Background:
The government introduced the legal framework to encourage innovation and entrepreneurship by offering simplified company registration procedures, fiscal incentives, concessional financing, and other supportive measures, to start-up businesses in Nepal.
Earlier, the Income Tax Act, 2002 (2058) had introduced certain tax incentives for start-up industries. However, the term ‘start-up’ was formally introduced through the Investment Facilitation Act, 2024 (2081), which amended the Industrial Enterprises Act, 2020 (2076) (“IEA”) on July 8, 2024 (Asadh 24, 2081), and the first amendment to the Industrial Enterprises Rules, 2022 (2078) which came on March 10, 2025 (Falgun 26, 2081). These amendments redefined the status of start-up companies in Nepal, granting them formal legal recognition.
The main laws relating to start-ups in Nepal include: a. Industrial Enterprises Act, 2020 (2076) (the “IEA”), b. Industrial Enterprises Rules, 2022 (2078) (the “IER”), c. Procedure regarding Loan Management of Start-up Enterprises, 2025 (2082) (the “Procedure”), d. The Companies Act, 2006 (2063) (the “Companies Act”).
This guide provides an overview of the regulatory framework applicable to start-ups in Nepal. It outlines the step-by-step legal process for establishing a start-up, along with the available loan schemes, concessions, and other incentives, helping entrepreneurs move from concept to implementation with clarity and compliance.
Start-up Regulation in Nepal
Defining ‘Start-ups’
The IEA has classified industries on the basis of its capital and nature of business. While a start-up can fall under any of these categories, the IEA sets a few special criteria to qualify an industrial activity to fall within the meaning of the start-up industry in Nepal, which are: a. Registration: Be registered as a new company, sole proprietorship firm or partnership firm, b. Innovation: Use innovative ideas and technology in the production of goods or services, c. Growth Potential: Be capable of upgrading rapidly, d. Age Limit: Business incorporated must not have exceeded ten (10) years from the date of its registration, e. Turnover Limit: Annual turnover of any fiscal year after registration must not surpass NPR 150 million. For the purpose of obtaining tax exemptions, however, this threshold is of NPR 100 million.
Furthermore, since the concept of a start-up has been defined by the IEA, it can be inferred that a start-up must be engaged in industrial activities to qualify as such. However, the Act does not explicitly clarify whether non-industrial activities, such as trading businesses, also fall within the definition of a start-up.
Registration of a Business Vehicle for a Start-up:
There are three business vehicles that can be used to set up a start-up business in Nepal, namely, (a) Sole Proprietorship (Private) Firm, (b) Partnership Firm, and (c) Company. The major features of these business vehicles are as follows:
Sole Proprietorship Firm
- Relevant Law - Private Firm Registration Act, 1958 (2014)
- Number of Founders - One
- Legal Personality - No Separate Legal Personality, Unlimited Liability
- Registering Authority - Department of Commerce, Supplies and Consumer Protection
- Minimum Share Capital - Not Specified
- Nature of Business - Not Specified. Any nature of business can be performed.
Partnership Firm
- Relevant Law - Partnership Act, 1964 (2020)
- Number of Founders - Minimum: Two, Maximum: Not Specified
- Legal Personality - No Separate Legal Personality
- Unlimited Liability; Registering Authority - Department of Commerce, Supplies and Consumer Protection
- Minimum Share Capital - Not Specified
- Nature of Business - Not Specified. Any nature of business can be performed.
Company
- Relevant Law - The Companies Act, 2006 (2063)
- Number of Founders - For Private Company: Minimum: 1, Maximum: 10, For Public Company: Minimum: 7, Maximum: Not specified
- Legal Personality - Separate Legal Personality, Limited Liability
- Registering Authority - Office of Company Registrar
- Minimum Share Capital - For Private Company: Not Specified, For Public Company: 10 million (1 crore)
- Nature of Business - Not Specified. Any nature of business can be performed.
Please note that an approval must also be obtained from related regulatory authority as per the nature of the business.
