A practical guide to foreign direct investment in Nepal — sectors, structures, approvals, and tax.
Nepal welcomes foreign investment across most sectors of its economy, with a regulatory framework administered by the Department of Industries, the Investment Board of Nepal, and Nepal Rastra Bank. This guide walks foreign investors and their advisors through what they need to know before, during, and after entering the Nepali market — what’s allowed, how much, through what entity, with what approvals, and what to expect on tax and repatriation.
It’s written by Shankar Associates’ FDI advisory team based on the current legal framework. Specific thresholds, sectoral notifications, and rates change periodically — we’ve flagged where to verify current position, and we’re happy to advise on specifics for your investment.
Why Nepal
Nepal is officially graduating from Least Developed Country (LDC) status in 2026, marking a structural transition for the economy. For foreign investors, the opportunity sits across a handful of distinct narratives:
- Hydropower at scale. Over 3,200 MW of installed capacity, a pipeline of projects in development, and a long-term Power Trade Agreement with India that opens cross-border electricity export at meaningful volumes.
- IT services and digital exports. A young, English-speaking, technically-skilled workforce; competitive cost base; and an active push to position Nepal as a back-office and software-export destination, supported by significant tax incentives.
- Tourism and hospitality. A globally recognised destination brand with capacity gaps in mid-scale and premium hospitality, adventure operations, and supporting infrastructure.
- Manufacturing for regional markets. Preferential trade access to India and other South Asian partners, low labour costs, and incentives for export-oriented industries.
- Agribusiness and food processing. A long-restricted sector that has been progressively opened to FDI in primary agriculture for export and across the agro-processing value chain.
- Demographic dividend. Over half the population is of working age, with continuing urbanisation and growing domestic consumption.
The macro picture is one of an emerging market with real friction — bureaucratic, infrastructural, political — but also one with structural tailwinds and policy momentum toward openness.
The legal framework
Foreign investment in Nepal is governed by a handful of overlapping statutes, each handling a specific dimension of entry, operation, and exit:
- Foreign Investment and Technology Transfer Act, 2019 (FITTA 2075) — the principal foreign investment law. Defines what foreign investment is, what’s permitted, minimum thresholds, the approval regime, and repatriation rights.
- Industrial Enterprises Act, 2020 (IEA 2076) — classifies industries (the “positive list”), defines incentives by industry type, and sets registration and operational requirements.
- Companies Act, 2006 — governs incorporation, governance, and reporting for all companies including those with foreign investment.
- Foreign Exchange (Regulation) Act, 1962 and NRB directives — controls cross-border capital flows, repatriation, and foreign currency operations.
- Public Private Partnership and Investment Act, 2075 (2019) — framework for large-scale PPP and infrastructure investments handled by the Investment Board of Nepal.
- Income Tax Act, 2002 (2058) and Value Added Tax Act, 1996 (2052) — the core tax statutes applying to all businesses.
Three regulators do most of the work:
- Department of Industries (DOI) — primary approval authority for foreign investments below NPR 6 billion. Also handles industry registration, monitoring, and compliance.
- Investment Board of Nepal (IBN) — approves investments above NPR 6 billion and large infrastructure / PPP projects. Chaired by the Prime Minister.
- Nepal Rastra Bank (NRB) — Nepal’s central bank, which approves all inbound capital flows and outbound repatriations.
For most foreign investors the journey starts at DOI and ends at NRB.
Sectors and ownership limits
Nepal’s general position: 100% foreign ownership is permitted in most sectors, subject to two filters.
Filter one: the positive list. Foreign investment is only allowed in activities classified as an “industry” under the Industrial Enterprises Act. The IEA categorises industries into manufacturing, energy, agro and forest-based, mineral, construction, tourism, IT and information, and service industries. If your intended activity doesn’t fit one of these classifications, foreign investment isn’t permitted — even if it’s not explicitly prohibited.
Filter two: the negative list. Even if your activity is an “industry,” it must not appear on the negative list annexed to FITTA. The negative list covers areas the government considers sensitive or reserved for domestic participation. Major categories include:
- Primary agricultural activities (with some recent openings for export-oriented operations)
- Cottage and small enterprises
- Personal service businesses (hair salons, tailoring, beauty parlours, driving services, and similar)
- Domestic courier services, atomic energy, real estate trading (other than construction)
- Mass media (radio, television, online news, newspapers, magazines)
- Industries producing arms, ammunition, explosives, and certain radioactive materials
- Travel and trekking agencies, tour guides, mountain expedition operators (with sector-specific caps)
- Retail and wholesale trade (subject to specific conditions and thresholds)
Some sectors are open to foreign investment but with equity caps — typical caps include 49% in domestic airlines and certain telecom services, with specific WTO-aligned commitments in service industries.
The negative list is updated periodically by gazette notification. Always verify the current position before structuring an investment in a borderline sector.
Investment thresholds
The minimum foreign investment threshold has been moving in an investor-friendly direction:
- Default minimum: NPR 20 million per foreign investor (reduced from NPR 50 million in 2022).
- IT industries: exempt from the minimum threshold under the automatic route (a 2025/26 reform aimed at attracting tech investment, including software, IT services, BPO, and digital platforms).
