Private equity (PE) and venture capital (VC) have emerged as important drivers of economic growth in Nepal, providing risk capital to businesses that cannot access traditional bank financing. Regulated under the Specialized Investment Fund (SIF) Regulations, 2075 (2019) issued by the Securities Board of Nepal (SEBON), the PE/VC sector has grown from a handful of informal investment companies to a regulated ecosystem with licensed fund managers, institutional investors, and over 100 portfolio companies. This guide covers the legal framework, fund manager licensing, fund registration, eligible investors, investment restrictions, operating models, exit strategies, tax implications, and recent regulatory developments shaping Nepal's PE/VC landscape.
| Law / Regulation | Role in PE/VC |
|---|---|
| Specialized Investment Fund Regulations, 2075 (2019) | Primary PE/VC regulation — fund manager licensing, fund registration, operations |
| Securities Act, 2063 (2007) | SEBON's authority over capital markets and securities |
| Foreign Investment and Technology Transfer Act, 2075 | FDI in PE/VC, foreign fund registration |
| Companies Act, 2063 | Company formation for fund managers and investment companies |
| Industrial Enterprises Act, 2076 | Classifies investment companies as service industries (Schedule 8) |
| NRB Unified Directives | Foreign investment approvals, bank investment in PE/VC |
Nepal's first onshore PE fund with FDI — Business Oxygen (BO2) — was established in 2012 as part of IFC's Global SME Ventures initiative. Until 2019, PE/VC funds operated under the general Companies Act without specific regulation. The landmark SIF Regulations, 2075 (March 6, 2019) formally recognized PE, VC, and hedge funds as regulated asset classes, created a licensing framework for fund managers, and established investor protection rules. Today, over 12 institutional PE/VC firms operate in Nepal across three distinct models.
| Model | Registration | Examples | Key Feature |
|---|---|---|---|
| Companies Act | Office of Company Registrar | Kriti Venture, Safal Ventures, True North, Team Ventures | Operate as regular companies — no SIF-specific benefits |
| SIF-registered | SEBON license | Avasar Equity, Aadhyanta, Global Equity Fund | Independent from fund manager, beyond Companies Act limitations |
| DFI-backed | FITTA + NRB approval | Business Oxygen (IFC), Dolma Impact Fund, One to Watch | Foreign institutional capital, NRB exemptions from blacklisting |
Under the SIF Regulations, only a licensed fund manager can create and operate PE/VC funds. Requirements include:
| Requirement | Details |
|---|---|
| Company type | Registered at OCR with "fund management" in memorandum of association |
| Minimum paid-up capital | NPR 2 crores (NPR 20 million) |
| Application to SEBON | Submit registration documents, audited financials, board resolution, shareholder details |
| SEBON processing | Certificate within 35 days (in practice: LOI first, then final license after inspection) |
| Infrastructure | SEBON inspects office, human resources, and internal policies before final license |
| Fund manager stake | Minimum 2% in each fund managed |
| Independent director | Required on fund manager board |
After obtaining the fund manager license, separate approval from SEBON is required for each fund. The fund constitution must include: investor commitment details (minimum 10% promoter commitment), fund operation and record-keeping procedures, targeted investment sectors, investment procedures and projected returns, fund tenure and size, and management fee structure. Minimum fund size is NPR 150 million. Each fund is registered separately and exists independently from the fund manager entity.
| Investor Type | Notes |
|---|---|
| Banks and financial institutions | A, B, C class — PE/VC now a defined investment sector under NRB directives |
| Insurance companies | Up to 1.5% of total investment, max 1% per fund (life, non-life, reinsurance) |
| Pension and provident funds | Subject to investment guidelines |
| High net worth individuals | Domestic HNIs — major investor base for current funds |
| Foreign DFIs and multilateral organizations | FDI allowed with NRB/DOI approval |
| Other entities prescribed by SEBON | Expanded over time through SEBON notifications |
PE/VC funds in Nepal face the following investment restrictions: funds cannot invest in shares outside promoter shares (secondary market participation prohibited except as QII in book-building IPOs with SEBON approval), debt instruments, shell companies, banking or cooperative businesses, real estate speculation, securities brokerage, or market-making activities. Investment sectors must be clearly specified in the fund's memorandum of association and constitution. Diversification rules limit exposure to single investments.