Registration of a Start-up Industry:
The mere registration of a business entity does not, by itself, confer the status of a ‘start-up industry’. To obtain such status, entrepreneurs are required to submit an application, together with the prescribed documents, to the Department of Industries (the “DOI”). Following steps must be followed to establish a start-up industry in Nepal:
- Registration of a Business Vehicle: A business vehicle as appropriate is registered. Please note that, as per the nature of the business to be conducted, approval from respective regulatory authority must also be obtained.
- Business Registration at Local Level Office: The business must be registered at the local level office (ward office) of the respective ward office of the business vehicle.
- Tax Registration
- Application for Registration of Start-up: Entrepreneurs shall submit an application along with required documents (as per Annex-I) at the DOI for registration of a start-up industry.
A permanent account number (PAN) certificate must be obtained from the business vehicle’s respective Inland Revenue Office.VAT Registration: All businesses are not required to register for VAT.
Registration under VAT is compulsory only if: a. the minimum annual turnover for industries engaged in goods is NPR 50 lakhs, b. the minimum annual turnover for industries engaged in both goods and services is NPR 30 lakhs.
Other Necessary Steps
- Opening a Bank Account: To carry out any type of transaction by the start-up industry, it is mandatory to open a business account in a commercial bank of Nepal.
- Conduct Environmental Studies: If the Environmental Protection Act and Rules require environmental studies to be conducted prior to the execution of specific businesses, then such study needs to be carried out and required approval should be obtained.
- Brand Registration: Entrepreneurs willing to register their brand/trademark may file for registration at the DOI as per the Patent Design and Trademark Act, 2022 (1965).
- Timeline for Registration: The registration process shall take an approximate of 20 to 30 days.
- Timeline for Operation of Start-up Industry: The registered start-up industry must start its operation within one (1) year of its registration and shall also notify the DOI regarding its operation.
Foreign Direct Investments in Start-ups
Foreign Direct Investments (FDI) can be made through multiple routes, such as, through equity investments, loan, and others. The regulations do not impose restrictions on inflow of FDI in start-ups. Some major features of FDI in Nepal as per Foreign Investment and Technology Transfer Act, 2019 (2075) (FITTA) and Foreign Investment and Technology Transfer Rules, 2021 (2077) (FITTR) are as stated below:
- Permissibility: No restrictions imposed for Start-Up industries. Nature of business must fulfil certain prerequisites of foreign investment as per FITTA and FITTR of Nepal. The proposed business activity: a. Must fall within the scope of ‘industry’ as defined in the Positive List under the IEA. b. Must not fall under the negative list of FITTA.
- Stage of Investment: Not specified as such. Investment maybe made while registering the business vehicle or even after.
- Minimum Investment: NPR 20 million.
- Approving Entities: Department of Industries (“DOI”), Central Bank of Nepal (“NRB”).
For detailed procedures on foreign investment approval, refer to our insight on Foreign Investment in Nepal: Approval Process and Compliance.
Fiscal Incentives for Start-up Industries
The government, with a motive to promote the start-up industries, has provided certain tax exemptions and incentives as specified below:
- Tax Holiday: 100% tax exemption for a period of five (5) years from its commercial operation to industries specified by the Inland Revenue Department.
- Tax Deduction on Seed Investment: An entity that provides seed funding but in the form of donation or grant of up to NPR 1,00,000 per start-up business and maximum five (5) different start-up industries may deduct such amount as an expense when calculating its taxable income.
- Exemptions from Liability on Change in Control: Start-up venture capital firms and private equity funds are exempt from any liabilities arising due to a change in control when a start-up increases its capital and brings in new shareholders and that the shareholding and capital of existing shareholders remain unaffected.
Further, as per the nature of the business, a start-up industry may also be qualified to get further incentives and concessions as per the Industrial Enterprises Act and/or the Income Tax Act. For instance, any information technology related industry is subject to 75% of tax exemptions on its income. However, an industry shall not enjoy both initiatives at a single time.
