Foreign Equity Investment Nepal

10 Apr

What Is Foreign Equity Investment Nepal?

The foreign equity investment Nepal refers to the acquisition of share capital in Nepali companies by foreign investors under the Foreign Investment and Technology Transfer Act (FITTA) 2075 (2019). This form of investment enables foreign individuals, companies, and institutional investors to establish or acquire ownership stakes in industries operating within Nepal.

Under FITTA Section 2(j), foreign equity investment is defined as investment in shares of a company incorporated in Nepal using foreign currency. The Foreign Equity Investment Nepal framework permits 100% foreign ownership in most sectors, with streamlined approval processes through the automatic route for 102 designated industry areas.

The February 2026 notification significantly liberalized the Nepal FDI 2025 regime by removing the NPR 500 million ceiling for automatic route approvals and expanding coverage to 102 sectors across seven major industrial categories.

Legal Framework for Foreign Equity Investment Nepal

Primary Governing Legislation

The foreign equity investment Nepal operates within a comprehensive legal framework:

Legislation	Purpose	Key Provisions
FITTA 2075 (2019)	Primary FDI regulation	Section 2(j) equity definition, Section 3 minimum investment, Section 17 approval authority
FITTA Amendment 2081 (2025)	Enhanced investment climate	Prior approval for equity transfers, expanded technology transfer
February 2026 Notification	Automatic route expansion	102 sectors, no ceiling, zero minimum for IT
Companies Act 2063	Corporate governance	Share registration, board formation, shareholder rights
Industrial Enterprises Act 2076	Industry classification	Section 3 defines eligible industries for FDI
Foreign Exchange Regulation Act 2019	Currency controls	NRB supervision, repatriation procedures

Regulatory Authorities

The foreign equity investment Nepal approval process involves:

Department of Industry (DOI) – Approves FDI up to NPR 6 billion through automatic route (7 days) or standard route (15-30 days).

Investment Board Nepal (IBN) – Handles investments exceeding NPR 6 billion and projects of national strategic importance.

Nepal Rastra Bank (NRB) – Records foreign investment inflows. As of December 2025, prior approval is no longer required; NRB involvement is limited to post-inflow recording within 6 months.

Office of Company Registrar (OCR) – Registers companies and maintains shareholder records.

Forms of Foreign Equity Investment Nepal

Permitted Investment Structures

The foreign equity investment Nepal framework recognizes multiple forms under FITTA:

Investment Form	FITTA Section	Description	Common Use
Direct Share Investment	Section 2(j)	Investment in shares using foreign currency	Greenfield projects, wholly-owned subsidiaries
Joint Venture	Section 4	Partnership with Nepali investors	Shared risk, local expertise access
Share Purchase (Secondary)	Section 5	Acquisition of existing company shares	Mergers and acquisitions
Reinvestment	Section 3	Dividend reinvestment in same industry	Expansion, capacity increase
Venture Capital Fund	Section 9	Equity through SEBON-registered fund	Startup financing, private equity
Specialized Investment Fund	2025 Amendment	Investment in SIF units	Portfolio investment

Equity Investment Through Acquisition

Section 5 of FITTA permits foreign equity investment Nepal through purchase of shares or assets of existing Nepali companies. Key requirements include:

Compliance with sectoral ownership caps (if applicable)
Prior approval from DOI for equity transfers (as of March 2025 amendment)
Notification to DOI within 30 days of transaction completion
Tax clearance before ownership change registration

Automatic Route for Foreign Equity Investment Nepal

February 2026 Expansion

The automatic route for foreign equity investment Nepal was significantly expanded on 16 February 2026:

Feature	Previous (Oct 2023)	Current (Feb 2026)
Sectors Covered	60 industry areas	102 industry areas
Investment Ceiling	NPR 500 million	No ceiling (unlimited)
IT Sector Minimum	NPR 20 million	Zero (no minimum)
Approval Timeline	7-15 days	Immediate to 7 days

102 Sectors Under Automatic Route

The foreign equity investment Nepal automatic route now covers:

Category	Example Sectors
Energy	Hydropower, solar, wind, renewable energy machinery
Infrastructure	Operation of existing infrastructure, export processing zones, cargo complexes, film cities
Manufacturing	Vehicles, construction materials, fertilizers, lubricants, toiletries, glass, tyres, medical equipment
IT and Digital	Software, data processing, cloud computing, web portals, BPO, KPO, data centres
Agriculture	Large-scale cold storage, soil testing, mineral studies (with 75% export requirement)
Services	International cargo, private warehouses, rubber and cotton processing
Tourism	Hotels, resorts, adventure tourism

