Incorporation of Company by Foreigners in Nepal | FDI in Nepal

Incorporation of company by foreigners in Nepal is governed by Foreign Investment and Technology Transfer Act, 2019, requires preliminary approval from the Department of Industry followed by final approval from the Nepal Rastra Bank.

This article provides a general overview of opening a company by foreigners through foreign direct investment in Nepal, its approval procedure, time period, and other relevant information.

A. Governing Laws

1. Foreign Investment and Technology Transfer Act, 2019 (“Foreign Investment Act”);
2. Foreign Investment and Technology Transfer Regulations, 2021 (“Foreign Investment Regulations”);
3. Industrial Enterprises Act, 2020 (“Industrial Enterprises Act”);
4. Companies Act, 2006 (“Companies Act”); and
5. Public Private Partnership and Investment Act, 2019 (“PPIA”).

B. Governing Authorities

1. Department of Industry (“DOI”) regulates all investment made under Foreign Investment Act;
2. Investment Board, Nepal (“IBN”) regulates investment made under PPIA;
3. Nepal Rastra Bank (“NRB”) approves inflow and outflow of foreign currency with recording and facilitating foreign investment.

C. Permissibility Requirement for Foreign Investment

The proposed business activity must fulfill following two criteria to obtain foreign investment approval:

1. Firstly, the sector of industry must not fall under “Negative List of Industries for Foreign Investment” provided in the Schedule of the Foreign Investment Act; and
2. Secondly, the sector of business must fall under the classification of an “industry” under the Industrial Enterprise Act.

D. Industries Not Permitted for Foreign Investment

The Foreign Investment Act provides for a list of industries where the foreign investment is not permitted, details of which are as follows:

1. Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production;
2. Cottage and small industries;
3. Personal service business (hair cutting, tailoring, driving);
4. Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (N.B.C.) weapons; industries producing atomic energy and radio-active materials;
5. Real estate business (excluding construction industries), retail business, internal courier service, local catering service, moneychanger, remittance service;
6. Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay;
7. Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language;
8. Management, account, engineering, legal consultancy service and language training, music training, computer training;
9. Consultancy services having foreign investment of more than 51%; and
10. Ride sharing services with foreign investment of more than 70%.

E. Applicable Procedure

The procedure applicable for establishment and operation of foreign investment in Nepal is set out below:

Step 1: Obtaining Foreign Investment Approval from DOI

Step 2: Incorporation of Company at the Office of the Company Registrar

Step 3: Tax Registration at the Inland Revenue Office

Step 4: Business Registration at the Local Ward Office

Step 5: Registration of Industry at the DOI

Step 6: Obtaining Non-Blacklist Certificate from Credit Information Bureau

Step 7: Statutory Notice to NRB to infuse the Investment Amount

Step 8: Infusion of investment amount in local bank and obtaining Investment Certificate

Step 9: Recording of the infused investment amount at the NRB

F. Required Documents

The documents required for obtaining foreign investment approval are set out below:

1. Project report outlining the project background, market aspect, technical aspect, financial aspect, details of such funds;
2. Bio-Data/Company profile of the foreign investor;
3. Passport of foreign investor in case the foreign investor is a person and passport of directors of foreign investor in case of entities;
4. Copy of Certificate of Registration and other registration documents (Memorandum of Association, Articles of Association) of the foreign investor company;
5. Corporate resolution of the foreign investor company to invest in Nepal;
6. Financial Credibility Certificate issued by any bank of the country of the residence/registration of the foreign investor;
7. Power of Attorney authorizing an individual to complete the approval and registration process at the relevant governmental authorities.

G. Investment Threshold

A minimum capital of Nepalese Rupees 20 million must be invested for incorporating a company through foreign investment by each foreign investor.

However, the foreign investment threshold is not applicable for the foreign investment in the Information Technology Industry pursuant to notice of Ministry of Industry, Commerce and Supplies of Government of Nepal dated 02 October 2023.

H. Sector Specific Approvals

After incorporation, the company may further need to obtain approval or licenses from regulatory authorities depending upon the nature of the industry or business such as:

1. Approval from the Insurance Board for insurance business;
2. NRB Approval for bank and financial institutions;
3. Department of Electricity Development for electricity projects;
4. Department of Food Technology and Quality Control for food industry.

I. Government Fees

The applicable government fees for foreign investment approval process is set out below:

J. Timeline for completion of the approval process

It generally takes around 1 to 2 months for the completion of the entire foreign investment and the incorporation process.