Nepal Rastra Bank, the Central Bank is the primary regulator of foreign exchange and as such regulates all inward and outward foreign currency exchanges. The Central Bank has been generally authorizing Class “A” and Class “B” licensed banks to approve repatriation of payments outside Nepal upon the submission of certain documents. Such facilities are generally applicable to all payments made outside Nepal (including purchase of goods, payment of royalties or service fees, etc.) but cannot be used to make capital account transactions (such as payments for acquisition of shares of a foreign entity) (as has been restricted by Foreign Exchange Regulation Act 2019 (1962) and Foreign Investment Prohibition Act 2021 (1964).
Generally, foreign exchange facilities for payment of both goods and services purchased from abroad may be made (i) electronically or (ii) through bank transfers. Both the forms of payment are highly regulated by the Central Bank.
1. Electronic Payment for purchase of foreign goods and services by:
Electronic payments in foreign currency for purchase of foreign goods and services was previously permitted to holders of foreign currency bank account only. However, the Central Bank through its Circular No 10/2077-78 dated 21 March 2021 has extended the permissibility to holders of Nepali Currency account as well.
1.1 Credit/Debit/Prepaid Card Holder of Foreign Currency Account
A Buyer in Nepal is permitted to use debit/credit/prepaid card of a foreign currency account for online purchase of goods and service from foreign jurisdiction at an amount not exceeding USD 2000 annually. The payment may only be made for goods and services which are not restricted by the prevailing laws of Nepal and such goods or services should be purchased to be used in Nepal.
1.2 Credit/Debit/Prepaid Card Holder of NPR Account
A person, firm, company or entity (the User) intending to make payment in foreign currency up to an amount equivalent to USD 500 annually, for purchase of foreign goods and services may do so by obtaining a foreign currency Prepaid Card. NRB has issued a circular on 22 March 2021 permitting commercial (‘A’ Class) or development (‘B’ Class) bank of Nepal to issue a foreign currency Prepaid Card to the buyer in exchange of the Nepali currency maintained in the bank account of the Buyer.
The conditions applicable for issuance and operation of the Prepaid Card includes:
- The maximum limit payable through such pre-paid card is $500 or equivalent per year but such card cannot be used to withdraw cash or to engage in capital transactions;
- Such card may only be used to make online payments for the purchase of goods, services, etc. permissible under the laws of Nepal;
- A User may accumulate any foreign currency income earned by exporting online services in such card. The annual transaction limit for users earning income in foreign currency is an amount equivalent to the sum of such foreign income and USD 500 up to a maximum of USD 5000.
- The User may be asked to present bills and proof regarding their purchases by the concerned banks which must be made available to the Bank;
- A User cannot have more than one pre-paid card issued from any or all banks;
This service is expected to help social media users to make payment for their sponsored posts or accumulate earnings from their posts on online platforms, which is now streamlined within the ambit of banking system.
2. Transfer of Payment for import of goods and services
2.1 Transfer of Payment for import of service
The importer of services from foreign service providers may make payments in foreign currency through Draft/TT via “A” or “B” class commercial or development banks. Generally, the foreign service provider and the local firm, company or entity is required to enter into a service agreement indicating the service fees and the nature of service to be imported. The service recipient may make payment upon submitting the proof of receipt of services, invoices, the Service agreement along with other documents based on the monetary threshold applicable to the transaction. The threshold and regulatory approvals as set out in the Foreign Exchange Circular 2076 is provided in the table below:
|
S.N |
Monetary Threshold (USD) |
Monetary Threshold (INR) |
Approval Requirement |
|
1 |
Up to 3,000 |
Up to 3 lakh |
“A” or “B” Class Banks and Financial Institution by furnishing clear invoices, agreements and corporate documents |
|
2 |
3,000 to 1000
|
3 lakh to 30 lakh |
Approval of relevant government authority OR Central Bank (where the relevant regulatory authority cannot be identified) (for instance, approval of Department of Electricity Development in case of payment by Hydropower prior to making the transfer via Bank)
|
|
3 |
Above 10,000 |
More than 30 lakh |
Approval of the relevant regulatory authority AND Central Bank
|
|
4 |
Above 50,000 |
|
Prior approval of relevant regulatory authority or Central Bank (where the relevant regulatory authority cannot be identified) |
2.2 Transfer of Payments of imported goods
The Central Bank has adopted a policy of free convertibility of foreign currency in trading account. In case of import of goods prescribed under Open General License from India, any person having a foreign currency account may make the payment through the account in foreign currency. Similarly, payments for the import of other goods as prescribed by the Central Bank may be made by opening letter of credit or through payment drafts or telegraphic transfers. Further, payment for the goods imported from foreign countries other than India may be made by opening Letter of Credit or through payment drafts or telegraphic transfers. Such payments made through “A” and “B” class licensed banks does not require approval of Central Bank.
To read the notice Click the following link NRB – Notice Regarding Foreign Currency Prepaid Card
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