What is FDI in Nepal and how can foreign investors legally establish businesses here? FDI in Nepal refers to investment made by foreign individuals, companies, or institutional investors into Nepali businesses under the Foreign Investment and Technology Transfer Act 2075 (2019). As of mid-July 2024, Nepal's total FDI in Nepal stock reached NPR 333 billion, with net FDI in Nepal inflows of NPR 8.4 billion in FY 2023/24, marking a 36.1% increase from the previous year. The FDI in Nepal landscape is governed by a comprehensive legal framework designed to attract foreign capital while protecting national interests.
FDI in Nepal is primarily regulated by the Foreign Investment and Technology Transfer Act 2075 (2019) (FITTA), which replaced the previous 1992 legislation. This Act establishes the legal foundation for foreign investment approval, technology transfer, and repatriation rights. Additionally, the Industrial Enterprises Act 2076 (2020), Companies Act 2063 (2006), and Foreign Exchange (Regulation) Act 2019 create a coherent regulatory regime.
| Governing Law | Purpose |
|---|---|
| FITTA 2075 (2019) | Primary legislation for foreign investment regulation |
| Industrial Enterprises Act 2076 | Industry classification and licensing |
| Companies Act 2063 | Corporate registration and management |
| Foreign Exchange Regulation Act 2019 | Foreign currency control and repatriation |
| Public Private Partnership Act 2075 | Large-scale infrastructure projects |
The Department of Industry (DOI) approves investments up to NPR 6 billion, while the Investment Board Nepal (IBN) handles larger investments. Nepal Rastra Bank (NRB) regulates foreign exchange transactions and capital transfers.
On October 2, 2023, Nepal introduced an automatic route for FDI in Nepal investments up to NPR 500 million (approximately USD 3.76 million). This streamlined process enables foreign investors to receive pre-approval online without multiple bureaucratic layers.
Eligible sectors for automatic route:
Key benefit: No minimum investment limit is required for IT sector investments through the automatic route. This policy change has significantly improved Nepal's investment climate by reducing approval timelines from weeks to days.
Sector-wise FDI in Nepal distribution reveals that electricity, gas, steam, and air conditioning sectors hold the highest share at 29.5% of total FDI in Nepal stock. Manufacturing follows closely at 29.3%, making the industrial sector collectively account for 58.8% of foreign investments.
| Sector | FDI Stock Share | Key Industries |
|---|---|---|
| Electricity/Gas/Steam | 29.5% | Hydropower projects |
| Manufacturing | 29.3% | Cement, beverages, steel |
| Financial/Insurance | 24.4% | Banking, insurance services |
| Information/Communication | 8.1% | Telecom, IT services |
| Accommodation/Food | 6.5% | Hotels, restaurants |
The service sector collectively represents 40.5% of total FDI in Nepal stock. Since 1992, Nepal has approved 7,475 FDI in Nepal projects with total commitments exceeding NPR 684.51 billion. However, only approximately 31.9% of approved FDI in Nepal translates into actual net inflows due to implementation delays and project gestation periods.
FDI in Nepal is prohibited in certain sectors under Annex-1 of FITTA. Foreign investors cannot invest in the following areas regardless of company structure:
Fully Prohibited Sectors:
Conditionally Restricted:
The FDI in Nepal approval process follows a structured timeline. Under Section 15 of FITTA, DOI or IBN must decide on applications within 7 days of complete submission.
Step 1: Investment Approval Application
Submit application to DOI (investments up to NPR 6 billion) or IBN (investments above NPR 6 billion) with project proposal, investor credentials, and timeline for investment remittance.
Step 2: Company Incorporation
Register the company with Office of Company Registrar (OCR) under Companies Act 2063. Submit Memorandum and Articles of Association.
Step 3: Tax Registration
Obtain Permanent Account Number (PAN) from Inland Revenue Department. Register for VAT if applicable.
Step 4: Industry Registration
Register with Department of Industry and obtain industry registration certificate.
Step 5: Capital Injection Notification
Notify Nepal Rastra Bank within 6 months of approval. Submit self-declaration that funds originate from legal sources. Capital must be brought through formal banking channels in convertible currency (Indian investors may use INR).
Investment Schedule:
| Investment Range | Stage 1 (Within 1 year) | Stage 2 (Before operations) | Stage 3 (Within 2 years) |
|---|---|---|---|
| Up to NPR 20M | 25% | Up to 70% | Remaining 30% |
| NPR 20M-250M | 15% | Up to 70% | Remaining 30% |
| NPR 250M-1B | 10% | Up to 70% | Remaining 30% |
FDI in Nepal guarantees repatriation rights under Section 20 of FITTA. Foreign investors may repatriate the following after tax clearance and regulatory approval:
| Repatriation Type | Requirements | Approving Authority |
|---|---|---|
| Sale of shares | DOI/IBN prior approval (post-March 2025 amendment), tax clearance | DOI/IBN + NRB |
| Dividends/profits | Audited financials, tax clearance, board resolution | NRB |
| Royalties | Technology transfer agreement approval | DOI/IBN + NRB |
| Lease payments | Lease financing agreement | NRB |
| Liquidation proceeds | Settlement of all liabilities | DOI/IBN + NRB |
Important Update (March 31, 2025): Nepal amended FITTA through the Act Relating to Improving Economic and Business Environment 2081 (2025). Foreign investors must now obtain prior approval from DOI before selling or transferring equity to domestic parties. Previously, post-transaction notification within 30 days was sufficient.
