Foreign Direct Investment (FDI) in Nepal refers to the investment of capital by a non-resident individual or foreign company into a Nepalese enterprise to establish a new business or expand an existing one. It is governed primarily by the Foreign Investment and Technology Transfer Act (FITTA) 2019 and regulated by the Department of Industry (DOI).

In Nepal, this legal framework allows up to 100% foreign ownership in most sectors, replacing the older restrictive caps. However, specific industries remain on a "Negative List" requiring special permissions or prohibiting external investment entirely.

Table of Contents

1. Governing Laws & Regulatory Authorities
2. Who Can Apply? Eligibility Criteria
3. The Step-by-Step Registration Process
4. Comparison: Business Types & Investment Thresholds
5. Required Documents Checklist
6. Costs, Taxes & Repatriation Rules
7. Timeline & Operational Realities
8. Sector-Specific Playbooks
9. Common Failure Cases & How to Avoid Them
10. Visa & Residency Pathways

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1. Governing Laws & Authority

To establish a business legally, you must navigate three primary layers of regulation.

• The Foreign Investment and Technology Transfer Act (FITTA) 2019: The cornerstone legislation that governs FDI. The 2019 amendment is critical because it removed the requirement for a local partner in many sectors and standardized foreign ownership ceilings.
• The Companies Act 2063 (2006): Governs the incorporation, management, and winding up of companies registered in Nepal.
• Industrial Enterprises Act 2076 (2020): Provides the legal basis for setting up industries and outlines incentives (like tax holidays) for export-oriented industries.

Regulatory Bodies:

• Department of Industry (DOI): The primary authority for approving FDI and issuing Foreign Investment Permits.
• Office of Company Registrar (OCR): Handles company incorporation and digital registration.
• Nepal Rastra Bank (NRB): The central bank overseeing forex transactions, capital repatriation, and compliance with NRB Circular 2023.
• Inland Revenue Department (IRD): Manages VAT and PAN registration.

2. Who Can Initiate/Apply? (Eligibility)

Foreign investment is open to a wide range of investors, provided they meet the following criteria:

• Foreign Individuals: Any person who is not a citizen of Nepal.
• Foreign Corporate Entities: Companies incorporated outside of Nepal.
• Non-Resident Nepalis (NRNs): Nepali citizens holding foreign passports, who are entitled to additional benefits under the NRN Act.
• Joint Ventures: Partnership between a foreign investor and a local Nepali investor.

Note: Investors from countries not recognized by the Government of Nepal or those blacklisted by the UN are ineligible.

3. The Step-by-Step Process (The Core)

The registration process has shifted significantly with the introduction of the OCR Digital Submission Protocol. Follow this roadmap to ensure compliance:

Phase 1: Pre-Investment & Name Reservation

1. Secure a Temporary Investment Permit: Apply via the DOI portal. You must submit a preliminary project report.
2. Digital Name Reservation: Log into the OCR Online Portal. Check for name availability (cultural sensitivity checks are automated here). Reserve your unique company name.

Phase 2: FDI Approval & Capital Commitment

3. Submit FDI Application: Apply to the Department of Industry (DOI) or Investment Board Nepal (IBN) if the investment exceeds NPR 6 Billion (Large Scale).
4. Obtain FDI Approval Letter: Once approved, you will receive a letter stipulating the minimum capital requirement and timeline for capital injection.
5. Capital Injection: Transfer the agreed capital from your foreign bank account to your temporary Nepali bank account. Crucial: Obtain a "Credit Advice" from the bank proving the funds came from abroad.

Phase 3: Incorporation & Registration

6. Company Registration: File the Memorandum of Association (MoA) and Articles of Association (AoA) on the OCR portal using the approved name and FDI details.
7. PAN/VAT Registration: You must register for the Permanent Account Number (PAN) within 7 days of company incorporation to avoid penalties. If your projected turnover is over NPR 5 million, you must also register for VAT.
8. Municipality Registration: Register your business with the local Ward Office. Competitors often miss this step, but it is mandatory for operational licensing.

4. Comparison: Business Types & Investment Thresholds

Not all businesses require the same level of investment. Under the FITTA 2019, minimum capital requirements vary by sector.

Type/Method	Minimum Capital Requirement	Estimated Time to Register	Complexity
Technology/IT (Service)	NPR 10 Million (approx. $75,000)	15-20 Business Days	Low (100% FDI allowed)
Trading/Export-Import	NPR 50 Million (approx. $375,000)	20-30 Business Days	Medium (Requires Customs)
Manufacturing (Industry)	NPR 100 Million+ (approx. $750,000+)	30-45 Business Days	High (Environmental Impact Ass.)
Tourism/Hospitality	NPR 20 Million (Hotels)	25-35 Business Days	Medium (NTB License req.)
Hydro Power/Infrastructure	No specific cap (High value)	60-90 Days	Very High (IBN Approval)

5. Required Documents Checklist

Failure to provide notarized and translated documents is the #1 reason for rejection at the DOI.

