Foreign Direct Investment (FDI) Laws in Nepal

Foreign Direct Investment is net flow of investment from one country to another. Foreign Direct Investment (hereinafter FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

a. Foreign Investment and Transfer of Technology Act 2019 (FITTA):

 It is fundamental laws for foreign investment in Nepal and is subject to various foreign investment and technology transfer,         joint ventures as such.

b. Foreign Investment and Technology Transfer Regulation, 2021 : 

It majorly states about the broad procedural aspects of foreign investment and technology transfer rules and regulations.

c. Industrial Enterprises Act, 2020 (IEA), Company Act 2006: 

It provides a clear legal framework for foreign investments in Nepal.

d. Public Private Partnership and Investment Act, 2019: 

Public service partnership is highlighted by the act, along with the manufacturing sectors in Nepal

e. Company Act, 2006: 

Company Act provides the general process of establishing the company and procedural aspects for running the company and foreign entities in Nepal.

1. Department of Industries (DOI)

Approval for investments up to NPR 6 Billion

2. Investment Board of Nepal (IBN)

Approval for investments of more than 6 Billion

3. Nepal Rastra Bank  (NRB)

Approval to bring and repatriate in foreign investment amount into Nepal

FITTA of Nepal recognizes the following persons and foreign entities to be investors for foreign investment in Nepal:

For the permissibility of foreign investments in an industry, following two things are fundamental:

• The proposed business activity should not fall within the restricted list prescribed by Foreign Investment and Technology Transfer Act, 2075 (FITTA).
• The proposed business activity should have been classified as an “Industry” under Industrial Enterprises Act, 2076

5.1. Industries Restricted for Foreign Investment:

Following are the industries/ Business restricted for Foreign Investment:

1. Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production.

2. Cottage and small industries
3. Personal service business (hair cutting, tailoring, driving etc.)
4. Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (N.B.C.) weapons; industries producing atomic energy and radio-active materials.
5. Real estate business (excluding construction industries), retail business, internal courier service, local catering service, money changer, remittance service
6. Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism, including homestay
7. Business of mass communication media (newspaper, radio, television and online news) and motion pictures in the national     language
8. Management, account, engineering, legal consultancy service and language training, music training, and computer training
9. Consultancy services having foreign investment of more than fifty-one percent

5.2 Permitted sectors for foreign investment / Foreign business in Nepal:

1. Manufacturing Industry

Industries manufacturing products by using processed raw materials such as cosmetic products, oil industries as such

2. Infrastructure Industry:

Road, Bridge, tunnel, ropeway, railway, monorail, airport, business complex, irrigation infrastructure.

3. Information, Communication, and Technology Industry:

Internet service provider, software companies, data center, telecom, business process outsourcing.

4. Energy-Based Industry:

Hydropower, oil and fuel, gas, electricity transmission and distribution line, biomass, solar so on

5. Agriculture and Forest Industry:

Furniture industry, cold storage, paper production, fruit farming and processing, milk and dairy products.

6. Tourism Industry:

Resort, bar, restaurants, hotels, travel agency, tour operator, healing center casino, mountaineering, rafting, construction and operation of cable car, cruise, water entertainment sector.

7. Service-Oriented Industry:

Investment companies, e-commerce, construction business, hospitals, nursing homes, clinic and polyclinics, therapy clinic etc

8. Mines and Minerals Industry:

Industries producing natural gas, fuel and petroleum products.

Note:
Foreign investors may make an investment individually or jointly and when making investment through joint venture, joint venture agreement to be submitted to DOI.

FITTA has explained different kind of investment in Nepal as Foreign Investment is allowed as equity investment, technology transfer, asset purchase, lease financing, branch company, loan investment.

Below chart shows the forms of foreign investment allowed as per law of Nepal: 

7.1  General Process of establishment of Foreign Business in Nepal is listed below: 

Step 1 : Making an Application for approval to DOI/ IBN

Step 2: Company Registration in OCR

Step 3: Registration of Business in Ward Office

Step 4: Tax Registration in Inland Revenue Office

Step 5: Registration of Industry at DOI

Step 6 : Giving information to the Nepal Rastra Bank

Step 7 : Obtaining Approval from NRB to bring foreign Investment

7.2. Process of establishment of foreign investment business in Nepal with the required process and timeline is given in the table below: 

Documents Required:

Documents Required:

Documents required: 

FITTA has mentioned the different repatriation rights in convertible currency of foreign investors after the approval of Nepal Rastriya Bank (NRB) after fulfilling all the regulatory approvals and liabilities of taxes. Foreign Investors can repatriate profit and dividends, Royalties under technology transfer and agreements, returns of capital after fulfilling all the process of liquidation, compensations, Lease Rent, amount of share transfers.

Foreign Investors are not allowed to repatriate the amount within the first year of their investment in Nepal. Following forms of investment that can be repatriated:

Approval for repatriation is needed from DOI /IBN and NRB and takes time period of more than 15 days for the approvals.

Documents Required for approval of Repatriation of Foreign investments and returns of income, profits of foreign companies established in Nepal:

Documents required for repatriation from DOI/IBN:

1. Resolution of board meeting for repatriation and its proceedings.
2. Shareholders and BOD register certified by OCR
3. Audit report and Audited financial statments
4. Tax Clearance
5. FDI approval
6. Foreign investment certificate issued by bank
7. Share purchase agreement, share sale deed with board resolution
8. Under technology transfer agreement, royalty amount state in audit report

Dispute is settled amicably before the Department of Industries within 45 days if not only parties can proceed with the settlement of the dispute through Arbitration. If the agreement and transaction documents are silent about the dispute settlement mechanism than Nepalese law shall govern with UNICITRAL rules of arbitration and seat of arbitration will be in Kathmandu.

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