The Complete Foreign Direct Investment Guide 2026: How to Start Your Company
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Thinking of Investing in Nepal?
Foreign Direct Investment (FDI) in Nepal is rapidly gaining momentum as the country positions itself as an attractive destination for global investors seeking growth opportunities in South Asia. With strategic reforms under the Foreign Investment and Technology Transfer Act 2019 and the Industrial Enterprises Act 2020, Nepal has significantly improved its investment climate by simplifying company registration, offering tax incentives, and strengthening investor protections.
KEY METRIC | VALUE / DETAIL |
USD 5.5 Billion | Total FDI Committed (All Time) |
NPR 57.97 Billion | FDI Commitments (Jul 2024 – Apr 2025) |
7,475 | Total Approved FDI Projects |
NPR 20 Million | Minimum FDI Threshold (~USD 145,000) |
2–3 Months | Typical Company Setup Timeline |
60+ | Countries with Active Investment in Nepal |
Updated :2025 Reforms
This guide incorporates the January 2025 FITTA ordinance (permitting FDI via venture capital and specialised funds), the October 2023 IT sector capital waiver, and the April 2024 Nepal Investment Summit policy amendments. Readers should verify the most current position with a qualified Nepalese legal practitioner before taking any action.
Why Nepal? The Investment Case in 2025
Nepal's economy is projected to grow at 4.5% in FY 2024/25, up from 3.9% the prior year, driven primarily by services and the industrial sector. FDI commitment volumes have nearly doubled year-on-year since the introduction of the Automatic Approval Route in April 2024, with NPR 57.97 billion pledged across 480 projects in just the first nine months of the current fiscal year.
Wedged between two of the world's largest economies — India and China — Nepal offers a strategic geographic position that few other investment destinations can match. Its membership of the South Asian Free Trade Area (SAFTA) provides investors with preferential access to regional markets, and the country's bilateral investment protection agreements (BIPPAs) with multiple nations add another layer of security for foreign capital.
The government has undertaken sustained liberalisation of the investment climate. Amendments to nine laws were passed ahead of the April 2024 Nepal Investment Summit. The Foreign Investment and Technology Transfer Act (FITTA) 2019 — the cornerstone of Nepal's FDI regime — was further updated with a 2025 ordinance permitting investment through venture capital and specialised funds registered with Nepal's Securities Board.
Key Investment Advantages
100% foreign ownership permitted in most sectors under FITTA 2019
Automatic approval route for priority sectors — approval typically in 1–2 working days
Tax holidays of up to 10 years in Special Economic Zones (SEZs)
No minimum capital requirement for IT sector companies (from October 2023)
Double Taxation Avoidance Agreements (DTAAs) with 10+ countries including India, China, UK, South Korea
Guaranteed profit repatriation rights enshrined in FITTA 2019
Abundant hydropower potential exceeding 83,000 MW — largely untapped
Low labour costs relative to the South Asian region
Key Risk Factors
Political instability cited by industry experts as a primary deterrent to long-term FDI
Only approximately 31.9% of approved projects are actually realised — a persistent implementation gap
Weak infrastructure outside the Kathmandu Valley, particularly roads, electricity and water
Bureaucratic delays, especially in industry registration (4–5 weeks) and sector-specific licences
Frequent legislative amendments can create regulatory uncertainty for long-term investors
Foreign employees capped at 5% of total workforce, limiting access to international expertise
Legal Framework & Governing Bodies
Nepal's FDI regime is governed by a suite of five primary statutes, administered across two main government bodies. Understanding the interplay between these laws and institutions is essential before committing capital.