• For the Individual Investor:
  • Copy of valid Passport.
  • CV/Resume detailing business experience.
  • Source of Funds declaration (Bank statements from home country).
  • Passport-sized photographs.
• For the Corporate Investor:
  • Certificate of Incorporation (from home country).
  • Board Resolution authorizing investment in Nepal.
  • Memorandum & Articles of Association of parent company.
  • Audit Report of the parent company (latest fiscal year).
• For the Nepalese Entity:
  • Project Report (Feasibility Study).
  • Draft MoA and AoA (prepared by a Nepali advocate).
  • Land Ownership documents or Rent Agreement (for registered office).
  • Receipt of land revenue payment (if purchasing land).

6. Costs, Taxes & Repatriation Rules

Cost Transparency Breakdown

Unlike generic guides, here is the reality of setup costs in Kathmandu:

• Government Fees (OCR): NPR 15,000 – NPR 30,000 (based on authorized capital).
• DOI FDI Approval Fee: NPR 25,000 – NPR 50,000.
• Legal/Consultant Fees: NPR 100,000 – NPR 300,000 (For drafting MoA/AoA and Project Reports).
• Hidden Costs: Notarization and Translation (NPR 5,000–15,000); Bank account opening charges.

Repatriation & Forex (NRB Circular 2023)

Foreign investors are allowed to repatriate:

• Profits/Dividends: Subject to 5% tax on dividends.
• Capital: Upon sale or liquidation of the business.
• Loan Repayment: Principal and interest on foreign loans.

Required Documentation for Repatriation:

1. Form A2: Application to the bank.
2. Tax Clearance Certificate: Proving all Nepali taxes are paid.
3. Audited Financial Statements: Proving the profit amount.
4. FDI Approval Copy: Initial investment document.

Tax Optimization

• Double Taxation Avoidance (DTA): If you are from the UK, India, China, or Norway, you can claim credits against taxes paid in Nepal to reduce liability in your home country.
• Export Incentives: Manufacturing industries exporting 80%+ of goods qualify for a 5-year tax holiday under the Income Tax Act.

7. Timeline & Operational Realities

Real-World Processing Times

• Name Reservation: 1-2 days (Online).
• DOI Approval: 15-30 days (Can be expedited to 7 days with "Urgent" fees).
• Company Registration: 2-3 days (Post-DOI approval).
• Bank Account Opening: 5-10 days (Banks like Nabil Bank and Standard Chartered are foreigner-friendly; local banks may require more documentation).

Operational "Hidden Steps"

• Office Verification: The OCR or Municipality may physically inspect your office to ensure it exists. Virtual offices are generally not accepted for FDI companies.
• Social Security Fund (SSF): You must register for SSF immediately upon hiring your first local employee.
• Hiring Quotas: While there is no strict 1:4 foreign-to-local ratio for all sectors, you must justify why a foreign national is required for a specific role if the ratio is skewed.

8. Sector-Specific Playbooks

IT & Software

• Pros: 100% ownership allowed; lowest minimum capital ($10k equivalent).
• Strategy: Register in the Information Technology Park if possible to avail of tax breaks.
• Compliance: Must register with the Nepal Telecommunications Authority if providing ISP-related services.

Tourism & Hospitality

• Licensing: Requires a license from the Nepal Tourism Board (NTB).
• Restrictions: Foreigners generally cannot own trekking agencies or become trekking guides (these are reserved for Nepali citizens), but can own hotels/resorts 100%.

Import/Export (Trading)

• Customs: You must hire a licensed Customs Clearance Agent (Broker).
• Bonded Warehouse: Available for re-export businesses to defer duty payments.
• LC Process: Opening a Letter of Credit (LC) requires 100% cash margin or a bank guarantee, which ties up working capital.

9. Common Failure Cases & How to Avoid Them

1. Rejection at DOI: Caused by an unrealistic Project Report showing inflated revenues. Solution: Use conservative estimates aligned with market data.
2. Bank Account Rejection: "Source of Funds" not clearly traced. Solution: Provide 6 months of bank statements from the remitting account and a salary/business declaration.
3. Name Rejection: Names that sound offensive to local culture or resemble existing trademarks. Solution: Propose 3 distinct names and check the OCR trademark database first.

10. Visa & Residency Pathways

A business visa is not permanent residency; it is a work permit tied to your investment.

• Business Visa: Issued for the duration of your project (up to 5 years). Requires the FDI approval and initial capital injection.
• Residential Visa: Available to investors who deposit a minimum of USD 100,000 (or equivalent) in a fixed deposit or specific investment sectors.
• Dependent Visa: Spouses and dependent children can apply for a residential visa based on the primary investor’s status.
• Renewal (2023 Update): The Department of Immigration has launched an online renewal system. You no longer need to visit the office physically for annual renewals if your digital file is complete.

Conclusion

Starting a business in Nepal as a foreigner offers immense potential in a growing economy, particularly in hydropower, tourism, and technology. However, the regulatory landscape requires strict adherence to the FITTA 2019 amendments and NRB forex compliance.

While the process allows for 100% foreign ownership, the "Hidden Steps"—such as municipality registration, social security filing, and the rigorous source-of-funds verification—often cause delays.

Recommendation: To navigate the complexities of the Department of Industry and ensure your repatriation rights are protected, consult with a local legal expert before remitting funds.

Disclaimer: This guide is for informational purposes only and does not constitute legal or financial advice. Laws and regulations in Nepal are subject to change. Please consult with a qualified legal professional in Nepal before making investment decisions.