Automatic Route Application Process

The foreign equity investment Nepal automatic route follows streamlined procedures:

Step 1: Online application through DOI IMIS portal at imis.doind.gov.np

Step 2: Upload required documents:

Project report/business plan
Investor passport/company registration
Board resolution authorizing investment
Financial credibility certificate
Power of attorney (if applicable)

Step 3: Pay refundable guarantee deposit (NPR 20,000)

Step 4: Receive approval certificate via email within 7 working days

Step 5: Proceed to company registration at OCR

Minimum Investment Requirements

Thresholds by Sector

The foreign equity investment Nepal minimum thresholds vary by sector:

Sector Category	Minimum Investment	Notes
General Industries	NPR 20 million (~USD 150,000)	Reduced from NPR 50 million in 2022
IT and Digital	No minimum	Zero threshold under automatic route
Manufacturing	NPR 20 million	Standard requirement
Services	NPR 20 million	Standard requirement
Tourism	NPR 20 million	Standard requirement

Investment Injection Schedule

After foreign equity investment Nepal approval, capital must be injected according to FITTA Regulation schedule:

Approved Amount	Year 1 Minimum	Stage 2 (Operation)	Stage 3 (2 Years)
Up to NPR 500M	25%	Up to 70% total	Remaining 30%
NPR 500M – 2.5B	15%	Up to 70% total	Remaining 30%
NPR 2.5B – 10B	10%	Up to 70% total	Remaining 30%
Above NPR 10B	5%	Up to 70% total	Remaining 30%

Failure to inject minimum amounts within 2 years without reasonable grounds renders approval ineffective.

Restricted Sectors (Negative List)

Prohibited and Limited Sectors

The foreign equity investment Nepal negative list restricts FDI in:

Sector	Restriction Level	Notes
Primary Agriculture	Prohibited	Poultry, fisheries, bee-keeping, fruits, vegetables
Cottage Industries	Prohibited	Small-scale traditional industries
Personal Services	Prohibited	Hair cutting, tailoring, driving
Arms and Ammunition	Prohibited	Weapons, explosives, NBC materials
Real Estate Business	Prohibited	Excluding construction industries
Retail Business	Prohibited	Local trading
Mass Communication	Prohibited	Newspapers, radio, TV, online news in national language
Consultancy Services	51% Cap	Foreign investment limited to minority stake
International Airlines	80% Cap	Maximum foreign ownership
Domestic Airlines	49% Cap	Maximum foreign ownership
Ride-Sharing Services	70% Cap	Maximum foreign ownership

Important: Technology transfer is permitted even in restricted FDI sectors with DOI approval, while equity investment is prohibited.

Foreign Equity Investment Approval Process Nepal

Step-by-Step Procedure

The foreign equity investment Nepal approval process involves:

Step 1: Pre-Application Preparation

Sector verification against negative list
Investment size determination
Route selection (automatic vs. standard)
Documentation compilation

Step 2: Online FDI Application

Submit through DOI IMIS portal
Pay NPR 20,000 refundable deposit
Upload business plan and investor documents

Step 3: Approval Acquisition

Automatic route: 7 working days
Standard route: 15-30 working days
Receive FDI Approval Letter

Step 4: Company Registration at OCR

Name reservation
MOA/AOA drafting with foreign investor provisions
Incorporation application submission
Certificate issuance (7 working days)

Step 5: Tax Registration

PAN registration from IRD
VAT registration (if turnover exceeds NPR 5 million)
Ward office business registration

Step 6: NRB Notification and Recording

Submit statutory notice before capital injection
Open foreign currency account
Remit investment through banking channels
Obtain inflow certificate
Record investment within 6 months

Step 7: Industry Registration

Register with Department of Industry
Obtain industry registration certificate (free)
Secure sector-specific licenses

Repatriation of Foreign Equity Investment Nepal

Repatriation Rights Under FITTA

Section 20 of FITTA guarantees repatriation rights for foreign equity investment Nepal:

