Private Equity Nepal Investment Structure refers to the legal and organizational framework through which pooled capital is mobilized, managed, and deployed into unlisted or growth-stage companies within Nepal. Under the Specialized Investment Fund Rules, 2075 (2019), three categories of funds are recognized: private equity funds, venture capital funds, and hedge funds. A private equity fund is defined as a vehicle that injects equity or equity-linked instruments into companies in accordance with the objectives and agreements of its partners. A venture capital fund, by contrast, is structured to invest in early-stage, innovative, or technology-driven enterprises that are not listed on the stock exchange. The investment structure is invariably close-ended, meaning that unit holders are not permitted to redeem their units before the expiration of the fund's tenure. The fund is established as a separate legal entity, independent from the fund manager, and is governed by a constitution that specifies the investment strategy, profit distribution mechanism, and winding-up procedures. The structure is designed to align the interests of fund managers, limited partners, and portfolio companies while ensuring regulatory oversight by SEBON.
Multiple statutes and regulations are applied to govern the formation and operation of private equity funds. The primary legislation is the Specialized Investment Fund Rules, 2075 (2019), which establishes the licensing requirements for fund managers, the registration process for funds, and the operational boundaries within which funds must operate. The Securities Act, 2063 (2007) provides SEBON with the authority to regulate capital markets, issue licenses, and enforce compliance. The Foreign Investment and Technology Transfer Act, 2075 (2019) governs the participation of foreign investors in private equity funds and establishes the approval pathway through the Department of Industry or Investment Board Nepal. The Companies Act, 2063 (2006) is applied for the incorporation of fund managers and investment companies, while the Industrial Enterprises Act, 2076 (2020) classifies investment companies as service industries under Schedule 8. The Income Tax Act, 2058 (2002) imposes corporate tax and withholding obligations, and Nepal Rastra Bank directives regulate foreign capital inflows, bank investments in funds, and repatriation procedures. Together, these laws create a coherent but layered system through which private equity Nepal investment structure is regulated.
| Legislation | Relevance to PE/VC Structure |
|---|---|
| SIF Rules, 2075 (2019) | Primary regulation for fund manager licensing and fund registration |
| Securities Act, 2063 (2007) | SEBON authority over capital markets and securities regulation |
| FITTA, 2075 (2019) | Foreign investor participation and technology transfer |
| Companies Act, 2063 | Incorporation of fund managers and investment vehicles |
| Industrial Enterprises Act, 2076 | Classification of investment companies as service industries |
| Income Tax Act, 2058 | Corporate tax, capital gains, and withholding tax obligations |
| NRB Unified Directives | Foreign investment recording and bank participation in funds |
Three distinct operating models are observed in Nepal's private equity landscape. Each model is differentiated by its regulatory status, investor base, and operational flexibility.
The first model involves funds registered solely under the Companies Act without SEBON licensing. These entities operate as regular private or public limited companies. Examples include Kriti Venture Fund, Safal Ventures, True North Associates, and Team Ventures. While these funds are permitted to pool capital and make equity investments, they do not benefit from the SIF-specific regulatory framework, investor protection mechanisms, or tax treatments available to licensed funds.
The second model comprises SIF-registered funds licensed by SEBON. These funds are established independently from the fund manager and operate beyond the limitations of the Companies Act. Examples include Avasar Equity, Aadhyanta Fund, Global Equity Fund, and Cweda Equity Fund. SIF-registered funds are required to comply with SEBON's disclosure, governance, and reporting standards, which enhances credibility with institutional investors.
The third model encompasses DFI-backed funds that operate under FITTA with Nepal Rastra Bank approval. These funds are backed by development finance institutions and bilateral or multilateral organizations. Examples include Business Oxygen (IFC-backed), Dolma Impact Fund (FMO, IFC, JICA-backed), and One to Watch. These funds often receive exemptions from certain regulatory requirements and bring global best practices to the domestic market.
| Operating Model | Regulatory Basis | Examples | Key Feature |
|---|---|---|---|
| Companies Act Route | OCR registration only | Kriti Venture, Team Ventures, Safal Ventures | Flexible but no SIF-specific benefits |
| SIF-Registered | SEBON license | Avasar Equity, Global Equity Fund, Aadhyanta | Independent structure, institutional credibility |
| DFI-Backed | FITTA + NRB approval | Business Oxygen, Dolma Impact Fund, One to Watch | Foreign institutional capital, global standards |
Step-by-Step Fund Manager Licensing Process
The licensing of a fund manager is the first mandatory step before any private equity fund can be established. Under the SIF Rules, only a SEBON-licensed fund manager is permitted to create and operate specialized investment funds.
