Dividend and Profit Repatriation from Nepal — Foreign Investor Guide

Dividend Must First Be Legally Declared

Repatriation begins with a valid Nepalese dividend.

The company should first determine whether it has legally distributable profit under the Companies Act.

The process normally requires:

• audited financial statements;

• accumulated loss adjustment;

• statutory reserve adjustment where applicable;

• corporate approval;

• shareholder entitlement determination;

• dividend declaration.

Foreign-investment approval by itself does not create a right to withdraw company funds.

Dividend Tax

Under the Income Tax Act, a company or partnership paying a Nepal-source dividend generally deducts: 5% tax from the dividend payment.

IRD's published tax material identifies a 5% withholding rate under Section 88(2) for dividend payments.

Sector-specific tax incentives can alter the effective burden.

For example, qualifying Special Economic Zone industries can receive specific dividend-tax concessions under Section 11 during the applicable incentive period.

Therefore do not assume every foreign investor has exactly the same dividend-tax cost.

Example

Gross dividend declared to foreign shareholder: NPR 10,000,000

Ordinary dividend withholding at 5%: NPR 500,000

Net amount potentially available after dividend withholding: NPR 9,500,000 subject to:

• company-law compliance;

• other outstanding tax obligations;

• DOI/FDI documentation;

• current NRB/authorised-bank process.

Tax Clearance

Repatriation requires the underlying Nepal tax liabilities to be settled.

Section 20 expressly makes repatriation subject to fulfilment of tax liabilities.

In practical terms, the file may require:

• company Income Tax return;

• tax clearance certificate;

• evidence of dividend TDS payment;

• audited financial statements;

• other tax evidence requested by the competent authority/bank.

A dividend resolution alone is not sufficient.

Prove the Original Foreign Investment

One of the most important repatriation controls is proof that the original investment was properly brought into and recorded in Nepal.

Maintain:

• FDI approval;

• foreign investor identification;

• bank remittance/SWIFT;

• Nepal bank credit evidence;

• foreign-investment recording;

• share allotment;

• shareholder register;

• OCR/CAMIS record.

The repatriation amount should be linked to an identifiable, legally recorded foreign investment.

DOI / IMIS Process

DOI's current investor manual states that applications relating to:

• dividend repatriation;

• royalty repatriation;

• share-sale repatriation;

• FDI approvals;

• other related investor services

are processed through the:

Industry Management Information System — IMIS.

FITTA section 20(7) provides a seven-day approval period where the investor has fulfilled the applicable legal, agreement and investment conditions. The commercial bank’s separate exchange process under NRB regulation 6(4) has a fifteen-working-day decision period after a complete application. Build the file for both stages; an older administrative charter’s service estimate should not replace the amended statute.

The statutory and bank periods have their own complete-file and legal conditions. An incomplete application does not establish a guaranteed payment date.

Typical Dividend Repatriation File

The current transaction file should ordinarily contain evidence such as:

• application through IMIS/current channel;

• FDI approval;

• proof of investment;

• foreign-investment recording evidence;

• shareholder register;

• audited financial statements;

• Board/General Meeting dividend documents;

• tax clearance;

• dividend-tax deposit evidence;

• bank details of foreign investor;

• other documents requested by DOI/authorised bank.

The exact current checklist should be confirmed when filing.

NRB / Authorised Bank

NRB's Foreign Exchange Management Department is responsible for policies, approval/recording and management of repatriation relating to foreign direct investment and foreign debt.

Under regulation 6, licensed commercial banks can provide the specified foreign-investment repatriation facilities after the required documents and competent-authority approval or recommendation. The investor or recipient company applies to its commercial bank with Schedule 9 documents. Regulation 6(4) provides a written decision within fifteen working days after a complete application; exceptions, including specified other-country payment arrangements, remain subject to the relevant NRB route.

The applicable exchange route follows the current regulation and the transaction authority delegated to the commercial bank or retained by NRB.

The correct approach is:

apply the current Fifth-Amendment regulation and the transaction authority delegated to the authorised bank/NRB.

Currency of Repatriation

Section 20 permits qualifying repatriation in:

• the currency in which the investment was made; or

• another convertible foreign currency with the required NRB treatment.

