FDI Process in Nepal Step by Step

Foreign Direct Investment in Nepal follows a clearly defined legal procedure under the Foreign Investment and Technology Transfer Act, 2019 (FITTA), the Industrial Enterprises Act, 2020, and related regulations. The process involves multiple regulatory bodies such as the Department of Industry (DOI), Investment Board Nepal (IBN), Office of Company Registrar (OCR), Inland Revenue Department (IRD), and Nepal Rastra Bank (NRB). Each step must be completed in sequence to ensure compliance and operational readiness.

Step 1: Determine Sector Eligibility and Investment Modality

The FDI process in Nepal begins with identifying whether the proposed sector is open for foreign investment. The Government of Nepal publishes a negative list under FITTA, 2019, which specifies restricted sectors. Investors must ensure that their business activity is not listed as prohibited.

At this stage, the investor also determines the investment modality. Foreign investment can be made through equity participation, joint venture, technology transfer, or foreign loan. A feasibility study is generally prepared to evaluate financial viability, operational scope, and legal compliance. This step ensures that the proposed investment aligns with Nepalese laws and economic priorities.

Step 2: Name Reservation and Company Structuring

The investor must reserve a company name at the Office of Company Registrar (OCR). The company is typically incorporated as a Private Limited Company or Public Limited Company under the Companies Act, 2006.

The investor prepares the Memorandum of Association (MOA) and Articles of Association (AOA), which define the company’s objectives, capital structure, and governance framework. In case of joint investment, a Joint Venture Agreement (JVA) is also drafted. This step establishes the legal structure of the business entity before applying for investment approval.

Step 3: Application for Foreign Investment Approval

The investor submits an application for foreign investment approval to the Department of Industry (DOI) or Investment Board Nepal (IBN), depending on the size and nature of the project. Projects exceeding NPR 6 billion or related to infrastructure fall under IBN.

Required Documents

Application form as prescribed under FITTA
Project proposal or feasibility study report
Memorandum and Articles of Association
Joint Venture Agreement (if applicable)
Passport copies or incorporation documents of investor
Financial credibility documents such as bank statements or audit reports

The authority evaluates the application based on legal compliance, sector eligibility, and economic contribution.

Step 4: Approval of Foreign Investment

After reviewing the application, the DOI or IBN issues a foreign investment approval letter. FITTA, 2019 provides a statutory timeline, generally within 7 days for standard cases.

The approval includes the investment amount, business sector, equity structure, and operational conditions. This document serves as the legal authorization for the foreign investor to proceed with company registration and capital investment in Nepal.

Step 5: Company Registration

Following approval, the company must be registered at the Office of Company Registrar (OCR) under the Companies Act, 2006. The investor submits the MOA, AOA, approval letter, and details of shareholders and directors.

Upon successful registration, the OCR issues a Certificate of Incorporation. This certificate legally establishes the company as a recognized business entity in Nepal, enabling it to enter contracts and conduct business activities.

Step 6: Industry Registration

The company must register its industry at the Department of Industry (DOI) in accordance with the Industrial Enterprises Act, 2020. The DOI classifies the industry into categories such as manufacturing, service, tourism, or energy-based industries.

An Industry Registration Certificate is issued, which is required for operating the business and accessing government incentives. This step ensures that the business is formally recognized as an industrial enterprise under Nepalese law.

Step 7: Tax Registration

The company must obtain a Permanent Account Number (PAN) from the Inland Revenue Department (IRD). If applicable, it must also register for Value Added Tax (VAT) under the Value Added Tax Act, 1996.

Tax registration enables the company to comply with the Income Tax Act, 2002. It is mandatory for conducting financial transactions, issuing invoices, and fulfilling tax obligations. Proper tax compliance is essential for avoiding legal penalties.

Step 8: Opening Bank Account and Capital Injection

The company opens a bank account in Nepal to receive foreign investment. The investor remits the approved capital through formal banking channels in convertible foreign currency.

The bank provides a Foreign Inward Remittance Certificate as proof of investment. Nepal Rastra Bank records the inflow of foreign currency. This step validates the investment as official FDI and ensures compliance with foreign exchange regulations.

Step 9: Share Issuance and Record Filing

After receiving the investment amount, the company issues shares to the foreign investor according to the approved equity structure. The company updates its shareholder register and maintains records of share allotment.

Necessary filings must be made with the Office of Company Registrar (OCR). This step confirms the ownership rights of the foreign investor and ensures transparency in corporate governance.

Step 10: Obtaining Business Licenses and Sectoral Approvals

Depending on the nature of the business, additional approvals may be required from relevant government authorities. Sector-specific licenses are necessary for regulated industries such as tourism, hydropower, and telecommunications.

Environmental compliance may require an Initial Environmental Examination (IEE) or Environmental Impact Assessment (EIA) under prevailing environmental laws. This step ensures that the business operates within regulatory and environmental standards.

Step 11: Operational Setup and Compliance

Once all approvals are obtained, the company can commence its operations. The business must comply with ongoing legal obligations under various laws including the Labor Act, 2017 and the Income Tax Act, 2002.

Ongoing Compliance Includes

Annual audit and financial reporting
Tax return filing and payment
Renewal of licenses and permits
Labor law compliance and employee management

Maintaining compliance ensures smooth business operations and avoids regulatory penalties.

Step 12: Repatriation and Profit Distribution

Foreign investors can repatriate profits, dividends, and capital gains in accordance with FITTA, 2019. Approval from Nepal Rastra Bank is required before transferring funds abroad.

Required Documents for Repatriation

Audited financial statements
Tax clearance certificate
Board resolution for dividend distribution
Proof of foreign investment

This step ensures that investors can legally transfer returns on investment while complying with foreign exchange regulations.

Summary of FDI Process in Nepal

The FDI process in Nepal involves a sequence of regulatory steps starting from sector verification to profit repatriation. It includes approval from DOI or IBN, company incorporation, tax and industry registration, capital injection, and operational compliance. The legal framework ensures transparency, investor protection, and alignment with national economic policies.