Foreign Direct Investment in Nepal

 

Foreign direct investment in Nepal is primarily governed by the Foreign Investment and Technology Transfer Act 2019 (FITTA 2019). This comprehensive legal framework was enacted to replace the outdated 1992 legislation, and it has been designed to attract international capital while safeguarding national interests. For international investors seeking entry into South Asian markets, Nepal is increasingly being recognized as an emerging destination with significant potential in energy, tourism, manufacturing, and technology sectors.

The legal landscape surrounding foreign investment law Nepal has undergone substantial transformation in recent years. Multiple regulatory bodies are involved in the approval and monitoring processes, and understanding these structures is essential for successful market entry. Consequently, this guide has been prepared to provide detailed, actionable information for potential investors, legal practitioners, and business consultants.

What is Foreign Direct Investment in Nepal?

Foreign direct investment in Nepal is defined as an investment made by a foreign individual, company, or institution into a Nepali business enterprise with the objective of establishing lasting economic relations. Under FITTA 2019, several forms of investment are permitted, and these are categorized distinctly by Nepali law.

The following types of FDI in Nepal are recognized:

Investment Type	Description	Governing Provision
Equity Investment	Share acquisition in existing or new companies	FITTA 2019, Section 3
Joint Ventures	Partnership between foreign and Nepali investors	FITTA 2019, Section 4
Technology Transfer	Licensing of patents, know-how, and technical expertise	FITTA 2019, Section 7
Lease Finance	Investment in aircraft, ships, machinery, and equipment	FITTA 2019, Section 6
Venture Capital	Equity investment through registered funds	FITTA 2019, Section 9
Branch Expansion	Establishment of foreign company branches	FITTA 2019, Section 8

Moreover, foreign direct investment in Nepal can be made through the purchase of assets or shares of existing industries. However, specific thresholds and sectoral restrictions must be observed, and these are detailed in subsequent sections.

Legal Framework for Foreign Direct Investment in Nepal

The foreign investment law Nepal ecosystem is comprised of multiple legislative instruments. FITTA 2019 serves as the primary legislation, yet several other acts and regulations must be consulted for comprehensive compliance.

Primary Legislation

Law/Regulation	Purpose	Year Enacted
Foreign Investment and Technology Transfer Act	Primary FDI governance	2019
Foreign Investment and Technology Transfer Regulation	Procedural implementation	2020/2021
Companies Act	Corporate structure and governance	2006
Industrial Enterprises Act	Industrial operation and incentives	2020
Nepal Rastra Bank Act	Foreign exchange regulation	2002

Additionally, sector-specific laws apply to industries such as banking, insurance, telecommunications, and hydropower. Therefore, investors are advised to conduct sector-specific legal due diligence before committing capital.

Regulatory Authorities

The FDI approval process Nepal involves coordination among several government agencies. Each authority maintains distinct jurisdictional boundaries, and applications must be routed correctly to avoid procedural delays.

Authority	Jurisdiction	Investment Threshold
Department of Industry (DOI)	Primary approval body	Up to NPR 6 billion
Investment Board Nepal (IBN)	Large-scale projects	Above NPR 6 billion
Nepal Rastra Bank (NRB)	Foreign exchange approval	All FDI transactions
Office of Company Registrar	Company incorporation	All companies
Inland Revenue Department	Tax registration and compliance	All taxable entities

Notably, the Investment Board Nepal is chaired by the Prime Minister and is mandated to facilitate large infrastructure and energy projects. For foreign direct investment in Nepal exceeding NPR 6 billion (approximately USD 42 million), IBN approval is mandatory.

Minimum Investment Requirements for Foreign Direct Investment in Nepal

A minimum investment threshold is imposed on foreign direct investment in Nepal. This requirement was revised significantly in recent years to make the country more accessible to mid-sized foreign investors.

Current Thresholds (2025)

Investment Route	Minimum Amount	USD Equivalent
Standard FDI	NPR 20 million	~USD 155,000
IT Sector (Automatic Route)	No minimum	N/A
Large Projects (IBN)	NPR 6 billion+	~USD 42 million+

Previously, the minimum investment for FDI in Nepal was set at NPR 50 million. However, this was reduced by 60% to NPR 20 million through policy amendments aimed at attracting broader foreign participation. Furthermore, for information technology-based industries utilizing the automatic route, no minimum threshold is currently applied.