Repatriation Category	Description	Tax Status
Share Sale Proceeds	Amount from sale of shares to domestic/foreign buyers	Subject to capital gains tax
Dividends	Profit distribution from foreign investment	Subject to withholding tax
Liquidation Proceeds	Amount remaining after winding up	After liability payment
Capital Gains	Profits from secondary market securities	As per tax laws

Repatriation Process (2025 Amendment)

The March 2025 amendment streamlined foreign equity investment Nepal repatriation:

Step	Action	Timeline
1	Apply to DOI/IBN for repatriation approval	Immediate
2	DOI approval (if terms fulfilled)	7 days (reduced from 15)
3	Apply to NRB for foreign exchange	Concurrent
4	Commercial bank processes repatriation	15 days

Key Change: As of March 2025, prior DOI approval is required before foreign investors can sell or transfer equity to domestic parties. Previously, notification within 30 days of transaction was sufficient.

Tax Implications of Foreign Equity Investment Nepal

Corporate Tax Structure

Income Level	Tax Rate	Notes
Standard Corporate Tax	25%	General rate for most industries
Banks, Telecom, Alcohol	30%	Higher rate for specific sectors
Priority Sectors	20%	Manufacturing, IT, certain industries
Export Income	Additional 5% reduction	Export manufacturing

Withholding Taxes on Repatriation

Payment Type	Withholding Tax Rate	Applicability
Dividends	5%	Profit distribution to foreign shareholders
Interest	10%	Loan interest payments
Royalties	15%	Technology transfer payments
Technical Fees	15%	Management and technical services

Tax Incentives for Foreign Investors

The foreign equity investment Nepal framework provides various tax incentives:

Incentive Type	Benefit	Duration
Tax Holiday	100% exemption	5-10 years for priority sectors
Depreciation Allowance	Accelerated depreciation	Asset-dependent
Export Incentives	Tax reductions	For export-oriented industries
Regional Development	Additional exemptions	For underdeveloped area investments

One Stop Service Centre (OSSC) Facilitation

OSSC Services for Foreign Equity Investment

Section 23 of FITTA mandates OSSC facilitation for foreign equity investment Nepal:

Service Category	Description	Timeline
Application Receipt	Centralized document submission	Same day
Inter-Agency Coordination	DOI, OCR, NRB, IRD coordination	7-10 days
Visa Facilitation	Business and work visa processing	Concurrent
After-Care Services	Compliance monitoring, issue resolution	Ongoing

Benefits of OSSC Processing

Single point contact for 14 government agencies
Reduced approval time from 3-6 months to 7-15 days
Online application tracking
Dedicated relationship manager
Structured dispute resolution through Nepal Business Forum

Compliance Obligations for Foreign Equity Investment Nepal

Immediate Post-Investment Requirements

Compliance	Timeline	Authority
Auditor Appointment	Within 3 months of registration	Company board
Capital Injection	As per approved schedule	NRB monitoring
NRB Recording	Within 6 months of inflow	Nepal Rastra Bank
Industry Registration	Within 30 days of operation	DOI

Ongoing Compliance

Annual Requirements:

Annual General Meeting within 6 months of fiscal year-end
Statutory audit and auditor report submission
Annual return filing with OCR
Tax return filing with IRD
Industry registration renewal with DOI

Change Reporting:

Share transfer notification within 30 days (with prior approval as of March 2025)
Capital increase approval from DOI
Director changes reporting
Objective changes approval

March 2025 Amendment: Key Changes

Prior Approval for Equity Transfers

The March 2025 amendment introduced significant changes to foreign equity investment Nepal:

Aspect	Previous Rule	Current Rule (March 2025)
Equity Transfer	Notification within 30 days	Prior DOI approval required
Transaction Recording	Automatic after notification	Only after tax payment and approval
Exit Flexibility	Relatively straightforward	More regulated process

Rationale and Impact

The amendment aims to:

Ensure tax compliance before equity transfers
Prevent capital flight
Monitor foreign investment exits
Protect domestic investor interests

Practical Impact: Foreign investors must now factor in additional time (7-15 days) for exit approvals.

Frequently Asked Questions About Foreign Equity Investment Nepal

What is foreign equity investment in Nepal?

The foreign equity investment Nepal refers to acquisition of shares in Nepali companies by foreign investors using foreign currency, regulated under FITTA 2075 (2019).

What is the minimum investment for foreign equity in Nepal?

