Nepal’s information technology (IT) sector has emerged as a highly attractive destination for foreign investment, driven by a skilled workforce, competitive operating costs, expanding digital infrastructure, and increasing government support for innovation. As a result, foreign startups, software companies, outsourcing firms, and other technology businesses are increasingly exploring opportunities in Nepal.
Unlike most sectors, where foreign investors are generally required to invest at least NPR 20 million to obtain FDI approval, eligible IT industries are exempt from this minimum investment threshold. Recognizing the unique nature of technology businesses and their potential to drive innovation, employment, and economic growth, the Government of Nepal has introduced this exemption to encourage greater foreign participation in the country’s growing digital economy.
Foreign Direct Investment Framework in Nepal
Foreign investment in Nepal is primarily governed by the Foreign Investment and Technology Transfer Act, 2019 (FITTA), supported by the Foreign Investment and Technology Transfer Regulations, 2021 (FITTR) and various other Acts as well. The Act was enacted with the objective of promoting foreign investment, facilitating technology transfer, and creating an investment-friendly environment in Nepal.
Although the primary law which governs FDI in Nepal is FITTA, but neither FITTA nor FITTR does fix a minimum investment figure in the body of the Act itself. Instead, it empowers the Government of Nepal to prescribe a threshold by notification in the Nepal.
Under Section 2(J) of FITTA, foreign investors may invest in Nepal through various forms/ways, including:
- Establishment of a wholly foreign-owned company;
- Equity participation in an existing Nepali company;
- Joint venture arrangements with Nepali investors;
- Reinvestment of earnings derived from foreign investment; and
- Investment through the acquisition of shares.
Section 15 of FITTA mandates the approval from the competent authority i.e. Department of Industries (DOI) for investment capital up to NRP 6 billion and above NRP 6 billion approval from Investment Board of Nepal (IBN), before making an investment in Nepal and must comply with applicable company, tax, labor, and foreign exchange regulations.
Minimum Foreign Investment Threshold Under FITTA
The FITTA has not explicitly mentioned the minimum amount to get approval for Foreign Direct Investment in Nepal. But the FITTA has delegated authority to Government of Nepal to declare the minimum threshold amount required for foreign investment in Nepal. The legal basis for prescribing a minimum foreign investment threshold is found in Section 3 of the Foreign Investment and Technology Transfer Act, 2019.
Section 3(3) of FITTA provides that foreign investment approval shall not be granted for investments below the minimum amount prescribed by the Government of Nepal through a notification published in the Nepal Gazette.
Pursuant to this authority, the Government of Nepal prescribed NPR 20 million as the minimum investment threshold for foreign investment projects. Consequently, foreign investors intending to establish businesses in Nepal generally had to meet this minimum investment requirement before obtaining FDI approval. But the minimum investment threshold for IT(Information Technology) sector is not limited by NRP 20 million rupees.
While the threshold was intended to encourage meaningful capital inflow and discourage fragmented investments, it somewhat set challenges for technology sectors whose primary assets are intellectual property, software products, technical expertise and human capital rather than physical infrastructures.
The Exception: No Minimum Threshold for IT
Unlike manufacturing industries, hydropower projects, or large-scale infrastructure ventures, technology companies often operate with relatively low capital expenditure. A software development company may require only a small office space, computers, internet connectivity, and a team of skilled engineers. Similarly, many startups begin with limited capital but possess innovative business models and significant growth potential.
Acting pursuant to its authority under Sections 3(3) and 42 of FITTA, the Nepal Gazette notification published on 2080/06/15 (2 October 2023), the Government of Nepal provided that the minimum foreign investment threshold would not apply to specified IT-based industries.
This exemption means that foreign investors may establish eligible IT businesses in Nepal even if their proposed investment amount is below NPR 20 million.
The reform represents one of the most investor-friendly developments in Nepal’s technology sector and aligns with the government’s broader objective of promoting digital transformation and knowledge-based industries.
The requirement of investing NPR 20 million at the initial stage therefore discouraged many foreign startups and technology companies from establishing operations in Nepal. Investors often viewed the threshold as disproportionate to the actual capital requirements of technology-based businesses.
This special rule allows foreign tech startups and small-scale IT entrepreneurs to invest any amount even amounts far below NPR 20 million and still receive instant digital approvals. For IT and digital sector businesses these exemption plays a vital role for foreign investors to invest in Nepal’s IT industries.
Significance of these Exemption
The exemption of IT businesses from 20 million rupees threshold for foreign investment possesses some greater significance in economic system of Nepal. It changes the way of entrance of IT investors in Nepal.
- Promotion of Startup Investment
Foreign startups and early-stage technology companies often lack the financial resources to meet high investment thresholds. The exemption allows such businesses to enter the Nepalese market more easily.
- Lower entry cost:
There is no need to artificially inflate the investment amount to meet a capital floor that doesn’t reflect the actual capital needs of a software or services business.
- Development of Nepal’s Digital Economy
The exemption aligns with broader governmental efforts to transform Nepal into a knowledge-based and technology-driven economy.
Government of Nepal with the recent Budget of Nepal for Fiscal Year 2083/084 has promised various positive changes in the investment in IT sector. In addition to the exemption from the minimum foreign investment threshold, the budget introduced several measures aimed at strengthening Nepal’s digital economy.
