Nepal's FDI Negative List: Sectors Prohibited for Foreign Investment

In Nepal, foreign direct investment (FDI) is governed principally by the Foreign Investment and Technology Transfer Act, 2019 (Bikram Sambat 2075), commonly called FITTA 2019, together with the Industrial Enterprises Act, 2020 (BS 2076). FITTA replaced the older 1992 law and modernised the rules on how non-Nepali individuals and companies may invest, transfer technology, and repatriate returns from Nepal.

The law works on a simple logic: foreign investment is permitted broadly, except in the specific areas the Government of Nepal has chosen to reserve for domestic investors or to control for security, cultural, or policy reasons. Those reserved areas are listed in the Schedule of FITTA, which is universally referred to as the 'Negative List'. Section 3 of the Act provides that foreign investment shall not be allowed in the industries or businesses set out in this Schedule.

Two conditions must therefore be met before an activity is open to FDI. First, the activity must qualify as an 'industry' under the Industrial Enterprises Act, 2020; and second, it must not appear on the Negative List in the FITTA Schedule. If either test fails, the Department of Industry (DoI) or the Investment Board Nepal (IBN) cannot approve the foreign investment. This is why the Negative List is the single most important document a would-be foreign investor should read first.

The largest and most frequently misunderstood block of prohibitions covers primary agriculture. The Schedule closes foreign investment in poultry farming, fisheries (pisciculture), bee-keeping, fruits, vegetables, oil-seed crops, pulse seeds, the milk (dairy) industry, and other primary sectors of agro-production. The policy intent is to protect Nepal's large base of smallholder farmers, for whom these activities are a core livelihood.

It is important to read this restriction narrowly. What is closed is primary, farm-level production. Processing, value addition, agro-technology, cold-chain logistics, large-scale commercial agribusiness and export-oriented ventures are generally treated differently and are often open to foreign investment, subject to approval and to meeting the qualifying-industry and threshold tests. In other words, growing tomatoes or raising broiler chickens is off-limits to a foreign investor, but a modern tomato-paste plant or a poultry-feed factory typically is not.

Because the line between 'primary production' and 'processing/agribusiness' is where most disputes arise, investors are advised to obtain a written classification from the Department of Industry before committing capital. Misquoting this category, for example claiming that all agriculture is banned, is one of the most common errors in secondary sources.

A second cluster reserves the domestic trading and consumer-service economy for Nepalis. Retail business and internal (local) trade are closed to foreign investment, which is why the answer to the common query 'can foreigners do retail business in Nepal' is generally no. This restriction has historically kept large foreign supermarket and single-brand retail chains from operating directly, although wholesale, franchising, and distribution structures are sometimes used within the limits of the law.

Real estate business is also on the Negative List, but with a critical carve-out: the construction industry is excluded from the prohibition. This means a foreign investor may not run a land-and-property trading or speculation business, yet may invest in construction, real-estate development, and infrastructure projects that qualify as industries. Local catering services and internal courier services are likewise reserved for domestic operators.

The list further closes money-changing and remittance (money-transfer) services and travel, trekking and tourism agency operations, including tourist, trekking and mountaineering guide services and rural tourism such as homestays. These are labour-intensive service sectors where the government prefers Nepali ownership. Note that hotels, resorts, cable cars, adventure infrastructure and larger hospitality ventures are generally open to FDI; it is the agency and guiding layer that is reserved.

FITTA reserves personal-service occupations and micro-enterprises for Nepali citizens. The Schedule closes personal service businesses such as hair-cutting (salons and barbering), tailoring, and driving, along with similar small-scale personal services. These are the kinds of self-employment and micro-business activities on which many households depend.

In the same spirit, cottage and small industries — the smallest tier of enterprises under Nepal's industrial classification — are generally off-limits to foreign investors. The Negative List effectively channels foreign capital toward medium and large enterprises rather than the traditional, low-capital cottage sector that is protected for domestic entrepreneurs.

Certain professional consultancy fields are also constrained. Business services such as management, accounting, engineering and legal consultancy, together with language, music and computer training, are treated as restricted; where consultancy is allowed, foreign equity is capped (see the conditional sectors section below). The overall effect is to keep skilled personal and advisory services predominantly in Nepali hands.

Some prohibitions exist for reasons of national security, public safety and cultural sovereignty rather than economic protection. The Schedule bars foreign investment in industries manufacturing arms, ammunition, bullets and shells, gunpowder and explosives, and nuclear, biological and chemical (NBC) weapons, as well as in atomic energy and industries producing radioactive materials. These are among the most absolute prohibitions on the list.

The mass-communication media sector is also reserved. Foreign investment is not allowed in newspapers, radio, television and online news, nor in the production of motion pictures in Nepal's national language(s). This reflects a policy concern with foreign influence over domestic information and cultural production, similar to media-ownership restrictions in many other countries.

Taken together with the agriculture and trade blocks, these entries show the three main rationales behind the Negative List: protecting smallholders and micro-entrepreneurs, safeguarding national security, and preserving cultural and informational independence. Investors evaluating a sensitive or dual-use project should assume it is restricted until confirmed otherwise in writing by the authorities.

Not every entry associated with the Negative List is an outright ban. Some activities are open to foreign investment only up to a maximum equity share, with the balance reserved for Nepali partners. This 'conditional' category has been shaped by later amendments and cabinet notifications rather than by the original 2019 text alone.

Consultancy services are widely reported as permitting foreign investment only up to 51 percent, so a foreign investor cannot hold a majority stake in a Nepali consultancy. Ride-sharing services were brought under a similar rule: foreign ownership exceeding 70 percent was added to the Negative List (reported via a 2024 amendment), meaning foreign investors may hold at most 70 percent. Aviation is another capped sector, with separate ceilings commonly cited for international air-transport operations, domestic air services, and aircraft repair, maintenance and training establishments.

Because these caps are set and revised by secondary instruments — ministry notifications and cabinet decisions amending the FITTA Schedule — the exact percentages can change. The government has periodically both added items (e.g. ride-sharing) and opened others through notifications amending the Schedule. Investors should always confirm the current ceiling for a conditional sector directly with the Department of Industry or Investment Board Nepal before structuring a deal.

Clearing the Negative List is necessary but not sufficient. A foreign investor must also meet the minimum investment threshold and complete the approval process. The Cabinet reduced the minimum foreign investment from NPR 50 million (set in 2019) to NPR 20 million per foreign investor on 14 October 2022, a roughly 60 percent cut intended to attract smaller investors. The information-technology sector was subsequently exempted from the minimum threshold under a government notice around October 2023, allowing smaller IT-focused FDI.

Approval authority is split by project size: the Department of Industry handles most foreign investment approvals, while the Investment Board Nepal handles very large projects (above the statutory ceiling) and specified strategic sectors such as major hydropower. After approval, investors register a company, bring in capital through banking channels, and comply with reporting to Nepal Rastra Bank, the central bank, which governs the inflow and repatriation of foreign currency.

A final nuance often missed: the Negative List restricts foreign investment and loans, but it does not automatically prohibit a Nepali-owned company from acquiring foreign technology in a listed sector through a technology-transfer agreement. Technology transfer into a domestically owned industry is treated separately from equity investment. As always, the durable, authoritative reference is the FITTA Schedule itself as amended, read alongside guidance from the Department of Industry.