Indian investors enjoy a unique position in Nepal due to strong historical, economic, and cultural ties, reinforced by the India-Nepal Peace and Friendship Treaty of 1950. Nepal offers two broad pathways for Indian nationals to invest or conduct business:
- Foreign Direct Investment (FDI) route for large-scale investments
- Special small business provisions under the 1950 Treaty
This guide outlines both methods, incorporating detailed procedures, legal requirements, sector limitations, timelines, and relevant government bodies based on prevailing laws and the official Handbook for Indian Investors in Nepal (2018–19).
Legal and Regulatory Framework for Indian Investment
Key Governing Laws
- Foreign Investment and Technology Transfer Act (FITTA), 2019
- Industrial Enterprises Act, 2020
- Companies Act, 2006
- Foreign Exchange (Regulation) Act, 1962
- Arbitration Act, 1999
Key Regulatory Institutions
- Department of Industry (DOI)
- Investment Board Nepal (IBN)
- Nepal Rastra Bank (NRB)
- Office of the Company Registrar (OCR)
- Industry and Investment Promotion Board (IIPB)
Nepal has also signed the Bilateral Investment Promotion and Protection Agreement (BIPPA) and Double Tax Avoidance Agreement (DTAA) with India, offering additional security and tax benefits for Indian investors.
Investment Without FDI: Treaty-Based Small Business Setup
Under Article 6 of the India-Nepal Peace and Friendship Treaty (1950), Indian nationals are permitted to live, work, and establish businesses in Nepal under conditions similar to Nepali citizens.
Who Can Use This Route?
- Indian individuals wishing to open small businesses such as retail shops, consultancies, or service outlets
- No minimum capital threshold is prescribed
Step-by-Step Procedure
- Apply for a Business Card at the Embassy of India in Kathmandu
- Receive Business Card after due verification
- Enter into a House Rent Agreement for the business premises
- Register Business at the Local Ward Office (submit rent agreement, business card, proof of identity)
- Obtain PAN Certificate from the Inland Revenue Office (physical presence mandatory)
Timeline:
- Typically completed within 2 to 3 weeks
Investment Through FDI: Formal Foreign Investment Procedure
Indian nationals intending to invest larger sums or in sectors requiring industrial scale operations must follow the Foreign Direct Investment route as per FITTA and NRB guidelines.
Investment Threshold
- Minimum investment: NPR 20 million (INR 12.5 million)
Permissible Sectors
FDI is allowed in sectors categorized as “industries” under the Industrial Enterprises Act and not included in the Negative List.
Negative List (Restricted Sectors)
- Poultry, fisheries, apiculture
- Primary agriculture and cottage industries
- Personal services (hair salons, tailoring)
- Arms and ammunition production
- Real estate trading, retail business
- Internal courier and local catering services
- Media (TV, radio, print, online in national language)
- Language/music/computer training
- Ride-sharing (if foreign ownership >70%)
Foreign Ownership Limits by Sector
| Sector | Maximum Foreign Ownership (%) |
|---|---|
| Manufacturing | 100% |
| Hotel and Tourism | 100% |
| Energy | 100% |
| Construction | 100% |
| Telecommunications | 80% |
| International Aviation | 80% |
| Domestic Aviation | 49% |
| Consultancy Services | 51% |
| Insurance | 80% |
| Ride-Sharing Services | 70% |
FDI Process for Indian Nationals
Pre-Approval Requirements
- Application to Department of Industry (DOI) or Investment Board Nepal (IBN)
- Approval from Nepal Rastra Bank (NRB) for foreign currency inflow
Step-by-Step Process
- Obtain FDI approval from the DOI.
- Incorporate company via the Office of Company Registrar (OCR)
- Acquire PAN/VAT registration
- Open bank account and pre notification to central bank for injecting capital
- Industry Registration at DOI.
- Recording with NRB
Documents Required
- Application form in prescribed format
- Project proposal/feasibility report
- Joint Venture Agreement or Share Subscription/Purchase Agreement
- Incorporation documents of Indian and Nepali companies (MOA, AOA)
- Investor profile and passport
- Board resolution of the Indian investor
- Financial credibility certificate from a recognized Indian bank
- CIB report (Nepal) and audited financials (India)
- Source and schedule of investment
All documents must be submitted through the digital platform of the Department of Industry.
Timeline
- Regular approvals: Approx. 15 to 30 days
- Projects requiring IIPB/IBN clearance: Up to 6 months
Company Incorporation in Nepal
Legal Types Available:
- Private Limited Company
- Public Limited Company
Incorporation Timeline:
- Name reservation: 3 day
- Company registration: 3–7 days
- Tax registration (PAN): 1–2 days
Note: Foreigners cannot directly own land in Nepal, but foreign-invested Nepali companies can own land related to their business operations.
