A wholly Nepali-owned private company and a foreign-invested subsidiary can look nearly identical on paper — same industry, similar turnover, same statutory filing calendar. But the moment foreign capital enters the picture, an entirely additional layer of compliance switches on, one that a purely domestic company never has to think about. A foreign investment company audit in Nepal is not a different kind of audit exactly, but it is a materially heavier one, because the auditor now has to verify not just whether the numbers are right, but whether every rupee (and every dollar) of foreign capital moved in and out of the company in a way that satisfies FITTA, the Companies Act, and Nepal Rastra Bank's foreign exchange rules simultaneously.
Legal Basis: FITTA 2019, the Companies Act, and NRB Foreign Investment Directives
The primary law governing foreign investment in Nepal is the Foreign Investment and Technology Transfer Act, 2075 (2019), commonly known as FITTA, which was itself amended in March 2025 to adjust several thresholds and procedural requirements. FITTA works alongside the Companies Act, 2063, which continues to govern the company's ordinary statutory obligations, and the foreign exchange directives issued by Nepal Rastra Bank, which control how foreign currency actually moves into and out of the country. Three authorities typically sit in the compliance chain for any foreign-invested company: the Department of Industry (or, for larger projects, the Investment Board Nepal), which approves the investment itself; the Office of the Company Registrar, which handles ordinary corporate registration and annual filings; and NRB, which must record the capital inflow and separately approve most forms of repatriation. An audit of a foreign-invested company has to speak to compliance with all three regimes at once, not just the Companies Act alone.
The Standard Statutory Audit Still Applies — Plus Additional Checks
It is worth being clear about what does not change: a foreign-invested company is still a company registered under the Companies Act, 2063, and it is still required to undergo the same annual statutory audit as any other registered company, examining the same balance sheet, profit and loss account, and cash flow statement that every Nepali company's auditor reviews. What changes is everything layered on top of that baseline. The auditor of a foreign-invested company effectively performs two audits in parallel: the ordinary financial statement audit, and a compliance-focused review of the company's foreign investment transactions against FITTA, NRB directives, and the specific terms of the Department of Industry's original approval letter.
Verifying Foreign Capital Inflow Matches Department of Industry Approval
Every foreign investment into a Nepali company begins with an approval from the Department of Industry (or Investment Board Nepal for larger projects), which specifies the approved investor, the approved amount, and the sector. The auditor's job includes tracing the actual capital that arrived in the company's bank account back to that original approval, confirming the amount received matches what was approved, that it came from the approved investor's own account rather than an unrelated third party, and that it was recorded with Nepal Rastra Bank using the investment inflow certificate within the required window after the funds landed. A mismatch here — capital received in excess of the approved amount, or from a different entity than the one named in the approval — is a serious flag, since it can put the entire investment's legal standing in question, not just create an accounting discrepancy.
Repatriation of Dividends and Profits: Audit Documentation Required
Under Section 20 of FITTA, foreign investors are entitled to repatriate their investment capital, profits, dividends, and other qualifying earnings, but only after paying all applicable taxes and obtaining the necessary approvals — first from the foreign investment approving authority, and then, depending on the amount and the authorised bank's own approval limits, from NRB itself. For an auditor, this means every repatriation transaction during the year needs a complete documentation trail: the board resolution authorising the specific dividend or profit distribution, the tax clearance certificate from the Inland Revenue Department confirming all tax obligations are settled, the audited financial statements the repatriation request was based on, and evidence that the transfer was processed through an authorised dealer bank at the prevailing exchange rate. Repatriation without this full paper trail is one of the fastest ways a foreign-invested company can find itself in a compliance dispute, since banks are themselves required to verify this documentation before processing the outward transfer.
Royalty and Technology Transfer Payment Verification
Where a foreign-invested company has entered into a technology transfer, trademark, or franchise agreement with its foreign parent or an affiliated entity, FITTA imposes ceilings on how much royalty can be repatriated under that agreement, with Section 7 specifically restricting technology transfer royalty repatriation beyond the prescribed limit. The auditor needs to verify that royalty and technology transfer payments made during the year were calculated in accordance with the underlying agreement, stayed within the applicable regulatory ceiling, and that the agreement itself had been properly approved by the Department of Industry before payments began. Because these payments are typically made to a related party — the parent company or an affiliate — they also warrant the same scrutiny any related-party transaction deserves, to confirm pricing and terms genuinely reflect the underlying agreement rather than being used as an informal channel to move additional profit out of Nepal beyond what dividend repatriation rules would otherwise permit.
Annual FDI Reporting to NRB and the Department of Industry
Beyond the one-time reporting triggered by the initial capital inflow, foreign-invested companies typically face ongoing annual reporting obligations to both NRB and the Department of Industry, covering matters such as the current status of the investment, any changes in shareholding structure, and confirmation that the company remains in compliance with the terms of its original approval. Under FITTA, any change in the company's ownership structure resulting from a transfer of shares, assets, or financial instruments must be recorded with the approving authority within 30 days of the transaction. An auditor reviewing a foreign-invested company's annual compliance will typically check whether these periodic reports were actually filed on schedule, since a company can be otherwise fully tax-compliant and still be in breach of its FITTA reporting obligations simply by missing this administrative step.
Common Issues: Undocumented Capital Inflow and Unauthorised Repatriation
Two issues surface more often than any others in foreign-invested company audits. The first is undocumented or unrecorded capital inflow — funds that arrived in the company's account and were treated as equity or shareholder loans in the books, but were never properly recorded with NRB using the investment inflow certificate, or that exceed the amount the Department of Industry actually approved. This creates real legal exposure, since unrecorded investment can complicate every future transaction involving that capital, including repatriation. The second is repatriation carried out without the required prior approval — a dividend or profit transfer processed through a bank without first securing sign-off from the investment approving authority or NRB where required, often because the company assumed a smaller transaction fell below a threshold that, on closer inspection, it did not. Both issues tend to originate the same way: informal cross-border cash movement that felt routine to the people involved at the time, but that was never properly channelled through the formal approval and recording process FITTA actually requires.
Conclusion
Foreign capital brings real advantages to a Nepali company, but it also brings a second, parallel compliance track that a purely domestic business never has to navigate. A properly scoped foreign investment company audit in Nepal has to look well beyond the balance sheet, verifying that capital inflow matches Department of Industry approval, that every repatriation carries its full documentation trail, and that royalty payments and annual FDI reports stay within the boundaries FITTA sets. Getting this right protects not just the company's compliance standing, but the foreign investor's underlying ability to eventually get their money back out of the country.
If your company has foreign investment and you want to make sure your compliance trail is audit-ready, our team at Bandhu Fintech can help you review it before your next statutory audit.
Disclaimer: This article is for general information only and does not constitute legal or tax advice. Please consult an ICAN-registered Chartered Accountant for guidance specific to your company's circumstances.
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