Table of Contents
- Introduction: Why Nepal Is Emerging as a Hotspot for Investors
- Economic Overview: Key Growth Indicators and Statistics (2025)
- Foreign Investment Laws and Regulatory Environment
- Taxation and Incentives for Investors
- Major Sectors Ripe for Investment: Energy, Tourism, IT, and Agriculture
- Compliance Essentials: Navigating Legal and Regulatory Requirements
- Infrastructure and Connectivity: The Backbone of Nepal’s Investment Climate
- Risks, Challenges, and Mitigation Strategies
- Government Initiatives and Official Support for Investors
- Future Outlook: Projections and Opportunities Through 2030
- Sources & References
Introduction: Why Nepal Is Emerging as a Hotspot for Investors
Nepal is rapidly emerging as a compelling investment destination in South Asia, driven by a combination of political stability, strategic reforms, and untapped market potential. The government’s proactive stance in attracting foreign direct investment (FDI) is evident through a series of legislative and regulatory updates, including the Foreign Investment and Technology Transfer Act, 2019 and the Foreign Investment and Technology Transfer Regulation, 2021. These frameworks provide a clearer, more investor-friendly environment by streamlining approval processes, expanding permissible sectors, and introducing repatriation guarantees for profits and capital.
Recent years have seen a noteworthy uptick in FDI commitments. According to the latest figures from the Nepal Rastra Bank, FDI inflows reached NPR 23.5 billion (approx. USD 177 million) in fiscal year 2022/23, marking a 23% year-on-year increase. The energy, tourism, information technology, and manufacturing sectors remain focal points, with hydropower projects in particular drawing large-scale foreign participation due to Nepal’s vast hydrological resources and regional energy demand.
Compliance and regulatory clarity have improved, as evidenced by the introduction of the Inland Revenue Department‘s digital tax filing and payment systems and the establishment of a one-stop service center at the Investment Board Nepal. These measures reduce bureaucratic hurdles and provide a more transparent investment process. Furthermore, Nepal’s commitment to international investment standards is reinforced by its membership in the International Centre for Settlement of Investment Disputes (ICSID), which offers investors additional dispute resolution mechanisms.
- Key events: Nepal hosted the Nepal Investment Summit 2024, which secured investment pledges exceeding USD 3 billion, underscoring growing investor confidence.
- Legal outlook: The government is drafting amendments to company and labor laws to align with international practices, aiming to enhance ease of doing business and labor flexibility in 2025 and beyond.
- Statistical insight: The World Bank projects Nepal’s GDP growth to remain above 5% annually through 2025, fueling demand for infrastructure and services.
With its youthful population, strategic location between India and China, and ongoing regulatory reforms, Nepal is well-positioned to attract increasing investment flows through 2025 and the coming years, particularly in infrastructure, technology, and green energy sectors.
Economic Overview: Key Growth Indicators and Statistics (2025)
Nepal’s economic trajectory in 2025 is shaped by its ongoing transition from an agrarian base toward increased industrialization and service sector development. After facing pandemic-induced contractions, Nepal’s economy demonstrated resilience, recording GDP growth of 5.1% in the fiscal year 2022/23 and targeting a growth rate of 6.0% for 2024/25, according to the Ministry of Finance. The government’s macroeconomic framework for 2025 emphasizes infrastructure development, renewable energy, and information technology as key sectors for investment.
- Foreign Direct Investment (FDI): FDI inflow, though modest compared to regional peers, is gradually improving. In 2023, Nepal received approximately NPR 23.5 billion in FDI commitments, with hydropower, tourism, and manufacturing leading the sectors. The government continues to prioritize FDI-friendly reforms, including simplified approval processes and tax incentives as outlined in the Investment Board Nepal’s guidelines.
- Remittances: Remittances remain a critical economic pillar, accounting for over 22% of GDP in 2023/24, per the Nepal Rastra Bank. This robust inflow supports domestic consumption and underpins financial stability, indirectly fostering a favorable environment for local investment and entrepreneurship.
