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FDI in Figures

According to UNCTAD's 2022 World Investment Report, FDI inflows to Nepal declined by 32 per cent from USD 185 million in 2019 to USD 126 million in 2020, due to the economic and health crisis triggered by the Covid-19 pandemic and the subsequent effects on the tourism sector. The decline in tourism had a significant effect on the economy through the industry's multiple linkages with other economic activities, including FDI inflows. FDI Inward flow came back to 196 million USD in 2021 (UNCTAD, 2023). The stock of FDI has been estimated at USD 1.7 billion in 2020 and 1.8 billion in 2021. India, China, Singapore and Ireland are the country's leading investors. The services sector accounts for more than 70% of total FDI (mostly in communication, financial intermediation, education, hotels and restaurants), while the manufacturing, mining and quarrying subsectors received 15.1%, slightly more than the energy sector (13.9%) (Nepal Rastra Bank, 2023).

The UNCTAD expects Nepal to receive more FDI in future years thanks to the improvement of the business climate. As a member of WTO and the Multilateral Investment Guarantee Agency (MIGA), Nepal has signed the Bilateral Investment Protection and Promotion Act (BIPPA) with six countries - including India - to encourage FDI inflows. Foreign investment in Nepal is regulated and administered by the Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. FDI is subject to approval by the Nepalese authorities. The nation is facing several challenges in the FDI sector, which is mainly due to the lack of transparency, haphazard selection of projects and the neglect of their possible impacts on the national economy. The law provides for an independent judiciary, but courts remain vulnerable to political pressure, bribery, and intimidation. Furthermore, the country has untapped hydropower and tourism potential, and its geographical location between India and China can be a strategic asset. On the other hand, corruption, political instability, bureaucracy, weak infrastructure, an unskilled workforce, and reduced transparency in its legal and regulatory systems act as investment deterrents. Climate hazards also pose a threat to FDI flows. The country made considerable progress with regards to getting credit and dealing with construction permits on the year. Even amidst the growing influence of China in the FDI sector, Indian investment companies are no less important. More than 150 Indian ventures have been operating in Nepal, which accounts for over 30 percent of the country’s total FDI. Indian firms have been working in all such areas as manufacturing, banking, insurance, education, telecom, power, tourism and various other sectors.

In a bid to facilitate FDI, Nepal Rastra Bank rolled out the Foreign Investment and Loan Management Bylaws 2021 which freed foreign investors from having to take the central bank’s prior authorisation to transfer foreign currency into Nepal after obtaining approval from the foreign investment sanctioning body. During the period mid-July 2021 to mid-January 2022, the country received promises from potential investors to spend Rs30.56 billion (250,6 million USD) on 129 projects, according to the department. In the same period of the last fiscal year 2020-21, investment commitments amounted to Rs23.47 billion (192,46 million USD) for 123 projects. FDI pledges during the whole of fiscal 2019-20 stood at Rs37.80 billion (319 million USD) before dropping by 15.29 percent to Rs32.02 billion (262,6 million USD) in fiscal 2020-21 as the coronavirus pandemic took hold. China topped the list of foreign investment pledges in Nepal in the first half of the fiscal year, with investment commitments amounting to Rs23.37 billion (191,64 million USD) in 107 projects (Nepalese Department of Industry, 2022).

Nepal Foreign Direct Investment (FDI) fell by USD 32.8 million in January 2023, compared with an increase of USD 39.5 million in the previous quarter. The net FDI inflow to the country has plunged by 93.4% in the first half of FY 2022/23. Nepal saw a net FDI inflow of Rs 749.4 million in the first half of this fiscal compared to Rs 11.34 billion during the corresponding period of the last fiscal. Nepal is one of the countries that receive the lowest FDI in the world. Despite many talks on attracting FDI in the country, the country has failed to attract foreign investors as expected. While net FDI is on the decline, repatriation is on the rise, as per NRB statistics. Foreign investors have repatriated Rs 1.80 billion in the first half of this fiscal. Such repatriation during the first half of the last fiscal stood at Rs 268 million. Not only net FDI, but FDI pledges in the country also dropped significantly during the first half of the current fiscal year. As per the latest statistics of the Department of Industry (DoI), FDI commitments dropped by 43.27 percent in the first six months of FY 2022/23. FDI commitments totaled Rs 17.30 billion in the review period compared to Rs 30.50 billion in the corresponding period of FY 2021/22. Economists attribute the decline in net FDI inflow to global economic recession.  According to them, the global economy that was coming out from the impact of the Covid-19 pandemic has been hit hard by the Russia-Ukraine conflict and the rise in prices of commodities. Economist Chandra Mani Adhikari said that foreign investment in Nepal has decreased due to the global economic recession (The Annapurna Express, February 2023).

 

Country Comparison For the Protection of Investors

  Nepal South Asia United States Germany
Index of Transaction Transparency* 6.0 5.8 7.0 5.0
Index of Manager’s Responsibility** 1.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 9.0 7.4 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 12619665
FDI Stock (million USD) 1,706.81,933.92,039.9
Number of Greenfield Investments* 5.02.06.0
Value of Greenfield Investments (million USD) 2273133

Source: UNCTAD - Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

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Tax Rates

Value-Added Tax (VAT)
13% (standard rate)
Exports are zero-rated.
Exempt items include: rice, pulses flour, fresh fish, meat, eggs, fruits, flowers, edible oil, piped water, wood fuel, basic agricultural products like paddy, wheat, maize, millet, cereals and vegetables, social welfare services including medicine, medical services, veterinary services and educational services, goods made for the use of disabled persons, air transport, educational and cultural goods and services such as books and other printed materials, radio and television transmissions, artistic goods, cultural programmes, non-professional sporting events and admissions to educational and cultural facilities, the purchase and renting of land and buildings, financial and insurance services, postage and revenue stamps, banknotes, cheque books.
Company Tax
25%
Withholding Taxes
Dividends: 5%, Interests: 15%, Royalties: 15%.
Bilateral Agreement
Nepal and Mauritius concluded a Double Taxation Agreement.
Social Security Contributions Paid By Employers
20%
Other Domestic Resources
Inland Revenue Department
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 
 

Individual Taxes

Personal Income Tax Progressive rate from 1% to 25%
Up to NPR 400,000 for an employed individual and NPR 450,000 for a couple 1%
Next NPR 100,000 10%
Next NPR 100,000 20%
Next NPR 1,300,000 for an individual and NPR 1,250,000 for a couple 30%
Above NPR 2,000,000 36%
 
 

Country Comparison For Corporate Taxation

  Nepal South Asia United States Germany
Number of Payments of Taxes per Year 46.0 26.7 10.6 9.0
Time Taken For Administrative Formalities (Hours) 377.0 273.5 175.0 218.0
Total Share of Taxes (% of Profit) 41.8 43.9 36.6 48.8

Source: Doing Business - Latest available data.

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Investment Opportunities

Tenders, Projects and Public Procurement
Asian Developement Bank, Proposed Projects in Asia
DgMarket, Tenders Worldwide
Setting Up a Company
Consult Doing Business Website, to know about procedures to start a Business in Nepal.
 

Business Setup Procedures

Setting Up a Company Nepal South Asia
Procedures (number) 8.00 7.12
Time (days) 22.50 14.56

Source: Doing Business.

 
 
 

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Latest Update: November 2023