Employment Regulations for Indian Investors
- Employment must follow Nepal’s Labour Act, 2017
- Foreign workers must secure:
- Work Permit from DOI or Ministry of Labour
- Non-Tourist Visa
- Must register for:
- Social Security Fund
- Provident Fund (10% contribution)
Intellectual Property Protection
Intellectual property such as trademarks, patents, and designs are protected under Nepali law and must be registered with the Department of Industry.
Taxation Structure and Incentives
Key Taxes:
- Corporate Tax: 25%
- VAT: 13%
- Withholding Tax on dividends, interest, and royalties
Available Incentives:
- Tax holidays for:
- Hydropower and energy projects
- Export-oriented businesses
- Businesses established in Special Economic Zones (SEZs)
- Exemption on customs duties and VAT on imported capital goods for registered projects
Repatriation
Indian investors are allowed to repatriate:
- Dividends
- Capital gains
- Loan repayments
- Royalties and technical fees
Procedure
- Apply to the Department of Industry for recommendation
- Submit request to Nepal Rastra Bank (NRB) for foreign exchange approval
- Processing time: 2–4 weeks
Dispute Resolution and Exit Options
- Nepal follows a three-tier judicial system: District → High Court → Supreme Court
- Arbitration available under Arbitration Act, 1999
- Nepal is a signatory to the New York Convention on International Arbitration Awards
Conclusion
Nepal offers Indian nationals two distinct options:
- Small business route under the 1950 Treaty, which involves simplified registration at the ward level with no capital threshold.
- Formal FDI route, which involves regulatory compliance, sectoral restrictions, and minimum capital of NPR 20 million.
With attractive ownership allowances in key sectors like tourism, energy, manufacturing, and telecom, and with the support of bilateral agreements like BIPPA and DTAA, Nepal continues to be a viable and attractive investment destination for Indian businesses.
FAQS
1. How to Start a Business in Nepal from India?
An Indian national or company can start a business in Nepal by following the Foreign Direct Investment (FDI) procedures outlined by the Government of Nepal. Here are the steps:
Step-by-Step Process:
- Choose Business Type – Decide whether to open a private limited company, public limited company, or branch office.
- FDI Approval – Apply to the Department of Industry (DoI) for foreign investment approval. Submit:
- Project proposal
- Financial documents
- Passport or company registration certificate
- Company Registration – After FDI approval, register the company with the Office of the Company Registrar (OCR).
- PAN/VAT Registration – Register for Permanent Account Number (PAN) and VAT at the Inland Revenue Department.
- Industry Registration – Register with the Department of Industry or concerned industry department, depending on the nature of the business.
- Foreign Exchange Approval – Apply to the Nepal Rastra Bank (NRB) for approval to remit capital into Nepal.
- Open a Bank Account – Open a bank account in the name of the company in Nepal and transfer the capital through banking channels.
2. Can an Indian Purchase Land in Nepal?
No, individual Indian citizens cannot purchase land in Nepal in their personal capacity.
However, Indian Companies Can Acquire Land:
- Indian companies that are registered in Nepal as a foreign-invested company can acquire or lease land for commercial or industrial purposes, subject to approval from the relevant authorities.
- The land must be used only for the purpose stated in the business proposal and not for personal or residential use.
3. What is the Process of Investing in Nepal?
The investment process for foreign investors (including Indians) involves regulatory compliance and government approvals:
Investment Process:
- Submit FDI Proposal to the Department of Industry or the IBN, based on investment amount.
- Obtain FDI Approval Letter after evaluation of project and investor profile.
- Register the Company at OCR.
- Obtain NRB Approval for inward remittance.
- Remit Capital through formal banking channels.
- Start Operations upon receiving all licenses and clearances.
Thresholds:
- Minimum FDI investment required: NPR 20 million (~INR 12.5 lakh).
- For larger investments (above NPR 6 billion), approval is processed through the IBN.
4. How Can an Indian Company Receive Foreign Investment in Nepal?
If an Indian company (or its subsidiary registered in Nepal) wants to receive foreign investment, it must:
Steps to Receive Foreign Investment:
- Register a Nepali Entity – A subsidiary, joint venture, or new entity must be registered in Nepal.
- Obtain FDI Approval – Submit project proposal to the DOI or IBN.
- Get NRB Approval – After government approval, apply to Nepal Rastra Bank for permission to bring in foreign funds.
- Open a Bank Account – In the name of the Nepali company, where funds will be deposited.
- Comply with Reporting – Periodic reporting to the NRB and DoI on the usage of funds and business performance.
Note: The Indian parent company or foreign investor must transfer funds through a legal banking channel and comply with foreign exchange laws of both India and Nepal.