- Inflation and Monetary Policy: Inflation has moderated to around 6.5% in early 2025, following tighter monetary policy and improved supply chain stability. The Nepal Rastra Bank targets single-digit inflation in its medium-term outlook, balancing price stability with credit growth to stimulate investment.
- Infrastructure and Energy: Capital expenditure on roads, energy, and urban development is rising, with the 2024/25 budget allocating NPR 380 billion to infrastructure. The hydropower sector, supported by licensing reforms and regional power trade agreements, is a focal point for both domestic and foreign investors (Ministry of Finance).
With policy reforms and regulatory clarity—such as the amendments to the Foreign Investment and Technology Transfer Act (FITTA), and digitalization of investment procedures—Nepal aims to further improve its investment climate. The government’s outlook for 2025 and beyond projects steady economic growth, increased investor interest, and a gradual expansion of the industrial and service sectors, positioning Nepal as a promising destination for both domestic and foreign investment (Investment Board Nepal).
Foreign Investment Laws and Regulatory Environment
Nepal’s foreign investment framework is principally governed by the Foreign Investment and Technology Transfer Act, 2019 (FITTA), which sets out the legal basis, entry procedures, and operational regulations for international investors. FITTA permits foreign investment in most sectors, except for sensitive areas explicitly listed in its negative list, such as defense and certain natural resources. The law mandates a minimum foreign investment threshold, currently NPR 20 million (about USD 150,000), which is under review for possible revision in 2025 to promote greater flexibility for smaller investors.
Foreign investment proposals must be approved by the Investment Board Nepal (IBN) for projects exceeding NPR 6 billion or those in national priority sectors, while smaller projects are handled by the Department of Industry (DoI). Once approved, investors receive a foreign investment approval certificate, which is necessary for opening foreign currency accounts, repatriating profits, and acquiring work permits for expatriates.
The FITTA framework is complemented by the Foreign Exchange (Regulation) Act, 2019, administered by the Nepal Rastra Bank (NRB), which regulates the inflow and outflow of foreign currency. NRB’s directives outline procedures for profit repatriation, loan repayments, and capital exit, though approval remains subject to compliance with anti-money laundering and tax regulations.
In 2023-2024, Nepal received foreign direct investment (FDI) commitments worth NPR 38.89 billion, with actual inflows lagging at NPR 4.79 billion (Department of Industry). The government is actively working to address the gap between commitments and inflows by streamlining bureaucratic processes and digitizing approval systems. Compliance with local ownership requirements, environmental regulations, and sectoral licensing remains critical, particularly in hydropower, tourism, and manufacturing.
- Recent amendments to the Companies Act and the Industrial Enterprises Act aim to simplify company registration and provide tax holidays for certain industries (Ministry of Industry, Commerce and Supplies).
- The forthcoming National Single Window initiative, expected by 2026, seeks to unify approvals and facilitate easier cross-border transactions (Investment Board Nepal).
The outlook for 2025 and beyond is cautiously optimistic: Nepal’s government is signaling intent to liberalize investment restrictions and strengthen dispute resolution, while persistent challenges—such as foreign exchange controls, regulatory unpredictability, and infrastructure deficits—require ongoing attention. Investors are advised to monitor policy updates and adhere closely to evolving compliance standards to mitigate risks and maximize opportunity in Nepal’s promising, but complex, regulatory environment.
Taxation and Incentives for Investors
Nepal’s tax regime for investors is governed primarily by the Income Tax Act, 2058 (2002) and the Foreign Investment and Technology Transfer Act, 2019. These laws underpin the fiscal environment for both domestic and foreign investors in 2025, offering a combination of general taxation, sector-specific incentives, and compliance obligations.
- Corporate Income Tax: The standard corporate income tax rate in Nepal is 25% for most companies. Banks, financial institutions, and insurance companies face a higher rate of 30%, while certain special sectors such as hydropower may enjoy reduced rates subject to specific conditions (Inland Revenue Department).