Sectoral Analysis: Where Can Foreign Direct Investment in Nepal Be Made?

Foreign direct investment in Nepal is permitted in most sectors, yet certain industries are restricted or prohibited under the "Negative List" specified in FITTA 2019. Understanding these limitations is crucial for investment planning.

Priority Sectors for FDI

Recent data indicates that FDI commitments in Nepal are concentrated in specific sectors. According to the Department of Industry and Investment Board Nepal, the following distribution was observed:

Sector	Number of Projects	Investment Value (NPR)	Percentage of Total
Agriculture	145+ industries	21.88 billion	55.7%
Tourism	145 industries	10.54 billion	26.8%
Services	31 industries	3.46 billion	8.8%
Manufacturing	27 industries	2.03 billion	5.2%
ICT	257 projects	1.07 billion	2.7%
Energy	1 project	184.2 million	0.5%

Negative List: Restricted Sectors

Foreign direct investment in Nepal is prohibited or restricted in the following areas:

Sector/Business	Restriction Level	Legal Basis
Primary agriculture (without 75% export)	Prohibited	FITTA Schedule
Cottage and small industries	Prohibited	FITTA Schedule
Personal services (hair cutting, tailoring, driving)	Prohibited	FITTA Schedule
Arms, ammunition, nuclear materials	Prohibited	FITTA Schedule
Real estate (excluding construction)	Prohibited	FITTA Schedule
Retail business	Prohibited	FITTA Schedule
Travel agencies and trekking guides	Prohibited	FITTA Schedule
Mass media (newspapers, radio, TV)	Prohibited	FITTA Schedule
Consultancy services (>51% foreign)	Restricted	FITTA Schedule
Ride-sharing (>70% foreign)	Restricted	FITTA 2019 Amendment 2024

Additionally, specific caps are imposed on aviation-related investments. For instance, foreign investment in Nepal airlines is limited to 80% for international services and 49% for domestic services.

Step-by-Step FDI Approval Process in Nepal

The FDI approval process Nepal involves multiple sequential steps. Each stage must be completed satisfactorily before subsequent applications can be submitted.

Stage 1: Investment Approval from DOI or IBN

An application must be submitted to the Department of Industry for investments below NPR 6 billion. For larger projects, the Investment Board Nepal must be approached. The application should include:

• Detailed project report with market, technical, and financial aspects
• Bio-data or company profile of the foreign investor
• Certificate of registration and constitutional documents
• Corporate resolution authorizing the investment
• Financial credibility certificate from a recognized bank
• Source of investment and time schedule
• Power of attorney for local representation
• Passport copies of foreign investors
• Commitment letter (one-year lock-in period)
• Joint venture agreement (if applicable)

Approval is required to be granted within 7 days if documents are complete, as mandated by FITTA 2019.

Stage 2: Company Incorporation

Following investment approval, company registration must be completed at the Office of Company Registrar (OCR). Required documents include:

• Memorandum and Articles of Association
• Shareholders' agreements
• Proof of identity for all directors
• Foreign investment approval letter

Stage 3: Tax and Business Registration

Subsequently, tax registration (PAN/VAT) must be obtained from the Inland Revenue Office, and business registration must be completed at the local Ward Office.

Stage 4: Industry Registration

The company must be registered as an industry with the Department of Industry to qualify for industrial incentives and protections.

Stage 5: Compliance Certificates

A Non-Blacklist Certificate must be obtained from the Credit Information Bureau (CIB) to confirm the company and its directors have no adverse credit history.

Stage 6: Foreign Exchange Approval (Updated December 2025)

Significant liberalization was introduced through the Fifth Amendment to the Foreign Loan and Investment Management Bylaws, 2078 (2021), issued on December 30, 2025. Under these new provisions:

• Prior NRB approval is no longer required for foreign equity inflows once DOI/IBN approval is obtained
• Foreign capital may be remitted through authorized banking channels
• NRB involvement is limited to post-transaction recording

Stage 7: Capital Infusion and Investment Certificate

Foreign currency must be brought through formal banking channels. Upon infusion, an Investment Certificate is issued, and the investment must be recorded with Nepal Rastra Bank.

