Foreign Investment in Nepal
The global practice of FDI done by TNC/MNC categories FDI into two forms: Financial & Technology. The financial form is comprised of share, reinvestment and loan investment. Technology form is comprised of technological rights, specialization, formula, process, trademark, goodwill, technical service and consultant.
Nepal has fully recognized and practiced the global practice of FDI as financial and technology in both prospects. In 1992, the Government of Nepal revised the existing Foreign Investment and Technology Transfer Act. The policy is considered a milestone in liberal and competitive national policy in the South Asian context. Its policy goals are to encourage the private participation, improving industrial production and productivity through the utilization of foreign investment, advance technology, and domestic resources and promoting competitive power of industrial products accessing the international market.
Policy of Government of Nepal to promote and facilitate foreign investment in Nepal
Industrial Enterprises Act 1992 has guaranteed against nationalism of privately owned industries enterprises. The government does not interfere in the fixation or control of the prices of industrial products. The industry can approach any commercial bank directly to open a letter of credit for the import of machinery or raw materials needed for the industry. Recommendation or import license from the Department of industries, Department of Commerce, Nepal Rastra Bank (Central Bank of Nepal) is no more necessary. Except for industries that affect security and public health such as arms and ammunition, explosives, security printing, Banknotes & coins, cigarette, bidi, alcohol and beer, other industrial activities do not require obtaining any license or permission for establishment and operation.
They just need to be registered with the concerned Department. Repatriation of profits, dividend, technical and managerial fees, and a portion of salaries of foreign experts has been guaranteed. Visa including non-tourist visas for carrying out studies for investment, nontourist visa for experts and business/residential visa for foreign investors have been provisioned and the procedures have been further simplified. At the international level, Nepal has taken numerous steps to promote foreign investment in the country. Some of the key institutional arrangements that have been achieved so far are
- Nepal is a member of World Intellectual Property Organization (WIPO)
- Nepal has entered into Bilateral Investment treaties with countries such as France, Germany, Mauritius, and United Kingdom.
- Nepal has also entered into Double Taxation Treaties with 9 countries, namely, India, Norway, China, Pakistan, Sri Lanka, Austria, Thailand, Mauritius and republic of South Korea.
- To ensure access to the vast potential market, Nepal is a member of WTO, SAFTA, and BIM-STEC
- Nepal is also a signatory to the convention on the settlement of Investment Dispute between the state and Nationals of Others States and a member of the International center for the settlement of Investment Disputes (ICSID), associated with the World Bank.
Modes/ Forms of Foreign Investment in Nepal
According to the Foreign Investment and Technology Transfer Act of Nepal (1992), “Foreign Investment” means following investment made by a foreign investor in any industry:
- Investment in Share, (Equity)
- Reinvestment of the earnings (Dividend) of shares
- Investment made in the form of loan and loan facilities
- Use of any technological right, specialization, formula, process, patent or technical Know-how of foreign origin,
- Use of any trade mark of foreign ownership,
- Acquiring any foreign technical consultancy, management and marketing service.
Foreign investors are permitted to own up to 100 percent equity share in small, medium and large-scale industries. Foreign investment is allowed in all areas except the few as mentioned below.
Industries not to be granted permission for foreign Investment in Nepal
- Cottage Industries. (cottage industries are Handloom, Pedal Loom, Warping, Dyeing and printing, tailoring (other than readymade Garments), Woolen carpet, etc
- Service (Business such as Hair Cutting, Beauty Parlor, Tailoring, Driving Training, etc.)
- Arms & Ammunition Industries.
- Gunpowder, Explosives.
- Industries related to Radio-Active Materials.
- Real Estate Business (excluding Construction Industries).
- Film Industries (National Languages and other recognized languages of Nation)
- Security Printing.
- Bank notes &Coins
- Retail Business.
- Travel Agency.
- Trekking Agency.
- Water Rafting.
- Pony Trekking.
- Horse Riding.
- Cigarette, Bidi (Tobacco), Alcohol (excluding those exporting more than 90%).
- Internal Courier Service.
- Atomic Energy.
- Tourist Lodging.
- Poultry
- Fisheries.
- Bee-keeping.
- Consultancy Services such as Management, Accounting, Engineering and Legal Services.
- Beauty Parlor
- Domestic food processing methods in rent
- Local catering service
- Rural tourism
Technology transfer is possible even in areas where foreign investment is not allowed.
Filing requirements for Foreign Equity Investment in New Industries
To get approval from DOI in Foreign Equity Investment in New Industries, the following documents are required.
- Application
- Project report
- Joint Venture Agreement (JVA), in case of more than one investors
- Citizenship certificate of local party/or certificate of incorporation including Memorandum of Association and Articles of Association, if local party is a company
- Copy of Passport of foreign party/or certificate of incorporation, including Memorandum of Association and Articles of Association, if participant is a company
- Bio-data/company profile of the foreign party
- Financial Credibility of the foreign Investor provided by a home country Bank or domiciled country bank
- Authorized letter from the concerned companies or individuals to carry out any necessary proceedings on their behalf, if applicable.
Filing requirements for Technology Transfer in an existing Nepalese Industry
To get approval from DOI in Technology Transfer in an existing Nepalese Industry, the following documents are required.
- Application
- Technology Transfer Agreement
- Citizenship certificate of local party or certificate of incorporation including Memorandum of Association and Articles of Association, if local party is a company
- Copy of Passport of foreign party or certificate of incorporation, including Memorandum of Association and Articles of Association, if participant is a company.
- Bio-data/company profile of the foreign party
- Industry Registration Certificate
- Copy of the minute of the Board of the local Company
- Authorized letter from the concerned companies or individuals to carry out any necessary proceedings on their behalf, if applicable.
Filing requirements for Foreign Investment in an Existing Industry by Share transfer
To get approval from DOI in Foreign Investment in an Existing Industry by Share transfer, the following documents are required.
- Application
- Request from the share transferor
- Request from the share transferee
- Share Transfer agreement
- Copy of minute of the Board meeting of Nepalese company regarding inclusion of foreign investor into the company
- Copy of minute of Board meeting, certificate of incorporation and company profile of the foreign party if the participant is a company.
- Copy of passport and Bio-data of foreign party, if participant is an individual
- Financial credibility of the Foreign Investor provided by a bank
- Current Shareholders’ list as certified by the Company Registrar’s office
- Audit Report
- Tax clearance certificate
- Authorized letter from the concerned companies or individuals to carry out any necessary proceedings on their behalf, if applicable.
Filing requirements for Loan Investment in an Existing Nepalese Industry
To get approval from DOI in loan Investment in an Existing Nepalese Industry, the following documents are required
- Application
- Loan Agreement
- Certificate of incorporation including Memorandum of Association and Articles of
- Association of the lending company
- Company profile of the lending agency
- Industry Registration certificate
- Copy of the minute of the Board of the local company regarding the loan to be acquired
- Authorized letter from the company concerned to sign on behalf of the companies.