- Withholding Tax: Dividend, interest, and royalty payments to non-residents are subject to withholding tax, typically at 5-15% depending on the category and the existence of a Double Taxation Avoidance Agreement (DTAA) (Inland Revenue Department).
- Value Added Tax (VAT): The standard VAT rate is 13%. Certain goods and services are exempt or zero-rated, particularly those related to basic needs and exports (Inland Revenue Department).
- Tax Incentives: Investors can access a range of incentives through the Nepal Investment Board and sectoral ministries. These include income tax holidays for hydropower, tourism, and manufacturing, as well as customs and excise concessions for importing plant, machinery, and raw materials. Special Economic Zones (SEZs) provide additional incentives: for example, a 100% income tax exemption for the first 5 years and 50% for the next 5 years for industries established within SEZs (Special Economic Zone Authority Nepal).
- Compliance: Investors must register with the Inland Revenue Department and file annual tax returns. Foreign investors are also required to channel investment through the formal banking system and comply with foreign exchange regulations set by the Nepal Rastra Bank.
As of 2025, Nepal continues to reform its tax system to attract investment and align with international norms. Current initiatives focus on digital tax administration and increased transparency, which should streamline compliance and reduce administrative burdens for investors. The outlook for the next few years includes further simplification of tax procedures and expanded incentives for priority sectors such as renewable energy, infrastructure, and ICT (National Planning Commission). These measures are expected to bolster Nepal’s competitiveness as an investment destination.
Major Sectors Ripe for Investment: Energy, Tourism, IT, and Agriculture
Nepal’s economic landscape in 2025 presents significant opportunities for investors, particularly across four major sectors: energy, tourism, information technology (IT), and agriculture. These sectors are prioritized in national development plans and benefit from a supportive regulatory environment, government incentives, and growing domestic and international demand.
- Energy: The hydropower sector remains a cornerstone of Nepal’s investment strategy. As of 2025, Nepal has an estimated hydropower potential of over 43,000 MW, with only about 3,000 MW currently harnessed. The Department of Electricity Development streamlines licensing, while the Investment Board Nepal facilitates foreign direct investment (FDI) in large-scale projects. The government has simplified approval processes under the Foreign Investment and Technology Transfer Act, 2019, and offers tax holidays and repatriation guarantees. With cross-border power trade agreements, especially with India and Bangladesh, energy export potential is robust in the coming years.
- Tourism: Tourism rebounded strongly post-pandemic, with arrivals in 2024 surpassing 1 million visitors for the first time since 2019, per the Ministry of Culture, Tourism and Civil Aviation. The government supports investment in hotels, adventure tourism, eco-tourism, and heritage conservation. Special economic zones (SEZs) and streamlined licensing further enhance sector attractiveness, as outlined in the Tourism Act and SEZ Act. The outlook for 2025–2028 is positive, with digital transformation in bookings and marketing driving further growth.
- Information Technology: Nepal’s IT sector is rapidly emerging, aided by a young, tech-savvy workforce and government-backed initiatives such as the National Information Technology Center. Investment incentives include income tax exemptions for IT service exporters and subsidized infrastructure in IT parks. The Ministry of Communication and Information Technology is implementing e-governance policies and digital upskilling programs, while the Investment Board Nepal identifies IT as a priority investment sector. The sector is projected to see double-digit annual growth through 2028, driven by outsourcing, fintech, and software development.
- Agriculture: As the largest employer in Nepal, agriculture is transitioning from subsistence to commercial scale. The Ministry of Agriculture and Livestock Development promotes modernization through agri-tech, mechanization, and value-added processing. The government offers subsidized credit, insurance, and land leasing reforms to attract FDI, reinforced by the Foreign Investment and Technology Transfer Act. The outlook is promising, with high demand for organic products, tea, coffee, and medicinal herbs in regional and global markets.
Overall, Nepal’s legal reforms, sector-specific incentives, and growing regional integration position these sectors as the engines of investment-led growth for 2025 and beyond.