Others Points to be Considered
Following are some of the other major points that are to be taken into consideration by a start-up industry: a. De-registration of a start-up Industry: A start-up industry seizes to be registered as a ‘start-up industry’ if the following conditions are met:
- Completion of ten (10) years from the date of its registration,
- If it crosses an annual turnover of NPR 10 crore for any fiscal year after its registration,
- If it goes through the process of de-registration as per the applicable laws. b. Licenses: There is no requirement of general license or approval to operate start-up industry in Nepal. However, certain start-up industry might need to specific license as per other related laws. c. Compliance with Labor Law: A start-up industry must comply with the relevant laws on Social Security Fund (SSF) and must register all of its employee in the SSF upon completion of 3 months of recruitment based on the Contribution Based Social Security Act, 2017 (2074).
Concessional Loan
Government of Nepal grants concessional loans to encourage entrepreneurs to operate start-up businesses. This Section sets out important information on eligibility to obtain the loan, process of obtaining loan, repayment conditions of loan and other aspects of granting loan under the Procedure regarding Loan Management of Start-up Enterprises, 2025 (2082) (the “Procedure”).
Priority Sector: The Procedure has laid down certain priority sector that shall be taken into consideration while granting loan. The list is attached in Annex II.
Governing Authority: Industrial Business Development Enterprise (the “Enterprise”).
Eligibility and Ineligibility: Eligibility: Must be a Start-up Industry. Ineligibility:
- If it is not registered as an industry as per the prevailing laws,
- If the industry or entrepreneur is blacklisted by the Credit Information Centre Ltd,
- If the industry is registered subsequent to the publication of notice for the loan disbursement,
- If the industry is simply engaged in sale and distribution of goods and services imported from abroad,
- If the industry is registered as per Holding and Investment Company under the IEA.
Amount of Loan: Minimum: 5 (five) lakhs, Maximum: 20 (twenty) lakhs.
Tenure: Cannot exceed for more than 5 (five) years.
Interest: 3% annually.
Service Fees Levied by Banks: 0.15% of the loan amount.
Security of the Loan:
- The project or business is kept as security by the bank,
- Such project or business shall be insured by the entrepreneur themselves,
- The loan shall be secured at the Deposit and Credit Guarantee Fund as per the laws.
- The institution shall deposit 10% of the disbursed loan amount into the Start-up Enterprise Loan Security Fund.
Repayment Conditions:
- The repayment of principal and interest must begin no later than 1 (one) year after receiving the first loan instalment.
- In case of non-payment: a. Loan shall be considered as bad debt as per the laws and to blacklist the debtor. b. Any movable or immovable property and bank account of the entrepreneur shall be frozen.
- Respective banks shall have the right to recover the loan amount as per the laws.
Detailed process map of obtaining the loan has been attached as Annex III of this Guide.
Conclusion
The start-up industry in Nepal is supported by an evolving legal framework. From formation to scaling, recognized start-ups can access a range of benefits provided by the government of Nepal. However, the arena of start-up industry is yet to be explored with legal reforms and digital government services which will be essential for the ecosystem to reach its full potential. Download full article on Start-up Registration in Nepal: Step-by-Step Guide (Legal Guide 2025)
ANNEX I
Documents required to be submitted at the DOI for registration of Start-up Industry
- Citizenship or Passport: In case of any foreign citizen - 1 set copy.
- Incorporation Documents: Firm Registration Certificate (in case of firm), Company Registration Certificate (in case of company).
- Charter Documents: Memorandum of Association (“MOA”) & Articles of Association (“AOA”).
- Authorization Letter: If anyone has been authorized to submit the application.
- Approval of Foreign Investment: If start-up is operated with foreign investment.
- Partnership Deed: If start-up is operated with partners.
- Approval of the Board: For the industries enlisted in Schedule 1.
- Annual Audit Report or Information reflecting the financial status of the firm or company: In the case of Firm or company operating last year’s annual audit report and in the case of non-operative firm or company information reflecting the financial status of the firm or company.
