The ordinance issued by Nepal Government for the amendment of the Foreign Investment and Technology Transfer Actof 2075 (hereinafter “FITTA“) on the 29th of Poush, 2081(hereinafter “Ordinance“), introduces significant changes to promote foreign investment and technology transfer. Key updates include expanded technology transfer scope, allowing foreign investment in specialized funds, permitting project loans for any industry from foreign financial institutions, and easing repatriation processes. It also restricts foreign investment in certain sectors like aviation while simplifying approval processes for industries registered in provinces. Additionally, it grants tourist visas to families of foreign experts and employees, enhancing ease of doing business in Nepal.
Brief of Key updates:
Expansion of Technology Transfer Scope
- This Ordinance has expanded the scope of technology transfer between industries or companies and foreign investors, or between an industry or company established and operating in Nepal and a foreign industry, firm, or company particularly in management and technical services. This expansion encompasses fields such as information technology, marketing, financial services, accounting, engineering, outsourcing, digital data processing, design services, and other technical skills.
Foreign Investment in units of a specialized investment fund
- A new subclause added to the definition of Foreign Investment now permits investment in units of a specialized investment fund, which was previously not allowed.
- Foreign investors can make equity investments in Nepali industries by purchasing units of capital investment funds (venture capital funds) or specialized investment funds registered with the Securities Board of Nepal, subject to prior approval from the Securities Board of Nepal.
- The fund manager of the fund from which the foreign investor has purchased units shall provide the details of such fund to the Department of Industry.
Prohibition on making investment in industries listed in the Schedule
- Foreign investors are prohibited from making investments in industries listed in the Schedule.
- Foreign investors operating industries with foreign investment are prohibited from reinvesting profits earned or making investments, in any form, in industries listed in the Schedule.
Foreign currency earned from technology transfers
- This Ordinance has facilitated investment in foreign entities. The foreign currency earned from technology transfers may be:
- Brought into Nepal with Nepal Rastra Bank’s approval or
- Invested in entities such as limited liability partnerships, firms, investment funds,or companies with limited liability, as per prevailing foreign exchange regulations.
Foreign Investment via Fund Manager and capital investment fund (venture capital fund)
- Previously, only a capital investment fund (venture capital fund) could be established by institutional foreign investors by incorporating a company under prevailing laws and obtaining approval from the Securities Board for equity investment in any industry. The Ordinance has now expanded this provision to include the role of a fund manager.
Any Industry may borrowed loan from Foreign Financial Institutions
- Any industry may now obtain project loans or project financing from foreign financial institutions with approval from Nepal Rastra Bank, as per prevailing laws. Previously, only industries with foreign investment were allowed to obtain such loans or financing.
- Such loans qualify for exemptions, facilities, and concessions under Chapter 5 of the FITTA.
- Foreign currency facilities for loan repayment (principal and interest) shall be provided as prescribed by Nepal Rastra Bank.
- Industries may mortgage immovable property to foreign financial institutions for approved loans.
- Industries listed in the Schedule are prohibited from obtaining project loans or project financing from foreign financial institutions.
Foreign Financial Institutions may repatriate the loan’s principal and interest by auctioning the property
- If a foreign financial institution lends to an industry or company against pledged or mortgaged property in Nepal, and the property needs to be auctioned or forfeited due to non-repayment, the institution may repatriate the loan’s principal and interest by auctioning the property, similar to a Nepali bank or financial institution.
Approval for Investment made by Non-Resident Nepali
- Investments made by Non-Resident Nepali as per the Non-Resident Nepali Act, 2064 (Sections 7 or 8), or by companies, firms, or investment funds with over 50% shareholding by Non-Resident Nepali, must be notified to the Department of Industry (DOI). The DOI will then grant investment approval. Previously there was no such provision. Previously, there was no such provision for investment made by Non-Resident Nepali.
Power to Transfer the Amount of Foreign Investment
- If a person or entity with foreign investment approval under Section 17 of the FITTA wishes to transfer the foreign investment, fully or partially, free of charge, they must apply to the DOI.
- The DOI shall review the application and may grant approval, subject to the payment of any applicable taxes as per prevailing laws.
Repatriation of Investment from specialized investment fund units
- Since this Ordinance now permits foreign investment in units of a specialized investment fund, a foreign investor may repatriate the following amounts in the same foreign currency as the original investment, or in another convertible foreign currency, with the approval of Nepal Rastra Bank, after fulfilling tax-related liabilities under prevailing laws:
(g) Amounts from the sale of specialized investment fund units.
(h) Profits earned from specialized investment fund units.
- To this repatriate amounts foreign investors shall apply to the Nepal Securities Board for approval.
- By reducing the time frame for repatriation approval from 15 days to 7 days, this Ordinance has made the approving body more accountable.
- Additionally, the time frame for the Ministry of Industry, Commerce, and Supplies to make a decision on an appeal regarding dissatisfaction with the approving body’s decision on investment repatriation has been reduced from thirty working days to fifteen working days.
Exemption from Recommendation and Approval for Repatriation of Foreign Investment
- Once the process under Section 20 of the FITTA is completed, the recommendation of the foreign investment approval body and approval from Nepal Rastra Bank will no longer be required for repatriating foreign investment as specified in Section 20 of the FITTA.
Tourist Visa for Foreign Experts, Technical, Managerial Employees and their families
- Previously, tourist visas were not granted to the families of foreign experts, technical, or managerial employees. However, now such visas will be granted to both the employees and their families to be employed in an industry.
Foreign Investment Approval for Industries Registered in a Province
- Now, to obtain approval for foreign investment or technology transfer in any industry registered in a Province, only the certificate of industry registration is needed. The requirement for a recommendation from the Provincial ministry has been removed.
New Restriction on Industries for Foreign Investment
- Aircraft Operations and Services: Foreign investment exceeding the following limits is restricted:
International Airlines: 80%
Domestic Airlines: 49%
Training Institute: 95%
Maintenance Institute: 95%
- In the agricultural sector, industries in animal husbandry, fisheries, beekeeping, fruits, vegetables, oilseeds, pulses, dairy, and related sectors are restricted from foreign investment, except for large industries exporting at least 75% of their products. The term “large industries” now also includes agricultural technology and mechanization.
Contributor: Abha Gurung, Associate, Vidhi Legal Concern
