A Share Purchase Agreement (SPA) in Nepal is a legally binding contract that governs the transfer of shares from a seller (transferor) to a buyer (transferee) in a Nepalese company. The SPA establishes the rights and obligations of the parties, sets out the conditions precedent to closing, allocates risk through representations, warranties, and indemnities, and prescribes the dispute resolution mechanism for any breach. The primary legal framework is headed by the Companies Act, 2063 (2006) , which governs share transfers, board approvals, and pre-emptive rights, followed by the Foreign Investment and Technology Transfer Act, 2075 (2018) (FITTA), the Income Tax Act, 2058 (2002) , the Arbitration Act, 2055 (1999) , and, for foreign investors, the Foreign Exchange Regulation Act, 2019 (1962) and Nepal Rastra Bank regulations.
Nepal does not have a single consolidated statute governing share purchase agreements. Instead, SPAs are governed by a patchwork of constitutional, statutory, and regulatory provisions, led by the Companies Act, 2063, followed by FITTA, the Income Tax Act, the Arbitration Act, and associated rules and bylaws. For foreign-invested transactions, FITTA and the Foreign Loan and Investment Management Bylaws, 2078 (2021) impose additional approval and recording requirements. For corporate clients, Niti Partners Law Firm in Nepal can assist with SPA drafting, regulatory approvals, due diligence, closing coordination, tax compliance, and dispute resolution, subject to the requirements of the competent Government authority.
What Is a Share Purchase Agreement (SPA) in Nepal?
A Share Purchase Agreement (SPA) in Nepal is the principal transaction document through which a buyer acquires ownership of shares in a Nepalese company from an existing shareholder. The SPA governs a wide range of granular legal issues, including:
Share transfer restrictions under the Companies Act, 2063 and the company’s Articles of Association
Pre-emptive rights of existing shareholders and waiver procedures
Board and shareholder approvals required for share transfers
Foreign investment approval from the Department of Industry or Investment Board for cross-border acquisitions
Nepal Rastra Bank recording of foreign equity inflows and repatriation rights
Capital gains tax liability under the Income Tax Act, 2058
Representations and warranties regarding the target company’s financial, legal, and operational status
Indemnification provisions for pre-closing liabilities and tax exposures
Conditions precedent to closing, including regulatory approvals and third-party consents
Closing mechanics and payment of purchase consideration
Post-closing covenants and restrictive covenants (non-compete, non-solicitation)
Dispute resolution through arbitration or court proceedings
Governing law and jurisdiction for cross-border SPAs
Employee and labour considerations in share acquisitions
Regulatory compliance with sector-specific laws and foreign investment caps
For corporate clients, Niti Partners Law Firm in Nepal can assist with SPA structuring, share transfer documentation, regulatory applications, licence renewals and related corporate and commercial compliance, subject to the requirements of the competent Government authority.
What Laws Govern Share Purchase Agreements in Nepal?
Share purchase agreements in Nepal are not governed by a single statute. Instead, they are regulated through a combination of corporate, tax, foreign investment, arbitration, and foreign exchange legislation. The following table summarises the principal legal framework:
| Law / Regulation | Key Provisions | Relevance to SPA |
|---|---|---|
| Companies Act, 2063 (2006) | Sections 40, 42, 43, 44, 45, 46, 97 | Share transfer mechanics, board approval, pre-emptive rights, share register |
| Foreign Investment and Technology Transfer Act, 2075 (2018) | Sections 2(b), 8, 11, 17, 19 | Foreign investment approval, notification within 30 days, repatriation |
| Income Tax Act, 2058 (2002) | Sections 57, 95A; Schedule 1(4) | Capital gains tax, advance tax withholding |
| Arbitration Act, 2055 (1999) | Sections 5, 6, 13A, 30, 32 | Arbitration agreement requirements, fast-track arbitration, enforcement |
| Foreign Exchange Regulation Act, 2019 (1962) | — | Foreign exchange transactions, equity inflow/outflow |
| Foreign Loan and Investment Management Bylaws, 2078 (2021) | Fifth Amendment (2025) | Removed prior NRB approval for equity inflows; post-inflow recording only |
Companies Act, 2063 – Primary Legislation Governing Share Transfers in Nepal
The Companies Act, 2063 is the foundational legislation governing companies and share transfers in Nepal. It establishes the legal framework for share ownership, transfer restrictions, board approval requirements, and shareholder rights. Key provisions include:
Section 42 provides that shares are movable property and may be sold, transferred, or pledged, subject to the Act and the company’s Articles of Association.