IT Industries Covered by the Exemption
The exemption of minimum threshold for investment in IT industries applies to various information technology-related recognized under Nepalese law.
The Industrial Enterprises Act, 2076 (2020) recognized various IT sector businesses which includes:
- Technology park;
- IT park;
- Biotech park;
- Software development;
- Computer and related services;
- Data processing;
- Cyber café;
- Digital mapping;
- Business process outsourcing (B.P.O), knowledge process outsourcing (K.P.O);
- Data center, data mining, cloud computing;
- Digital signature certifying agency;
- Web portal, web designing service, web hosting, online classified advertising service.
Investment on these aforementioned businesses get the exemption of minimum FDI threshold i.e. NRP 20 million as prescribed by the laws of Nepal.
Investment Approval Process for IT Companies
Although eligible IT industries are exempted from the minimum investment threshold, foreign investors must still comply with applicable legal procedures. They must follow the FDI approval process which generally includes:
- Preparation of detailed investment proposal;
- Submission of FDI approval from Department of Industries(DOI) or Investment Board of Nepal(IBN) depending on the investment amount;
- Approval of foreign investment;
- Company Registration through OCR;
- Opening of bank account;
- Tax registration;
- Ongoing reporting and corporate compliance obligations
The exemption for IT industries only removes minimum capital investment amount but doesn’t exempt them from the other minimum standards, processes and regulatory approvals that they need to comply with Nepali legal provisions.
Recent Budgetary Incentives for the IT Sector
The Fiscal Year 2082/83 Budget further reinforces the Government of Nepal’s commitment to promoting the information technology sector as a key driver of economic growth and foreign investment. In addition to the exemption from the minimum foreign investment threshold for eligible IT industries, the budget introduces several measures that make Nepal an increasingly attractive destination for technology-focused investors.
- 75% Income Tax Exemption on IT Service Exports: Income earned from the export of information technology services is entitled to a 75% income tax exemption, providing a significant incentive for export-oriented IT businesses.
- Extension of Benefits Available to Special Industries: Information technology industries have been granted benefits and concessions similar to those available to special industries under Nepalese law.
- Startup Promotion Measures: The budget provides tax incentives and policy support for startup enterprises, creating a more favorable environment for technology-based innovation and entrepreneurship.
- Promotion of Data Centers and Digital Infrastructure: The Government has emphasized the development of data centers, digital infrastructure, and technology-driven industries to strengthen Nepal’s digital economy.
- Encouragement of IT Service Exports: The budget aims to increase Nepal’s export earnings by promoting the export of software development, digital services, outsourcing services, and other technology-based activities.
- Support for Innovation and Technology-Based Enterprises: The Government has prioritized the development of knowledge-based industries and emerging technologies as part of its broader economic growth strategy.
Taken all together, these policies represent a government move towards a technology-driven economy. For any foreign investor looking at software development, business process outsourcing, cloud computing, artificial intelligence, fintech, or any other type of digital project, there are many opportunities. This is evident from the exemptions that exist on the FDI minimum threshold as well as the incentives that have been proposed in the last budget.
Conclusion
Although FDI investment is supposed to be at least NRP 20 million, the exemption of specific IT industries from Nepal’s NPR 20 million minimum foreign investment threshold represents a key milestone in the country’s investment policy. The exemption does not exclude particular industries from other regulatory requirements that they must meet throughout the investment approval process or thereafter.
Foreign investors considering entering Nepal’s IT sector should carefully analyze whether their planned operations are eligible for the exemption and ensure compliance with the necessary legal and regulatory frameworks. Professional legal advice can help facilitate investment approvals, company incorporation, regulatory compliance, and long-term commercial success in Nepal.
Prime Law Associates regularly advises foreign investors, technology companies, startups, and multinational enterprises on foreign investment approvals, company incorporation, regulatory compliance, technology transfer arrangements, and corporate governance matters in Nepal.
FAQs
- Is there a minimum foreign investment requirement for IT companies in Nepal?
No. Eligible information technology-based industries are exempt from the general minimum foreign investment threshold of NPR 20 million. Foreign investors may establish qualifying IT businesses in Nepal without meeting this minimum investment requirement.
- What is the minimum FDI threshold for sectors other than IT?
The general minimum is NPR 20 million per foreign investor, reduced from the original NPR 50 million set in 2019. This applies to most non-IT sectors such as manufacturing, tourism, and energy.
- Which IT businesses qualify for the exemption?
The exemption generally applies to technology parks, IT parks, software development, data processing, digital mapping, BPO services, KPO services, data centers, cloud computing services, web portals, web designing services, and web hosting services.
- Is foreign investment approval still required even though the minimum threshold has been removed?
Yes. The exemption only removes the minimum investment requirement. Foreign investors must still obtain the necessary foreign investment approval, incorporate a company, and comply with tax, banking, and regulatory requirements.
- Which authority approves FDI in the IT sector in Nepal?
The Department of Industry (DOI) handles investments up to NPR 6 billion; Investment Board Nepal (IBN) handles anything above that. Most IT investments, given their typically smaller capital base, fall under DOI.