Compliance Essentials: Navigating Legal and Regulatory Requirements
Investing in Nepal in 2025 demands careful attention to the country’s evolving legal and regulatory framework. The cornerstone for foreign and domestic investment is the Foreign Investment and Technology Transfer Act, 2019 (FITTA), which outlines the procedures, eligibility, and sectors open or restricted to investment. FITTA streamlines approval for most sectors, but activities such as defense, atomic energy, and certain natural resources remain off-limits. In addition, the Inland Revenue Department prescribes tax compliance, while the Nepal Rastra Bank (NRB) regulates foreign currency inflows and repatriation of profits.
Investors must register their business with the Office of the Company Registrar and obtain the required approvals from the Department of Industry or the relevant sectoral agencies. For projects above NPR 6 billion, the Investment Board Nepal oversees approval and facilitation. Compliance also extends to environmental regulations, as the Ministry of Environment mandates Environmental Impact Assessments for designated industries.
Taxation for investors is governed by the Income Tax Act, 2058 and the Value Added Tax Act, 2052. The standard corporate tax rate is 25%, with some concessions for priority sectors and special economic zones. Tax incentives are available, but adherence to transfer pricing, documentation, and timely filings is strictly monitored by the tax authorities.
Statistically, Nepal approved over NPR 30 billion in foreign direct investment in the last fiscal year, reflecting growing investor confidence post-pandemic. Sectors such as hydropower, tourism, and manufacturing remain top choices, with China and India as leading source countries (Department of Industry). The government’s digitization of approvals and compliance—such as online tax filing and single-window clearances—continues to improve ease of doing business.
Looking ahead, the regulatory environment is expected to further liberalize, particularly for infrastructure and technology sectors. However, investors should remain vigilant to amendments in foreign investment policy, evolving labor laws, environmental standards, and anti-money laundering requirements enforced by the Financial Information Unit of Nepal Rastra Bank. Proactive compliance and regular engagement with relevant agencies will be essential for sustained and secure investment operations in Nepal through 2025 and beyond.
Infrastructure and Connectivity: The Backbone of Nepal’s Investment Climate
Infrastructure and connectivity are pivotal to Nepal’s ambition to attract and sustain investment, underpinning the country’s economic transformation agenda for 2025 and beyond. Nepal’s strategic location between India and China positions it as a potential trade and transit hub, but realization of this potential hinges on the modernization of transport, energy, and digital infrastructure.
The Government of Nepal has prioritized major infrastructure projects under its 15th Five-Year Plan, emphasizing roads, hydropower, airports, and digital connectivity. Transport remains a critical focus: As of 2024, Nepal’s road network exceeds 80,000 kilometers, though only about 15% is paved, highlighting both progress and the ongoing need for quality upgrades (Ministry of Physical Infrastructure and Transport). Major road corridors and border infrastructure, such as the Postal Highway and East-West Highway upgrades, are intended to facilitate smoother cross-border trade and regional integration.
In energy, Nepal’s vast hydropower potential is a cornerstone of its investment narrative. The country’s installed hydropower capacity reached nearly 3,000 MW in 2024, with the government targeting 5,000 MW by 2027 (Department of Electricity Development). Recent power trade agreements with India and Bangladesh are opening new export markets, boosting investor confidence in large-scale energy projects.
Legal and regulatory frameworks for infrastructure investment are evolving. The Public-Private Partnership and Investment Act, 2019 provides legal clarity for joint ventures and foreign direct investment (FDI) in infrastructure. The government has established the Investment Board Nepal as a single-window facilitator for large-scale projects, streamlining approvals and compliance processes.
- FDI commitments in infrastructure reached over NPR 100 billion in FY 2022/23, with hydropower and transport attracting the largest shares (Nepal Rastra Bank).
- The Ministry of Communication and Information Technology is leading Nepal’s digital transformation, with over 90% mobile penetration and expanding broadband coverage fostering e-commerce and tech startups.
