Foreign Direct Investment (FDI) is a crucial component for the economic development of Nepal, particularly in promoting industrial growth, creating employment, and enhancing access to technology and international markets.
Legal Framework for Foreign Investment in Nepal’s ICT Sector
Foreign investment in Nepal’s ICT sector is regulated by a set of laws that provide the basis for investment approval, capital infusion, business operation, and profit repatriation:
- Foreign Investment and Technology Transfer Act, 2019: This is the primary law that governs foreign investment in all sectors, including ICT. It sets out procedures for investment approval, forms of investment (equity, loans, and reinvestment), technology transfer, and repatriation of profits.
- Foreign Investment and Technology Transfer Regulations, 2021: These regulations provide detailed procedures and documentation requirements for implementing the provisions of the Foreign Investment Act, including application submission and timeframes.
- Industrial Enterprises Act, 2020: This Act promotes industrial growth by classifying ICT as a service industry and offering facilities such as tax incentives and simplified registration procedures.
- Companies Act, 2006: It governs the incorporation, operation, and compliance of companies with foreign investment. All ICT firms must be registered under this Act to operate legally in Nepal.
- Income Tax Act, 2002: This Act deals with taxation of business income, including foreign-owned ICT companies, and outlines rules for tax on repatriated profits, withholding tax, and other obligations.
Information and Communication Technology (ICT) refers to the integration of computing, telecommunication, and digital technologies to access, store, transmit, and manage information. It encompasses all technologies used for handling communications and processing data electronically.
In simple terms, ICT includes tools and systems such as computers, internet, software applications, mobile phones, cloud services, data centers, and networking infrastructure that enable users to interact, communicate, and share information efficiently.
Categories for Foreign Investment in ICT Sector
- Technology park
- IT park
- Biotech park
- Software development
- Data processing
- Digital mapping
- Business process outsourcing (BPO)
- Knowledge process outsourcing (KPO)
- Data center
- Data mining
- Cloud computing
- Web portal
- Web designing service
No Minimum Investment Limit for Foreign Investment in Nepal’s IT Sector
As per the official notice issued by the Ministry of Industry, Commerce and Supplies, Government of Nepal on 2 October 2023, the Information Technology (IT) industry has been exempted from the minimum investment threshold requirement for foreign investors. This means that foreign individuals or entities can invest in Nepal’s IT sector without being subject to any fixed minimum capital requirement.
This policy decision aims to encourage more foreign participation in Nepal’s growing digital economy, especially in areas such as software development, cloud computing, business process outsourcing (BPO), and tech-based startups. It provides greater flexibility and accessibility for smaller investors, freelancers, and emerging tech companies from abroad to enter the Nepali market with ease.
This exemption marks a progressive step by the government in recognizing the low-capital, high-potential nature of IT businesses, making Nepal a more attractive destination for diverse forms of foreign investment in the tech sector.
Procedures applicable for foreign Investment approval in information Communication Technology sector
Step 1: Application for Foreign Investment Approval
The first step is to apply for approval of foreign investment under the Foreign Investment and Technology Transfer Act, 2019 (FITTA). The investor must submit an application to the Department of Industry with supporting documents such as a project proposal, investor profile, financial plan, joint venture agreement (if applicable), and proof of identity. Once the DoI is satisfied, it grants the foreign investment approval letter.
Step 2: Company Incorporation with the Company Registrar Office
After receiving the foreign investment approval, the next step is to register the company under the Companies Act, 2006. The applicant must submit the Memorandum and Articles of Association, details of shareholders and directors, and a prescribed registration fee to the Office of the Company Registrar. Upon verification, the OCR issues the Certificate of Incorporation.
Step 3: Tax Registration and PAN Issuance
The newly incorporated company must then register with the Inland Revenue Office to obtain a Permanent Account Number (PAN) for taxation purposes. This is mandatory to commence any commercial activity, issue invoices, and comply with Nepal’s tax laws under the Income Tax Act, 2002.
Step 4: Local Level Business Registration
The company must also register its office location and business activities at the respective Ward Office under the local government. This is required for local administrative recognition, and may be necessary for obtaining trade licenses or operation permits in specific jurisdictions.
Step 5: Registration of Industry at DOI
In the case of manufacturing, IT, and service-based industries, the company must also register itself as an industry at the Department of Industry. This ensures classification under the Industrial Enterprises Act, 2020, which may entitle the company to tax incentives, import benefits, and industry-specific support.
Step 6: Clearance from Credit Information Bureau
Before infusing capital into the country, the investor is required to obtain a Non-Blacklist Certificate from Nepal’s Credit Information Bureau. This certificate confirms that the foreign investor or entity is not listed as a defaulter or blacklisted for financial misconduct.
Step 7: Pre-Investment Notification to Nepal Rastra Bank
The investor must submit a statutory notification to the Foreign Exchange Department of Nepal Rastra Bank before bringing in the investment funds. This includes details of the approved investment, company registration, and the intended amount to be remitted.