- Automatic route cap: removed in 2026. Previously, the automatic approval route was capped at NPR 500 million per project; this cap has been scrapped, meaning investments of any size can use the automatic route in eligible sectors. The minimum threshold of NPR 20 million still applies.
- No maximum cap on total foreign investment in Nepal.
- Sector-specific exceptions exist — verify the current notification for your sector.
What “minimum threshold” means in practice: it’s the minimum equity each foreign investor must contribute. Multiple foreign investors can each contribute the minimum; the threshold doesn’t apply to total foreign capital in a project.
Entity options
Foreign investors typically use one of three structures:
Private limited company (most common) — incorporated under the Companies Act, with separate legal personality, limited liability for shareholders, and full operational flexibility. Suits any commercial investment where you intend to do business in Nepal. Allows 100% foreign ownership in permitted sectors, can hire freely, owns assets in its own name, and is the structure most NRB and DOI processes are designed around. Default choice for most foreign investors.
Branch office — operates as an extension of the foreign parent, not a separate legal entity. Limited to activities specified in the registration, typically project-execution or contract-fulfilment work rather than general commerce. Approval is project-specific and time-bound. Suits foreign companies executing a single contract in Nepal (for example, construction or technical services for a specific project).
Liaison office — a representative presence, prohibited from earning income or undertaking commercial activity in Nepal. Permitted activities are limited to market research, communication, and acting as a coordination point between the parent and Nepali partners or clients. Suits foreign companies wanting a Nepal presence without commercial operations.
Most foreign investors looking to do business in Nepal end up with a private limited company. The branch and liaison options exist for specific, narrower use cases.
The approval process
The journey from “we want to invest in Nepal” to “we are operating in Nepal” runs through five main steps:
Step 1 — Preliminary FDI approval (DOI or IBN). The foreign investor applies to DOI (for investments under NPR 6 billion) or IBN (above NPR 6 billion) with a project proposal, financial commitment evidence, KYC on the investor, and supporting documents. DOI has introduced a digital application system. The approval confirms that the proposed investment is permitted, in an eligible sector, meets thresholds, and identifies any conditions.
Step 2 — Company incorporation (Office of the Company Registrar). With the FDI approval in hand, the foreign investor incorporates a Nepali company at the Office of the Company Registrar (OCR). This involves drafting and filing the Memorandum and Articles of Association, registering shareholders and directors, and obtaining the company’s PAN.
Step 3 — Capital injection and NRB approval. The foreign investor remits the investment to Nepal through authorised banking channels, in convertible foreign currency. NRB issues a final approval confirming the inbound investment is properly recognised. This is the document that protects the investor’s right to later repatriate.
Step 4 — Industry registration (DOI). Once incorporated, the company registers as an industry with DOI under the Industrial Enterprises Act. This unlocks sector-specific incentives, work permit eligibility for foreign staff, and visa support.
Step 5 — Operational setup. PAN registration, VAT registration if applicable, tax clearance setup with the Inland Revenue Department, Social Security Fund registration for staff, sector-specific licences, lease arrangements, and bank account setup. Operations must commence within one year of industry registration, with at least 70% of authorised capital injected before the first invoice.
Timelines vary widely in practice depending on sector, completeness of documentation, and whether the project triggers additional approvals. We’d rather give you a realistic timeline tied to your specific case than a generic number.
Tax regime
Nepal’s tax framework for foreign-invested entities is broadly competitive within South Asia and predictable.
Corporate income tax
- Standard rate: 25% for most industries.
- Special rates: 30% for banks, financial institutions, general insurance, telecom, and certain other regulated sectors.
- Special industries (specific manufacturing categories): can access concessional rates between 15% and 20%.
- SEZ-based industries: significant tax holidays.
Dividend withholding tax: 5%
Applies to dividends paid to both resident and non-resident shareholders. This is a final tax, with no further Nepal-level tax on dividend income. The combined effective tax burden on profits distributed to a foreign shareholder is therefore approximately 28.75% (25% CIT plus 5% dividend WHT on the after-tax distribution).
Withholding tax on other cross-border payments
- Interest paid to non-residents: up to 15%
- Royalties and technical service fees: 15%
- Service fees: 15%
- Lower rates often apply under Nepal’s Double Taxation Avoidance Agreements.
VAT
- Standard rate: 13% on most goods and services.
- Exported goods and services: zero-rated (input VAT recoverable).
- Mandatory registration above the turnover threshold (verify current threshold with the IRD).
Sector-specific incentives
- IT services: a 75% exemption on income from exported IT services, currently extended through FY 2084/85 (2027/28 AD).
- Hydropower: tax holidays of varying lengths depending on commercial operation date.
- Manufacturing: incentives based on employment generation, location (concessions for less-developed regions), and women’s employment quotas.
- Special Economic Zones: tax holidays of up to 10 years for export-oriented industries based in SEZs.
- Startups: 5-year tax holiday available for qualifying startups under specified turnover limits.