Looking ahead to 2025 and the next few years, infrastructure development remains central to Nepal’s investment climate. While opportunities are growing, investors must navigate evolving compliance requirements, land acquisition challenges, and coordination among government agencies. Nonetheless, enhanced connectivity, energy exports, and legal reforms are expected to underpin steady FDI inflows, positioning Nepal as an increasingly attractive frontier market in South Asia.
Risks, Challenges, and Mitigation Strategies
Investing in Nepal presents both opportunities and significant risks that require careful consideration and proactive mitigation strategies. The investment climate in 2025 is shaped by regulatory uncertainties, political volatility, infrastructure constraints, and evolving compliance requirements.
- Regulatory Risks and Compliance: While Nepal has taken steps to streamline foreign direct investment (FDI) through the Nepal Investment Board and the Department of Industry, investors still face frequent policy changes and bureaucratic delays. The Foreign Investment and Technology Transfer Act, 2019 (FITTA) sets the legal framework, but implementation can be inconsistent. Investors must comply with sectoral caps, minimum investment thresholds (currently NPR 20 million for foreign investors), and approval procedures that can be lengthy (Nepal Law Commission). Regular monitoring of statutory updates and engaging local legal counsel are essential mitigation steps.
- Political and Governance Risks: Nepal’s political environment remains fluid, with frequent changes in government and policy direction potentially impacting investment projects. The World Bank’s governance indicators show persistent challenges in regulatory effectiveness and control of corruption (World Bank). Investors can hedge such risks by diversifying project financing sources, employing robust local stakeholder engagement, and securing political risk insurance where feasible.
- Infrastructure and Operational Challenges: Infrastructure shortfalls—especially in energy, transportation, and logistics—can delay project execution and increase costs. The government’s flagship projects under the National Planning Commission (NPC) aim to address these gaps, but progress can be slow. Investors should conduct thorough due diligence, adopt flexible timelines, and consider phased investments to mitigate operational risks.
- Foreign Exchange and Repatriation: The Nepal Rastra Bank (NRB) regulates currency exchange and repatriation of profits. Occasional foreign exchange shortages and administrative controls may affect fund flows (Nepal Rastra Bank). Structuring transactions to allow for currency hedging and maintaining reserves in convertible currencies are prudent risk management tactics.
- Legal Dispute Resolution: While Nepal has acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, enforcement of contracts and dispute resolution can be protracted in local courts (Supreme Court of Nepal). Investors are advised to negotiate international arbitration clauses and clearly define governing law in cross-border contracts.
Despite these challenges, Nepal’s growing focus on legal reforms, infrastructure development, and digitalization promises gradual improvement in the investment climate. Investors who carefully assess risks, build strong local partnerships, and employ adaptive compliance strategies will be better positioned to succeed in the coming years.
Government Initiatives and Official Support for Investors
The Government of Nepal has demonstrated a strong commitment to fostering a more attractive investment climate, particularly as the country looks to accelerate economic growth post-pandemic and into 2025. Key agencies such as the Nepal Investment Board and the Department of Industry have been central to streamlining investment processes and promoting both foreign and domestic investment opportunities.
A major legislative milestone was the enactment of the Foreign Investment and Technology Transfer Act (FITTA), 2019, which remains the cornerstone of Nepal’s investment regulatory landscape as of 2025. FITTA provides for equal treatment of foreign and domestic investors, full repatriation of profits, and simplified approval procedures. Supplementing this framework, the Foreign Investment and Loan Management Bylaws (last updated in 2021) clarify operational and compliance procedures for foreign capital inflows.
To further encourage investment, the government has rolled out several incentive schemes. These include tax holidays, duty exemptions on certain capital goods, and special economic zones (SEZs) governed by the Special Economic Zone Authority Nepal. The SEZs offer additional regulatory relaxations and infrastructure support for export-oriented industries.
Statistical data from the Department of Industry show steady growth in approved foreign direct investment (FDI) projects. In the fiscal year 2022/23, over 300 new FDI projects were registered, with commitments surpassing NPR 38 billion. The government aims to increase annual FDI inflows to at least USD 1 billion by 2025.
