How Nepal Is Governed: The Institutions That Regulate Business
Almost every decision a foreign business needs is taken by a named federal department or regulator. The local tier controls the premises.
Why the tier matters
Foreign entrants arrive expecting one government and find three. Applying to the wrong office is cheap: it usually produces a redirection within days. The expensive mistake is spending months negotiating with a tier that never had the power to grant what was being negotiated for, and discovering it only when the instrument has to be signed.
Nepal’s federal structure is nine years old and still settling. The Constitution allocates power. The operating statutes that give effect to that allocation have arrived unevenly, and for most business-facing decisions the practical answer is simpler than the constitutional one.
The three tiers
The Constitution of Nepal 2072 commenced on 20 September 2015. It creates a federation, seven provinces and a local tier of 753 units — metropolitan cities, sub-metropolitan cities, municipalities and rural municipalities — organised across 77 districts. Powers are allocated by five schedules: Schedule 5 lists federal powers, Schedule 6 provincial powers, Schedule 7 powers concurrent between federation and province, Schedule 8 local powers, and Schedule 9 powers concurrent across all three tiers.
The Local Government Operation Act 2074, published on 15 October 2017, is the statute that gives operational content to Schedule 8. Anything a municipality charges or licenses traces back to it.
For a business, the allocation resolves into a short rule. The federal tier holds the money powers and the entry powers: customs, value added tax, income tax, monetary and banking policy, foreign investment approval, and the licensing of regulated sectors. The local tier holds the ground: land use, building permission, local business tax and the permissions attached to physical premises. Provinces sit between the two with the least developed machinery of the three. For most inbound investment they are not the counterparty.
The federal regulators
Nepal’s federal administration divides by ministry, and the operative decisions are almost always taken by a department or an autonomous regulator rather than by the ministry itself.
| Decision | Body | Instrument it acts under |
|---|---|---|
| Incorporating a company, filing returns, charges | Office of the Company Registrar | Companies Act 2063 (2006) |
| Approving foreign investment below NPR 6 billion | Department of Industry | FITTA 2075 (2019), as amended |
| Approving foreign investment above NPR 6 billion, and energy projects of 200 MW or more | Investment Board Nepal | Public Private Partnership and Investment Act 2075 (2019) |
| Income tax and VAT registration, assessment, refund | Inland Revenue Department | Income Tax Act 2058 (2002), VAT Act 2052 (1996) |
| Customs valuation, clearance, duty | Department of Customs | Customs Act 2064 (2007) |
| Bank and finance company licensing, foreign exchange, repatriation approval | Nepal Rastra Bank | NRB Act 2058 (2002), BAFIA 2073 (2017), Foreign Exchange (Regulation) Act 2019 BS |
| Securities issuance, listing rules, market intermediaries | Securities Board of Nepal | Securities Act 2063 (2007) |
| Insurance licensing, solvency, product approval | Nepal Insurance Authority | Insurance Act 2079 (2022) |
| Telecom licences, spectrum, interconnection | Nepal Telecommunications Authority | Telecommunications Act 2053 (1997) |
| Electricity tariff, market conduct, licence terms | Electricity Regulatory Commission | Electricity Regulatory Commission Act 2074 (2017) |
| Generation, transmission and distribution licences | Department of Electricity Development | Electricity Act 2049 (1992) |
| Money laundering investigation | Department of Money Laundering Investigation, with the financial information function at Nepal Rastra Bank | Asset (Money) Laundering Prevention Act 2064 (2008) |
Three entries in that table need annotation, because each has caught out counsel arriving from other jurisdictions.
The electricity sector has two federal authorities with different jobs. The Department of Electricity Development issues survey, generation, transmission and distribution licences under the Electricity Act 2049, which remains the governing statute. The Electricity Regulatory Commission, created much later, sets and reviews tariff and regulates conduct. A licence question and a tariff question go to different buildings.
The customs statute is currently ambiguous in the public record. The Department of Customs publishes the Customs Act 2064 (2007) as its governing act, while the Nepal Law Commission catalogues a Customs Act 2082 dated 28 Asoj 2082 (14 October 2025). This page does not state which is operative, because the commencement provision of the later act was not obtained. Anyone relying on a customs provision should confirm which text applies before doing so.
The Insurance Act 2079 replaced the earlier regime, converting the former Insurance Board into the Nepal Insurance Authority. Documents drafted before 2022 that name the Beema Samiti are referring to a body that no longer exists in that form.
Overlapping jurisdictions
Most jurisdictional friction in Nepal happens at four seams.
