Introduction

The construction industry is one of the key pillars of Nepal’s economic development. It contributes significantly to the country’s GDP, generates large-scale employment, and supports allied industries such as cement, steel, and real estate. With Nepal’s growing need for modern infrastructure and limited domestic capital, Foreign Direct Investment has become an essential component for funding and executing large-scale projects.

FDI in the construction business enables Nepal to harness foreign capital, advanced technologies, engineering expertise, and management practices, accelerating the completion of major infrastructure projects. Foreign investors have shown interest in hydropower development, urban housing, industrial parks, and transportation networks, among others. The Government of Nepal promotes such investments through favorable laws, investment incentives, and institutional reforms.

Foreign Participation in Nepal’s Construction Sector

Foreign direct investment in Nepal’s construction sector is permitted at 100% ownership. Foreign companies can participate in public construction projects through International Competitive Bidding (ICB). For domestic projects valued above NPR 60 million, foreign firms may obtain a temporary permit by partnering with a local construction company.

Classification of Construction Companies and Scope of Public Construction Works under Construction Business Act 2055

The Public Construction Sector in Nepal classifies construction companies into four categories based on their capacity and eligibility:

“A” Class Construction Company
“B” Class Construction Company
“C” Class Construction Company
“D” Class Construction Company

The minimum and maximum contract values that can be awarded to construction companies are as follows:

“A” Class: Projects exceeding NPR 20 million
“B” Class: Projects from NPR 6 million to NPR 30 million
“C” Class: Projects from NPR 2 million to NPR 10 million
“D” Class: Projects up to NPR 3 million

Note: For this purpose, the “amount” refers to the estimated contract value.

Participation by Domestic and Joint-Venture Companies

Fully or Majority Nepali-Owned Companies:
1. Construction firms with 100% Nepali ownership or at least50% Nepali ownership in joint ventures with foreign construction companies can participate in international or local competitive bidding.
1. The bid amount can exceed the foreign investor’s proposed contract by up to 7.5%.
Partially Nepali-Owned Companies:
1. Companies with at least 25% Nepali ownership in joint ventures with foreign investors can participate, even if the bid amount exceeds the foreign investor’s proposed contract by up to 5%.
Small-Scale Projects:
1. Public construction works up to NPR 6 million must be executed by fully Nepali construction companies.

This framework ensures that foreign investors participate in partnership with domestic firms, while also promoting the growth of Nepali construction companies through joint ventures and regulated project allocations.

Classification and Requirements of Construction Licenses in Nepal

Nepal’s construction sector classifies companies into four license categories Class “A”, “B”, “C”, and “D” based on financial capacity, work experience, human resources, and machinery/equipment ownership. These classifications regulate the eligibility of companies to undertake public construction projects and are relevant for FDI participation, often in joint ventures with domestic firms.

Class “A” Construction License

Financial Capacity: Minimum running capital of NPR 100 million.
Work Experience:
- Completion of 4 public projects of at least NPR 10 million each, OR
- Multiple projects totaling NPR 60 million, OR
- 2 civil engineers with 20+ years’ experience, OR
- Company promoter/engineer with NPR 60 million project experience in the last 10 years.
Human Resources: Full-time employment of 2 civil engineers, 4 civil technicians, 2 graduates, 3 certificate holders, 1 commerce graduate, 1 commerce certificate holder.
Machinery & Equipment: Must own essential equipment (Theodolites, Level instruments, Trucks, Water pumps, Mixers, Vibrators, Lab equipment, and one major equipment such as Excavator/Bulldozer). Optional equipment requires at least 4 items from a list including Loader, Motor Grader, Crane, etc.

Class “B” Construction License

Financial Capacity: Minimum running capital of NPR 50 million.
Work Experience: 4 public works of at least NPR 8 million each, or equivalent experience, or 1 civil engineer with 10+ years’ experience.
Human Resources: 1 civil engineer, 2 civil technicians, 2 graduates, 2 certificate holders, 1 commerce graduate.
Machinery & Equipment: Essential equipment includes Theodolite, Level instruments, Trucks, Water pumps, Mixers, Vibrators, Lab equipment, plus one major equipment. Optional equipment requires any 2 items from the prescribed list.

Class “C” Construction License

Financial Capacity: Minimum running capital of NPR 10 million.
Work Experience: 4 public works of at least NPR 1 million each, or equivalent; 1 civil engineer with 5 years’ experience, or 2 civil overseers, or promoter with NPR 10 million experience in 5 years.
Human Resources: 1 civil engineer, 2 civil technicians, 2 graduates, 3 certificate holders, 1 commerce graduate.
Machinery & Equipment: Essential equipment includes Level instruments, Water pumps, Mixers, Vibrators; optional requires at least 1 item from the standard list.

Class “D” Construction License

Financial Capacity: Minimum running capital of NPR 100,000.
Work Experience: Not required.
Human Resources: 1 civil technician, 1 administrator, 1 commerce certificate holder.
Machinery & Equipment: Essential equipment includes Level instrument, Water pump, and Concrete vibrator.

Timeline for Registration and Licensing of Construction Companies in Nepal

Company Registration: Typically takes 10–15 days.
License Issuance: Depending on the class of the license, the process generally requires 4–8 weeks.