- Digitalization: Ongoing initiatives led by Nepal Investment Board and Department of Industry are digitizing investment approval and registration, reducing processing times and increasing transparency.
- One-Stop Service Centre: Operational since 2019, this platform streamlines government approvals, permits, and post-investment services under a single window (Nepal Investment Board).
- Policy Stability: The government has prioritized policy stability and legal predictability in its 15th Five-Year Plan (2019–2024), with a successor plan expected to continue this focus through 2025 and beyond.
Looking ahead, Nepal’s official outlook remains optimistic. Structural reforms, infrastructure investments, and regional integration projects—such as cross-border energy trade—are expected to further enhance the investment environment, provided consistent policy implementation and continued government support.
Future Outlook: Projections and Opportunities Through 2030
Nepal’s investment landscape is positioned for significant change through 2030, driven by ongoing economic reforms, infrastructure development, and increasing regional integration. The government continues to prioritize foreign direct investment (FDI) as a catalyst for growth, reflected in progressive legislation and streamlined procedures. The Nepal Investment Board and the Ministry of Industry, Commerce and Supplies remain pivotal in facilitating investment approvals and sector promotion.
Key events shaping the outlook include the full implementation of the Foreign Investment and Technology Transfer Act (FITTA) and the updated Public-Private Partnership and Investment Act (PPIA). These laws aim to create a more transparent and investor-friendly environment, reducing bureaucratic hurdles and safeguarding investor rights. Notably, FITTA guarantees national treatment for foreign investors and ensures unrestricted repatriation of profits, which is expected to attract sustained FDI inflows through 2030. Additionally, digitalization of approval processes has accelerated, with the Nepal Investment Board launching an online single-window system to streamline compliance and reduce processing time.
Statistically, Nepal recorded over USD 185 million in FDI commitments in FY 2022/23, marking a modest rebound post-pandemic, with the majority directed toward energy, tourism, manufacturing, and ICT sectors (Nepal Rastra Bank). The government’s medium-term strategy targets annual FDI inflows exceeding USD 400 million by 2027, in line with national ambitions to reach middle-income status (National Planning Commission).
- Hydropower: With over 40,000 MW technically feasible potential, hydropower remains the flagship sector. Regional power trade agreements, especially with India and Bangladesh, are expected to unlock new export markets (Ministry of Energy, Water Resources and Irrigation).
- Tourism: Policy reforms in the aviation and hospitality sectors, and the development of heritage and eco-tourism, are anticipated to boost both domestic and foreign investment (Ministry of Culture, Tourism and Civil Aviation).
- ICT and Manufacturing: Incentives for technology parks, export-oriented manufacturing, and digital services are expected to drive sectoral diversification and job creation (Ministry of Industry, Commerce and Supplies).
Looking ahead, Nepal’s outlook for investors through 2030 remains positive, contingent on continued regulatory reform, infrastructure upgrades, and macroeconomic stability. The commitment to international agreements and improved compliance standards is expected to further strengthen investor confidence, with opportunities expanding as the nation integrates more deeply into regional and global value chains.
Sources & References
- Inland Revenue Department
- International Centre for Settlement of Investment Disputes (ICSID)
- Ministry of Finance
- Nepal Rastra Bank
- Investment Board Nepal
- Department of Industry
- Foreign Exchange (Regulation) Act, 2019
- Foreign Investment and Technology Transfer Act, 2019
- Foreign Investment and Technology Transfer Act, 2019
- Ministry of Culture, Tourism and Civil Aviation
- Ministry of Agriculture and Livestock Development
- Inland Revenue Department
- 15th Five-Year Plan
- Ministry of Physical Infrastructure and Transport
- Department of Electricity Development
- Department of Industry
- World Bank
- Supreme Court of Nepal
- Special Economic Zone Authority Nepal
- Ministry of Energy, Water Resources and Irrigation
