The share purchase agreement is signed. The price was agreed over three months of negotiation and everyone is satisfied that it is fair. Then the file goes to the Department of Industry, to the bank, and eventually to the tax office — and someone who was not in any of those meetings asks a simple question: how did you arrive at this number?

If the honest answer is "it was a multiple the buyer was comfortable with," the transaction is now a problem. Not an illegal one. An unfinished one.

In my first article in this series, I argued that foreign investment in Nepal now enters quickly and exits slowly, and that the difference is made by the quality of the file rather than the state of the law. Nowhere is that clearer than in valuation. When a foreign investor sells shares in an unlisted Nepali company, the price is not a private matter between buyer and seller. It is a number that at least three separate reviewers must be able to accept.

Who reads your valuation, and what each one is looking for

The Department of Industry is looking at whether the transfer is permitted and consistent with the original approval. Since the FITTA amendment of 31 March 2025, a foreign investor must obtain prior approval from the DoI before selling or transferring equity to a domestic party. This reversed the earlier position, under which the transaction could be completed first and registered with the approving authority afterwards. The sequencing of an exit has therefore changed: approval now comes before completion, and the price and its basis are in front of the regulator earlier than they used to be.

The bank, and Nepal Rastra Bank behind it, is looking at whether the amount being remitted out of the country is supported. NRB's published position on repatriation of sale proceeds of unlisted shares has been that the price should be established on a fair value basis for the company's assets and liabilities, rather than on whatever figure the parties nominate. Following the shift to bank-processed repatriation in December 2025, this test is now applied by a commercial banker reading your documents, which makes clarity and internal consistency more important, not less.

The Inland Revenue Department is looking at whether the gain has been correctly computed and the tax correctly withheld and paid — and, where the parties are related, whether the price reflects what unrelated parties would have agreed.

Three reviewers, three questions, one document. A valuation that satisfies only the negotiating parties satisfies none of them.

What a defensible valuation file contains

A valuation is not a number. It is a number plus the reasoning that produced it, in a form that a stranger can follow. At a minimum, the file should contain:

• Purpose, basis and date. Why the valuation was prepared, what standard of value is being applied, and the valuation date. A number without a date is not a valuation.
• The audited financial statements it is built on, with any period between the last audit and the valuation date explicitly bridged.
• Normalisation adjustments, each one listed, quantified and reasoned.
• The methods applied and why. Asset-based, income-based and market-based approaches each answer a different question. State which you relied on and which you used as a cross-check.
• The discount rate build-up, if a discounted cash flow method is used — component by component, not a single asserted percentage.
• The projections and their basis, tied to historical performance and to whatever the company has actually contracted.
• Sensitivity analysis, showing how the conclusion moves with the two or three assumptions that matter most.
• Discounts and premiums for lack of marketability or lack of control, applied consciously and justified — not smuggled in to reach a target.
• A reconciliation to the transaction price, explaining any difference between the valuation conclusion and the agreed consideration.
• Signature, date and limitations. Including what the valuer did not verify.

The test is not sophistication. It is whether a reviewer who has never met you can trace every rupee of the conclusion back to a document.

Where valuations of Nepali unlisted companies actually go wrong

This is where a chartered accountant earns the engagement, because the failures are rarely in the model. They are in the numbers the model was fed.

Related-party arrangements that were never at arm's length. Rent paid to the promoter for the building. Directors' remuneration set for tax reasons rather than market reasons. Purchases routed through a family trading concern at a margin nobody negotiated. Every one of these distorts maintainable earnings, and every one has to be normalised out before an income approach means anything. A buyer who does not normalise is buying the promoter's tax planning at a multiple.

Assets carried at figures that stopped being meaningful years ago. Land bought in the 1990s and still sitting at cost. Fully depreciated plant that is still the core of the operation. Inventory that has not been physically verified in three years. On an asset-based approach, these are the entire answer, and they are usually the least examined numbers in the accounts.

Liabilities that are real but not recorded. Gratuity and leave encashment not provided for. Tax assessments under appeal with no provision against them. Personal guarantees, informal promoter loans, and undocumented advances from customers. In a share deal the buyer inherits every one of these, and a valuation that ignores them is not conservative — it is wrong.

Receivables that will never be collected. Nepali balance sheets carry aged debtors long past the point of realism because writing them off has a tax and optics cost. On exit, that decision transfers to the buyer at full value unless someone tests it.

