How to increase foreign direct investment in Nepal?

Published Date: 2022-08-10

Procedure of Foreign Direct Investment (FDI) in Nepal/Laws governing Foreign Direct Investment in Nepal/Lawyer of Foreign Direct Investment in Nepal/Foreign Direct Investment Lawyer in Nepal;

The Foreign Investment and Technology Transfer Act (FITTA), 2019 is the principal law governing FDI in Nepal. Foreign Investment and Technology Transfer Act, 2019, is the premier law related to FDI in Nepal.  The government of Nepal declared in its Financial Budget that the minimum investment required for obtaining foreign investment approval has been made  NPR 20 million (approx. USD 198,000) which is applied from 17th July 2022. The government of Nepal has established a ‘One Stop Service Centre’ to provide all the facilities from a single place to facilitate the FDI receiving industries. The Centre provides approvals, facilities, and administrative services to the industries established/to be established in FDI through coordination among various agencies including NRB.

Major provisions in Foreign Investment and Technology Transfer Act (FITTA), 2019 are:

  1. Equal treatment for foreign investment companies
  2. Provision of allowing hundred percent foreign investments in industries (except in a few as mentioned by sector-specific policies)
  3. Technology transfer is possible in all sectors of industries
  4. Repatriation is guaranteed in foreign currency
  5. Business/Residential visa for investors
  6. Clear provision of dispute settlement

Nepal’s Foreign Investment and Technology Transfer Act (FITTA), 2019 has identified the following as Foreign investments:

  1. Share investment in foreign currency
  2. Re-investment of dividends from prior investment
  3. Investment made by acquiring shares or assets of a company incorporated in Nepal
  4. Lease investment in aircraft, ship, machinery and equipment, construction apparatus or similar equipment
  5. Investment made in form of loans
  6. Investment made through technology transfer
  7. Investment made by establishing venture capital fund
  8. Investment made by establishing and expanding its branch in Nepal.
  9. Investment received after issuing securities in foreign capital market by a Nepalese entity

Laws  governing  Foreign Direct Investment  in Nepal

The matters related to foreign investment are mainly dealt with by the following laws:
  1. Foreign Investment and Technology Transfer Act 2019;
  2. Public Private Partnership and Investment Act 2019 ;
  3. Industrial Enterprise Act 2020; and
  4. Foreign Exchange (Regulation) Act 1962
Note: A foreign investor can invest in industry after obtaining foreign investment approval from either from the Department of Industry, Industrial and Investment Promotion Board or the Investment Board depending on the nature and capital of investment. Approval from Nepal Rastra Bank (Central Bank) is required for bringing in the foreign investment amount in Nepal

Documents required for Foreign Direct Investment in Nepal;

  1. Project Report
  2. Biodata of Foreign Investor and Company Profile of the Foreign Investor
  3. Copy of Passport/if Foreign Investment is made through the company, Copy of Certificate of incorporation, Memorandum of Association, Article of Association, copy of the passport of Board of Directors of such company
  4. Board resolution of the Foreign Company to invest in Nepal
  5. Financial Credibility Certificate issued by any bank of the Country of the residence of the foreign investor
  6. Time Schedule of investment along with the source of such investment
  7. Joint Venture Agreement ( if the foreign investment is made through two or more person/entity)
  8. A commitment letter stating that the foreign investment shall not be repatriated till one year
  9. Power of Attorney

Approval/ licenses is required  depending upon the nature of the industry;

  • Approval from the Insurance Board for the insurance business,
  • NRB Approval for bank and financial institutions
  • Department of Electricity Development for electricity projects
  • Department of Tourism for tourism-related business
  • Department of Food Technology and Quality Control for the food industry and so on.

Other Government Agency which governs Foreign Direct Investment in Nepal;