Process Stage	Estimated Timeline	Responsible Authority
Investment Approval	7-15 days	DOI/IBN
Company Incorporation	7-14 days	OCR
Tax Registration	3-7 days	IRD
Industry Registration	7-14 days	DOI
CIB Clearance	3-5 days	CIB
Capital Infusion	Variable	Commercial Banks
Total Estimated Time	1-2 months	Multiple

 

Tax Incentives and Benefits for Foreign Direct Investment in Nepal

Substantial tax incentives are provided to encourage foreign direct investment in Nepal. These benefits vary by sector and investment size.

Corporate Income Tax Holidays

Sector	Tax Holiday Period	Conditions
Manufacturing	5 years	From commercial operation date
Hydropower (>100MW)	7 years	From commercial operation date
Tourism (hotels/resorts)	3 years	From commercial operation date
Export-oriented industries	Extended benefits	75%+ export requirement

Customs Duty Exemptions

• 100% exemption on capital machinery imports for manufacturing
• Reduced rates (0-5%) on raw materials for production
• Full exemption on technology transfer equipment
• Complete exemption for export-oriented imported goods

Additional Facilities

Facility	Description	Legal Basis
Foreign Currency Accounts	Permitted for FDI companies	FITTA 2019, Section 25
Derivatives Usage	Allowed for forex risk mitigation	NRB Directives
Visa Facilities	Business/residential visas for investors	FITTA 2019, Section 30
Land Acquisition	Facilitation provided for industrial land	FITTA 2019, Section 31
National Treatment	Equal treatment with domestic investors	FITTA 2019, Section 32

Furthermore, foreign investors in Nepal are guaranteed protection against nationalization and expropriation, except for public purposes with fair compensation.

Repatriation of Investment and Profits

The right to repatriate profits and capital is protected under FITTA 2019. Recent amendments have significantly streamlined this process.

Repatriation Rights (Section 20, FITTA 2019)

Foreign investors are permitted to repatriate:

• Amounts received from share sales
• Profits and dividends (after tax)
• Liquidation proceeds after liability settlement
• Royalty payments under technology agreements
• Lease rental income
• Damages or compensation from legal proceedings

Updated Repatriation Process (December 2025)

The December 2025 NRB amendment introduced major changes:

Aspect	Previous Requirement	Current Provision
Approval Authority	NRB Foreign Exchange Department	A-Class Commercial Banks
Processing Timeline	Variable (often delayed)	15 days maximum
NRB Involvement	Mandatory prior approval	Only for non-source country transfers

Dividend repatriation now requires:

1. Board resolution declaring dividends
2. Audited financial statements
3. Tax clearance certificate from IRD
4. Application to commercial bank
5. Bank approval within 15 days

Country-wise FDI Trends in Nepal

Foreign direct investment in Nepal originates from diverse sources, yet distinct patterns are observed in commitment versus actual stock.

FDI Stock by Country (2023-24)

Country	Percentage of Total FDI Stock	Key Sectors
India	32.3%	Hydropower, manufacturing, FMCG
China	10.2%	Infrastructure, cement, energy
Singapore	8.3%	Services, finance
Ireland	6.9%	Technology, services
South Korea	6.1%	Manufacturing, electronics

Notably, while China leads in investment commitments (44.77% in FY 2024-25), India maintains dominance in actual FDI stock due to earlier investments and higher realization rates.

Challenges and Considerations for Foreign Direct Investment in Nepal

Despite legal improvements, several challenges persist that affect FDI in Nepal.

Primary Challenges

Challenge	Impact	Mitigation Strategy
Bureaucratic delays	Extended approval timelines	Engage experienced local legal counsel
Corruption/Rent-seeking	Increased transaction costs	Maintain transparent documentation
Political instability	Policy unpredictability	Secure long-term agreements
Infrastructure deficits	Operational inefficiencies	Prioritize industrial zone locations
Land acquisition disputes	Project delays	Conduct thorough due diligence
Foreign exchange volatility	Repatriation risks	Utilize hedging instruments

The gap between FDI commitments and actual inflows remains significant. In FY 2023-24, commitments of NPR 64.96 billion resulted in net FDI of only NPR 12.02 billion—less than 20% realization.

