Foreign Direct Investment (FDI) has become a strategic driver for Nepal’s long-term economic transformation. As the country positions itself as an emerging investment destination in South Asia, FDI is increasingly seen as a key source of capital, technology transfer, job creation, and global market integration.

By 2026, Nepal’s investment environment is expected to mature further, supported by policy reforms, digital approval systems, and targeted incentives. This guide provides a comprehensive, SEO-focused overview of Nepal’s FDI landscape covering policies, sectoral limits, legal requirements, and the most promising opportunities for foreign investors.

FDI Landscape in Nepal: Current Trends and Investment Performance

FDI Growth Overview

Nepal has experienced gradual but consistent growth in foreign investment commitments over recent years. Although total inflows remain modest compared to regional peers, the upward trend signals improving investor confidence.

Key observations include:

• Rising project approvals across manufacturing, services, and infrastructure

• Increased foreign participation in hydropower and tourism

• Growing interest from Asian and non-resident Nepali investors

FDI inflows remain a small percentage of GDP, which highlights Nepal’s high growth potential rather than market saturation.

FDI vs Other Capital Inflows

While remittances continue to dominate Nepal’s foreign currency earnings, FDI offers a more sustainable and productive form of capital. Unlike remittances, FDI directly supports industrial output, export capacity, and employment generation making it a strategic priority for national development.

Legal and Policy Framework Governing FDI in Nepal

Primary Laws Regulating Foreign Investment

Foreign investment in Nepal is governed by a structured legal framework designed to protect investors while aligning with national priorities. The core legislation includes:

1. Foreign Investment and Technology Transfer Act (FITTA)

2. Industrial Enterprises Act

3. Companies Act

4. Public-Private Partnership and Investment Act

5. Foreign Exchange Regulation laws

6. Income Tax and Customs regulations

Together, these laws define eligibility, approval procedures, ownership rights, and repatriation rules.

Recent Policy Reforms and Regulatory Updates

Nepal has introduced several reforms to enhance ease of doing business, including:

• Simplified approval procedures for smaller investment amounts

• Digital submission and tracking of FDI applications

• Tighter oversight on equity transfers to ensure transparency

• Sector-specific revisions to balance foreign participation and local protection

These reforms reflect Nepal’s shift toward a more controlled but investor-friendly regime.

Minimum Investment Requirements and Ownership Rules

Minimum Capital Threshold for Foreign Investors

To qualify as foreign direct investment, the minimum investment amount is NPR 20 million per project. This threshold ensures that FDI projects contribute meaningfully to economic development while remaining accessible to small and mid-sized investors.

There is no maximum investment limit, allowing large-scale and capital-intensive projects to operate freely.

Foreign Ownership Limits by Sector

Nepal allows 100% foreign ownership in most sectors, including manufacturing, IT services, energy, and tourism. However, certain industries have ownership caps:

• Aviation and telecommunications: capped foreign equity

• Professional consulting services: partial foreign ownership

• Casino and regulated industries: mandatory local partnership

Understanding sector-specific limits is essential before structuring an investment.

Restricted and Prohibited Sectors for FDI

Industries Closed to Foreign Investment

Nepal restricts foreign investment in select sectors to protect local livelihoods and national interests. These include:

• Cottage and micro-scale businesses

• Local retail trade

• Arms, ammunition, and security-sensitive industries

• Personal service businesses

• Certain real estate trading activities

• Traditional agriculture and animal husbandry

Foreign investors must carefully review the negative list before submitting applications.

FDI Approval Process in Nepal: Step-by-Step Guide

Key Regulatory Authorities

FDI approvals are primarily handled by:

• The Department of Industry (for standard projects)

• Investment Board Nepal (for large-scale or strategic investments)

FDI Application and Approval Steps

The standard FDI process includes:

1. Company registration in Nepal

2. Submission of FDI proposal and business plan

3. Review and approval by the concerned authority

4. Capital inflow through authorized banking channels

5. Industry registration and tax compliance

6. Sector-specific licenses or environmental approvals (if applicable)

With digitalization, approval timelines have significantly improved.

Profit Repatriation and Foreign Exchange Regulations

Foreign investors in Nepal are legally entitled to:

• Repatriate dividends and profits

• Transfer proceeds from share sales

• Repatriate technology fees and loan repayments

All transactions must comply with foreign exchange regulations and be processed through licensed banks, ensuring transparency and regulatory compliance.

High-Potential Sectors for Foreign Investment in Nepal (2026)

Hydropower and Renewable Energy

Nepal’s vast hydropower potential remains largely untapped. Government prioritization, long-term power purchase agreements, and export prospects make this sector highly attractive for foreign investors.

Information Technology and Digital Services

The IT sector allows full foreign ownership and benefits from a young, skilled workforce. Software development, outsourcing, fintech, and digital platforms are among the fastest-growing areas.

Tourism, Hospitality, and Travel Services

With strong international brand recognition, Nepal offers opportunities in:

• Hotels and resorts

• Adventure tourism

• Wellness and eco-tourism

• Travel technology platforms

Tourism remains one of Nepal’s most FDI-friendly sectors.

Manufacturing and Export-Oriented Industries

Agro-processing, light manufacturing, and export-oriented industries benefit from tax incentives, customs exemptions, and access to regional markets.

Infrastructure and Public-Private Partnerships

Foreign investors are increasingly participating in roads, airports, urban infrastructure, and logistics projects under public-private partnership models.

Incentives and Benefits for Foreign Investors

Nepal offers several incentives to attract foreign capital, including:

• Corporate tax reductions in priority industries

• Tax holidays for export-oriented businesses

• Customs duty exemptions on capital equipment

• Special Economic Zone benefits

• Long-term visas for investors and technical staff

These incentives significantly enhance project viability.

Challenges Facing Foreign Investors in Nepal

Despite improvements, investors may face:

• Regulatory interpretation differences

• Infrastructure limitations

• Administrative delays in certain sectors

• Policy consistency concerns

However, ongoing reforms and institutional strengthening are gradually addressing these issues.

Why Nepal Is an Emerging FDI Destination?

By 2026, Nepal is expected to benefit from:

• Continued policy liberalization

• Infrastructure expansion

• Improved governance mechanisms

• Regional connectivity with major markets

For investors with a long-term perspective, Nepal offers high-growth potential with relatively low entry costs.

Conclusion

Foreign Direct Investment in Nepal is entering a new phase of structured growth. With a clearer policy framework, sector-specific opportunities, and improving approval mechanisms, Nepal presents a compelling case for foreign investors seeking emerging market exposure.

Strategic investments aligned with national priorities energy, technology, tourism, manufacturing, and infrastructure are well-positioned to deliver sustainable returns while contributing to Nepal’s economic development.