Can a Foreigner Own 100% Shares in a Nepali Company

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📊 Introduction: Foreign Direct Investment in Nepal

Yes, a foreigner can own 100% of the shares in a Nepali company, but this ownership is subject to specific conditions, sectoral restrictions, and a defined legal process. Nepal has progressively liberalized its foreign investment regime to attract capital, technology, and expertise. The primary legislation governing this is the Foreign Investment and Technology Transfer Act (FITTA), 2075 (2019). This Act, alongside the Companies Act, 2063, outlines the framework for Foreign Direct Investment (FDI). The ability to establish a wholly-owned subsidiary is a significant incentive for foreign investors. However, it is not a universal right and is permitted only in industries and services identified as open for full foreign participation. Understanding the legal landscape, the sectors open for 100% ownership, and the procedural requirements is fundamental for any foreign investor considering the Nepali market.

📜 The Legal Framework for 100% Foreign Ownership

The foundation for 100% foreign ownership in Nepal rests upon the Foreign Investment and Technology Transfer Act (FITTA), 2075. This Act replaced the previous 1992 version and introduced more liberal provisions to encourage investment. It defines FDI as an investment made in shares by a foreign investor in a foreign-invested industry or enterprise. The Act explicitly allows for foreign investment to be made in the form of share capital, either through the establishment of a new industry or the expansion or modernization of an existing one.

Two main government bodies administer foreign investment proposals. The Department of Industry (DOI) under the Ministry of Industry, Commerce and Supplies is the primary authority for most FDI projects. For large-scale projects, particularly in priority sectors like hydropower over a certain capacity, large infrastructure, or projects requiring special incentives, the Investment Board Nepal (IBN) is the designated approving authority. The decision between DOI and IBN depends on the project's scale, investment amount, and sector. This dual-track system ensures that investments are processed efficiently according to their size and strategic importance.

🏭 Sectors Open for 100% Foreign Ownership

FITTA and its accompanying policies explicitly list the sectors where 100% foreign ownership is permitted. These sectors are generally those where the government seeks to attract capital, technology, and managerial expertise that may not be readily available domestically. The primary goal is to foster economic growth, create jobs, and enhance Nepal's export capabilities.

The open sectors are diverse and span multiple economic areas. In manufacturing, 100% ownership is generally allowed in industries such as pharmaceuticals, cement, electrical goods, and agro-processing. In the energy sector, foreign investors can fully own hydropower projects (subject to certain capacity thresholds that may route them to the IBN) and solar energy projects. The services sector also has significant openings, including information technology (IT) and software development, tourism-related infrastructure like hotels and resorts (with some exceptions), and international branch offices of foreign airlines and companies. The minerals and mines sector also allows for full foreign investment for exploration and extraction, often in partnership with the government.

🚫 Sectors with Restrictions and Prohibitions (The Negative List)

While Nepal has opened many sectors, it maintains a "negative list" to protect domestic industries, national security, and cultural heritage. In these areas, 100% foreign ownership is either completely prohibited or restricted to a certain percentage of foreign equity, necessitating a local Nepali partner.

Prohibited Sectors for Foreign Investment:

• Retail businesses that require direct contact with consumers, such as department stores, supermarkets, and convenience stores.
• Cottage industries and personalized services like beauty parlors, tailoring, and tutoring centers.
• Arms and ammunition production and related defense industries.
• Security printing (e.g., currency, postage stamps).
• Real estate and housing business, excluding the development of large-scale integrated townships with special approval.
• Travel agencies, trekking agencies, and rafting (though foreign investment is permitted in hotels and resorts).

Sectors with Ownership Restrictions:

• Telecommunications Services: Foreign ownership is typically capped, requiring a majority Nepali shareholding.
• Air Transportation: Foreign investment is permitted but is often limited to a specific percentage of equity.
• Banking and Financial Institutions: The central bank, Nepal Rastra Bank, sets specific limits on foreign ownership in banks and financial institutions.
• Media: Foreign direct investment in print and online media is generally restricted.

💰 Minimum Investment Capital Requirements

To ensure that foreign investment is substantial and meaningful, the government has set minimum investment thresholds. For most industries and services open to FDI, the minimum required investment is NPR 50 million (approximately USD 375,000). This amount is calculated based on the total project cost, including fixed assets, working capital, and other pre-operative expenses.

However, to promote the growth of the technology and service sector, a lower threshold exists. For IT-related services and knowledge-based industries, the minimum investment requirement is reduced to NPR 20 million (approximately USD 150,000). This concession aims to attract smaller, innovative tech startups and service companies. It is important to note that these minimums apply to the total project investment, not just the initial paid-up capital. The investor must demonstrate the financial capacity to meet this threshold when applying for project approval. Projects falling below these thresholds are generally not eligible for FDI status and would need to be structured differently, often requiring a Nepali majority partner.