Actual conversion occurs under the prevailing foreign-exchange framework and applicable exchange rate.

Accounting Profit Is Not the Repatriation Amount

Suppose financial statements show: Current-year profit:

NPR 20 million.

That does not mean NPR 20 million can automatically be sent abroad.

First consider:

• accumulated losses;

• tax;

• statutory reserves;

• distributable profit;

• dividend approved;

• withholding tax;

• outstanding company liabilities.

Only the lawfully declared and permitted amount progresses into the repatriation process.

Multiple Foreign Shareholders

Where the company has multiple shareholders, dividend allocation should agree with:

• class of shares;

• shareholder register;

• declared dividend per share;

• entitlement/record date.

A company should not repatriate an arbitrary amount to one foreign investor outside the approved dividend allocation.

Dividend vs Management Fee

These are legally different.

Dividend

Return on equity investment.

Management / Technical Fee

Payment under an approved service or technology-transfer arrangement.

Changing the description of a distribution from:

“dividend”

to

“management fee”

does not change its legal substance.

Management/royalty payments require their own:

• agreement;

• DOI approval where applicable;

• tax;

• transfer pricing;

• NRB/repatriation analysis.

Dividend vs Loan Repayment

Likewise:

Dividend

Return on ownership.

Interest / Principal

Return/payment on debt.

Foreign equity cannot later be repaid as foreign loan principal unless a separate lawful debt actually exists.

Transfer Pricing

Before remitting:

• management fees;

• royalty;

• technical fees;

• intercompany charges

to the same foreign shareholder/group, the company should separately review Nepal's transfer-pricing requirements.

Dividend itself is not converted into a deductible management fee merely because both parties agree to call it one.

Double Tax Treaty

The foreign investor's home-country treatment should also be checked.

Nepal's applicable DTAA may affect foreign tax credit or, for particular categories of income, source-country tax limits.

Dividend tax should therefore be reviewed using: Nepal domestic law

applicable treaty

investor's residence-country law.

Repatriation of Liquidation Proceeds

Section 20 separately permits repatriation of amounts remaining when an industry/company has been:

• dissolved; or

• liquidated

after all liabilities have been settled.

That is not dividend repatriation and requires a separate closure/liquidation file.

Blacklisting / Regulatory Restrictions

Even where an investor has a substantive right to repatriate, banking or regulatory restrictions can affect the transaction.

Before payment check:

• credit blacklisting;

• AML/KYC;

• sanctions screening;

• unresolved tax liabilities;

• incomplete FDI recording;

• litigation;

• regulator restrictions.

Repatriation Workflow

Audited profit → Calculate distributable profit → Declare dividend → Deduct/pay dividend tax → Obtain tax clearance → Confirm FDI/shareholding records → Apply through current DOI/IMIS procedure where required → Complete authorised bank/NRB foreign-exchange process → Remit net foreign currency → retain permanent repatriation file

Dividend Repatriation Checklist

• Verify foreign-investment approval

• Verify original investment recording

• Verify current shareholder register

• Finalise statutory audit

• Clear accumulated losses

• Determine distributable profit

• Pass dividend resolution

• Calculate dividend entitlement

• Deduct applicable dividend tax

• Deposit/file TDS

• Obtain tax clearance

• Prepare IMIS/repatriation application

• Confirm current DOI requirements

• Confirm current Fifth-Amendment NRB procedure

• Coordinate authorised bank

• Complete FX conversion/remittance

• retain SWIFT/payment evidence

• Reconcile accounts

Common Errors

Trying to remit accounting profit before declaring dividend

No evidence of the original foreign-capital inflow

Using old pre-Fifth-Amendment NRB checklists

Ignoring dividend withholding tax

Confusing dividend with royalty or management fee

Leaving OCR, DOI and NRB ownership records inconsistent

Assuming DOI recommendation itself transfers the money

Further guidance and practical checks

The easiest dividend to repatriate is one supported by a clean investment trail from the date the foreign capital first entered Nepal. FDI recording should therefore be treated as part of future exit planning, not merely incorporation paperwork.