Dividend Repatriation Process ...

Dividend repatriation in Nepal refers to the lawful transfer of profits or dividends earned by a foreign investor or foreign shareholder from a Nepali entity to an overseas jurisdiction. Under Nepali law, dividend repatriation is a regulated foreign exchange transaction that must comply with foreign investment, company, tax, and banking regulations.

For foreign investors, multinational enterprises, and joint ventures operating in Nepal, dividend repatriation is a critical post-investment right, but it is not automatic; it requires prior approvals, tax clearance, and strict documentary compliance.

Nepal permits dividend repatriation to encourage foreign direct investment (FDI), subject to compliance with statutory procedures administered primarily by Nepal Rastra Bank and other investment-related authorities. The process is documentation-intensive and practice-driven, and errors or omissions commonly result in delays or rejection.

Legal Basis: Applicable Acts, Rules, Regulations, and Policies

Dividend repatriation in Nepal is governed by an integrated legal framework, including:

• Foreign Investment and Technology Transfer Act (FITTA), 2019

• Foreign Investment and Technology Transfer Rules, 2021

• Nepal Rastra Bank Act, 2002

• Foreign Exchange (Regulation) Act, 1962

• Foreign Exchange Regulation Rules, 1963

• Companies Act, 2006

• Income Tax Act, 2002

• Income Tax Rules, 2003

• Unified Directives and Circulars issued by Nepal Rastra Bank

• Industrial Enterprises Act, 2020 (where applicable)

• Policies and procedural guidelines issued by the Department of Industry and Investment Board Nepal

These instruments collectively regulate profit declaration, taxation, foreign exchange control, approval mechanisms, and fund remittance procedures.

Regulatory and Approving Authorities Involved

Dividend repatriation typically involves coordination among multiple authorities:

• Nepal Rastra Bank – Final authority for foreign exchange approval and outward remittance

• Department of Industry – For industries registered under DOI

• Investment Board Nepal – For large or strategic investments

• Inland Revenue Department – Tax assessment and clearance

• Company Registrar Office – Corporate compliance and filings

• Authorized commercial banks licensed as foreign exchange dealers

Definition and Scope of Permitted Dividend Repatriation

Dividend repatriation covers:

• Cash dividends declared by a Nepali company to foreign shareholders

• Interim or final dividends approved in accordance with company law

• Dividends arising from equity, preference shares, or approved foreign investment instruments

Repatriation is permitted only after:

• Profits are lawfully earned in Nepal

• Dividends are formally declared

• Applicable taxes are fully paid

• Regulatory approvals are obtained

Capital gains, royalty, technical fees, and loan repayments are governed by separate repatriation procedures.

Eligibility Criteria

A foreign investor is eligible to repatriate dividends if:

• The investment was approved under FITTA or prior FDI laws

• The company is duly incorporated and operational in Nepal

• Dividends are declared from distributable profits

• The investor holds valid share ownership records

• All tax obligations are settled

• The investment is not subject to sector-specific repatriation restrictions

Detailed Document Checklist

The standard documentation includes:

• Application for dividend repatriation addressed to Nepal Rastra Bank

• Board resolution approving dividend declaration

• Shareholders’ resolution (if required)

• Audited financial statements of the declaring period

• Tax clearance certificate from Inland Revenue Department

• Dividend calculation sheet

• Share register and share certificates

• Foreign investment approval letter

• Prior repatriation approval (if applicable)

• Bank recommendation letter

• Identification documents of the foreign investor

• SWIFT and overseas bank account details

Additional documents may be required based on sector or investment size.

Step-by-Step Approval and Repatriation Process

1. Dividend Declaration
   Declare dividends in compliance with the Companies Act and articles of association.

2. Tax Assessment and Payment
   Withhold and pay applicable dividend tax.

3. Tax Clearance
   Obtain clearance from the Inland Revenue Department.

4. Bank Submission
   Submit repatriation application and documents to an authorized commercial bank.

5. Regulatory Review
   Bank forwards documents to Nepal Rastra Bank for approval.

6. NRB Approval
   Foreign exchange approval is issued upon satisfaction.

7. Outward Remittance
   Bank remits dividends to the foreign investor’s overseas account.

Capital, Office, and Operational Requirements

Dividend repatriation does not require additional capital infusion or office establishment beyond the original investment approval. However:

• The company must remain operational

• Statutory filings must be up to date

• Shareholding structure must remain compliant

Cost and Government Fees

Costs typically include:

• Dividend withholding tax (as per prevailing tax rate)

• Bank service charges

• Professional and legal service fees (if engaged)

Note: Government fees, taxes, and charges are subject to change under Nepali law.

Estimated Timeline (Stage-Wise)

Delays may occur due to documentation gaps or regulatory queries.

Post-Repatriation Compliance Obligations

• Maintain records of approved remittance

• Update company financial and tax records

• Report repatriation in annual filings if required

• Comply with ongoing foreign investment reporting

Foreign Investment and Foreign Involvement Rules

Dividend repatriation is allowed only for investments approved under Nepali FDI laws. Unauthorized or informal investments are not eligible. Sectoral caps, negative lists, and national security restrictions continue to apply.

Method to Check Application or Approval Status

• Through the concerned commercial bank

• Direct inquiry with Nepal Rastra Bank (via bank)

• Follow-up with DOI or Investment Board Nepal where applicable

There is no standalone public online tracking system for dividend repatriation approvals.

How Attorney Nepal Can Assist

Attorney Nepal assists clients by:

• Reviewing dividend eligibility and compliance status

• Structuring documentation and regulatory submissions

• Coordinating with banks and authorities

• Identifying legal and tax risks

• Ensuring alignment with foreign exchange and investment laws

Support is provided in a professional advisory capacity without guaranteeing outcomes.

Frequently Asked Questions (FAQs)

1. Is dividend repatriation allowed in Nepal?
Yes, subject to compliance with FITTA, tax laws, and NRB approval.

2. Do all dividends require NRB approval?
Yes, foreign currency remittance requires prior NRB approval through a bank.

3. What tax applies to dividends in Nepal?
Dividend withholding tax as prescribed under the Income Tax Act.

4. Can interim dividends be repatriated?
Yes, if lawfully declared and approved.

5. Is prior FDI approval mandatory?
Yes, only approved foreign investments qualify.

6. How long does the process take?
Typically 4–8 weeks, depending on complexity.

7. Can dividends be repatriated in any currency?
Only in convertible foreign currencies approved by NRB.

8. Is repatriation allowed annually?
Yes, subject to annual profit and compliance.

9. Can losses be offset before repatriation?
Dividends can only be paid from distributable profits.

10. Can rejected applications be resubmitted?
Yes, after correcting deficiencies.

Legal Disclaimer

This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Laws, regulations, and administrative practices in Nepal may change without notice. Professional advice should be obtained for specific transactions or circumstances.