Department of Industry against Investment Board Nepal. The line is NPR 6 billion of project cost, with energy projects of 200 MW or more going to the Board regardless. An application filed with the wrong body does not transfer; it restarts. Project cost is also a moving figure during development, which means a project can cross the line between initial approval and financial close.
Nepal Rastra Bank against the Securities Board. A listed commercial bank is prudentially supervised by NRB and, as an issuer, regulated by SEBON. Capital raising by a bank engages both. The same duality applies to listed insurers, where the Nepal Insurance Authority holds the prudential side.
Federal registration against local operation. A company registered with the Office of the Company Registrar and approved by the Department of Industry still cannot open its doors without local-level permissions attached to the premises, and still owes local business tax. Neither federal approval displaces the local requirement.
Sector regulator against Department of Industry. An industry in a regulated sector needs both an industry registration and a sector licence, and the sequencing is not always obvious in advance. Foreign investment approval does not confer the sector licence.
No merger control
There is a competition statute — the Competition Promotion and Market Protection Act 2063 (2007) — and a body constituted under it. There is no merger-control regime of the kind that would require notification and clearance of an acquisition above a turnover threshold. Foreign counsel scoping a Nepali acquisition frequently budget for an antitrust filing that does not exist. The regulatory consents that do bite on a change of control are sector-specific: NRB approval for a change in bank ownership, Department of Industry or Investment Board approval for a transfer of foreign-invested shares, and sector-regulator consent where a licence is involved.
Other institutions that matter
Three institutions shape commercial risk without appearing on any licensing chart. The Commission for the Investigation of Abuse of Authority holds the anti-corruption investigative mandate over public officials. Its interest in a procurement or a licence decision can stall that decision irrespective of legal merit. The Office of the Auditor General’s annual reports drive retrospective challenge to public contracts. And the Department of Money Laundering Investigation, together with the financial information function housed at Nepal Rastra Bank, carries the enforcement side of an anti-money-laundering regime that has been under FATF increased monitoring since February 2025.
The IMF’s 2026 Article IV assessment puts the underlying problem plainly. Nepal lags regional and income-level peers on governance measures, and the persistent gap lies between policy formulation and implementation rather than in the laws themselves. The authorities have begun a Governance and Corruption Diagnostic with the Fund, making Nepal the second country in the Asia-Pacific region to undertake that exercise.
Unsettled areas
Two things should be treated as unsettled rather than described. The distribution of business-facing competence between provinces and the federal government has not been fully worked out in operating legislation, and provincial industrial and revenue statutes differ. Anyone told that a provincial body has authority over a particular approval should ask which provincial act says so and read it.
The second is at the local level. The Local Government Operation Act gives 753 units the power to levy business tax and issue local permissions. It does not standardise the rates or the procedure. Two municipalities in the same district can price the same activity differently, and many publish nothing. This is the part of Nepali regulation that cannot be researched remotely.
Sources
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Constitution of Nepal (with second amendment), English text
Government of Nepal / Nepal Law Commission · Commenced 20 September 2015; text as amended · Tier 1 — Primary legal instrument
Supports: The three-tier federal structure, the commencement date of 20 September 2015, and the existence of Schedules 5 to 9 allocating powers.
Accessed 26 August 2026
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स्थानीय सरकार सञ्चालन ऐन, २०७४ (Local Government Operation Act, 2074)
Government of Nepal / Nepal Law Commission · Published 29 Asoj 2074 (15 October 2017) — in force · Tier 1 — Primary legal instrument
Supports: That the operation of local government powers, including local revenue and licensing functions, is governed by this Act.
Accessed 26 August 2026
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Foreign Investment in Nepal 2024
Department of Industry, Ministry of Industry, Commerce and Supplies · 2024 · Tier 2 — Official publication
Supports: The split of foreign investment approval authority at NPR 6 billion between the Department of Industry and Investment Board Nepal, Investment Board jurisdiction over energy projects of 200 MW or more, and the minimum foreign investment threshold of NPR 20 million set by Ministry notice dated 14 November 2022.
Accessed 26 August 2026
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नेपाल राष्ट्र बैङ्क ऐन, २०५८ (Nepal Rastra Bank Act, 2058)
Government of Nepal / Nepal Law Commission · 2058 BS (2002) — in force, as amended · Tier 1 — Primary legal instrument
Supports: Nepal Rastra Bank as the central bank and its statutory basis.
Accessed 26 August 2026
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बैङ्क तथा वित्तीय संस्था सम्बन्धी ऐन, २०७३ (Bank and Financial Institution Act, 2073)
Government of Nepal / Nepal Law Commission · 2073 BS (2017) — in force · Tier 1 — Primary legal instrument
Supports: The licensing and classification framework for banks and financial institutions.