📋 Step-by-Step Process for Establishing a 100% Foreign-Owned Company

The process of establishing a wholly-owned foreign company in Nepal is a structured sequence that begins with government approval and ends with company registration.

Step 1: Obtain Project Approval from DOI or IBN

The first and most critical step is to secure project approval. The foreign investor must prepare a detailed project report and submit an application to the relevant authority—either the Department of Industry (DOI) or the Investment Board Nepal (IBN). The application package typically includes the project proposal, details of the foreign investor, a feasibility study, projected financial statements, and a plan for technology transfer if applicable. The reviewing authority will assess the proposal's viability, its compliance with sectoral policies, and its contribution to the Nepalese economy. Upon satisfactory review, the authority issues a Letter of Intent or a formal approval letter.

Step 2: Register the Company with the Office of the Company Registrar (OCR)

Once project approval is granted, the investor can proceed to incorporate the company. This involves submitting an application to the Office of the Company Registrar (OCR). The required documents include the approved project report, the Memorandum of Association (MOA) and Articles of Association (AOA) drafted as per the Companies Act, 2063, copies of the passports of foreign directors, and details of the company's registered office in Nepal. The OCR will review the documents and, upon approval, issue the Certificate of Incorporation, officially establishing the company as a legal entity in Nepal.

Step 3: Complete Post-Registration Formalities

After incorporation, several mandatory post-registration steps must be completed to commence business operations. These include:

• Obtaining a Permanent Account Number (PAN) from the Inland Revenue Department (IRD).
• Registering for Value Added Tax (VAT) if the company's turnover is expected to exceed the threshold.
• Opening a corporate bank account in Nepal and depositing the initial paid-up capital.
• Registering with the relevant social security funds for employees.
• Obtaining any specific industry licenses or permits required for the business operation.

⚖️ Key Compliance and Post-Investment Considerations

Owning a 100% foreign-owned company in Nepal comes with ongoing compliance obligations that are crucial for maintaining good standing and ensuring operational continuity.

Repatriation of Profits and Capital

A primary concern for any foreign investor is the ability to repatriate profits and, eventually, the original capital. FITTA guarantees the right to repatriate. Foreign investors can repatriate the amount received from the sale of shares, dividends, profits, and sums received as loan repayments and interest, in a convertible foreign currency. This process requires submitting an application to the DOI and the relevant bank, supported by audited financial statements and a tax clearance certificate from the IRD. While the right exists, the process requires meticulous documentation and adherence to foreign exchange regulations.

Visa and Work Permits for Foreign Personnel

A foreign-owned company will likely need to bring in expatriate staff for specialized roles. The company can sponsor business visas and work permits for its foreign employees. The process involves applying to the Department of Immigration, which requires proof of the company's registration, project approval, a justification for why a foreign national is needed for the role (demonstrating a lack of local expertise), and the employee's credentials. The company must also adhere to quotas on the number of foreign nationals it can employ relative to its local workforce.

Land and Property Ownership

Nepalese law restricts foreign nationals from owning land or immovable property. However, a company incorporated in Nepal, even one that is 100% foreign-owned, is considered a separate legal entity and can own land in its name. The company can purchase or lease land required for its business operations, such as for a factory, office, or hotel. This is a critical distinction that allows foreign-invested companies to secure the physical assets they need to operate. The land purchase transaction must be registered with the relevant land revenue office.

Reporting Requirements

A foreign-invested company must comply with regular reporting requirements. This includes filing annual audited financial statements with the IRD and the DOI. The company must also submit an annual report on its operations, including details on production, sales, exports, and employment, to the DOI. These reports are essential for the government to monitor the performance and compliance of foreign investments.

📊 100% Foreign Ownership in Nepal: A Summary

❓ Frequently Asked Questions (FAQs)

1. Can a foreign national be the sole director of a Nepali company? Yes, a foreign national can be the sole director and shareholder of a private company in Nepal, provided the company has received FDI approval.

2. Is it possible to own 100% of a travel company in Nepal? No. Foreign direct investment is prohibited in travel agencies, trekking agencies, and rafting businesses. However, 100% ownership is permitted in hotels and resorts.

3. How long does it take to get FDI approval from the Department of Industry? The process typically takes 30 to 45 days, provided all required documents are submitted correctly and there are no queries from the department.

4. Can a foreign-owned company buy land for a factory in Nepal? Yes. A company incorporated in Nepal, regardless of its foreign ownership structure, can purchase land in its own name for its business purposes.

5. What happens if my business falls below the minimum investment threshold after starting? The minimum investment is a prerequisite for FDI approval. Significant under-performance or failure to meet the committed investment can lead to penalties or potential revocation of the FDI status.

6. Is it mandatory to have a Nepali partner for any business? No. It is only mandatory for the sectors listed as restricted or prohibited. In the sectors open for FDI, a foreign investor can own 100% of the equity without a local partner.