First, a company must be incorporated with the Office of Company Registrar. The memorandum and articles of association must expressly include "fund management" as one of the company's primary objectives. The minimum paid-up capital requirement is NPR 20 million (NPR 2 crores).
Second, an application is submitted to SEBON accompanied by the certificate of incorporation, MOA/AOA, audited financial statements or periodic financial reports, a board resolution approving the registration, details of promoters and shareholders holding 5% or more shares, the organizational structure and operational procedures, and particulars of office premises, equipment, and human resources. Additionally, disclosure of ownership in other companies and confirmation that neither the company nor its directors have been convicted of fraud or moral turpitude is required.
Third, SEBON is legally required to issue a certificate of registration within 35 days of application submission. However, in practice, a Letter of Intent is initially granted upon preliminary review. The final license is issued only after SEBON inspects the applicant's infrastructure, human resources, and internal policies.
Fourth, upon licensing, the fund manager is required to maintain a minimum 2% stake in each fund it manages. An independent director must be appointed to the fund manager's board. The one-time registration fee of NPR 300,000 and an annual renewal fee of NPR 150,000 are prescribed by SEBON.
Fund Registration and Constitutional Requirements
Once the fund manager is licensed, separate approval from SEBON is required for each specific fund. The fund registration process is distinct from the fund manager licensing process.
The fund constitution must include the name and type of fund, the fund size and tenure, investor commitments with a minimum 10% promoter contribution, the investment strategy and targeted sectors, the profit distribution mechanism and hurdle rate, the fund management fee structure, repatriation provisions for foreign investors, record-keeping and audit procedures, a dispute resolution mechanism, and winding-up provisions. The constitution must also specify that the fund will be close-ended, that the maximum number of unit holders will not exceed 200, and that only cash dividends will be distributed.
The minimum fund size is NPR 150 million (15 crores). Each unit holder is required to purchase units worth at least NPR 5 million (50 lakhs). The fund manager must hold at least 2% of the fund's units, except where bilateral or multilateral international agencies are involved. The fund registration fee varies by size: NPR 500,000 for funds between NPR 100-500 million, NPR 700,000 for funds between NPR 500 million-1 billion, and NPR 1,000,000 for funds above NPR 1 billion. An application fee of NPR 50,000 is also required.
A defined set of institutional and individual investors are permitted to participate in SIF-registered private equity funds. The eligibility criteria are designed to ensure that only sophisticated investors with adequate risk-bearing capacity are exposed to the illiquid and high-risk nature of private equity investments.
Eligible investors include banks and financial institutions, insurance companies, pension funds, provident funds, welfare funds, the Citizen Investment Trust, bilateral and multilateral organizations, domestic and foreign corporate investors, Nepali citizens, non-resident Nepalis, and other entities as prescribed by SEBON from time to time. Insurance companies are permitted to invest up to 1.5% of their total investment portfolio, with a maximum of 1% allocated to any single fund. High net worth individuals constitute a major investor base for current funds, with minimum ticket sizes typically ranging from NPR 5 million to NPR 50 million per investor.
Private equity and venture capital funds in Nepal are subject to specific investment restrictions that are intended to limit systemic risk and ensure alignment with the fund's stated objectives.
Funds are prohibited from investing in shares outside promoter shares, meaning secondary market participation is not permitted except where a fund qualifies as a qualified institutional investor in book-building IPOs with specific SEBON approval. Investment in pure debt instruments as a primary strategy is restricted. Shell companies, banking or cooperative businesses, real estate speculation, securities brokerage, and market-making activities are excluded from the permissible investment universe. The fund's investment sectors must be clearly specified in its memorandum of association and constitution, and diversification rules are applied to limit exposure to single investments.