Accessed 26 August 2026
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धितोपत्र सम्बन्धी ऐन, २०६३ (Securities Act, 2063)
Government of Nepal / Nepal Law Commission · 2063 BS (2007) — in force · Tier 1 — Primary legal instrument
Supports: The Securities Board of Nepal as securities market regulator.
Accessed 26 August 2026
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बीमा ऐन, २०७९ (Insurance Act, 2079)
Government of Nepal / Nepal Law Commission · 2079 BS (2022) — in force · Tier 1 — Primary legal instrument
Supports: The Nepal Insurance Authority and the current statutory basis for insurance regulation.
Accessed 26 August 2026
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विद्युत नियमन आयोग ऐन, २०७४ (Electricity Regulatory Commission Act, 2074)
Government of Nepal / Nepal Law Commission · 2074 BS (2017) — in force · Tier 1 — Primary legal instrument
Supports: The Electricity Regulatory Commission and its statutory basis, distinct from the Electricity Act 2049.
Accessed 26 August 2026
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दूरसञ्चार ऐन, २०५३ (Telecommunications Act, 2053)
Government of Nepal / Nepal Law Commission · 2053 BS (1997) — in force · Tier 1 — Primary legal instrument
Supports: The Nepal Telecommunications Authority and its statutory basis.
Accessed 26 August 2026
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कम्पनी ऐन, २०६३ (Companies Act, 2063)
Government of Nepal / Nepal Law Commission · 2063 BS (2006) — in force, as amended · Tier 1 — Primary legal instrument
Supports: The Office of the Company Registrar and the incorporation and filing regime.
Accessed 26 August 2026
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Government of Nepal / Nepal Law Commission · 2063 BS (2007) — in force · Tier 1 — Primary legal instrument
Supports: The existence of a competition statute and the body constituted under it.
Accessed 26 August 2026
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Asset (Money) Laundering Prevention Act, 2064 (2008)
Government of Nepal (copy hosted by Nepal Insurance Authority) · 2064 BS (2008) — in force, as amended · Tier 1 — Primary legal instrument
Supports: The statutory basis for money laundering investigation and the financial information function.
Accessed 26 August 2026
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International Monetary Fund · 8 June 2026 · Tier 3 — Multilateral institution
Supports: That Nepal lags regional and income peers on governance indicators, that the gap is between policy formulation and implementation, and that a Governance and Corruption Diagnostic was launched with the IMF.
Accessed 26 August 2026
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Investment Board Nepal — Partnering for Economic Prosperity (brochure)
Investment Board Nepal · Undated; obtained 2026 · Tier 2 — Official publication
Supports: That Investment Board Nepal's mandate now derives from the Public Private Partnership and Investment Act 2075 (2019), and its thresholds of NPR 6 billion project cost and 200 MW installed capacity.
Accessed 26 August 2026
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आयकर ऐन, २०५८ (Income Tax Act, 2058)
Government of Nepal / Nepal Law Commission · 2058 BS (2002) — in force, as amended annually by the Finance Act · Tier 1 — Primary legal instrument
Supports: The statutory basis for income tax administered by the Inland Revenue Department.
Accessed 26 August 2026
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मूल्य अभिवृद्धि कर ऐन, २०५२ (Value Added Tax Act, 2052)
Government of Nepal / Nepal Law Commission · 2052 BS (1996) — in force, as amended · Tier 1 — Primary legal instrument
Supports: The statutory basis for value added tax.
Accessed 26 August 2026
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Department of Customs · 2064 BS (2007) — published by the Department as its operative statute · Tier 1 — Primary legal instrument
Supports: That the Department of Customs publishes the Customs Act 2064 as the governing customs statute.
Accessed 26 August 2026
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भन्सार ऐन, २०८२ (Customs Act, 2082)
Government of Nepal / Nepal Law Commission · Dated 28 Asoj 2082 (14 October 2025); commencement status unconfirmed · Tier 1 — Primary legal instrument
Supports: The existence of a Customs Act 2082 in the Law Commission catalogue.
Accessed 26 August 2026
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विदेशी विनिमय (नियमित गर्ने) ऐन, २०१९ (Foreign Exchange (Regulation) Act, 2019 BS)
Government of Nepal / Nepal Law Commission · 2019 BS (1962) — in force, as amended, most recently by the omnibus act authenticated 31 March 2025 · Tier 1 — Primary legal instrument
Supports: Nepal Rastra Bank's foreign exchange powers.
Accessed 26 August 2026
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