Primary Legislation
Legislation | Year | Key Role for Foreign Investors |
Foreign Investment & Technology Transfer Act (FITTA) | 2019 | Defines FDI, technology transfer, permissible sectors, approval process, and investor right including guaranteed profit repatriation and protection against nationalisation |
Foreign Investment & Technology Transfer Regulations | 2021 | Procedural rules implementing FITTA — application forms, documentation requirements, prescribed timelines |
Industrial Enterprises Act | 2020 | Classifies industries eligible for FDI; grants tax concessions, incentives, and defines scale classifications (small, medium, large) relevant to approval thresholds |
Company Act | 2006 | Governs company incorporation, MOA/AOA requirements, corporate governance, annual AGM and OCR filings, and rules for foreign branch and liaison office registration |
Public Private Partnership & Investment Act (PPPIA) | 2019 | Enables foreign private sector participation in infrastructure, construction, and services via PPP arrangements managed through Investments Board of Nepal |
Special Economic Zone Act | 2016 | Establishes the SEZ framework with sweeping tax holidays, customs duty exemptions on inputs for export production, and streamlined registration |
Governing Regulatory Authorities
Governing Authority | Primary Role | Relevant To |
Department of Industry (DOI) | Primary FDI approval, industry registration, One Stop Service Centre | All standard FDI projects |
Investment Board Nepal (IBN) | Large-scale investment approval, PPP projects, chaired by the Prime Minister | Projects >USD 46M, infrastructure PPP |
Nepal Rastra Bank (NRB) | Monetary authority; FDI notification, Inflow Certificates, profit repatriation approval | All FDI requiring capital injection |
Office of Company Registrar (OCR) | Company incorporation, MOA/AOA registration, annual filings, share registry | All companies |
Inland Revenue Department (IRD) | PAN and VAT registration, tax assessments, with holding tax compliance | All businesses |
Credit Information Bureau (CIB) | Non-blacklist certification for investors | Required for all FDI applicants |
Securities Board of Nepal (SEBON) | Regulation of venture capital and specialised investment funds (new 2025 route) | VC/fund-based FDI (post-2025 ordinance) |
2025 Key Reform — Venture Capital Route
A January 2025 ordinance amended FITTA to allow foreign investors to make equity investments in Nepalese companies through venture capital funds or specialised investment funds registered under the Securities Board of Nepal (SEBON). This opens private equity and VC capital flows into Nepal for the first time, significantly broadening how foreign capital can participate in local industries.
Open, Restricted & Capped Sectors
Before committing capital, every foreign investor must satisfy two legal conditions under FITTA 2019: (1) the proposed business activity must not appear on FITTA's negative list; and (2) the business must qualify as an 'industry' under the Industrial Enterprises Act 2020. Failing either test means FDI approval cannot be granted.
FITTA Negative List — Sectors Closed to Foreign Direct Investment
Sector / Industry | FDI Permitted? | Notes |
Cottage and small industries | No | Technology transfer only |
Personal service businesses (hair salons, tailoring, driving schools) | No | Technology transfer only |
Arms, ammunition, explosives, nuclear/biological/chemical weapons | No | No technology transfer either |
Real estate (excluding construction), retail, internal courier, local catering, moneychanger, remittance | No | No technology transfer |
Travel agencies, trekking/mountaineering guides, rural tourism/homestay | No | No technology transfer |
Mass communication media (newspapers, radio, TV, online news), motion pictures in national language | No | No technology transfer |
Management, accounting, engineering, legal consultancy; language, music, computer training | No | No technology transfer |
Consultancy services (>51% foreign ownership) | Partial (up to 51%) | Capped at 51% |
Ride-sharing (>70% foreign ownership) | Partial (up to 70%) | Capped at 70% |
Primary agro-production (poultry, fisheries, bee-keeping, fruits, vegetables, dairy) | Conditional | Allowed for large exporters (75%+ exported) |
Ownership Caps by Sector — Where FDI Is Permitted?
For sectors open to FDI, most permit 100% foreign ownership. A small number carry statutory caps on the maximum equity percentage a foreign investor may hold:
Sector | Max. Foreign Ownership |
Most industries (manufacturing, IT, energy, tourism, services, etc.) | 100% |
Telecommunications | 80% |
Banking and Financial Institutions | 20% – 85% |
Insurance Companies | 80% |
International Air Services | 80% |
Domestic Air Services | 49% |
Aviation Training Institutions | 95% |
Aviation Maintenance Institutions | 95% |
Consultancy Services | Up to 51% |
Ride-Sharing Businesses | Up to 70% |
IT Sector Special Treatment — No Minimum Capital Requirement
By notification in the Nepal Gazette dated 2 October 2023, the government waived the NPR 20 million minimum investment threshold for IT sector companies using the automatic approval route. Foreign investors can now incorporate an IT company in Nepal with no minimum capital requirement, making Nepal one of the most accessible destinations in South Asia for technology startups and digital businesses.
Step-by-Step Company Registration for Foreign Investors
Establishing an FDI company in Nepal typically takes 2–3 months from submission of initial documentation to commencement of industry operations. The process involves seven sequential steps across multiple government departments. Only Private Limited Companies are permitted as the vehicle for FDI — no other structure (partnership, proprietorship, etc.) is available to foreign investors.
FDI Approval- Department of Industry (DOI)
Key Requirements:
Apply with projects report, investor credentials, proposed company name/address and power of attorney.
USD 180 guarantee deposit required.
Timeline:
1-2 days (Automatic route)
10-15 days (Non-Automatic)
Company Incorporation- Office of Company Registrar (OCR)
Key Requirements:
Draft and execute MOA and AOA.