Section 44 permits a company to refuse registration of a share transfer in specified circumstances, including unpaid share amounts, violation of the Articles or shareholder agreements, or failure to submit transfer fees.
Section 45 provides for transmission of shares upon death or inheritance.
Section 46 requires every company to maintain a register of shareholders at its registered office.
Section 40 governs the transfer of shares, including the requirement of board approval.
Section 43 provides for pre-emptive rights on new share issuance.
Section 97 governs the duties and liabilities of directors, including approval of share transfers.
Foreign Investment and Technology Transfer Act, 2075 (2018)
FITTA governs foreign investment in Nepal and is critical for cross-border SPAs. Key provisions include:
Section 2(b) defines “foreign investment” to include investment in shares of an existing company.
Section 8 provides for approval of foreign investment by the Department of Industry.
Section 11 provides for the repatriation of sale proceeds and profits.
Section 17 requires recording of foreign investment with Nepal Rastra Bank.
Section 19 requires notification of share transfers to the approving authority within 30 days of the transaction, along with documentary evidence. No recording will occur until tax is paid on the transaction amount.
Income Tax Act, 2058 (2002)
Section 57 provides for capital gains tax on the transfer of shares.
Schedule 1(4) prescribes the rate: 5% for resident natural persons and 10% for other entities on listed shares; 10% for resident natural persons and 15% for other entities on unlisted shares.
Section 95A provides for advance tax withholding on share transfers.
Arbitration Act, 2055 (1999)
Section 5 provides that the number of arbitrators is as specified in the agreement; if not specified, ordinarily three arbitrators shall be appointed.
Section 6 requires the process of appointing arbitrators to be started within 30 days from the date the dispute arises.
Section 13A (2025 Amendment) permits fast-track arbitration.
Section 30 was amended to remove “detrimental to public interests” as a ground for invalidating arbitral awards.
Section 32 provides for enforcement of fast-track awards within 15 days.
What Clauses Should a Share Purchase Agreement in Nepal Include?
A well-drafted Nepal SPA should contain the following principal clauses. Each clause serves a specific legal and commercial function in the transaction.
Purchase Price and Payment Terms
The SPA must specify the purchase price for the shares, the currency of payment, and the payment mechanics. Key considerations include:
Whether payment is made in a lump sum at closing or in instalments
Whether any portion is held in escrow pending satisfaction of conditions
Banking channel requirements — the Office of Company Registrar requires that payment for shares be traceable through the banking system. For share sales between two natural persons involving less than NPR 1,000,000, banking proof may be waived. For amounts exceeding NPR 1,000,000, certified bank statements bearing the bank’s seal are required.
Conditions Precedent
Conditions precedent are the events that must occur before the parties are obligated to complete the transaction. Typical conditions in a Nepal SPA include:
Receipt of board approval for the share transfer
Waiver or satisfaction of pre-emptive rights by existing shareholders
Receipt of foreign investment approval from the Department of Industry (for cross-border transactions)
Receipt of sector-specific regulatory approvals where applicable
No material adverse change in the target company’s business or financial condition
Satisfactory completion of due diligence
Representations and Warranties
Representations and warranties are statements of fact made by the seller (and sometimes the buyer) about the target company. In a Nepal SPA, these typically cover:
Corporate existence and authority — the company is duly incorporated and validly existing
Capitalisation — the share capital structure, issued shares, and ownership
Financial statements — accuracy of audited accounts and absence of undisclosed liabilities
Litigation — no pending or threatened legal proceedings
Compliance — compliance with applicable laws, including tax and regulatory requirements
Assets and title — ownership of assets free from encumbrances
Contracts — material contracts are valid and enforceable
Tax matters — proper filing and payment of taxes
Indemnities
Indemnities provide compensation for losses arising from breaches of representations and warranties or from specified pre-closing liabilities. A Nepal SPA should address:
Scope of indemnity — what losses are covered (direct losses, consequential losses)
Indemnity caps and baskets — maximum liability and threshold amounts
Time limits — the period during which claims may be brought
Tax indemnity — specific protection for pre-closing tax liabilities
Procedure for claims — notice requirements and defence of third-party claims
Pre-Emptive Rights and Share Transfer Restrictions
Under the Companies Act, 2063 and the company’s Articles of Association, existing shareholders may have pre-emptive rights to purchase shares before they are offered to outsiders. The standard procedure, as reflected in company Articles and Supreme Court jurisprudence, is:
A shareholder wishing to sell must obtain prior approval from the Board of Directors before selling or transferring shares to a non-shareholder.