Despite these restrictions, the sectoral distribution of PE/VC capital in Nepal has been broad. According to industry data, renewable energy—particularly hydropower—has absorbed the largest share of capital at approximately 46.9%, followed by information technology at 23.6%, real estate at 9.79%, agri-business at 5.4%, manufacturing at 5.6%, hospitality at 4.2%, pharmaceuticals at 4.2%, and education at 1.7%. This concentration reflects the availability of scalable, bankable projects in energy and technology, as well as the current limitations of the domestic capital market for exits.
| Sector | Approximate Capital Share |
|---|---|
| Renewable Energy (Hydropower, Solar) | 46.9% |
| Information Technology | 23.6% |
| Real Estate | 9.79% |
| Agri-Business | 5.4% |
| Manufacturing | 5.6% |
| Hospitality | 4.2% |
| Pharmaceuticals | 4.2% |
| Education | 1.7% |
| Others | 3.61% |
Foreign participation in Nepal's private equity sector is expressly recognized under FITTA. Foreign institutional investors are permitted to establish private equity or venture capital funds in Nepal and may hold 100% ownership. However, foreign investors are required to obtain foreign investment approval from the Department of Industry (for investments up to NPR 6 billion) or the Investment Board Nepal (for larger investments), and registration and licensing from SEBON.
The minimum foreign investment threshold is generally NPR 20 million, though sector-specific variations may apply. Foreign capital must be recorded with Nepal Rastra Bank within six months of injection. Profits, dividends, and capital gains are fully repatriable after the discharge of tax obligations, subject to approval by the commercial bank where the fund maintains its foreign currency account. The repatriation process has been streamlined following the December 2025 NRB reforms, which delegated approval authority to licensed commercial banks with a 15-working-day timeline.
It is noteworthy that while FITTA permits foreign investment in most sectors, the Industrial Enterprises Act does not classify pure investment business as an "industry" in all contexts. This legislative gap creates occasional ambiguity for foreign investors and underscores the importance of structuring investments with proper legal guidance.
Taxation is a critical dimension of the private equity investment structure. The tax framework is applied at multiple levels: the fund manager level, the fund level, the portfolio company level, and the investor level.
The fund manager is subject to corporate income tax at the standard rate of 25% on its management fee income. Value-added tax at 13% is additionally levied on management fees if the fund manager's turnover exceeds the VAT registration threshold. Carried interest—the performance-based share of profits earned by the fund manager—is taxed as business income at 25%. There is no specific capital gains treatment for carried interest, which distinguishes Nepal's framework from some developed markets.
At the fund level, if the fund is structured as a company, corporate income tax at 25% is levied on its income. However, trust structures may offer flow-through taxation benefits, though the trust law framework in Nepal remains less developed than in other jurisdictions. At the portfolio company level, standard corporate tax at 25% applies to taxable income.
For investors, a withholding tax of 5% is imposed on cash dividends distributed by the fund. Capital gains realized on the sale of units or portfolio company shares are taxed at rates ranging from 5% to 25%, depending on the holding period and asset type. Long-term capital gains on holdings exceeding three years may benefit from reduced rates. Interest income from debt instruments, where permitted, is taxed at 25%. Double taxation avoidance agreements with limited countries—including India, China, Korea, Austria, and Norway—may provide relief from withholding taxes for investors from treaty jurisdictions.
| Tax Type | Rate | Applicability |
|---|---|---|
| Corporate Income Tax (Fund Manager) | 25% | On management fees and carried interest |
| Corporate Income Tax (Fund/Portfolio Company) | 25% | On net taxable income |
| Dividend Withholding Tax | 5% | On cash distributions to unit holders |
| Capital Gains Tax | 5%–25% | On sale of shares/units based on holding period |
| Carried Interest Tax | 25% | Taxed as business income for fund manager |
| Value Added Tax | 13% | On management fees if threshold exceeded |
| Interest Income Tax | 25% | On debt instrument returns |
The exit strategy is a defining element of private equity Nepal investment structure. The limited depth of Nepal's secondary market for unlisted shares makes exit planning particularly important at the time of investment.
Five primary exit routes are available. First, an initial public offering on the Nepal Stock Exchange represents the most sought-after exit, though it requires minimum three years of operational history, profitable operations or a clear path to profitability, and SEBON approval of the prospectus. Second, a trade sale or secondary sale to a strategic buyer or another PE fund is governed by general contract law and SEBON transfer rules, typically requiring three to six months. Third, a buyback by promoters is permitted under Companies Act provisions and generally takes two to four months. Fourth, a secondary sale to another PE fund is increasingly common as the domestic ecosystem matures. Fifth, partial divestment through private placements to qualified institutional buyers provides an alternative where full exit is not immediately feasible.
For foreign investors, repatriation of disinvestment proceeds, dividends, and capital gains is permitted after tax compliance. The December 2025 NRB reforms decentralized approval to commercial banks, reducing the timeline from months to approximately 15 working days for complete applications.
