Foreign Direct Investment (FDI) in IT Company in Nepal

What is FDI in Nepal?

Foreign Direct Investment (FDI) is when a foreign individual, company, or institution invests in a business or venture within Nepal, either by:

• Setting up a company
• Acquiring equity in a local firm
• Investing via a joint venture

The Foreign Investment and Technology Transfer Act (FITTA), 2019 is the primary law that governs FDI in Nepal.

Why Invest in Nepal’s IT Sector?

Nepal's tech scene is rising, driven by:

• Digital transformation in banking, education, and e-commerce
• A large pool of young, English-speaking developers
• Low operational costs and affordable salaries
• Growing startup culture and freelancer ecosystem
• Ideal for remote service outsourcing (BPO, SaaS, web/mobile dev)

The government has identified Information Technology as a priority sector for foreign investment.

Laws Governing FDI in Nepal

Key Acts include:

• Foreign Investment and Technology Transfer Act, 2019 (FITTA)
• Companies Act, 2006
• Industrial Enterprises Act, 2020
• Income Tax Act, 2002
• NRB Foreign Exchange Regulation

Together, they ensure FDI is legally regulated, repatriable, and traceable.

Is FDI Allowed in IT and Software Companies?

• Yes. IT and software development companies are 100% open to FDI.
• FDI is restricted in sectors like media, agriculture (with some exceptions), and arms manufacturing — but IT is completely liberalized.

You can invest in:

• Web development firms
• SaaS product companies
• App development studios
• Software outsourcing units
• AI/ML services and startups

Minimum Investment Requirement for FDI

As per NRB and DoI guidelines:

• Minimum investment per foreign investor: NPR 20 million (~USD 150,000)
• This can be equity, equipment, or tech transfer

Note: This minimum is per investor per company, and must be deposited via formal banking channels.

Step-by-Step Process to Register FDI in an IT Company

Step 1: FDI Approval from Department of Industry (DoI)
Submit:

• Project proposal
• Investor profile
• Investment commitment letter
• Financial credibility documents
• Approval may take 15–30 working days.

Step 2: Company Incorporation

• Register with Office of Company Registrar (OCR)
• Company must have at least one Nepali director (optional)
• Use foreign investor’s passport copy, shareholding details, and board resolutions

Step 3: Capital Inflow via NRB

• Use a formal banking channel to remit capital
• Must be recorded by Nepal Rastra Bank (NRB)
• Submit inward remittance report to both NRB and DoI

Step 4: PAN/VAT and Tax Setup

• Apply for PAN registration
• Register for VAT if annual turnover > NPR 5 million
• Maintain transparent bookkeeping from Day 1

Required Documents for FDI in IT Sector

Types of FDI Allowed in Nepal’s Tech Industry

Compliance and Reporting Requirements

After investment:

• Annual reporting to DoI and NRB
• Submit audited financial statements
• Declare dividends, royalty payments, or repatriation plans
• Ensure labor law and tax compliance

Incentives for Foreign Investors in Nepal’s IT Sector

• Corporate Tax Exemptions (partial for export-based IT firms)
• Duty-free import on IT hardware/software
• Discounted office space in IT Parks (e.g., Banepa)
• Business Visa and Investor Visa options
• Startup promotion and incubation grants (DoI + NITC)

Challenges and Considerations

• Bureaucratic delays in approvals
• Need for local legal and financial advisors
• Lack of startup-friendly banking policies
• Foreign dividend repatriation can be complex without proper accounting

Tip: Hire an FDI consultant and a local Chartered Accountant (CA) from the start.

NRB Compliance and Capital Repatriation

Foreign investors can:

• Repatriate profits, dividends, and capital after tax
• Use Form 61 & 62 through their bank
• Require NRB approval with:
• Auditor's report
• Tax clearance
• Proof of initial capital inflow

This process may take 15–45 working days depending on documentation.

Conclusion

FDI in Nepal’s IT sector is not just allowed it’s actively encouraged. With strong legal support, affordable workforce, and growing digital adoption, Nepal is becoming a hotspot for tech investors looking to build global solutions from South Asia.

Whether you're planning to open a development office or invest in a SaaS startup Nepal offers an ideal blend of cost-efficiency, talent, and untapped market potential.