Upload to OCR portal.
Government fees range from ~USD 34 to USD 142+ depending on authorized capital.
Timeline:
15-20 days
3. Business Registration – Local Ward Office
Key Requirements:
Register at the ward office of the company’s registered address.
Required house rent or lease agreement
Timeline:
2-3 working days
Tax Registration- Inland Revenue Office (IRO) & Bank Account
Key Requirements:
Draft and execute MOA and AOA.
Upload to OCR portal.
Government fees range from ~USD 34 to USD 142+ depending on authorized capital.
Timeline:
Tax: 1-2 days
Bank: 3-4 days
Industry Registration- Department of Industry (DOI)
Key Requirements:
Register under Industrial Enterprise Act 2020
Must be done within 35 days of FDI approval
Bank guarantee of NPR 20,000 required
Timeline:
4-5 weeks
Non-Blacklist Certificate- Credit Information Bureau (CIB)
Key Requirements:
Both DOI and NRB verify investor isn’t blacklisted in Nepal
Mandatory before capital injection
Timeline:
2-3 working days
NRB Statutory Notice Capital Injection
Key Requirements:
Notify Nepal Rastra Bank before injecting funds.
Capital must arrive via SWIFT marked ‘Foreign Investment’.
Obtain Inflow Certificate
Distribute shares
Register share registry with OCR
Timeline:
3-4 working days
Operations Commencement Requirement
FDI companies must commence operations within one year of industry registration with the DOI. At least 70% of authorized capital must be injected before starting. The issuance of the first invoice marks commencement of operations, and the DOI must be notified within 30 days of this event. Non-compliance may result in financial penalties. If commencement is delayed, an extension application must be filed at least one month before the registration expiry.
Foreign Investment Capital Injection Schedule
The Foreign Exchange Regulation Act (FERA) mandates a staged approach to injecting approved investment capital. The schedule is as follows:
Stage | Trigger | Minimum % to Inject |
Stage I | Within 1 year of receiving investment approval | 25% (min NPR 20M investors) 15% (NPR 20M–250M) 10% (NPR 250M–1,000M) 5% (above NPR 1,000M) |
Stage II | When company starts production or commences commercial transactions | Up to 70% of total investment amount |
Stage III | After 2 years of production or commencement of transactions | Remaining 30% of investment amount |
Critical: SWIFT Transfer Requirements
All foreign investment capital must be transferred via SWIFT from the investor's personal or corporate bank account maintained outside Nepal. The SWIFT transfer message (remark field) must clearly state 'Foreign Investment'. Capital that arrives without this designation will not be recognised as FDI by Nepal Rastra Bank and cannot be recorded in the investment registry.
Taxation of Foreign Investment in Nepal
Nepal's tax regime for FDI companies combines a standard corporate income tax with sector-specific incentives, regional concessions, and Special Economic Zone (SEZ) benefits. Understanding the full picture of tax exposure — and available mitigants — is essential for any investor's feasibility analysis.
Standard Tax Rates
Tax Type | Rate | Notes |
Corporate Income Tax | 25% | 20% for manufacturing and special industries |
Value Added Tax (VAT) | 13% | Mandatory above NPR 5M goods turnover; NPR 2M services |
Dividend Tax (WHT) | 5% | Withheld at source on distribution to shareholders |
Capital Gains Tax | 10% | On gains from share or asset disposal |
Withholding Tax – Non-resident Services | 15% | Deducted by Nepalese payer on service fees paid abroad |
Profit Repatriation (PE to parent) | 5% | Applied when permanent establishment remits profit overseas |
Windfall Gains Tax | 25% | Applies to exceptional, unearned gains |
Tax Holidays and Fiscal Incentives
Category | Incentive |
SEZ — Mountain/Hill districts | 100% corporate tax exemption for first 10 years; 50% exemption thereafter |
SEZ — Other locations (plains/urban) | 100% tax holiday for first 5 years; 50% exemption for next 5 years |
Export-oriented industries (SEZ) | Full customs duty exemption on raw materials for export production |
IT sector | No minimum capital requirement (NPR 20M threshold waived from Oct 2023) |
Industries outside Kathmandu Valley | Additional regional tax incentives; provincial governments may add further benefits |
Priority sectors (agriculture, tourism, hydropower) | Reduced or subsidised bank interest rates on project loans |
Manufacturing (general) | Reduced corporate tax rate of 20% (vs. standard 25%) |
FDI above USD 100,000 (residential visa) | Investor and dependants entitled to residential visa for duration of investment |
Double Taxation Avoidance Agreements (DTAAs)
Nepal has operational DTAAs with the following countries as of 2024. These treaties reduce withholding taxes on dividends, interest, and royalties, and eliminate double taxation of business income earned across borders:
India | China | United Kingdom | South Korea | Norway |
Qatar | Pakistan | Thailand | Sri Lanka | Mauritius |
Investors from DTAA countries should obtain a Tax Residency Certificate (TRC) from their home country tax authority and submit it to the Inland Revenue Department in Nepal to claim reduced withholding tax rates on applicable income streams.