The selling shareholder must give written notice to the Board stating the price.
The Board must notify other shareholders within 7 days of receiving the notice.
Interested shareholders must inform the Board within 35 days and complete the purchase within 3 months.
If no shareholder expresses interest within 35 days, the Board may approve the sale to an outsider, and that approval remains valid for 1 year.
Regulatory Approvals
The SPA should specify which regulatory approvals are required and which party is responsible for obtaining them. Key approvals include:
Board approval of the target company for the share transfer
Department of Industry approval for foreign investment (where applicable)
Sector-specific approval from the relevant line agency (e.g., Nepal Rastra Bank for banking, Insurance Board for insurance)
Securities Board of Nepal approval for transactions involving listed companies
Closing Conditions
Closing conditions specify the mechanics and timing of completion. These should address:
The closing date and location
Documents to be delivered at closing (share certificates, board resolutions, updated register of shareholders)
Payment mechanics and confirmation of receipt
Transition of control — resignation of directors, appointment of new directors
Transfer of records — corporate books, share register
Tax Covenants
Tax covenants allocate responsibility for tax liabilities arising from the transaction. Key provisions include:
Capital gains tax — who bears the liability (typically the seller)
Advance tax withholding under Section 95A of the Income Tax Act, 2058
Tax clearance — requirement to obtain tax clearance from the Inland Revenue Department
Tax indemnity — protection against pre-closing tax liabilities
Restrictive Covenants
Restrictive covenants protect the buyer’s interests after closing. Typical provisions include:
Non-compete — the seller agrees not to compete with the target company’s business for a specified period
Non-solicitation — the seller agrees not to solicit employees or customers of the target company
Confidentiality — the seller agrees to maintain confidentiality of proprietary information
Governing Law and Dispute Resolution
The SPA should specify the governing law and the dispute resolution mechanism. Key considerations:
Governing law — typically Nepalese law for domestic transactions
Arbitration clause — must be in writing and specify the number of arbitrators, appointing authority, and procedure. The Arbitration Act, 2055 requires that arbitration agreements be written and that the arbitrator appointment process begin within 30 days of the dispute arising.
Jurisdiction — specify the courts or arbitral tribunal with authority
Enforcement — Nepal’s ratification of the New York Convention includes a reservation restricting enforceability to commercial awards only
What Approvals Are Required for a Share Purchase in Nepal?
Share purchase transactions in Nepal may require multiple regulatory approvals depending on the nature of the transaction:
| Approval Type | Authority | When Required |
|---|---|---|
| Board of Directors approval | Target company’s Board | All share transfers to non-shareholders |
| Shareholder waiver of pre-emptive rights | Existing shareholders | Where pre-emptive rights exist |
| Foreign investment approval | Department of Industry | Foreign buyer acquiring shares |
| Sector-specific approval | Relevant line agency | Regulated sectors (banking, insurance, telecom) |
| Securities Board approval | SEBON | Listed company share transactions |
| Tax clearance | Inland Revenue Department | All transactions with capital gains |
Recent Development (2025): The Act Relating to Improving Economic and Business Environment and Enhancing Investment, 2081 introduced a requirement for prior approval from the Department of Industry before foreign investors may sell or transfer all or part of their equity to domestic parties. Previously, foreign investors could transfer equity upon completion, provided they notified the DOI within 30 days.
