Foreign Investment in Nepal
Overview
Foreign investment in Nepal is primarily governed by the Foreign Investment and Technology Transfer Act (FITTA), 2019 and the Industrial Enterprises Act (IEA), 2020. The Department of Industry (DOI) is the principal government agency responsible for administering and implementing foreign investment and technology transfer laws in Nepal. According to the Department’s prescribed process, the establishment of a new foreign-invested industry generally involves four major stages: obtaining foreign direct investment (FDI) approval, incorporating a company, completing tax registration, and registering the industry. The process therefore requires a foreign investor to first obtain approval for the proposed investment and subsequently complete the necessary corporate, tax, and industrial registration procedures.
1. Governing Laws and Authority
- Foreign investment in Nepal is primarily regulated by:
- Foreign Investment and Technology Transfer Act (FITTA), 2019
- Industrial Enterprises Act (IEA), 2020
- The Department of Industry (DOI) is responsible for administering and implementing foreign investment and technology transfer laws in Nepal.
2. Main Process for Establishing a New Foreign-Invested Industry
The general process involves four major steps:
| 1. | FDI Approval Applications |
|---|---|
| 2. | Company Incorporation |
| 3. | Tax Registration |
| 4. | Industry Registration |
3. Documents Required for FDI Approval
The following documents are generally required:
| 1. | Project Report |
|---|---|
| 2. | Joint Venture Agreement (JVA), where there is more than one investor |
| 3. | Citizenship certificate of the Nepali investor, if the local party is an individual |
| 4. | Certificate of Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA), if the local party is a company |
| 5. | Passport copy of the foreign investor, if the investor is an individual |
| 6. | Certificate of Incorporation, MOA, and AOA, if the foreign investor is a company |
| 7. | Bio-data or company profile of the foreign investor |
| 8. | Financial Credibility Certificate (FCC) from a bank in the investor’s home or domiciled country |
| 9. | Authority letter, where someone is authorised to act on behalf of the investor or company |
4. Important Exception: Technology Transfer
Even where foreign investment is not permitted, technology transfer may still be possible. This means that a foreign party may be able to transfer technology or technical knowledge without making a direct equity investment in the restricted industry.
5. Minimum Foreign Investment Requirement
- A foreign investor must invest at least NPR 20 million in a project.
- There is no upper limit on the amount of foreign investment.
6. Restrictions on Foreign Equity Ownership
Certain industries have specific foreign ownership limitations:
- Aeroplane services: Maximum 80% foreign equity
- Telephone services: Maximum 80% foreign equity
- Consultancy services: Maximum 51% foreign equity
- Casino industry: A local partner is required
7. Forms of Foreign Investment
Foreign investment may be made in the form of:
- Cash
- Investment must be made in a convertible foreign currency recognised or publicly transacted by Nepal Rastra Bank.
- The investment must be brought into Nepal through the proper banking channel.
- The funds must be transferred directly to the company.
- Investment in Kind
Foreign investment may also be made through assets, particularly:
- Machinery
- Equipment
However, prior approval from the Department of Industry is required for investment in kind.
8. Approvals Required After Industry Registration
Even after the industry is registered, DOI approval may be required for significant changes, including:
- Change in company name
- Change in owner or investor
- Change in production capacity
- Change in the type of product
- Change in industry location
- Change in electricity capacity
Approval is also required for introducing foreign investment into an existing industry through:
- Share Purchase Agreement
- Loan Agreement
- Technology Transfer Agreement
Further approval may also be required for:
- Extension of the industry’s operation date
- Extension of an industrial licensce
- Closure of an industry
- Cancellation of an industrial licensce
9. Repatriation of Expatriate Income
Expatriates are permitted to take back:
- 75% of their salary
- Allowances
- Other emoluments, as permitted under the applicable framework
10. Establishment of a Company Without a Partner
Foreign investors may generally establish a single-investor company and are not necessarily required to have either a local or foreign partner.
However, this remains subject to:
- Sector-specific restrictions
- Industries requiring a local partner
- Applicable foreign investment laws and regulations
11. Equal Treatment of Foreign Investors
The Department states that:
- Foreign investors and domestic investors are entitled to enjoy facilities and incentives provided under the relevant laws and regulations.
- Such facilities should be available without discrimination, subject to the applicable legal framework.
14. Industry Registration After FDI Approval
After obtaining foreign investment approval:
| 1. | The investor must register the industry with the DOI within 35 days. |
|---|---|
| 2. | If the registration cannot be completed within that period, an application must be made for an extension of the validity period. |
The following documents are generally required for industry registration:
| 1. | Foreign investment approval letter |
|---|---|
| 2. | Certificate of Incorporation |
| 3. | Memorandum of Association |
| 4. | Articles of Association |
| 5. | Environmental Impact Assessment (EIA) or Initial Environmental Examination (IEE) report, where applicable. |
15. One Stop Service Center (OSSC)
The Government of Nepal has established a One Stop Service Center (OSSC) to facilitate investment-related services from a single location.
The OSSC assists with matters including:
| 1. | Industry registration |
|---|---|
| 2. | Renewal |
| 3. | Exit procedures |
| 4. | Foreign investment approval within its stated authority |
| 5. | Visa recommendations for foreign investors and experts |
| 6. | Foreign currency exchange facilities |
| 7. | Access to infrastructure-related services, including: |
- Electricity
- Water
- Land
- Facilitation of facilities, exemptions, and concessions
- Approval of certain environmental documents, including IEE reports
The OSSC is located within the DOI premises in Tripureshwor, Kathmandu.
Thus,
Foreign investment in Nepal follows a structured legal and administrative process beginning with FDI approval, followed by company incorporation, tax registration, and industry registration. While Nepal allows foreign investment in most sectors, certain industries particularly cottage industries, personal service businesses, strategic sectors, and selected agricultural and service industries are restricted or subject to foreign equity limitations. Investors must meet the minimum investment threshold of NPR 20 million, submit the prescribed corporate and financial documents, and comply with DOI requirements for both the initial investment and any significant changes made after industry registration.