Recent Reforms and Future Outlook

Several reforms have been implemented to improve foreign direct investment in Nepal:

1. Automatic Route Introduction (October 2023): Investments up to NPR 500 million (~USD 3.76 million) in priority sectors can now receive automatic online approval.
2. NRB Liberalization (December 2025): Removal of prior approval requirements for foreign equity inflows and delegation of repatriation authority to commercial banks.
3. Minimum Threshold Reduction: 60% reduction in minimum investment requirement to NPR 20 million.
4. Single Stop Service Centre: Gradual implementation of one-window service for investor facilitation.

Frequently Asked Questions (FAQs)

What is the minimum investment required for foreign direct investment in Nepal?

The minimum investment for FDI in Nepal is currently set at NPR 20 million (approximately USD 155,000). However, no minimum applies to IT sector investments made through the automatic route.

Which law governs foreign direct investment in Nepal?

Foreign direct investment in Nepal is primarily governed by the Foreign Investment and Technology Transfer Act 2019 (FITTA 2019), supported by the Foreign Investment and Technology Transfer Regulation 2020/2021.

How long does the FDI approval process take in Nepal?

The standard FDI approval process Nepal takes approximately 1 to 2 months, assuming complete documentation. DOI approval is mandated within 7 days, but company incorporation and other registrations extend the timeline.

What sectors are prohibited for foreign investment in Nepal?

Prohibited sectors include primary agriculture (without 75% export), cottage industries, personal services, arms manufacturing, real estate business, retail trade, travel agencies, mass media, and consultancy services with >51% foreign ownership.

Can foreign investors repatriate profits from Nepal?

Yes, repatriation of profits is permitted under FITTA 2019. Dividends, capital gains, and liquidation proceeds can be remitted in convertible foreign currency after tax clearance and bank approval (now processed within 15 days by commercial banks).

Is prior NRB approval required for foreign investment in Nepal?

As of December 30, 2025, prior NRB approval is no longer required for foreign equity inflows once DOI or IBN approval is obtained. Capital can be remitted through authorized banking channels with post-transaction NRB recording.

What tax incentives are available for foreign investors in Nepal?

Tax holidays of 5-7 years are available for manufacturing and hydropower sectors. Additionally, 100% customs duty exemption is provided on capital machinery imports, and foreign currency account facilities are permitted.

Which authority approves large foreign investments in Nepal?

The Investment Board Nepal (IBN) approves foreign direct investment in Nepal exceeding NPR 6 billion or hydropower projects above 200 MW capacity.

Can foreign investors own 100% of a Nepali company?

Yes, wholly foreign-owned companies are permitted in Nepal for sectors not included in the Negative List. No local partner is required unless specified by sectoral laws.

What documents are required for FDI approval in Nepal?

Required documents include project reports, investor credentials, financial credibility certificates, constitutional documents, power of attorney, passports, commitment letters, and joint venture agreements (if applicable).

Professional Legal Assistance for Foreign Direct Investment in Nepal

Navigating the foreign investment law Nepal framework requires specialized expertise. Nepal Lawyer Services Pvt. Ltd. provides comprehensive legal support for foreign investors, including:

• FDI approval process management and documentation
• Company incorporation and regulatory compliance
• Tax optimization and incentive maximization
• Joint venture agreement drafting and negotiation
• Repatriation process facilitation
• Ongoing corporate legal advisory

For expert guidance on foreign direct investment in Nepal, contact Nepal Lawyer Services Pvt. Ltd. Our team of experienced legal professionals ensures seamless market entry and full regulatory compliance for international investors.

Disclaimer: This guide is provided for informational purposes only and does not constitute legal advice. Laws and regulations are subject to amendment, and specific circumstances may require tailored legal consultation. Always verify current requirements with official government sources and qualified legal professionals before making investment decisions.

Sources: Foreign Investment and Technology Transfer Act 2019, Nepal Rastra Bank Directives, Department of Industry Guidelines, Investment Board Nepal Publications, UNCTAD Investment Policy Monitor, World Bank Doing Business Reports.

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About the Author: This comprehensive guide was prepared by legal experts at Nepal Lawyer Services Pvt. Ltd., specializing in foreign investment law, corporate governance, and regulatory compliance in Nepal.