Revenue that cannot be traced. Any part of the business that runs on undocumented cash cannot be valued, cannot be supported to a regulator, and cannot be repatriated. It is worth precisely nothing in an exit and needs to be identified early, not discovered in due diligence.

A valuation of a Nepali unlisted company is largely a normalisation exercise wearing a model as a costume. The model is the easy part.

The tax layer, which changes the number the seller actually receives

Three points, each of which should be computed before the price is agreed rather than after:

Withholding on the gain. Tax on the gain arising from disposal of shares in an unlisted company is collected through withholding at the time of transfer, at rates that depend on whether the seller is a natural person, an entity, or a non-resident. These rates have been adjusted by successive Finance Acts, so the applicable rate must be confirmed for the fiscal year in which the disposal occurs rather than taken from last year's briefing.

Whether the treaty helps. A non-resident's gain on the disposal of an interest in a resident Nepali entity is Nepal-source income. Whether a double taxation avoidance agreement reduces or eliminates the Nepali charge depends entirely on the capital gains article of the specific treaty, and on the seller producing a tax residency certificate. It is a question to answer at structuring, when the holding entity can still be chosen.

Change in control. Where the ownership of an entity changes beyond the threshold set in Section 57 of the Income Tax Act within the prescribed period, the entity is treated as having disposed of its assets and liabilities, with consequences for carried-forward losses and for the company's own tax position. A share sale that looks like a clean exit for the seller can therefore create a tax event inside the target — a cost that lands on the buyer immediately after completion. It should be modelled before the shareholding percentages are agreed, not after.

The order in which an exit actually has to happen

• Establish the valuation basis and prepare the valuation on audited numbers.

• Confirm sectoral position, ownership caps and any conditions attached to the original approval.
• Obtain prior approval from the Department of Industry for the transfer.
• Execute the share transfer documentation and pay stamp duty.
• Compute, withhold and deposit the tax on the gain, and obtain the tax records that the bank will ask for.
• Complete the filings with the Office of the Company Registrar and update the share register.
• Present the repatriation file to the bank: the original approval, evidence of the recorded inflow, the valuation, the approved transfer, the tax evidence and the audited accounts — and confirm the destination country matches the origin of the investment, or that the additional approval for a different destination is in hand.

Every step above depends on the one before it, and the valuation sits at the top. Get it wrong and the error propagates through six subsequent stages, each with its own queue.

Frequently asked questions

Do I need a valuation report to transfer shares in a Nepali private company? Where a foreign investor is buying or selling, and particularly where sale proceeds are to be repatriated, the price must be supportable on a fair value basis. A formal valuation report is the practical way to demonstrate that.

Can a foreign investor sell shares to a Nepali buyer without prior approval? No. Since the FITTA amendment of 31 March 2025, prior approval from the Department of Industry is required before a foreign investor sells or transfers equity to a domestic party.

Which valuation method does the regulator prefer? The regulatory anchor for unlisted shares is fair value of assets and liabilities. In practice, an asset-based conclusion supported by an income approach and disclosed cross-checks is far more likely to be accepted than a discounted cash flow presented on its own.

Can we simply transact at face value or book value? You can agree any price commercially, but the repatriable amount and the taxable gain are tested against a defensible fair value. A price materially below fair value between related parties invites a transfer pricing adjustment; a price materially above it invites questions about the source and purpose of the funds.

How long before the deal should the valuation be done? Before the term sheet, not after the SPA. A valuation prepared to justify a price already agreed is the weakest document in any file, and reviewers recognise one immediately.

The point

Nepal does not require foreign investors to sell at a regulator's price. It requires them to be able to explain their own. That is an accounting and evidence discipline, and it is built in the months before a deal, out of audited statements, verified assets, normalised earnings and a written basis of value.

The investors who exit Nepal cleanly are not the ones with the best negotiators. They are the ones whose file was ready before anyone asked to see it.

Mr. Nishant and team provides independent business and share valuations for entry, exit, share transfer, restructuring and regulatory purposes, together with FDI structuring, Department of Industry and NRB compliance, and repatriation planning.

If you are preparing to bring in an investor, buy out a partner, or exit a Nepali company, get in touch for an initial consultation canishantha(Whatsapp). Send us the last three years of audited accounts and the shareholding structure, and we will tell you where your valuation will be challenged before anyone else gets to challenge it.

This article reflects the position as verified on 16 August 2026. Rates, thresholds and procedural requirements in this area change frequently, often by gazette notification or annual Finance Act rather than by amendment to the principal Act. It is general information, not advice on any specific transaction.