Foreign investment in Nepal's PE/VC sector is governed by both the SIF Regulations and FITTA. FDI in PE funds from bilateral and multilateral organizations is permitted under SIF rules. However, FDI is not allowed in "investment business" as the Industrial Enterprises Act does not classify it as an industry — a gap that needs legislative harmonization. Each foreign investment requires approval from the Department of Industry, Investment Board Nepal (for large investments), and Nepal Rastra Bank, plus recording at OCR. Foreign-registered funds can also register with SEBON.
| Tax Type | Rate | Notes |
|---|---|---|
| Corporate income tax | 25% | Standard rate on fund/company profits |
| Capital gains tax | 5–25% | Depends on holding period and entity type |
| Withholding tax | Varies | On dividends, interest, and services |
| VAT | 13% | On taxable management and advisory services |
| Stamp duty | Varies | Based on transaction type and value |
A key structural challenge is that SIF funds in Nepal are not tax pass-through — the fund itself is taxed on investment income, unlike international best practices where only investors are taxed on distributions. This tax inefficiency is a recognized barrier to attracting international capital and is a focus area for regulatory reform.
| Exit Method | Details |
|---|---|
| IPO | List portfolio company on NEPSE — lock-in period increased to 2 years (from 1 year) |
| Strategic sale | Sell to another investor/company — may need competition authority approval |
| Secondary sale | Sell to other PE/VC funds — SEBON approval required for unlisted shares |
| Buyback | Portfolio company repurchases shares |
Successful exits in Nepal include BO2's exits from Godawari International, Le Sherpa, Shanti Engineering, and Dalle Restaurant — demonstrating a maturing exit ecosystem.
SEBON has announced significant reforms for FY 2082/83:
| Reform | Impact |
|---|---|
| Lock-in period doubled (1→2 years) | Longer holding required post-IPO — promotes long-term investment |
| 50% fee reduction for PE/VC | Lower costs for fund management, registration, and issuance |
| Insurance investment expanded | Life, non-life, reinsurance can invest up to 1.5% in SEBON-approved PE/VC |
| Banks can invest in PE/VC sector | NRB now includes PE/VC as defined investment sector for A, B, C class banks |
| Investment company regulation expanded | SEBON oversight for companies with NPR 5 crore+ capital or NPR 10 crore+ transactions |
| GDR framework proposed | Collaboration with NRB for Global Depository Receipts — international capital access |
Over 100 companies have received PE/VC funding in Nepal, including Foodmandu, Sastodeal, Fusemachines, Cloud Factory, Smart Pani, Red Mud Coffee, Sahas Urja, and Alpine Café. The ecosystem includes both domestic funds (Avasar with NPR 5 billion raised, Aadhyanta targeting NPR 3–5 billion) and DFI-backed funds (BO2, Dolma). The Nepal Private Equity Association (NPEA) represents the industry and advocates for regulatory reforms.
The PE/VC sector faces several structural challenges: tax inefficiency (no pass-through treatment), multiple approval layers for foreign investment (DOI + NRB + OCR for each investment), limited secondary market for unlisted shares, the Industrial Enterprises Act not classifying investment business as an "industry" (blocking certain FDI), and NEPSE's limited sectoral diversity (dominated by financial institutions and hydropower). Harmonization of the SIF Regulations with the Companies Act, Income Tax Act, FITTA, and Industrial Enterprises Act remains a priority.
While Nepal Divorce Services is Nepal's first specialized divorce and family law firm, our legal team also advises on corporate and investment law matters. We can assist with fund manager company registration, SEBON licensing applications, investment agreement drafting, FDI approval coordination, contract structuring, and regulatory compliance for PE/VC operations.
For legal assistance, contact us at +977 9841114443 or on WhatsApp.
| Topic | Guide |
|---|---|
| IPO & capital markets | IPO and Capital Markets Law in Nepal |
| Foreign investment | Foreign Investment Law in Nepal |
| Company registration | Company Registration in Nepal |
| Company liquidation | Company Liquidation in Nepal |
| VAT law | VAT Law in Nepal |
| Industrial Enterprises Act | Industrial Enterprises Act in Nepal |
Private equity (PE) funds invest in equity or convertible securities of established companies, while venture capital (VC) funds invest in early-stage startups and growth companies. In Nepal, both are regulated as Specialized Investment Funds (SIF) under the SIF Regulations, 2075 (2019) issued by the Securities Board of Nepal (SEBON). Only licensed fund managers can create and operate PE/VC funds.
