Foreign Investment in Nepal is regulated by the Foreign Investment and Technology Transfer Act 2019 (hereinafter “FITTA”) and Public Private Partnership Investment Act 2019 (hereinafter “PPPIA”). With an attempt to further facilitate and expedite foreign investment, the Government of Nepal enacted FITTA and PPPIA on 27 March 2019(Chaitra 13, 2075). This update provides a brief overview of the legal framework of Foreign Investment in Nepal, focusing on the provisions of FITTA.
FITTA was enacted with the aim of (a) increasing foreign investment for a long term sustainable economic growth of the nation and (b) reforming the legal framework of foreign investment to attract more foreign investments through streamlined procedures in the law. The FITTA replaced Foreign Investment and Technology Transfer Act of 1992 and has envisaged different forms of foreign investments, such as lease financing, investment in listed securities, investment made in venture capital funds, investment through joint venture and so on.
The FITTA defines foreign investment to include the following investments made by Foreign Investors in Nepal:
- Share investment in foreign currency.
- Reinvestment of dividends derived from foreign currency or shares.
- Lease finance made in any aircraft, ship, machinery and equipment, construction equipment or similar other equipment.
- Investment made in venture capital funds by obtaining approval of the Securities Board.
- Investment made in listed securities through the secondary securities market.
- Investment through purchase of shares or assets of a company incorporated in Nepal.
- Investment received through the banking channel by issuing securities in a foreign capital market.
- Investment made through technology transfer in an industry established in Nepal.
- Investment by establishing and expanding industry in Nepal.
The FITTA doesn’t include foreign loans under the definition of foreign investment. Nevertheless, FITTA has a provision regarding ‘project finance’, a category of loan to be availed by entities with foreign investment. Any loans under this category requires foreign investment approval from the regulating authority.
The FITTA defines foreign investors as:
- Any foreign individual,
- Non Resident Nepali (NRN),
- Foreign government or international agencies or similar organized institutions and
- Foreign institutional investors.
Regulatory Authority for Foreign Investment
The regulatory authority for foreign investment is subject to the following investment threshold:
|S.n.||Regulatory Authority||Foreign Investment (Amount in NPR)|
|1.||Department of Industry (hereinafter “DOI”)||Up to 6 billion|
|2.||Investment Board of Nepal (hereinafter “IBN”)||Above 6 billion|
The FITTA mandates the approving authority to give approval for foreign investment within seven days of the date of receipt of the application and other required documents. Upon obtaining approval for foreign investment, the foreign investors are required to provide notification regarding the valid and legal sources of FDI amounts and/or obtain approval from the Nepal Rastra Bank, Central Bank of Nepal (hereinafter “NRB”).
Upon obtaining approval from the approving authority, the following procedures need to be followed prior to the commencement of business transactions:
Registration of a company under the Companies Act;
Registration of a company at a local level (ward office);
Tax Registration under the Income Tax and/or Value Added Tax Act;
Registration of an industry under the Industrial Enterprises Act;
Environmental approvals (as per the production process and capacity);
Sectorial Business Licenses;
Areas restricted for foreign investment in Nepal
The foreign investment is only permitted in those sectors classified as industries under the Industrial Enterprises Act 2020. Likewise, the sectors should also not be listed in the negative list for investment under the FITTA. FITTA restricts foreign investment in following sectors:
- Primary agriculture sectors such as fish farming, animal husbandry, horticulture, dairy business and others.
- Small and cottage enterprise.
- Personal Service Business such as hair salon, tailoring, driving, work permit, etc.
- Arms and ammunition industry, industry producing biological and chemical weapons, industries related to explosives, gunpowder, radio-active materials, atomic energy.
- Real estate business (excluding construction industries), retail business, remittance services, local catering services, travel agency, trekking agency, homestay and rural tourism.
- Mass-media business and other online news.
- Movies of the national language.
- Business specifying management, accountancy, engineering and legal consultancy services and language, music and computer training.
- Business having more than 51% foreign investment in consultancy services.
Minimum Investment Amount
The notice issued by Nepal Government under the rights granted by the FITTA mandates the foreign investors to invest NPR 50 million (~ USD 450,000) as a minimum amount.
Timeline for Foreign Investment
The Regulation specifies a timeline for foreign investment. The foreign investor shall inject the investment within one year upon obtaining approval of the foreign investment.
|Investment||Percentage of Investment|
|Minimum investment of NRs. 50 million||25% of the total amount|
|Above NRs. 50 million to NRs. 250 million||15% of the total amount|
|Above NRs. 250 million to NRs. 1 billion||10% of the total amount|
|Above NRs. 1 billion||5% of the total amount|
Likewise, the foreign investors are required to bring tin the investment within the timeline stated below.
|Category of Investment||Timeline|
– 70% of the approved investment
– 30% of the approved investment
– Before the commencement of an industrial production or operation of the industry or enterprise of their investment.
– Within 2 years after the commencement of an industrial production or operation of such industry or enterprise.
|Foreign Investment by purchasing the shares of any industry in operation||Within a year of the approval of the foreign investment.|
|Industry with an approval of a foreign investment and is in operation , if unable to bring in investment||Shall get an approval and bring in foreign investment within six months.|
Approval for foreign investment will be revoked if such investment is not made within the stipulated time period without reasonable justification.
Revocation of the approval of foreign investment
- The approved foreign investment is deemed to be revoked if:
- The approved investment is not remitted within two years from the date of approval without reasonable justification.
- The shares are sold or transferred to a Nepali investor.
- Liquidation of a company or revocation of the industry license.
The investors are provided with the following visa facilities.
|1.||A foreign citizen who visits Nepal to undertake feasibility study, research or survey for foreign investment.||Non-tourist visa not exceeding six months.|
|2.||A foreign investor or his/her/it’s one authorized representative and the family members of such an investor||Business Visa for investment made up to the minimum investment amount.|
|3.||Investors investing more than the fixed minimum investment amount||Business Visa to maximum of two people and their family members.|
|4.||Investors investing more than USD 1 million at a time||Residential Visa to such investor or representative and their family.|
|5.||Foreign specialist, technician or managerial staff||Non-tourist Visa.|
Repatriation of Investment
The FITTA permits investors to repatriate dividends, profits and earnings, proceeds of sale of shares, proceeds from liquidation, amounts recovered from legal proceedings and amount of royalty as per technology transfer agreement after paying the tax related liabilities.
The investors are required to show the evidence that they have compiled with laws, obtained all necessary approvals, agreements and obligations in order to be allowed for repatriation. Approval from the approving authority and the NRB is required for repatriation of investment and earnings in the same currency or in other convertible foreign currency.
Disclaimer: This note is not a legal opinion but for general understanding. It is advised to consult a lawyer for legal advice before initiating foreign investment in Nepal. Please note that the copyright for this note vests on Vidhi Legal Concern.