Scope of FDI in Construction Business in Nepal

The construction industry in Nepal presents vast opportunities for foreign investors due to the country’s growing need for infrastructure development. FDI plays a crucial role in improving the quality, technology, and sustainability of construction projects. The scope of FDI in this sector extends to various sub-sectors, particularly in the operation, management, and development of already built infrastructures and essential service facilities.

Conference and Commercial Buildings:
Foreign investors can participate in the establishment, management, and modernization of large-scale conference halls, convention centers, and business complexes. These facilities promote business tourism, international events, and corporate gatherings, thereby contributing to Nepal’s service economy and urban development.
Water Supply and Fuel Pipeline Projects:
Investment in the construction and operation of water supply systems and pipelines related to fuel gas plays a vital role in ensuring the efficient and sustainable distribution of essential utilities. Such investments not only reduce the financial burden on the government but also help in adopting advanced technology for urban infrastructure and resource management.
Warehouses and Storage Facilities:
The development of modern warehouses and storage infrastructure with foreign capital enhances Nepal’s logistics and supply chain management. FDI in this area supports agricultural and industrial storage, promotes cold-chain systems for perishable goods, and ensures smooth domestic and international trade operations.
Airports and Bus Parks:
The construction, expansion, and operation of airports and bus parks through foreign investment significantly improve transportation connectivity. Such projects contribute to regional mobility, enhance the tourism sector, and promote sustainable transportation management in urban and rural areas.
Stadiums and Sports Complexes:
FDI can support the development of high-standard stadiums, sports complexes, and recreational facilities. This not only helps promote sports tourism and cultural activities but also provides employment opportunities and improves the overall social infrastructure of Nepal.
Ropeways and Road Development:
Given Nepal’s mountainous geography, FDI in ropeway and road construction is crucial for improving accessibility and transportation in remote regions. Modern engineering and technology brought by foreign investors can enhance the durability and safety of such infrastructure.
Irrigation Systems:
Investment in irrigation infrastructure strengthens agricultural productivity and ensures efficient water management. Foreign collaboration in constructing modern irrigation channels and water storage systems can help reduce dependency on monsoon rainfall and promote sustainable agriculture.
Electricity Transmission and Power Houses:
FDI in electricity transmission lines, substations, and power house construction plays an important role in strengthening Nepal’s energy sector. It ensures stable power distribution, supports industrial growth, and contributes to cross-border energy trade.
Railway Services:
Nepal’s emerging railway infrastructure offers another area of opportunity. Foreign investment can facilitate the construction, operation, and maintenance of rail networks, improving trade efficiency and regional connectivity with neighboring countries like India and China.
Cargo Complexes and Inland Container Depots (ICDs):
FDI in cargo complexes and ICDs enhances Nepal’s trade logistics by improving customs handling, storage, and transportation systems. Such projects reduce import-export bottlenecks and help integrate Nepal more effectively into the regional and global trade network.

Governing Authority

Company Act 2063	Incorporation and Regulation of Company
Construction Business Act 1999	Regulation of License
Construction Business Regulations,2000	Requirements for obtaining the construction company license

Process for Registration of a Construction Company in Nepal

The procedure to register a construction company and obtain the necessary license is as follows:

Company Incorporation: Register the company with the Office of the Company Registrar (OCR).
Local Registration: Register the business with the appropriate local government authority.
Tax Registration: Complete registration with the Inland Revenue Office (IRO).
Department Registration: Register the company with the Department of Industry (DOI).
License Application: Prepare all required documents and submit an application for the Construction License.
Operating License: Obtain the relevant operating license from the local government or theMinistry of Urban Development.

Documents Required for FDI in Construction Business in Nepal

Application Form
1. Completed application for foreign investment registration submitted to the Department of Industry (DOI) or Investment Board Nepal (IBN) for large-scale projects.
Company Registration Documents
1. Certificate of incorporation of the investing company in its home country.
1. Memorandum and Articles of Association (MoA & AoA).
1. Business registration certificate of the Nepali entity (if forming a joint venture).
Investment Proposal / Project Report
1. Detailed description of the project, including objectives, scope, investment amount, expected employment, technology transfer, and timeline.
1. Financial projections and capital structure.
Board Resolution / Approval of Parent Company
1. Resolution from the foreign parent company approving the investment in Nepal.
Bank Statement / Proof of Fund
1. Evidence of funds available for investment, such as bank statements, letters of credit, or escrow account confirmation.
Tax Registration / Tax Clearance
1. Tax identification number (PAN/VAT) and tax clearance certificates for existing entities (if applicable).
Environmental Clearance (if applicable)
1. EIA (Environmental Impact Assessment) or IEE (Initial Environmental Examination) report for projects that may have environmental impact.
Land Lease / Land Ownership Proof
1. Evidence of land ownership, lease agreement, or project site allocation for construction.
Power of Attorney
1. Authorizing a representative in Nepal to handle the investment registration and project implementation.

Conclusion

FDI in Nepal’s construction sector offers opportunities for infrastructure growth, technology transfer, and economic development. Legal frameworks like the Construction Business Act, 2055 and licensing regulations ensure foreign participation often occurs through joint ventures with Nepali companies. While inflows are currently limited, addressing procedural challenges and promoting collaboration can help maximize FDI’s impact on sustainable and high-quality infrastructure development.

Foreign Direct Investment (FDI) in Construction Business in Nepal