FDI Trends, Source Countries & Sector Analysis
Despite a strong and growing commitment pipeline, actual capital inflows remain modest relative to commitments. This commitment-to-realisation gap — historically around 31.9% — is Nepal's most pressing investor-confidence challenge and the primary focus of ongoing regulatory reform.
FDI Commitments vs. Actual Inflows (FY 2019/20 – FY 2024/25)
Fiscal Year | FDI Committed (NPR M) | FDI Actual Inflow (NPR M) | Realisation Rate |
FY 2019/20 | ~6,500 | ~2,100 | ~32% |
FY 2020/21 | ~5,100 | ~2,300 | ~45% |
FY 2021/22 | ~7,800 | ~1,900 | ~24% |
FY 2022/23 | ~8,200 | ~4,100 | ~50% |
FY 2023/24 | ~61,900 | ~8,400 | ~13.6% |
FY 2024/25 (9 months) | ~57,970 | ~8,490 | ~14.6% |
Key Data Point: Commitment-Realisation Gap
Nepal has approved 7,475 foreign investment projects with total committed capital of approximately USD 5.5 billion (NPR 684.51 billion). Despite this strong pipeline, net FDI inflows for FY 2023/24 totalled only NPR 8.4 billion — a realisation rate of approximately 13.6%. The causes include project implementation delays, long setup times, political instability, and infrastructure bottlenecks. Addressing this gap is the central focus of Nepal's current investment reform agenda.
Top FDI Source Countries (FY 2024/25)
S.N | Country | Share (FY 2024/25) | Primary Sectors |
1 | China | 44.77% | Manufacturing, ICT, Energy |
2 | India | 19.55% | Services, Manufacturing, Finance |
3 | Hong Kong | 5.36% | Finance, Services |
4 | South Korea | 4.61% | Manufacturing, Technology |
5 | United States | 3.47% | ICT, Services, Tourism |
6 | United Kingdom | 2.54% | Finance, Services, Consulting |
7 | Others (50+ countries) | 19.70% | Diverse sectors |
FDI Inflows by Sector
Sector | FDI Inflow (FY 2024/25) | Analysis |
Services | USD 234.3M | Largest share; consistently dominant across all years |
Tourism | USD 180.04M | Strong growth; second-largest sector in FY 2024/25 |
Manufacturing | NPR 2,740M | Volatile; significant spikes in FY 2023/24 then decline |
Information & Communication Technology (ICT) | NPR 1,110M | Gradual growth; boosted by zero minimum capital rule |
Energy & Infrastructure | Variable | High potential but volatile; large hydropower projects dominate |
Agriculture & Forestry | Negligible | Minimal FDI; most sub-sectors restricted |
Mineral Extraction | Negligible | Very small allocation; underdeveloped sector |
Bagmati Province (which includes Kathmandu) continues to receive the highest concentration of investments, accounting for approximately 62% of total FDI stock. Investors originate from over 60 countries. The service sector holds the largest share of total FDI stock at 40.5%, followed by industry and manufacturing at approximately 29%.
Key Challenges & Risk Factors for Foreign Investors
Political and Regulatory Risk
Nepal has experienced significant political instability, with multiple changes of government in recent years. Industry experts and the World Bank identify political instability as the single most significant factor discouraging long-term foreign investment. The frequent legislative amendments — while often investor-friendly in intent — can create uncertainty during transition periods.
Infrastructure Deficiencies
Outside the Kathmandu Valley, access to reliable electricity, clean water, and all-weather road networks remains limited. Large-scale industrial or tourism projects in remote areas face elevated costs associated with infrastructure development. This particularly affects the energy, manufacturing, and tourism sectors in hill and mountain districts, despite the superior tax incentives available there.
Commitment-to-Realisation Gap
Historically, only about 31.9% of approved FDI projects result in actual capital inflows. The gap between committed and realised investment reflects delays in project implementation, difficulty securing local regulatory approvals post-FDI clearance, changes in investor priorities, and in some cases, the speculative nature of commitments made at investment summits.