DTAA network
Nepal has Double Taxation Avoidance Agreements with India, China, the United Kingdom, South Korea, Thailand, Sri Lanka, Pakistan, Mauritius, Austria, Norway, Qatar, and several others. These typically reduce withholding rates on dividends, interest, and royalties and prevent double taxation of business profits.
Repatriation
FITTA explicitly guarantees the right to repatriate, and in practice the mechanics work — provided the right paperwork is in place.
What can be repatriated:
- Dividends and post-tax profits
- Sale proceeds from share transfers or business exit
- Principal and interest on foreign loans (subject to NRB approval of the loan)
- Royalties and technology transfer fees (where there’s a registered technology transfer agreement)
- Capital on liquidation
- Salaries of foreign staff (subject to limits and tax compliance)
The process:
- Audited financial statements (NFRS or other applicable reporting standard compliant, audited by an ICAN-licensed firm)
- Tax clearance certificate from the Inland Revenue Department
- Board resolution approving the distribution
- NRB application with supporting documents
- Outflow processed through authorised commercial banks
The key dependency is record-keeping. Investors who maintain clean documentation from day one — properly recorded capital injection, audited annual accounts, current tax compliance — typically have straightforward repatriation experiences. Investors who haven’t get held up here.
Practical considerations
Banking. Nepal has a well-developed commercial banking sector. Foreign-invested companies typically open accounts with a commercial bank licensed for foreign exchange operations. NRB monitors and records inbound and outbound flows through this channel.
Hiring and expat visas. Foreign-invested companies can hire freely in Nepal. Foreign nationals working in the business need a non-tourist (work) visa, supported by the company through DOI and the Department of Immigration. Certain sectors have local-staff quotas; technical roles where Nepali staff aren’t available can typically bring in expat hires.
Real estate. Foreign-invested companies can hold real estate in the company’s name for operational use. They cannot use the company as a vehicle for real estate trading, which is on the negative list.
Social Security Fund (SSF). Mandatory contributions for staff: 11% employee contribution, 20% employer contribution (combined 31%) on basic salary, covering pension, medical, and accident benefits.
Accounting and audit. Nepal Financial Reporting Standards (NFRS) apply, broadly aligned with IFRS. Besides this few other standards are in force which include NFRS for SMEs and NAS for MEs. Annual statutory audit by an ICAN-licensed auditor is mandatory for all companies regardless of size.
Reporting calendar. Nepal’s fiscal year runs mid-July to mid-July. Corporate tax returns are due within three months of year-end (around mid-October). An extension of up to 3 Months can be taken with valid reason. Advance tax in three instalments and Annual OCR filings are required.
Common pitfalls
A few patterns we see again and again in foreign investments going off-track:
- Treating the FITTA threshold as the only consideration. Foreign investors sometimes structure the investment exactly at NPR 20 million when the business actually needs NPR 50–80 million to operate. The under-capitalised company then struggles, and bringing in more capital later requires another round of approvals.
- Mis-classifying the activity. If the activity doesn’t sit cleanly within an IEA “industry,” DOI approval can stall. Pre-checking the classification before applying saves significant time.
- Skipping the technology transfer agreement. Where the foreign investor brings in IP, brand, or technical knowhow, a registered technology transfer agreement (with royalties or fees) is the mechanism to extract value beyond dividends. Without it, royalty payments aren’t repatriable.
- NRB record gaps on capital injection. If the inbound investment isn’t properly remitted through banking channels and recorded by NRB, repatriation later becomes very difficult. This is the single most common cause of stuck capital.
- Ignoring transfer pricing. Related-party transactions (management fees, royalties, intra-group services, intra-group sales) attract increasing scrutiny. Proper documentation matters from year one.
- Underestimating compliance cost. Annual audit, monthly TDS, quarterly NRB returns, annual OCR returns, sector-specific filings — the compliance burden is real and needs a competent in-house finance function or a reliable outsourced partner.
How SACA helps foreign investors
Shankar Associates advises foreign investors across the full lifecycle of investing in Nepal:
- Pre-entry advisory — sector eligibility analysis, entity structuring, threshold and tax planning
- Approval support — preparing FDI applications, liaising with DOI/IBN and NRB
- Company setup — incorporation, registration, PAN/VAT, sector-specific licensing
- Tax and regulatory compliance — income tax, VAT, TDS, transfer pricing, sector-specific returns
- Audit and assurance — NFRS-aligned statutory audit, lender and investor reporting
- Repatriation support — preparing documentation for dividend, royalty, and capital repatriation
- Outsourced finance — bookkeeping, payroll, and management reporting for foreign-owned entities through their early years in Nepal
We work with foreign investors directly and alongside their home-country legal and tax advisors. Our role is to make Nepal-specific complexity navigable.
Video briefing on FITTA 2075 (2019)
A 2019 briefing from our team on the original FITTA 2075 act. This explains the foundational changes the act introduced; subsequent amendments and notifications have evolved several specifics, particularly on thresholds and the automatic route. The video is useful as background context — for current advice on a specific investment, please get in touch.
Talk to our FDI advisory team
Whether you’re scoping a new entry into Nepal, navigating an approval process, or planning a repatriation, we’d be glad to discuss your specific situation.