ILLUSTRATION: SHUTTERSTOCK
SOME TIME in the next three months, Nepal’s government intends to switch on what it calls the Investment Express. It is an automated system that will take a business registration request and link it to tax registration, financial services, visa applications and regulatory reporting, so that approvals can be processed without applicants having to visit multiple offices or repeat the same information to different officials. The name is aspirational. The timeline is specific. Historically, Nepal’s investment reforms have tended to stall somewhere between ambition and execution.
The Investment Express is one piece of a broader set of changes announced in the budget for the fiscal year starting mid-July that together amount to the most systematic attempt Nepal has made in years to reduce the obstacles that deter private capital. Whether the obstacles are the binding constraint on investment—rather than, say, the smallness of the domestic market or political uncertainty—is a reasonable question. The government has decided that it is, and the budget’s business climate measures follow from that diagnosis with some consistency.
The most immediately significant change is the removal of prior approval from the Nepal Rastra Bank for foreign investors repatriating profits. Under the old system, a company that had made money in Nepal and wished to send it home needed the central bank’s explicit sign-off before doing so. The requirement was not always onerous in practice, but its existence was a source of anxiety for investors weighing whether to commit in the first place, since a country that can delay profit repatriation at the discretion of a regulator is a country where the return on investment is uncertain in a fundamental way. Replacing the requirement with a notification—the company tells the central bank what it is doing rather than asking permission—removes that uncertainty at a stroke. The change applies to service fees paid abroad, royalties and technology transfer payments as well.
Alongside repatriation, the foreign investment framework is widened to include convertible instruments and hybrid funding tools that were previously in a legal grey area. Convertible notes—loans that turn into equity if the company reaches certain milestones—are standard early-stage financing instruments in most markets. In Nepal they have been difficult to use because the legal system did not clearly recognise them as a form of foreign investment, creating ambiguity about whether they triggered registration requirements, repatriation rules or sector restrictions, for example Bringing them within the defined framework does not guarantee that venture capital will flood into Kathmandu, but it removes a specific legal obstacle that sophisticated investors commonly cited as a reason not to proceed.
The automatic approval process for foreign investment is to be reformed so that pre-approval is required no more across the board; the system moves to a presumption of permission subject to notification and post-hoc compliance checking. For projects already approved by the Investment Board—the body that clears big strategic investments above a certain threshold—no further approvals from other government agencies will be needed. That last point matters because Nepal’s approval problem has historically been sequential rather than just slow: a project clears one ministry, then discovers it needs clearance from another, then another, each with its own timeline and its own scope for delay. Making the Investment Board approval a terminal clearance, if the legal provision holds in practice, would be a welcome change.
The budget also proposes a limited liability partnership law, a form of business organisation that currently does not exist in Nepal and whose absence has constrained the development of angel investing and early-stage venture funding. A limited liability partnership allows investors to contribute capital and share in profits without taking on personal liability for the firm’s debts; and it allows the management and ownership structure to be separated more flexibly than a standard private limited company permits.
For angel investors—typically wealthy individuals who back startups in exchange for equity—the lack of this structure has meant either accepting personal liability or routing investments through more cumbersome corporate forms. The government says the new law will also encourage venture capital funds and private equity to invest in Nepal, which at present is a very small market for both.
For businesses that fail or wish to wind down, the budget proposes to make company liquidation simpler. Nepal’s current framework for closing a company is slow and often expensive, requiring court involvement even in uncontested cases. The upshot is a population of zombie companies—legally existing but operationally inactive—that clog the registry, create confusion about ownership of assets and occasionally surface as vehicles for fraud. Streamlining liquidation is foundational: investors are more willing to enter a market when they know they can exit it cleanly.
The proposed commercial dispute tribunal addresses a related problem. In Nepal business contracts are currently enforced through the regular court system, which is overloaded and slow. A separate tribunal for commercial cases, with judges who understand business law and faster procedures than the general courts, is common in countries that actively try to attract investment. Singapore, for example, became a financial centre in part because its commercial courts are trusted and efficient. Nepal is not Singapore, but the basic idea is the same: investors prefer places where contracts are enforced properly and disputes are resolved quickly. If the tribunal is properly staffed and funded, it would make doing business cheaper by making disputes less costly and time-consuming.
Intellectual property (IP) law is also set to be sped up. Nepal’s current system is weak, and enforcement is limited. This matters most for companies whose value comes from ideas rather than physical assets, such as technology firms, pharmaceutical companies, and software businesses. A stronger IP system will not suddenly turn Nepal into a major knowledge economy, but it would remove a key barrier that currently stops some types of investment from happening at all.
The budget also offers a tax break for IT companies that export services. They will get a 50% exemption on income from these exports. The aim is to encourage digital exports by making them more financially attractive.
For small and medium-sized enterprises, which make up most of Nepal’s business sector but have traditionally struggled to access bank credit, the budget introduces a first-loss credit recovery system. In simple terms, if a small business takes a loan and fails to repay it, the government or a designated fund will cover the first part of the loss. This reduces the risk for banks and makes them more willing to lend to smaller firms. It is essentially a partial government guarantee on loans. Similar schemes have been used in countries such as South Korea, India, and parts of Europe to encourage banks to extend credit to businesses that do not have enough collateral.
Nepalis themselves will be permitted, under the new rules, to invest abroad. The restriction on outward investment has been a feature of Nepal’s capital account framework for years, justified on the grounds that the country needs to retain its limited stock of domestic capital. The rationale has worn thin as the economy has grown and as the Nepali diaspora—estimated at several million people working in the Gulf, Malaysia, Japan and elsewhere—has accumulated savings and skills that cannot currently be deployed back home through formal investment channels. Allowing outward investment creates the legal infrastructure for diaspora capital to flow in both directions, and signals that Nepal views its emigrants as economic participants rather than as sources of remittance income.
The sum of these changes, if implemented fully, would move Nepal meaningfully up the rankings that international investors use to assess business environments. But the history of reform announcements in Nepal counsels caution about the word “if”.
Previous governments have announced investment facilitation reforms before, including one-stop approval centres and efforts to simplify regulations. The results have been mixed. The one-stop shop for investment, which has been announced in different forms over the past decade, has struggled to work properly. Line ministries have often been unwilling to hand over decision-making powers to a central system, and the digital systems linking different agencies have been incomplete or unreliable.
The Investment Express faces a similar problem. It is not just a technology project. It also depends on cooperation from government agencies that have traditionally seen approval powers as a source of control, and sometimes revenue.
Allowing projects approved by the Investment Board to bypass further agency clearances is the clearest attempt so far to reduce that resistance. The real test, however, will come in practice. It will be when an investor moves through the system and encounters an agency that has not updated its process, or an official who is still following the old rules. Nepal’s investment climate will be judged not by what the budget speech says but by what that investor experiences. The two have not always matched. ■