What Is the SPA Due Diligence Process in Nepal?
Due diligence is the investigation of the target company before entering into a binding SPA. In Nepal, due diligence should cover:
Corporate Due Diligence
Certificate of incorporation and constitutional documents (Memorandum and Articles of Association)
Register of shareholders and share certificates
Board and shareholder resolutions — minutes of meetings
Corporate filings with the Office of Company Registrar
Share transfer restrictions in the Articles
Financial Due Diligence
Audited financial statements for the past 3-5 years
Tax returns and clearance certificates from the Inland Revenue Department
Bank statements and evidence of share payment (required for OCR certification)
Liabilities — loans, guarantees, contingent liabilities
Legal Due Diligence
Litigation history — pending or threatened proceedings
Material contracts — supplier, customer, employment agreements
Intellectual property — trademarks, patents, software licences
Regulatory compliance — licences and permits
Sector-Specific Due Diligence
Banking/insurance — regulatory approvals, capital adequacy
Telecommunications — licence conditions, foreign equity caps
Manufacturing — environmental compliance, industrial registration
What Is the SPA Closing Process in Nepal?
The closing process involves the completion of the transaction after all conditions precedent have been satisfied. The standard steps are:
Satisfaction of conditions precedent — all regulatory approvals obtained, pre-emptive rights waived
Execution of the SPA — signing by authorised representatives
Payment of purchase consideration — through authorised banking channels
Delivery of closing documents — share certificates, board resolutions, resignation letters
Board approval of transfer — formal approval by the Board of Directors
Update of register of shareholders — entry of the buyer’s name in the company’s share register
Issuance of new share certificates — in the buyer’s name
Filing with Office of Company Registrar — where required
Tax payment and clearance — capital gains tax paid, clearance obtained
Regulatory notification — for foreign investment, notification to DOI within 30 days under Section 19 of FITTA
What Taxes Apply to Share Transfers in Nepal?
Capital Gains Tax
Under Section 57 of the Income Tax Act, 2058, capital gains tax applies to the transfer of shares:
| Share Type | Resident Natural Person | Other Entities |
|---|---|---|
| Listed shares | 5% | 10% |
| Unlisted shares | 10% | 15% |
Advance Tax Withholding
Under Section 95A, the buyer may be required to withhold advance tax on the purchase price.
Tax Clearance Requirement
Under Section 19(3) of FITTA, no recording of a share transfer will occur until the tax on the transaction amount is paid in accordance with prevailing law.
Banking Channel Requirement
The Office of Company Registrar requires that payment for shares be traceable through the banking system. For amounts exceeding NPR 1,000,000, certified bank statements are required for share register certification. Withdrawals exceeding NPR 1,000,000 shortly after deposit may trigger additional scrutiny.
How Are Foreign Share Purchases Regulated in Nepal?
Foreign share purchases are regulated primarily under FITTA, 2075 and the Foreign Loan and Investment Management Bylaws, 2078.
Minimum Investment Threshold
Any foreign investor must invest at least NPR 20,000,000 in the project. There is no upper cap on foreign investment. Certain Information Technology sector industries are exempt from the minimum investment requirement, including software development, data processing, BPO, KPO, cloud computing, and web hosting.
Sectors Closed to Foreign Investment
The following sectors are closed to foreign investment:
Cottage industries
Personal service businesses (hair cutting, beauty parlour, tailoring, driving training)
Arms and ammunition industries
Gunpowder and explosives
Radiation/radioactive materials
Real estate business (excluding construction)
Film industries (national languages)
Security printing
Banknotes and coins
Retail business (excluding international chain retail with operations in at least two countries)
Bidi (excluding more than 90% exports)
Internal courier service
Atomic energy
Poultry, fisheries, bee keeping
Consultancy services (maximum 51% foreign investment allowed)
Beauty parlour
Processing of food grains on rent
Local catering services
Rural tourism
Foreign Equity Caps
| Sector | Maximum Foreign Equity |
|---|---|
| Aeroplane service | 80% |
| Telephone service | 80% |
| Consultancy service | 51% |
Sector-Specific Considerations
Foreign investment in banking and financial institutions is regulated by Nepal Rastra Bank, which prescribes separate minimum capital and foreign equity limits. Insurance is regulated by the Insurance Authority, and telecommunications by the Nepal Telecommunications Authority.