The minimum foreign equity investment Nepal is NPR 20 million (~USD 150,000) for most sectors, with zero minimum for IT and digital industries under the automatic route.

How long does FDI approval take in Nepal?

Automatic route approvals take 7 working days. Standard route approvals take 15-30 days. The complete process including company registration takes 3-6 weeks.

Can foreign investors own 100% of a Nepali company?

Yes, 100% foreign equity investment Nepal is permitted in most sectors. Some sectors have caps: international airlines (80%), domestic airlines (49%), ride-sharing (70%).

What sectors are restricted for foreign equity investment?

Primary agriculture, cottage industries, personal services, arms manufacturing, real estate business, retail business, and mass communication media are prohibited for foreign equity investment Nepal.

What is the automatic route for FDI in Nepal?

The automatic route allows streamlined foreign equity investment Nepal approval for 102 sectors without investment ceiling, with zero minimum for IT sectors.

How are profits repatriated from foreign equity investment?

Dividends and capital gains from foreign equity investment Nepal can be repatriated after tax payment, with DOI approval (7 days) and NRB processing (15 days).

Is NRB approval required before capital injection?

No, prior NRB approval is no longer required as of December 2025. Foreign equity investment Nepal only requires post-inflow recording within 6 months.

What documents are required for foreign equity investment approval?

Required documents include project report, investor passport/company registration, board resolution, financial credibility certificate, power of attorney, and commitment letter.

Can foreign equity be transferred to domestic investors?

Yes, but as of March 2025, prior DOI approval is required before selling or transferring foreign equity investment Nepal to domestic parties.

What tax incentives are available for foreign investors?

Tax holidays (5-10 years), reduced corporate tax rates (20%), accelerated depreciation, and export incentives are available for foreign equity investment Nepal.

What is the One Stop Service Centre?

OSSC provides centralized processing for foreign equity investment Nepal applications, coordinating DOI, OCR, NRB, and IRD services at single location.

Are Non-Resident Nepalis considered foreign investors?

Yes, NRNs are classified as foreign investors under FITTA and must follow the same foreign equity investment Nepal approval process.

What happens if minimum investment is not injected?

Failure to inject minimum foreign equity investment Nepal amounts within 2 years without reasonable grounds renders FDI approval ineffective.

How is foreign equity investment protected in Nepal?

FITTA Section 33 prohibits nationalization, Section 34 provides stabilization clause, and Section 32 guarantees national treatment for foreign equity investment Nepal.

Why Choose Corporate Np for Foreign Equity Investment Nepal?

Corporate Np provides comprehensive services for foreign equity investment Nepal:

Pre-Investment Strategy: Sector analysis, route selection, and investment structure optimization.

Approval Facilitation: Complete documentation, DOI/IBN liaison, and automatic route application.

Company Formation: OCR registration, MOA/AOA drafting, and shareholder agreement preparation.

Compliance Management: NRB recording, tax registration, annual compliance, and regulatory updates.

Exit Planning: Share transfer structuring, repatriation planning, and DOI approval for equity transfers.

Contact Corporate Np today for expert guidance on foreign equity investment Nepal and maximize your investment potential.

Disclaimer

This article is prepared for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation, or inducement of any sort. The information provided herein is based on FITTA 2075 (2019), February 2026 notification, and March 2025 amendment as of April 2026. Foreign investment laws are subject to amendment. Professional legal consultation is recommended for specific circumstances. The service provider shall not be liable for consequences arising from actions undertaken based on this information.

References

[1] Department of Industry Nepal – FDI Guidelines: https://www.doind.gov.np

[2] Foreign Investment and Technology Transfer Act 2075 (2019): https://www.lawcommission.gov.np

[3] Investment Board Nepal – Large Project Approval: https://www.ibn.gov.np

[4] Nepal Rastra Bank – Foreign Exchange Regulations: https://www.nrb.org.np

[5] Office of Company Registrar: https://www.ocr.gov.np

[6] Inland Revenue Department – Tax Guidelines: https://www.ird.gov.np

[7] One Stop Service Centre Nepal: https://www.doind.gov.np/one-stop-service

[8] Industrial Enterprises Act 2076: https://www.doind.gov.np

[9] UNCTAD Investment Policy Monitor – Nepal: https://investmentpolicy.unctad.org

[10] Ministry of Industry, Commerce and Supplies: https://www.moics.gov.np