Foreign Investment Negative List and Ownership Limits in Nepal

The current FITTA Schedule restricts foreign investment in categories including:

Primary agriculture

The Schedule addresses primary production including poultry, fish, bees, fruit, vegetables, oilseeds, pulses and dairy. Its amended item 1 excepts qualifying large industries exporting at least 75% of their own production, and agricultural technology and mechanisation. Classify the actual activity and fulfil its conditions before treating an agricultural project as eligible.

However, this category was later liberalised by Gazette notification for qualifying large-scale industries exporting at least 75% of production, so the agriculture restriction must not be read from the original Schedule alone.

Micro and cottage enterprises

Item 2 restricts micro and cottage enterprises. Apply the current statutory industry classification; “small” is not interchangeable with “micro.” The company’s trading name does not settle that classification.

The proposed project should first be classified under the current Industrial Enterprises Act because “small industry” is a legal classification, not merely a colloquial description.

Personal service businesses

Examples in the Schedule include activities such as:

• hair cutting;

• tailoring;

• driving-related personal services.

Weapons and restricted materials

Foreign investment is restricted in industries involving specified:

• arms and ammunition;

• explosives;

• nuclear, biological and chemical weapons;

• atomic energy;

• radioactive materials.

Real estate, retail and specified local services

The Schedule includes restrictions covering areas such as:

• real-estate business, excluding construction industry;

• retail business;

• internal courier;

• local catering;

• money-changing;

• remittance services.

Certain tourism businesses

The Schedule covers specified activities including:

• travel agency;

• tourism guides;

• trekking/mountaineering guides;

• rural tourism;

• homestay.

Mass media

Specified:

• newspapers;

• radio;

• television;

• online news;

• national-language motion picture

activities fall within the restricted schedule.

Training and professional services

The Schedule includes specified:

• management consultancy;

• accounting consultancy;

• engineering consultancy;

• legal consultancy;

• language training;

• music training;

• computer training.

Consultancy above 51% foreign ownership

The Schedule separately restricts consultancy services where foreign investment exceeds: 51% under the statutory category.

This provision must be read together with the preceding restricted consultancy categories and any later legislative/Gazette changes before structuring a consultancy investment.

These are two completely different questions.

Negative List

Is foreign investment legally permitted in this business at all?

Automatic Route

If FDI is legally permitted, can approval be obtained through the simplified automatic electronic route?

The Gazette dated 2082/11/04 lists 102 automatic-route industry areas across seven categories and removes the automatic-route upper foreign-investment limit. It separately exempts the listed IT-based industry category from the minimum foreign-investment amount. These changes do not remove the FITTA negative list or other industry, company and sector requirements.

A foreign investor proposes a small domestic poultry farm serving the Nepal market.

Starting position: Negative-list issue — foreign investment restricted.

Another investor proposes a qualifying large-scale primary-agricultural project designed to export at least 75% of its production. The Gazette exception applies to the qualifying large-industry category and its production/export conditions.

That project may fall within the later Gazette relaxation, subject to the exact statutory/Gazette conditions.

Do not describe all agriculture as either:

“closed”

or

“open”.

The project model matters.

FITTA restricts: real-estate business but expressly distinguishes: construction industry.

Therefore a foreign investor proposing:

• buying and selling land as the core business

and one proposing:

• qualifying construction/infrastructure activity

do not necessarily receive the same treatment.

The project should be classified before company registration and land acquisition.

Current Schedule ceilings also cover ridesharing at 70%, international air services at 80%, domestic air services at 49%, and aviation training and maintenance institutions at 95% each. These are maximum foreign-investment percentages for those categories, not substitutes for licences or operating permission. For other regulated businesses, check their applicable sector ownership and approval rules before fixing the share structure.

• banking and finance;

• insurance;

• telecommunications;

• aviation;

• securities;

• hydropower/energy;

• education;

• health;

• other regulated sectors.

FITTA's general principle is not a substitute for the sector regulator's ownership rules.

The negative-list test applies not only when establishing a new company.

It should also be checked when a foreign investor proposes to:

• acquire shares in an existing Nepal company;

• increase foreign ownership;

• acquire assets;

• enter through technology transfer;

• restructure an existing investment.

FITTA specifically allows technology transfer, with Department approval, in certain industries that cannot themselves receive foreign equity investment under the Schedule.

Therefore:

FDI prohibited does not necessarily mean all foreign technology arrangements are prohibited.

The transaction should be structured according to the exact statutory category.

Before any foreign investor signs a binding investment agreement: Identify activity

1. → classify industry
2. check FITTA Schedule
3. check Gazette modifications
4. check sector-specific foreign ownership limit
5. check Automatic Route eligibility
6. determine DOI/IBN approval route
7. structure company/shareholding.

• Identify exact proposed activity

• Determine NSIC/industry classification

• Check FITTA negative list

• Check later Gazette amendments

• Check agriculture 75%-export exception where relevant

• Check sector regulator

• Determine maximum foreign ownership

• Check foreign-investor percentage

• Check Automatic Route

• Check DOI/IBN jurisdiction

• Check minimum FDI threshold

• Align JVA/MOA/AOA with approved structure

• Recheck before share transfer or ownership increase

Using the original FITTA Schedule without later Gazette changes

Assuming 100% foreign ownership is permitted in every non-negative-list activity

Confusing the Automatic Route with the negative list

Treating real-estate trading and construction as the same industry

Assuming an existing Nepal company can accept foreign shares without FDI review

Foreign-investment eligibility should be determined at the activity level, not merely from the company's proposed name. The business model, industrial classification, foreign ownership percentage and sector law should all be checked before investment documents are signed.