How Is Foreign Investment Recorded With Nepal Rastra Bank?
Fifth Amendment to Foreign Loan and Investment Management Bylaws (December 2025)
On 30 December 2025, Nepal Rastra Bank issued the Fifth Amendment to the Foreign Loan and Investment Management Bylaws, 2078 (2021), representing a significant liberalisation of Nepal’s foreign exchange regime.
Key Changes:
Removal of prior NRB approval for foreign equity investments, including investments in existing companies and share transfers, once approval is obtained from the Department of Industry.
NRB involvement is now limited to post-inflow recording for foreign exchange purposes.
Decentralisation of repatriation approval to commercial banks.
Relaxation of restrictions on outward investment by Nepali companies.
Practical Impact for SPAs: Foreign capital may now be remitted through authorised banking channels without separate NRB approval. However, post-inflow recording remains mandatory for repatriation purposes.
Section 19 FITTA Notification Requirement
Under Section 19 of FITTA, the concerned company must notify the approving authority within 30 days of any share sale, transfer, or change in ownership structure, along with documentary evidence. No recording will occur until tax is paid on the transaction.
What Documents Are Required for a Share Purchase in Nepal?
Corporate Documents
Certificate of incorporation
Memorandum and Articles of Association
Register of shareholders
Share certificates (original)
Board and shareholder resolutions
Transaction Documents
Share Purchase Agreement (executed)
Board approval letter
Pre-emptive rights waiver (if applicable)
Share transfer form
Tax Documents
PAN/VAT certificate
Tax clearance certificate
Capital gains tax payment evidence
Regulatory Documents (Foreign Investment)
Department of Industry approval
Foreign Investment Acceptance Letter
Passport copies of foreign buyer
Financial credibility certificate from home country bank
Project report (for new FDI)
Banking Documents
Bank statements showing payment through banking channels
Certified bank statement bearing bank seal (for amounts exceeding NPR 1,000,000)
How Long Does an SPA Transaction Take in Nepal?
The timeline for an SPA transaction depends on the complexity, regulatory approvals required, and completeness of documentation. Typical stages and timeframes:
| Stage | Estimated Time |
|---|---|
| Due diligence | 2-6 weeks |
| SPA negotiation and drafting | 2-4 weeks |
| Board and shareholder approvals | 1-2 weeks |
| Foreign investment approval (DOI) | 2-4 weeks |
| Tax clearance and payment | 1-2 weeks |
| Closing | 1-2 weeks |
| NRB recording (foreign investment) | 1-2 weeks |
| DOI notification (Section 19) | Within 30 days of transaction |
Total estimated time: 2-4 months for a straightforward domestic transaction; 3-6 months for cross-border transactions requiring DOI approval.
What Happens After SPA Closing?
Post-closing compliance obligations include:
Corporate Compliance
Maintain updated register of shareholders
File annual returns with the Office of Company Registrar
Hold annual general meetings and file minutes
Tax Compliance
File income tax returns reflecting the share transfer
Maintain tax clearance certificates
Comply with withholding tax obligations
Foreign Investment Compliance
Complete NRB post-inflow recording for foreign investment
Comply with FITTA notification requirements (Section 19)
Maintain records for future repatriation
Sector-Specific Compliance
Renew licences and permits as required
Comply with regulatory reporting obligations
For corporate clients, Niti Partners Law Firm in Nepal can assist with company incorporation, industry registration, share transfer documentation, regulatory applications, licence renewal and related corporate and commercial compliance, subject to the requirements of the competent Government authority.
What Are the Major Nepalese Cases Relevant to Share Purchase Agreements?
