Foreign Direct Investment (FDI) in Nepal presents a fascinating paradox for legal and business scholars. While the nation’s legislative framework, anchored by the Foreign Investment and Technology Transfer Act, 2019 (FITTA), signals a commitment to global capital, the practical FDI approval process in Nepal remains complex and, at times, opaque. For a foreign entity seeking to invest, understanding the legal nuances is as critical as identifying a viable business opportunity. Navigating the regulatory landscape requires a meticulous approach to documentation and a clear comprehension of the roles played by various governmental bodies, including the Office of Company Registrar.
The legal framework: Statutory instruments and jurisdictional mandates
The legal foundation for foreign investment in Nepal is principally established by the FITTA, 2019, and the Industrial Enterprises Act, 2020. FITTA broadens the definition of foreign investment beyond traditional equity to include loan investments, re-investment of dividends, lease financing, and investment in venture capital funds. It is designed to be the single-window law for foreign investment, though in practice, other ancillary laws like the Companies Act, 2006, and the Foreign Exchange Regulation Act, 1962, also come into play. A key aspect of FITTA is its jurisdictional delineation. The Department of Industry (DOI) is the primary approving authority for investments up to NPR 6 billion, while the Investment Board of Nepal (IBN) handles projects exceeding this threshold. This dual-jurisdiction model is intended to streamline the process by matching the approving body to the scale of the project. However, the requirement for subsequent approvals from the Nepal Rastra Bank (NRB) for fund repatriation and foreign loan approvals adds further layers of legal compliance. A savvy law firm in Nepal is essential to help investors interpret these regulations and ensure they are compliant from the very beginning.
FDI approval and company registration in Nepal: A step-by-step procedural blueprint
The FDI process is a sequential journey with distinct legal and administrative milestones. The first and most crucial step is obtaining the foreign investment approval, which is initiated by submitting a comprehensive application to either the DOI or the IBN. This application must include a detailed project report, outlining financial projections, technical feasibility, and the proposed investment amount. Once the investment is approved, the foreign entity proceeds with Company Registration in Nepal at the Office of Company Registrar. This is a critical juncture where the foreign company is formally incorporated as a legal entity in Nepal. The documents required for registration include the foreign company's Certificate of Incorporation, Memorandum of Association, Articles of Association, and a formal resolution authorizing the investment. Following company registration, the newly formed entity must register with the Inland Revenue Office for tax purposes and, if applicable, with the local ward office. Finally, a crucial step for a foreign investor is to register the foreign investment with the Nepal Rastra Bank, as required by the FITTA, to facilitate future repatriation of profits and capital. The assistance of a specialized Law firm in Nepal is indispensable during these stages to ensure all legal requirements are met and to minimize procedural delays.
Documentation and due diligence: The cornerstone of legal compliance
A successful FDI application in Nepal hinges on the meticulous preparation and submission of a comprehensive set of documents. Legal practitioners emphasize that due diligence is not merely a formality but a non-negotiable prerequisite. The application for foreign investment approval must include, among other things, a notarized copy of the foreign company’s incorporation documents, a letter of commitment from the investor, and a bank-issued Financial Credibility Certificate verifying the investor's financial capability. This certificate is particularly crucial as it provides a legal basis for the financial viability of the project. Furthermore, depending on the nature of the industry, an Environmental Impact Assessment (EIA) report may also be required. At the Office of Company Registrar, documents such as the Power of Attorney for a local representative and passport copies of the foreign directors must be submitted. The specific requirements for Company Registration in Nepal can be intricate and vary depending on the type of business vehicle (e.g., private limited company, public company, or branch office). It is here that the expertise of a law firm in Nepal becomes invaluable, as they can navigate the minutiae of these documentary requirements and liaise with the relevant authorities on behalf of the investor.
Statistical analysis and recent trends (2024-2025): A discrepancy between law and reality
A legal framework, however robust in its design, is ultimately judged by its practical outcomes. A review of recent FDI statistics reveals a persistent disparity between the stated legal intent and the actual flow of foreign capital. According to a report by the Nepal Rastra Bank, the FDI stock in Nepal reached Rs 333bn in the fiscal year 2023/24, a 12.7 percent increase from the previous year. While this indicates a growing level of total foreign investment, a more granular analysis shows that net FDI inflows were only Rs 8.4bn for the same period. This suggests that while commitments are being made, the actual injection of funds is a fraction of the approved pledges. For the month of July 2024, FDI inflows were $14.4m, which is a nominal increase compared to the same period in the previous year. However, according to the UNCTAD's World Investment Report 2025, FDI inflows to Nepal experienced a sharp decline in 2024, falling to $57m. This stark contrast between different data sources highlights the volatile nature of FDI in Nepal. For the beginning of the current fiscal year 2025/26 (mid-July to mid-August 2025), preliminary data from the Nepal Rastra Bank shows a foreign direct investment (equity only) of Rs 691.5m. These statistics underscore a critical legal and policy challenge: the legal mechanisms for approval and registration exist, but they are not translating into consistent, large-scale investment.
In conclusion, for foreign investors in Nepal, navigating the legal landscape requires a deep understanding of the FDI approval process in Nepal. While the Foreign Investment and Technology Transfer Act (FITTA) aims to attract foreign capital, persistent procedural hurdles exist, creating a gap between investment commitments and actual inflows. To ensure success, investors must meticulously handle documentation at the Office of Company Registrar and seek guidance from a specialized law firm in Nepal. The government's continued reform efforts to streamline inter-agency coordination are crucial. Ultimately, transforming Nepal into a regional investment hub depends on addressing these regulatory inefficiencies to build investor confidence and turn the country's potential into a profitable reality.
Prabin Kumar Yadav
Kathmandu School of Law