Ongoing compliance is mandated to maintain fund manager licenses and fund registrations. The fund manager is required to act in the best interest of unit holders, conduct operations fairly and transparently, avoid or disclose conflicts of interest, ensure proper investor identification and risk disclosure, maintain accurate accounting records, conduct annual general meetings of unit holders, and prepare audited financial statements within six months of each fiscal year-end.
SEBON-registered funds must submit quarterly reports on portfolio composition, net asset value, and compliance status. Annual audited financial statements prepared by a SEBON-registered auditor are mandatory. Immediate reporting of material events—such as significant investment write-downs, litigation, or changes in fund manager control—is required. The fund's NAV must be calculated quarterly on a fair value basis, and independent valuation is required for holdings exceeding 20% of the portfolio. A custodian agreement with a SEBON-registered or licensed bank is mandatory for the safekeeping of fund assets, and segregation of fund assets from the fund manager's own assets must be maintained.
It is the legal and organizational framework through which pooled capital is mobilized, managed, and deployed into unlisted or growth-stage Nepali companies under SEBON's Specialized Investment Fund Regulations, 2075.
The Specialized Investment Fund Rules 2075, Securities Act 2063, FITTA 2075, Companies Act 2063, Industrial Enterprises Act 2076, Income Tax Act 2058, and NRB Unified Directives collectively govern the sector.
A fund manager is required to have a minimum paid-up capital of NPR 20 million and must be incorporated as a company with "fund management" stated in its memorandum of association.
The minimum fund size is NPR 150 million. Each unit holder must invest at least NPR 5 million, and the fund manager must hold a minimum 2% stake in the fund.
Approximately 12 fund managers have been licensed by SEBON under the SIF framework, with additional merchant banks and investment firms in the pipeline.
Yes, foreign institutional investors are permitted to establish PE/VC funds with 100% ownership, subject to DOI/IBN approval, SEBON registration, and NRB recording of capital inflows.
Corporate income tax is levied at 25%. A 5% withholding tax is imposed on dividends distributed to investors. Capital gains are taxed at 5% to 25% depending on the holding period.
Renewable energy (particularly hydropower) absorbs approximately 46.9% of PE/VC capital, followed by information technology at 23.6%, real estate at 9.79%, and manufacturing at 5.6%.
Exits may be executed through IPOs on NEPSE, trade sales to strategic buyers, secondary sales to other PE funds, promoter buybacks, or partial private placements. IPOs remain the most sought-after but challenging route.
No, carried interest is taxed as ordinary business income at 25% for the fund manager. There is no specific capital gains or pass-through treatment for carried interest under current law.
SEBON is required to issue a certificate within 35 days, though in practice a Letter of Intent is issued first and the final license is granted after inspection of infrastructure and policies.
Yes, insurance companies are eligible investors. They may invest up to 1.5% of their total investment portfolio, with a maximum of 1% allocated to any single fund.
Establishing a Private Equity Nepal Investment Structure requires precise coordination across corporate, securities, tax, and foreign investment laws. Attorney Nepal PVT LTD provides comprehensive legal advisory services to domestic and international sponsors seeking to establish private equity and venture capital funds in Nepal. The firm's services include the incorporation of fund manager companies with SEBON-compliant memorandum and articles of association, preparation and submission of fund manager licensing applications to SEBON, drafting of fund constitutions and investment management agreements, coordination with the Department of Industry and Investment Board Nepal for foreign investment approvals, liaison with Nepal Rastra Bank for capital recording and repatriation compliance, and ongoing regulatory compliance support including quarterly reporting, audit coordination, and investor disclosure obligations. With deep expertise in the SIF Rules, FITTA, Securities Act, and Income Tax Act, Attorney Nepal PVT LTD ensures that fund structures are legally sound, tax-efficient, and aligned with international best practices. Fund sponsors and foreign institutional investors are encouraged to contact Attorney Nepal PVT LTD for a consultation before initiating the fund formation process.
References
For further reading and official guidance, the following authoritative sources are recommended.
Securities Board of Nepal - SIF Regulations and Fund Manager Licensing
Nepal Private Equity Association - Market Intelligence and Industry Data
Nepal Rastra Bank - Foreign Investment and Exchange Regulations
Department of Industry Nepal - Foreign Investment Approval Procedures
Investment Board Nepal - Large-Scale Investment Facilitation
Office of Company Registrar - Company Incorporation Requirements
Inland Revenue Department - Taxation of Investment Income
Foreign Investment and Technology Transfer Act, 2075 - Nepal Law Commission
May 27, 2026 - BY Admin