Labour Market Constraints
Foreign employees are capped at 5% of the total workforce per company. Work permits are issued only for roles where equivalent Nepalese expertise is demonstrably unavailable. This constraint can limit the ability of technology or specialised service companies to deploy international talent during setup and scale-up phases.
Financial System Limitations
Existing banking laws do not allow retail branch operations by foreign banks. Foreign banks must set up a local Nepalese bank to operate (e.g. Standard Chartered Nepal). All commercial banks rely on correspondent banking relationships for foreign transactions. Nepal was under scrutiny from the Financial Action Task Force (FATF) following a 2023 mutual evaluation, and parliament passed an anti-money laundering law in February 2024 to address identified deficiencies.
Profit Repatriation Rules
FITTA 2019 guarantees foreign investors the right to repatriate returns on their investment, subject to compliance with Nepal's tax laws and NRB approval. The following amounts may be repatriated:
Earnings through dividend distribution (after 5% dividend withholding tax)
Proceeds from the sale of shares or equity stake
Compensation and indemnity payments
Returns of capital upon liquidation of the company
Technology transfer fees, royalties, and licence fees earned under technology transfer agreements
Lease rent under lease financing arrangements
Repatriation Compliance Requirements
Before repatriation is approved, investors must demonstrate that the local subsidiary has: (1) complied with all applicable laws; (2) obtained all necessary government approvals and licences; (3) paid all taxes due; and (4) fulfilled all statutory obligations. Approval from either the DOI or Investment Board Nepal (IBN) and clearance from Nepal Rastra Bank (NRB) are required before funds can be remitted. Investors who have not followed the correct FDI process — including proper SWIFT notation of inflows — may face delays or complications in securing repatriation approval.
Nepal law prohibits repatriation within the first year of investment. The investor may repatriate in the same convertible foreign currency as the original investment, or in another convertible currency. A 5% withholding tax applies to profit repatriated by a permanent establishment to its non-resident parent company.
Visa and Work Permit Facilitation for Investors
Nepal's Department of Immigration, acting on recommendations from the Department of Industry, provides a range of visa and permit options for foreign investors and their representatives. These are designed to facilitate a stable long-term presence in Nepal for the duration of the investment.
Visa Type | Eligible Persons | Duration & Conditions |
Business Visa | Active FDI investors or their authorised representatives | 1 year, renewable annually until industry operations cease |
Dependent Visa | Spouse and children of investor or authorised representative | 1 year, renewable in line with Business Visa |
Residential Visa | Investors who commit USD 100,000 or more at a single time | Valid for duration of investment; granted with dependent visa for family |
Non-Tourist Visa (Research) | Foreign nationals visiting Nepal to study or research prior to investment | Up to 6 months |
Work Permit | Foreign technical experts employed by FDI company | 1 year, renewable up to 3 years; max 5% of total workforce |
Work Permit Conditions
Work permits for foreign nationals are issued only for technical or specialist roles where the required skills or experience are demonstrably not available in the Nepalese workforce. Permits are issued on the recommendation of the DOI and granted by the Department of Labour for an initial period of one year, renewable for up to three years. Companies may not employ foreign nationals in more than 5% of their total employee headcount.
Dispute Resolution for Foreign Investors
Preferred Resolution Order
Mutual Consultation — disputes must first be referred to mutual consultation in the presence of the Department of Industry.
UNCITRAL Arbitration — if consultation fails, the dispute proceeds to binding arbitration under UNCITRAL Rules.
Venue and Governing Law — all arbitration is conducted in Kathmandu; Nepalese law applies.
Nepal is a member of the Multilateral Investment Guarantee Agency (MIGA) and has Bilateral Investment Promotion and Protection Agreements (BIPPAs) with several countries, providing additional treaty-level investment protection mechanisms. For large projects, dispute resolution terms may also be specified directly in the foreign investment agreement.
Legal Disclaimer
This document is prepared for general information and reference purposes only. It does not constitute legal advice and should not be relied upon as such. Nepal's investment laws and regulations change frequently. Before taking any action in relation to foreign investment in Nepal, readers should seek specific professional guidance from a qualified Nepalese lawyer and/or a registered investment adviser familiar with current regulatory requirements.
Final Thoughts
Emigrate Lawyers advises foreign investors, funds, and entrepreneurs on end-to-end market entry into Nepal. Our team works closely with local regulators and industry bodies to deliver compliant, efficient, and commercially sound investment solutions. For specific advice on establishing or expanding your business in Nepal, reach out to Emigrate Lawyers.
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Writer: Nisha Khatri
Position: Legal Officer at Emigrate Lawyers
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