- Self-Declaration: Self Declaration for the use of innovative ideas and technology in the manufacture of product or service.
ANNEX II
Priority Sector for granting Concessional Loan as per the Procedure
1. Agriculture, Forest and Production based areas
a. Agriculture and poultry-based industry,
b. Production industry,
c. Forest Based (herbs, and forestry products) industry,
d. Mining and Mineral Research and Development,
e. Food Technology and Nutrition.
2. Information Technology and Digital based areas
a. Science, Technology, Communication and Information Technology Industries,
b. Industry dedicated to aiding domestic and daily affairs, their ease, convenience and safety,
c. Industry related to public service delivery, production, and service process improvement,
d. Waste management and environment related industry.
3. Infrastructure and Transportation based areas
a. Efficient and safe transportation and logistics related industry,
b. Infrastructure construction related industry,
c. Electric Vehicles and Automobile related industry,
d. Industry related to distribution of product and service.
4. Social service and Tourism based areas
a. Education and educational institutions related industry,
b. Human health services related industry,
c. Industries related to tourism promotion, entertainment and hospitality.
5. Traditional and Local Resources based areas
a. Industries related to traditional and rural technology,
b. Industries related to the revival of traditional occupations and industries.
c. Industries based on local resources/vehicles.
ANNEX III
Detailed Process Map of obtaining Concessional Loan
SUBMISSION OF THE PROPOSAL
- Step 1: Invitation of Proposals - The Entity will notify eligible start-up applicants to submit their project proposal within 21 days via national daily newspapers and electronic media.
- Step 2: Submission of the proposal as per Schedule 3 of the Procedure - Eligible start-up applicants must submit their proposals as per Schedule 3 in the entity. * No start-up applicants can submit more than one proposal.
- Step 3: Self-declaration by the start-up applicants - Start-up applicants must self-declare in their proposal that they have not taken any concession loans from any other entity. * In case of false self-declaration, such proposal shall be immediately rejected. * Start-up applicant with unpaid concessional loans from other entities are ineligible for loans under this procedure until repayment is made.
EVALUATION PROCEDURE OF PROPOSAL
- Step 4: List Publication - Registered proposal and applicant’s list shall be published.
- Step 5: Preliminary list of eligible applicants - Preliminary list of eligible applicants shall be made.
- Step 6: Presentation Schedule of the applicants - The presentation schedule of the applicants selected in the preliminary list shall be published.
- Step 7: Credit appraisal of applicants - The proposal must be sent to loan disbursing bank for credit appraisal.
- Step 8: Credit appraisal shall be provided to the Industrial Enterprise Development Institute - The bank must conduct the credit appraisal of the proposal within seven days as per the rules and submit the obtained score to the institution.
SELECTION AND RECOMMENDATION OF PROPOSAL
- Step 9: Preliminary List - The Proposal Evaluating Committee must maintain a preliminary list on the basis of total score obtained by the proposals.
- Step 10: Recommendation of the proposal to Bank - Among the proposals that score at least fifty percent, the one with the highest score shall be prioritized based on the obtained marks and recommended to the bank for loan disbursement. *The recommended loan amount must also be specified when referring the proposal to the bank. *The amount shall be determined at min.5 lakhs and max. 25 lakhs.
- Step 11: Publication of project details - Recommended project details shall be publicized in the website of Industrial Enterprise Development Institute.
- Step 12: Contact with the bank - Recommended proposal’s applicant shall contact with the bank within 45 days. *In case of failure to contact with the bank within the time limitation, such proposal shall be immediately rejected.
AGREEMENT AND LOAN DISBURSEMENT
- Step 13: Agreement between Bank and the recommended applicant - Prior to disbursing loan, bank shall study the site of the project and enter into the agreement incorporating the followings: • Method of loan disbursement • Loan Limit • Loan repayment period • Loan Rate • Repayment period and process for principal and interest.
- Step 14: First instalment to entrepreneur - Subsequent to the Agreement, bank shall provide first instalment of the loan to entrepreneur.