The Specialized Investment Fund Regulations, 2075 (2019) is the regulatory framework issued by SEBON on March 6, 2019, governing PE, VC, hedge funds, and other alternative investment funds in Nepal. The regulations cover fund manager licensing, fund registration, minimum standards, eligible investors, investment agreements, and reporting requirements. This was a milestone — before 2019, PE/VC funds operated under the general Companies Act without specific regulation.
Two conditions must be fulfilled:
SEBON issues the Fund Manager certificate within 35 days of application (in practice, a Letter of Intent is issued first, then final license after infrastructure inspection).
Under the SIF Regulations, the minimum fund size is NPR 150 million (NPR 15 crore). The fund manager must maintain a minimum 2% stake in the fund. Fund tenure, management fees, hurdle rate, and carried interest are determined by the investment agreement between the fund manager (General Partner) and investors (Limited Partners), within limits prescribed by the regulations.
Eligible investors include:
Investors must enter into an investment agreement with the fund manager specifying commitment amount, terms, and conditions.
As of 2025, SEBON has issued fund manager licenses to eight firms including Global Equity Fund, Nabil Investment Banking, NIC Asia Capital, Prabhu Capital, Lakshmi Capital, NIBA Ace Capital, NMB Capital, and Avasar Equity Limited. Avasar Equity was the first PE fund licensed by SEBON (August 2022). Other PE/VC firms like Business Oxygen (BO2), Dolma Impact Fund, Kriti Venture, and True North operate under the Companies Act or as DFI-backed funds.
Yes, but with restrictions. Under the SIF Regulations, FDI in PE funds is allowed initially from bilateral and multilateral organizations (e.g., IFC, DFIs). The Foreign Investment and Technology Transfer Act (FITTA) permits foreign investment in companies establishing venture capital funds. Each foreign investment must be approved by the Department of Industry, Investment Board Nepal, and Nepal Rastra Bank. Foreign investors and DFIs are exempted from blacklisting under NRB directives.
PE/VC funds in Nepal operate through three models:
SIF-registered funds exist independently from their fund manager and can operate beyond the Companies Act's limitations.
PE/VC funds can invest across most sectors including manufacturing, technology, healthcare, e-commerce, agriculture, energy, tourism, and financial services. However, there are restrictions on: defence, real estate speculation, shell companies, securities brokerage, banking/cooperative business, and market-making activities. Investment sectors must be clearly mentioned in the fund's constitution and memorandum of association.
Exit strategies include:
Exit planning requires early legal advice as each method has different regulatory and tax implications.
Key tax considerations:
A major challenge is that SIF funds are not tax pass-through — the fund itself is taxed on investment income, unlike international best practices where only investors are taxed.
Key 2025 developments:
An estimated 100+ companies have received PE/VC funding in Nepal, including prominent names like Foodmandu, Sastodeal, Fusemachines, Cloud Factory, Smart Pani, Red Mud Coffee, Dalle Restaurant, and Sahas Urja. PE/VC firms have also successfully exited investments — Business Oxygen (BO2) exited from Godawari International, Le Sherpa, Shanti Engineering, and others, demonstrating a maturing exit ecosystem.
The Nepal Private Equity Association (NPEA) is the industry body representing PE/VC firms in Nepal. NPEA advocates for regulatory reforms, promotes the PE/VC ecosystem, and facilitates dialogue between fund managers, regulators (SEBON, NRB), and the government. It plays a key role in shaping policy recommendations for the SIF framework and attracting international investment.
A lawyer can assist with: structuring fund manager companies and obtaining SEBON licenses, drafting fund constitutions and investment agreements, navigating FDI approvals (DOI, IBN, NRB), ensuring compliance with SIF Regulations, advising on tax-efficient structures, managing exit strategies and IPO compliance, and resolving investor disputes. Contact Nepal Divorce Services at +977 9841114443.
At Nepal Divorce Services, Nepal's first specialized divorce law firm, we understand that taking the first step toward divorce can feel overwhelming. Our experienced divorce lawyers are here to guide you through the legal process and help you move forward with confidence and clarity.
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