Step 8: Capital Infusion via Formal Banking Channels
The approved foreign capital must be transferred into Nepal through formal banking channels (e.g., SWIFT) into a local commercial bank account opened in the name of the investing company. After verifying the source and amount, the bank issues an Investment Certificate, which acts as proof of the inflow of foreign capital.
Step 9: Recording of Foreign Investment at Nepal Rastra Bank
Once the capital is infused and the certificate is obtained, the company must ensure that the investment amount is formally recorded at the Nepal Rastra Bank. This step is crucial for enabling future repatriation of profits, dividends, or capital, as permitted under FITTA and NRB guidelines.
Required Documents for Foreign Investment Approval in Nepal’s ICT Sector
To obtain approval for foreign investment in Nepal’s Information Communication Technology sector, the following documents must be submitted:
·A comprehensive project report detailing the project background, market analysis, technical aspects, financial projections, and the source and structure of the proposed investment.
·A bio-data or company profile of the foreign investor, outlining their business experience and operational background.
·A copy of the passport of the foreign investor (if the investor is an individual), or passports of the directors (if the investment is being made through a corporate entity).
· A certified copy of the Certificate of Incorporation of the foreign investor company, along with its Memorandum and Articles of Association, and any other relevant registration documents.
· A corporate resolution passed by the foreign investor’s board or governing body authorizing the decision to invest in Nepal.
·A Financial Credibility Certificate (FCC) issued by a recognized bank in the investor’s home country, verifying the investor’s financial standing and capacity to invest.
· A legally executed Power of Attorney, authorizing a designated individual to act on behalf of the investor for all matters related to the approval and registration process with the government authorities in Nepal.
Government Fees Applicable for Foreign Investment in Nepal’s IT Sector
Foreign investors seeking to establish an IT-based business in Nepal are required to pay certain government fees during various stages of the approval and registration process. The applicable fees are outlined below:
| Process & Responsible Authority | Applicable Government Fees |
| Foreign Investment Approval at the Department of Industry | A refundable guarantee amount of NPR 20,000 |
| Company Registration at the Office of the Company Registrar | Fee varies based on the authorized capital of the company |
| Business Registration at the Local Ward Office | Ranges from NPR 10,000 to NPR 25,000 per year, depending on the local authority |
| Industry Registration at the Department of Industry | No fee applicable |
Opportunities and Incentives for Foreign Investment in Nepal’s ICT Sector
Nepal’s Information and Communication Technology (ICT) sector presents a growing field of opportunities for foreign investors, backed by a supportive policy environment and a dynamic young workforce. As the country moves toward digitization, the demand for ICT services, infrastructure, and innovation continues to rise—making the sector attractive for investment.
Opportunities
1. Expanding Digital Market
With rising internet penetration and increasing digital literacy, Nepal offers a fertile ground for services such as e-commerce, e-learning, fintech, and digital health platforms.
2. Untapped Sectors
Foreign investors can explore areas like cloud computing, data centers, AI & automation, digital mapping, cybersecurity, and remote work solutions, which are still in early development stages in Nepal.
3. Service Export Potential
Nepal’s time zone advantage, competitive wages, and English-speaking workforce make it ideal for Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) services.
4. Startup Ecosystem
The tech startup scene is growing, and foreign capital can play a vital role in funding innovation, especially in sectors like mobile applications, software-as-a-service, and ed-tech.
5. Digital Nepal Framework
The government’s long-term vision to transform sectors like education, agriculture, health, and tourism through digital technology provides numerous entry points for ICT-based solutions.
Incentives for Foreign Investors
1. No Minimum Investment Requirement in ICT
As per the notice issued on October 2, 2023, there is no minimum investment threshold for foreign investment in the ICT sector—making it highly accessible, even for small-scale investors.
2. Tax and Customs Benefits
Under the Industrial Enterprises Act, 2020, ICT industries may qualify for income tax exemptions, customs duty reductions, and VAT incentives depending on the nature and location of the business.
3. Repatriation Rights
Investors are allowed to repatriate profits, dividends, and investment capital, as permitted under the Foreign Investment and Technology Transfer Act, 2019 (FITTA) and foreign exchange regulations of Nepal Rastra Bank.
4. One-Stop Service Centre
The Department of Industry operates a One-Stop Service Centre to facilitate foreign investment procedures, aiming to minimize delays and bureaucratic hurdles.
5. Skilled Workforce at Competitive Cost
Nepal offers a large pool of educated youth with degrees in computer science, IT, and engineering available at much lower wage levels compared to other regional markets.
Conclusion
Nepal’s Information and Communication Technology (ICT) sector stands at a critical juncture of growth and transformation. With the government’s increasing commitment to digital development through policy reforms like the Digital Nepal Framework, and the recent removal of minimum investment thresholds for ICT-related foreign investment, the country is signaling a clear invitation to global investors.
The legal framework anchored in FITTA 2019 and its supporting regulations has laid the groundwork for transparent, structured, and investor-friendly processes. From company incorporation to capital repatriation, the procedures are steadily becoming more efficient and accessible.