the investor’s bank.
- Biodata or company profile of the investor.
- Joint venture agreement, where more than one investor participates.
- Power of attorney authorising a local representative, and consent letter of the local partner.
- Technology transfer agreement, where the proposal includes technology transfer under Section 6 of FITTA.
Step three: issuance of the foreign investment approval letter
If the proposal is complete and admissible, the Department issues an approval letter specifying the approved amount, sector, shareholding, and the period within which the investment must be brought into Nepal. Failure to inject capital within the stated period may lead to cancellation of the approval, subject to extension on reasonable grounds.
Step four: incorporation and industry registration
With the approval letter, the company is incorporated under the Companies Act, 2063 at the Office of the Company Registrar, and the memorandum and articles are filed. The industry is then registered with the Department of Industry under the Industrial Enterprises Act, 2076, and any sectoral licence is obtained. CompanyNP assists at this stage through its company registration in Nepal service.
Step five: recording the investment with Nepal Rastra Bank
Before or immediately after remitting funds, the investment must be recorded with Nepal Rastra Bank in accordance with the Foreign Investment and Foreign Loan Management Bylaws, 2078. Funds must arrive in convertible foreign currency through a licensed commercial bank, and the bank issues an inward remittance certificate. Proper recording at this stage is the legal foundation for future repatriation.
Step six: tax registration and operational compliance
The company obtains a Permanent Account Number, and VAT registration where turnover or sector requires it, from the Inland Revenue Department. Registration with the local ward office, social security enrolment, and opening of a corporate bank account follow.
How long does the process take, and what does it cost?
Statutory timelines under the Rules require the Department to decide within a fixed period after receipt of a complete application, commonly within a few weeks. In practice, total time from name reservation to tax registration depends on document authentication abroad. Government charges include company registration fees calculated on authorised capital, industry registration fees, and prescribed service charges.
What Obligations Follow After FDI Approval Is Granted?
Approval is the beginning of a continuing compliance relationship, not the end of it.
What visa facilities are available to foreign investors?
Section 32 of FITTA provides for a non-tourist visa for the study period, a business visa for the investor and one authorised representative together with dependent family, and a residential visa where the investment exceeds the amount prescribed by law. Visa recommendation is issued by the Department of Industry and processed by the Department of Immigration. Foreign employees additionally require a work permit under the Labour Act, 2074.
How is the investee company taxed?
Under the Income Tax Act, 2058, the standard corporate rate is twenty-five percent, with a reduced rate for specified special industries and a higher rate for banks, financial institutions, insurance, telecommunications, and similar businesses. Dividend distribution attracts final withholding tax at five percent. Value Added Tax applies at thirteen percent. Concessions available to industries under the Industrial Enterprises Act must be claimed in accordance with the Income Tax Act.
How may profits and capital be repatriated?
Section 20 of FITTA permits repatriation of dividends, sale proceeds of shares, principal and interest on approved foreign loans, technology transfer fees, and compensation for expropriation. Repatriation requires approval of the Department of Industry and Nepal Rastra Bank, and applicants must produce audited financial statements, tax clearance, evidence of the original inward remittance, and board and shareholder resolutions.
What ongoing filings must the company make?
- Annual general meeting and annual returns to the Office of the Company Registrar under the Companies Act.
- Annual income tax return and audited accounts to the Inland Revenue Department.
- Periodic progress reports to the Department of Industry and statistical returns to Nepal Rastra Bank.
- Prior approval for share transfer, capital increase, sector change, or transfer to another foreign investor.
Why are applications commonly delayed or rejected?
- Proposed activity falls within the negative list.
- Investment below the prescribed minimum threshold.
- Unauthenticated or incomplete corporate documents from the investor’s home jurisdiction.
- Absence of a credible financial credibility certificate.
- Inconsistency between the project report, capital structure, and articles of association.
How does CompanyNP assist foreign investors?
CompanyNP provides end-to-end assistance covering eligibility assessment, negative list screening, drafting of project reports and joint venture agreements, filing before the Department of Industry, incorporation, Nepal Rastra Bank recording, tax registration, visa recommendation, and repatriation support. Investors may review our FDI approval services in Nepal or contact our advisers for a jurisdiction-specific assessment.
Frequently Asked Questions
Can a foreign investor own one hundred percent of a Nepali company?
Yes. FITTA permits wholly foreign-owned companies in most open sectors, subject to the negative list, the prescribed minimum investment threshold, and any ownership ceiling imposed by sector-specific legislation such as banking, insurance, telecommunications, or consultancy service laws.
Is a local Nepali partner legally required for FDI approval?
No general requirement exists for a Nepali partner. A local partner becomes necessary only where sectoral law or the negative list caps foreign shareholding, for example in consultancy services, where foreign participation cannot exceed fifty-one percent of total capital.
What happens if capital is not injected within the approved period?
The approval letter prescribes a period for bringing the investment. If capital does not arrive within that period, the Department of Industry may cancel the approval, although extension may be granted on written application supported by genuine and documented reasons.
Can approved foreign investment later be increased or transferred?
Yes. Capital increases, share transfers between foreign investors, and transfers to Nepali citizens require prior written approval of the Department of Industry, subsequent amendment filings at the Office of the Company Registrar, and updated recording with Nepal Rastra Bank.
Does technology transfer alone require approval under FITTA?
Yes. A technology transfer agreement involving royalty, franchise, trademark, know-how, or technical service fees requires approval and registration, even where no equity is subscribed, and the agreed fees must comply with prescribed ceilings and tax withholding rules.
Is Nepal Rastra Bank recording mandatory before remitting investment funds?
Yes. Investment must enter Nepal in convertible foreign currency through licensed banking channels and be recorded with Nepal Rastra Bank. Without proper recording and an inward remittance certificate, subsequent repatriation of dividends or sale proceeds cannot be approved.