 The Invest Board of Nepal (IBN) approves the FDI of more than NPR 10 billion.  Foreign investment in the following areas is approved by the IBN (Regardless of the amount). •
  1. Construction of international and regional airports and investment required for modernization and management of existing airports
  2. Fast track roads, tunnels, railway lines, ropeways, and trolley buses, as prescribed by the Government of Nepal.
  3. Solid waste management and treatment in urban areas Source:
  4. Chemical fertilizer production industries
  5. Petroleum refinery plants
  6. Major bridges as prescribed by the Government of Nepal
  7. Banks and financial institutions with 51% or more investment by foreign investors
  8. Insurance and reinsurance companies
  9. Medical colleges and state-of-the-art hospitals or nursing homes with 300 or more beds
  10. Hydropower projects with the capacity of 500 MW or more
  11. Development of special economic zones (SEZs), export promotion or export refinement zones, special industrial zones, or IT parks
Restricted Area of Foreign Investment in Nepal
List of the businesses/industries in which foreign investment is prohibited. Foreign investment is not allowed in the following areas:
  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 radioactive materials;
  5. Real estate business (excluding construction industries), retail business, internal courier service, local catering service, moneychanger, 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 picture of the national language;
  8. Management, account, engineering, legal consultancy service and language training, music training, and computer training; and
  9. Consultancy services have a foreign investment of more than fifty-one percent.
To consult or get legal advice from our expert  Procedure of Foreign Direct Investment (FDI) in Nepal/Laws governing Foreign Direct Investment in Nepal/Lawyer of Foreign Direct Investment in Nepal/Foreign Direct Investment Lawyer in Nepal; Contact us at 977-01-4102849/977-9851059026, Prime Law Associates, Anamnagar, Kathamndu, info@primelawnepal.com, www. primelawnepal.com
 
Foreign Direct Investment is net transferred funds to purchase and acquire physical capital such as; factories, machines, industries, or some business purpose and also involves the provision of management as well as technologies by the foreign investor. In this modern globalized world, every country is relying on foreign investment, external capital is necessary for all, and are relying on Foreign Direct Investment for the mobilization of domestic resources for accelerating economic growth and industrialization.  Nepal is one of the richest countries in infrastructure resources and skilled human resources. In recent years, Foreign Direct investment has become one of the major key sources of rapid economic growth in Nepal. In order to increase economic growth and human development, Prime Law Nepal, located in Kathmandu, has taken some measures allowing foreign direct investment in Nepal to formulate the appropriate policy and the act 1992.  The primary objective of Prime Law Nepal is to explore the resources, enhance the competitiveness of the domestic firms, promote industrial growth in Nepal, and export, particularly in developing countries. Increase Foreign Direct Investment in Nepal, frequently stimulates competition, productivity, and innovation. Prime Law Nepal is trying to invest in different industries including share (equity), a form of loan or loan facilities, reinvestment of the earning derived from the investment in share, fertile lands, tourism, hydropower, medical tourism, Hospitality sector, and many more. It also tries to generate income and employment opportunities in different sectors such as; higher wages, more revenue, competitive prices, domestic skills, and many more. Furthermore, we also make our efforts to enhance entrepreneurial capability when the foreign firms bring with it some firm-specific knowledge in the form of technology, managerial expertise, and marketing. It will promote increased physical capital, create employment opportunities, develop productive capacity, enhance local skills, through the provision of technologies and management, and also help the domestic market to diversify in a global world.
Foreign Direct Investment also allows new local competitors to stimulate competition with local firms, learn about export markets, and provide training for workers. It also plays a significantly vital role for the country like Nepal which development efforts have been constrained by a number of factors. Due to the unstable government, and hurdles of the political instability of Nepal, organizing a business environment to attract foreign investors has been quite difficult. Even though the Foreign Investment and Technology Transfer Act, (FITTA) 2049, and Industrial Enterprise Act (IEA), 2048 have promoted foreign Investment and technology transfer for making the economy viable, competitive, and dynamic in Nepal.

Different factors that Prime Law Nepal deals with to increase Foreign Direct Investments!

Foreign Direct Investment plays a crucial role in developing emerging market trends in the country. It has a strong relationship between foreign investment and economic growth of the country, which enables the poor capital country to build up physical capital, develop productive capacity, enhance local labor skills, and create employment opportunities throughout the country. Prime Law Nepal will make many efforts to increase foreign direct investment in Nepal including, promoting the quality of the local's products and services, improve better human resources, reducing social problems, creating jobs opportunity and eliminating unemployment rates, provide equality in terms of race, color, creed in the competitive advantages for upgrading business, allow diversification of the local markets, increase business and pay tax accordingly and many more to increase foreign direct investments in Nepal.

This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation, or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein.

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Contact Details

PRIME LAW ASSOCIATES
Advocates & Legal Consultant
Anamnagar,Kathamandu,Nepal
Postal Code : 44600
Mobile : +977-9851059026
Tel.:+977-1-4102849
Fax:+977-1-4102849

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