Case 1: Hanil Engineering & Construction Co. Ltd. v. Patan Appellate Court and Koneco Pvt. Ltd. (Decision No. 067-WO-0419, 2017)
Facts: Hanil Engineering, a Korean company, entered into a subcontract with Koneco Pvt. Ltd. for the Melamchi Adit Access Roads project. A dispute arose, and Hanil initiated arbitration before the Korean Commercial Arbitration Board. The arbitral tribunal issued an award in favour of Hanil. Hanil then sought enforcement in Nepal, but the Patan Appellate Court refused enforcement.
Key Rulings:
The Supreme Court of Nepal denied recognition of the Korean award, finding that the procedure for the appointment of the arbitral tribunal and the arbitral procedure had not been in accordance with the agreement of the parties or the applicable law.
The Court held that the defendant had not been properly informed of the arbitration, and the required pre-arbitration attempt to settle the dispute amicably had not been made.
The Court emphasised that an arbitration agreement must be in writing and that unilateral reference to arbitration is not legally valid.
Legal significance for SPA parties: This case establishes that arbitration clauses in SPAs must be comprehensive and that parties must have a clear, written agreement to arbitrate. A properly drafted SPA arbitration clause is essential to ensure enforceability in Nepal. The case also underscores the importance of proper notice and compliance with pre-arbitration conditions.
Case 2: Oriental Insurance Co. Ltd. v. Ramkrishna Rawal (Supreme Court of Nepal)
Facts: The parties had agreed to arbitrate disputes arising from their contract. One party initiated court proceedings, and the other party objected, citing the arbitration agreement.
Key Rulings:
The Supreme Court held that where parties have agreed to arbitrate, no court has primary jurisdiction over the dispute.
The Court opined that arbitrable disputes generally include commercial matters such as investment, construction, sales of goods, insurance, and banking disputes.
This judicial interpretation effectively narrows arbitrability to commercial matters.
Legal significance for SPA parties: This case affirms the primacy of arbitration agreements in Nepal while also establishing that only commercial disputes are freely arbitrable. Foreign parties should be aware that Nepal’s ratification of the New York Convention includes a reservation restricting enforceability to commercial awards only.
Case 3: Ansal Housing & Construction Ltd. v. Nepal (Supreme Court of Nepal, 2026)
Facts: The Supreme Court addressed the tax implications of a share purchase transaction involving a foreign holding company. The petitioner argued that capital gains tax should not apply because the share transfer occurred outside Nepal.
Key Rulings:
The Supreme Court held that the question of whether Nepalese tax law applies to a particular share purchase transaction is within the jurisdiction of the tax authority.
The Court held that a transaction conducted in compliance with the laws of the jurisdiction where the share is registered cannot be presumed to be suspicious, non-transparent, or unlawful merely because a party alleges so.
The Court emphasized that tax authorities have the exclusive authority to determine tax liability, and courts should not interfere in that domain without proper basis.
Legal significance for SPA parties: This case highlights the importance of tax planning and compliance in cross-border share purchase transactions. Parties should obtain proper tax advice and ensure that the transaction structure complies with Nepalese tax law. The case also confirms that tax authorities have primary jurisdiction over tax matters, and courts will generally defer to their determinations.
SPA Legal Services in Nepal
For corporate clients, Niti Partners Law Firm in Nepal can assist with the full range of legal services required for share purchase transactions:
| Service | Description |
|---|---|
| SPA drafting and negotiation | Preparation and review of share purchase agreements |
| Legal due diligence | Investigation of target company’s corporate, financial, and legal status |
| FDI approval and structuring | Department of Industry approval applications, investment structuring |
| Regulatory approvals | Sector-specific approvals, SEBON compliance |
| Tax advisory | Capital gains tax planning, tax clearance |
| Closing coordination | Management of closing process and documentation |
| NRB recording | Post-inflow recording for foreign investment |
| Post-closing compliance | Ongoing corporate, tax, and regulatory compliance |
| Dispute resolution | Arbitration and litigation for SPA disputes |
| International arbitration | UNCITRAL, ICC, and SIAC proceedings |
The firm’s FDI practice handles approval, incorporation, tax registration, ongoing compliance, and eventual exit, subject to the requirements of the competent Government authority.
