Foreign Investor Share Sale and Exit from Nepal

Possible Exit Structures

A foreign investor may exit through:

Foreign → Foreign

Existing foreign investor sells shares to another foreign investor.

Foreign → Nepalese

Foreign shareholder sells shares to a Nepalese person/company.

Partial Exit

Foreign shareholder sells only part of its holdings.

Company Buyout / Restructuring

Where legally permitted and appropriately structured.

Liquidation

Company itself is wound up and residual proceeds are distributed.

Each route requires separate analysis.

Gratuitous transfers and paid sales use different provisions

Current FITTA section 18क addresses a proposed gratuitous transfer of all or part of an approved foreign investment. It requires an application to DoI, which examines the request and may approve after any applicable tax is paid.

Section 19 separately requires the company to report a sale or other ownership change within 30 days, with supporting evidence and the prescribed recording and tax conditions. Section 18क does not by itself impose a universal prior-approval rule on every paid foreign-to-Nepali share sale.

Check the buyer and transaction permissions

For a Nepalese buyer, identify whether the transaction is a paid sale or a gratuitous transfer, then establish the applicable company, investment and sector permissions. For another foreign investor, assess the incoming investment approval route as well. A post-transaction reporting period does not remove any independently applicable prior permission.

Foreign → Foreign Transfer

Where shares move from one foreign investor to another foreign investor, the transaction requires foreign-investment approval/recording under the applicable FITTA process.

DOI's current foreign-investment section provides a dedicated process for investment in an existing industry through share transfer and currently lists documents including:

• transferor request/consent;

• transferee request;

• Share Purchase Agreement;

• Board resolutions;

• foreign investor passport/incorporation documents;

• company profile/bio-data;

• Financial Credibility Certificate;

• current shareholder register.

The exact approval route should be confirmed based on the parties and current statutory amendments.

Section 19 Ownership-change Reporting

FITTA Section 19 requires reporting/recording where ownership or beneficial ownership of foreign-invested:

• assets;

• shares;

• financial instruments

changes directly or indirectly.

The statutory framework contains a: 30-day reporting period for the relevant ownership-change notification/recording.

Where a prior approval is now required for the transaction, that prior approval must be completed first; the 30-day post-transaction record requirement does not replace it.

Offshore Change in Ownership

Section 19 is particularly important because it reaches beyond a simple direct Nepal share transfer.

Where ownership of an offshore:

• holding company;

• parent company;

• financial instrument

changes and that results in a change of ownership/beneficial ownership of the Nepal foreign-invested industry, the Nepal entity has a reporting responsibility.

Example

Singapore Hold Co owns 100% of Nepal Co.

No Nepal Co share certificate changes.

But ownership of Singapore Hold Co is sold to another investor.

That can still create a Nepal FITTA reporting issue because the ultimate ownership of Nepal Co has changed.

Tax Must Be Paid Before Recording

Section 19 expressly provides that the ownership-change transaction will not be recorded until the industry discloses the transaction amount and pays tax according to Nepal law.

Therefore tax is not merely an issue to address after the share transfer is completed.

It is part of the regulatory recording process.

Capital Gains Tax

Share disposal can trigger Nepal income tax / advance tax collection.

The computation depends on:

• seller type;

• resident/non-resident status;

• listed/unlisted shares;

• cost basis;

• sale consideration;

• treaty provisions;

• current Income Tax Act/Finance Act.

For foreign-investor exits, prepare a transaction-specific capital-gain computation before SPA completion.

Do not calculate tax simply as:

Sale price × tax rate.

Tax treatment may depend on the gain, statutory collection mechanism and final tax treatment.

Valuation

The sale price should be commercially and legally supportable.

Particular scrutiny may arise where:

• buyer and seller are related;

• shares are sold at nominal value despite substantial enterprise value;

• offshore restructuring occurs;

• large accumulated reserves exist;

• intangible assets are material.

Relevant issues can include:

• fair value;

• transfer pricing;

• tax;

• foreign-exchange controls.

Share Purchase Agreement

A foreign-investor SPA should normally address:

• number/class of shares;

• price;

• conditions precedent;

• DOI/IBN approval;

• OCR transfer;

• tax responsibility;

• warranties;

• liabilities;

• payment currency;

• payment mechanism;

• FDI recording;

• closing;

• repatriation;

• dispute resolution.

The agreement should not state that closing is unconditional where mandatory approvals remain outstanding.

Company-law Share Transfer

After satisfying the applicable FDI conditions, the transaction must also comply with the Companies Act and the company's:

• MOA;

• AOA;

• shareholder agreement;

• shareholder register;

• Board requirements.

