Nepal Rastra Bank, the central bank of Nepal (“NRB”) enacted “Foreign Investment and Foreign Loan management By-Law” (“By-Law”) on 8 June 2021 (25 Jestha 2078) pursuant to Foreign Exchange Regulation Act 1962 and Nepal Rastra Bank Act 2002. By-Law has introduced a number of provisions regarding foreign investment and foreign loan approval. Major provisions of the By-Law are outlined below.
1. Foreign Currency for Feasibility Study and Pre-operating Expenses
Foreign investors willing to conduct feasibility study to invest in Nepal and willing to bring in pre-operating expenses through formal banking channels are not required to obtain approval from NRB. Foreign investors are permitted to invest up to 3 percent of the authorized capital of the proposed company/industry. The foreign currency for feasibility study and pre-operating expenses may be brought into bank account of the authorized representative of the foreign investor maintained in Nepal. The amount should be recorded with NRB after verification of the amount by chartered accountant/ auditor of the company. Amount invested for feasibility study and pre-operating expenses cannot be repatriated if foreign investors do not invest in the proposed company/industry or the total investment amount exceeds the approved capital of the company/industry.
2. Waiver of Prior Approval from NRB
By-Law has waived the previous approval required from NRB to bring in foreign investment. Nevertheless, foreign investors/companies with foreign investment are required to notify NRB in the format specified in the By-Law, submit documents to Bank and Financial Institution set out in Schedule 3 of By-Law before bringing in foreign investment amount, and record the foreign investment amount with NRB. The waiver of approval is limited to approvals for fresh investment and subsequent capital increment. Therefore, foreign investors/companies with foreign investment are required to obtain prior approval from NRB in share purchase transactions and in cases where investment will lead to change in share structure of the company.
3. Record (Lekhankan) of Investment with NRB
Companies with foreign investment are required to record the foreign investment with NRB within 1 year from the date of bringing in foreign investment in Nepal as per Foreign Investment and Technology Transfer Act 2019 (“FITTA”) and By-Law. Companies with foreign investment are required to submit documents outlined in Schedule 6 of the By-Law to record the investment.
4. Repatriation and Foreign Currency Exchange Facility
By-Law permits the repatriation and foreign currency exchange facility as provided in FITTA:
(a) Amount received from the sale of shares of companies with foreign investment,
(b) Amount of profit or dividend received from companies with foreign investment,
(c) In the case of liquidation or winding up of the industry or company with foreign investment, amount remaining after paying all liabilities following the liquidation or winding up,
(d) Amount of royalty received under the technology transfer agreement within the limits set out in in the law.
(e) Amount of lease rent under the lease investment,
(f) Amount received as damages or compensation, if any, received from the final settlement of a lawsuit, arbitration or any other legal process in Nepal,
Foreign investors are required to submit the application together with the documents set out in Schedule 9 of the By-Law to One Stop Center, Department of Industry to obtain foreign currency exchange facility and repatriate the investment. Approval or recommendation from concerned regulatory authority is necessary to obtain foreign currency exchange facility and repatriation approval from NRB.
5. Approval of Foreign Loan
Nepalese person, firm, company, bank and financial institutions and other corporate bodies willing to avail foreign loan facility in Indian Rupees or other exchangeable foreign currency are required to obtain prior approval from NRB. Applicants are required to submit application to One Stop Center, Department of Industry or Foreign Exchange Department of NRB together with the documents stated in Schedule 11 of By-Law.
6. Record (Lekhankan) of Foreign Loan with NRB
Nepalese person, firm, company, bank and financial institution and other corporate bodies who have obtained foreign loan in Indian Rupees or other exchangeable foreign currency are required to record the foreign loan with NRB within 6 months from date of availing such foreign loan. Applicants are required to submit application to One Stop Center, Department of Industry or Foreign Exchange Department of NRB together with the documents stated in Schedule 13 of By-Law.
7. Payment of Interest of Foreign Loan
Nepalese person, firm, company, bank and financial institution and other corporate bodies who have obtained foreign loan in Indian Rupees or other exchangeable foreign currency can make payment of interest to the lender through licensed bank and financial institutions without obtaining approval from NRB. Nepalese person, firm, company, bank and financial institution and other corporate bodies are required to submit documents specified in Schedule 16 of By-Law to licensed bank and financial institution. Payments can only be made to account of foreign lender from whom foreign loan was availed.
Disclaimer: This note shall not be treated as legal opinion and it is advised to consult a lawyer for legal advice. This note is for general understanding only. Please note that the copyright for this note vests on Vidhi Legal Concern