Frequently Asked Questions (FAQ)
Is there a single statute governing share purchase agreements in Nepal?
No. Share purchase agreements in Nepal are governed by a patchwork of statutes, led by the Companies Act, 2063, followed by FITTA, the Income Tax Act, 2058, the Arbitration Act, 2055, and associated regulations. There is no single consolidated “SPA Act.”
What is the primary legal provision for share transfers in Nepal?
Section 42 of the Companies Act, 2063 provides that shares are movable property and may be sold, transferred, or pledged, subject to the Act and the company’s Articles of Association. Section 40 governs the transfer mechanism, including board approval requirements.
What are the major cases on SPA enforcement in Nepal?
Major cases include Hanil Engineering v. Patan Appellate Court (Decision No. 067-WO-0419, 2017), which addresses arbitration agreement enforceability and procedural requirements, Oriental Insurance v. Ramkrishna Rawal, which affirms the primacy of arbitration for commercial disputes, and Ansal Housing & Construction Ltd. v. Nepal (2026), which addresses tax jurisdiction in cross-border share purchases.
What approvals are required for a foreign share purchase in Nepal?
Foreign share purchases require approval from the Department of Industry. As of 2025, prior DOI approval is required before foreign investors may sell or transfer equity to domestic parties. The minimum investment threshold for approval is NPR 20,000,000 per investor, with certain IT sector exceptions.
What is the capital gains tax rate on share transfers in Nepal?
For listed shares, the capital gains tax rate is 5% for resident natural persons and 10% for other entities. For unlisted shares, the rate is 10% for resident natural persons and 15% for other entities under Section 57 of the Income Tax Act, 2058.
How is foreign investment recorded with Nepal Rastra Bank?
Following the Fifth Amendment (2025) to the Foreign Loan and Investment Management Bylaws, NRB approval is no longer required for equity inflows once DOI approval is obtained. However, post-inflow recording remains mandatory for repatriation purposes.
Can SPA disputes be resolved through arbitration in Nepal?
Yes, but with an important limitation. The Arbitration Act, 2055 provides for arbitration, and the Oriental Insurance case confirms that commercial disputes are freely arbitrable. Nepal’s ratification of the New York Convention includes a reservation restricting enforceability to commercial awards only.
What is the pre-emptive rights procedure for share transfers?
Under Section 43 of the Companies Act and company Articles, existing shareholders have pre-emptive rights. The selling shareholder must give written notice to the Board, which notifies other shareholders within 7 days. Interested shareholders must respond within 35 days and complete purchase within 3 months. If no interest is expressed, the Board may approve sale to an outsider, valid for 1 year.
Does Niti Partners Law Firm in Nepal provide SPA services in Nepal?
Yes. Niti Partners Law Firm in Nepal provides comprehensive legal assistance for SPA drafting, negotiation, regulatory approvals, due diligence, tax compliance, closing coordination, and dispute resolution. The firm’s FDI practice handles approval, incorporation, tax registration, ongoing compliance, and eventual exit, subject to the requirements of the competent Government authority.
What is the closing process for an SPA in Nepal?
The closing process involves satisfying conditions precedent, executing the SPA, completing regulatory approvals, paying consideration and taxes, updating the register of shareholders, and recording foreign investment with NRB if applicable. Section 19 of FITTA requires notification to the Department of Industry within 30 days of the share transfer.
Conclusion
Share purchase agreements in Nepal are governed by a complex patchwork of constitutional, statutory, and regulatory provisions. The Companies Act, 2063 provides the primary framework for share transfers, including board approvals and pre-emptive rights. FITTA, 2075 governs cross-border acquisitions and requires Department of Industry approval for foreign investment, with Section 19 mandating notification within 30 days of any share transfer or change in control. The Income Tax Act, 2058 imposes capital gains tax on share transfers, with rates varying based on the residency of the transferor and the listing status of the shares. The Arbitration Act, 2055, as amended in 2025, provides a robust framework for dispute resolution, with fast-track arbitration and narrowed grounds for setting aside awards.