OCR/CAMIS ownership must ultimately agree with DOI/FDI records.

Beneficial Ownership

A change in shares may also change the company's:

Beneficial Owner

information.

After closing, review:

• CAMIS beneficial ownership;

• bank KYC;

• AML records;

• tax records;

• sector-regulator records.

This is particularly important where the buyer is another corporate vehicle.

Sector Approval

Where the Nepal company is regulated, additional approval may be required from authorities such as:

• Nepal Rastra Bank;

• Nepal Insurance Authority;

• SEBON;

• Department of Electricity Development;

• Nepal Telecommunications Authority;

• other sector regulator.

DOI approval is not automatically sufficient.

Payment for Shares

The sale consideration should use the legally permitted banking/foreign-exchange route.

The payment structure depends on whether the buyer is:

• Nepalese;

• foreign;

• resident;

• non-resident.

Foreign-exchange arrangements should be agreed with the authorised bank before closing.

Repatriation of Sale Proceeds

Section 20 specifically permits repatriation of: amount received from sale of foreign-investment shares after applicable Nepal taxes have been paid.

FITTA section 20(7) provides a seven-day approval period when the applicable legal, agreement and investment conditions are fulfilled. The commercial bank’s separate regulation 6(4) process provides a decision within 15 working days after a complete application. These conditions govern the actual file; an older DoI charter estimate should not replace the amended statute.

The foreign-exchange leg must then follow the current NRB Fifth-Amendment/authorised-bank framework.

Original Investment Evidence

To repatriate exit proceeds, preserve proof of:

• original FDI approval;

• original remittance;

• foreign-investment recording;

• share allotment/acquisition;

• subsequent capital increases;

• prior share transfers.

Missing historic records can materially delay exit.

Partial Exit

Example: Foreign shareholder owns:

100,000 shares.

Sells: 40,000 shares.

After transaction: Foreign investor retains 60,000 shares.

The transaction should properly update:

• shareholder register;

• OCR/CAMIS;

• beneficial ownership;

• DOI/FDI record;

• tax records;

• foreign-exchange records.

Only the relevant legally eligible sale proceeds move through repatriation.

Full Exit

Where the investor sells its entire holding:

• transfer all shares;

• settle taxes;

• complete DOI/IBN recording;

• complete OCR changes;

• update beneficial owner;

• repatriate sale proceeds;

• close investor-specific regulatory records where applicable.

The Nepal company itself continues unless separately liquidated.

Therefore:

foreign shareholder exits ≠ company closes.

Liquidation Exit

If the company is liquidated instead, Section 20 permits repatriation of the residual amount remaining after all company liabilities have been paid.

That route requires:

• liquidation;

• creditor settlement;

• tax closure;

• OCR dissolution;

• final foreign-exchange procedure.

Exit Workflow

Agree commercial exit → Determine buyer nationality/status → Check prior DOI/sector approval → Prepare valuation & tax computation → Execute conditional SPA → Obtain approvals → Complete payment → Complete share transfer → Update OCR/CAMIS → pay/clear tax → record ownership change with DOI/IBN → complete NRB/authorised-bank repatriation → retain permanent exit file

Foreign Investor Exit Checklist

• Identify seller

• Identify buyer

• Check the paid/gratuitous transfer distinction and any applicable prior permission

• Check Foreign → Foreign FDI approval

• Check sector regulator

• Review AOA/shareholder agreement

• Obtain valuation

• Prepare capital-gain computation

• Draft SPA

• Obtain Board/shareholder resolutions

• Obtain DOI/IBN approval where required

• Complete banking/payment arrangement

• Complete company share transfer

• Update shareholder register

• Update beneficial ownership

• Update OCR/CAMIS

• Pay applicable tax

• Complete Section 19 recording

• Obtain tax clearance

• Apply for repatriation

• Complete current NRB/bank process

• retain remittance/SWIFT evidence

Common Errors

Confusing section 18क gratuitous-transfer approval with section 19 paid-sale or ownership-change reporting

Completing the SPA before checking mandatory approval

Ignoring offshore beneficial-ownership changes

Updating OCR but not DOI

Ignoring capital-gains tax until after closing

Selling shares at unsupported nominal values

Losing historical FDI remittance documentation

Assuming foreign investor exit also closes the Nepal company

Further guidance and practical checks

Foreign-investor exit should be planned before signing the SPA. The buyer, tax computation, regulatory approval, payment route, corporate transfer and repatriation mechanism should be designed as one transaction.