Dividend Repatriation Process:
Timeline: Typically 4-8 weeks depending on documentation completeness.
FDI in Nepal entities are subject to the following tax structure:
| Tax Type | Rate | Applicability |
|---|---|---|
| Corporate Income Tax | 25% (standard) | All companies |
| Corporate Income Tax | 30% | Banks, insurance, petroleum, tobacco, alcohol, telecom |
| Special Industry Rate | 20% | Priority sectors |
| Dividend Withholding Tax | As per Income Tax Act 2058 | Profit distribution |
| VAT | 13% | Goods and services |
| Customs Duty | Varies | Import of machinery/equipment |
Tax Incentives Available:
FDI in Nepal originates from approximately 60 countries. The top investing nations by FDI in Nepal stock share are:
| Country | FDI Stock Share | Primary Sectors |
|---|---|---|
| India | 32.3% | Manufacturing, services |
| China | 10.2% | Infrastructure, energy |
| Singapore | 8.3% | Financial services |
| Ireland | 6.9% | Technology, pharma |
| South Korea | 6.1% | Manufacturing |
Province-wise Distribution:
Bagmati Province dominates with 62% of total FDI in Nepal stock, followed by Gandaki (13.1%) and Koshi (13.5%). Lumbini and Karnali provinces account for less than 1% each, indicating significant regional investment disparities.
Recent FDI in Nepal trends present a mixed picture. While FDI in Nepal stock grew 12.7% to NPR 333 billion in FY 2023/24, UNCTAD's World Investment Report 2025 indicates Nepal's FDI in Nepal inflows dropped to USD 57 million in 2024 from USD 185 million in 2019—a 69.18% decline over six years.
Positive Developments:
Persistent Challenges:
FY 2025/26 Early Data (First 7 months):
What is the minimum investment required for FDI in Nepal?
The standard minimum threshold is NPR 50 million per foreign investor (approximately USD 400,000). However, no minimum applies to IT sector investments through the automatic route.
How long does FDI approval take in Nepal?
DOI or IBN must decide within 7 days of receiving complete applications under FITTA Section 15. NRB approval for capital transfer typically requires 2-4 additional weeks.
Can foreign investors own 100% of a Nepali company?
Yes, 100% foreign ownership is permitted in most sectors outside the negative list. Some sectors like domestic airlines restrict foreign ownership to 49%.
What documents are required for FDI approval?
Required documents include: project proposal, passport/company registration of investor, financial credibility proof, board resolution (for corporate investors), timeline for investment remittance, and proposed business activities description.
Is repatriation of profits guaranteed for FDI in Nepal?
Yes, FITTA Section 20 guarantees repatriation rights for dividends, capital gains, royalties, and sale proceeds, subject to tax clearance and NRB approval.
What changed in the March 2025 FITTA amendment?
Foreign investors must now obtain prior DOI approval before transferring equity to domestic parties. Previously, post-transaction notification within 30 days was sufficient.
Can foreign investors invest in Nepali startups?
Yes, provided minimum investment thresholds and sectoral regulations are satisfied. Startups may qualify for tax exemptions and subsidized loans under the National Startup Policy.
What sectors offer the best FDI opportunities in Nepal?
Hydropower (29.5% of FDI in Nepal stock), manufacturing (29.3%), IT services, tourism infrastructure, and financial services present the strongest opportunities.
How is FDI in Nepal recorded with authorities?
After DOI/IBN approval, investors must notify NRB within 6 months. NRB records the investment and issues confirmation certificates. Annual compliance filings are mandatory.
What happens if approved FDI is not injected on time?
Approval may be revoked if investment is not started within 2 years without reasonable cause, if shares are transferred to Nepalese investors, or if industry registration is revoked.
Attorney Nepal PVT LTD provides comprehensive legal support for foreign investors navigating the FDI in Nepal landscape. Our services include:
Contact Attorney Nepal today for expert guidance on your foreign investment journey in Nepal. Our experienced legal team ensures seamless FDI in Nepal approval, complete regulatory compliance, and secure repatriation of returns.
Legal Disclaimer: This guide is provided for general informational purposes only and does not constitute legal, tax, or investment advice. Laws, regulations, and administrative practices in Nepal may change without notice. Professional consultation should be obtained for specific investment decisions or transactions.
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