Foreign Investment

Foreign Investment and Technology Transfer Act, 2075 B.S. defines foreign investment as "Foreign investment" means the following investment made by a foreign investor in an industry or company: (1) Share investment in foreign currency, (2) Re-investment in an industry of dividends derived from foreign currency or shares, (3) Lease finance, (4) Investment made in venture capital fund, (5) Investment made in listed securities through secondary securities market, (6) Investment made by purchasing shares or assets of a company incorporated in Nepal, (7) Investment received through the banking channel after issuing securities in a foreign capital market by an industry or company incorporated in Nepal, (8) Investment made through technology transfer, or (9) Investment maintained by establishing and expanding an industry in Nepal.

Legal framework of Foreign Direct Investment in Nepal:

Constitutional provisions

Article 51(d)(10) states, “to encourage foreign capital and technological investment in areas of import substitution and export promotion, in consonance with national interest, and encourage and mobilize such investment in infrastructure building. Article 51(d)(11) states, ”to make the obtaining of foreign assistance transparent while making the national needs and priorities as the basis for obtaining foreign assistance, and incorporating amounts received in from of foreign assistance, in the national budget. ” Article 51(d)(12) runs, “to utilize knolwedge skill, techonoloy and capital of the non resident Nepalese in the national development.” Article 51(d)(13) states , “to give dynamism to the economic development by establishing coordination between the States and the Federation in relation to industrial corridors, special economic zones, national projects and projects involving foreign investment.”

Statutory Provision

Foreign Investment and Technology Transfer Act, 2019:

This Act was enacted to amend and consolidate the prevailing Nepal laws relating to foreign investment and technology transfer in order to make national economy competitive, strong and employment oriented through mobilization of maximum extent of the available means and resources. This Act made easy for registration and operation process and also introduced Single Spot Service Centre, nevertheless, such investor is required to acquire the necessary approval through Nepal Rastra Bank. This Act lists out the varities of Industries or Businesses Restricted for Foreign Investment under its schedule.

Industrial Enterprises Act, 2020:

This Act is generally focused on promoting and regulating Industrial Enterprises in Nepal. It also provides both domestic and foreign Investors by offering Incentives and simplifying procedures.

Companies Act, 2006:

The Company Act of 2006 A.D. is primarily concerned with the establishment and operation of companies existing in Nepal. It also specifies requirements for registering a company in Nepal. Hence for the foreign investment in Nepal such investor choose the sector where to invest for that purpose establishment of company is required.

Public Private Partnership and Investvment Act, 2019 (“PPPIA”):

This Act promotes the investment by Foreign Private Sector in Infrastructure, Construction and Service Sectors of Nepal. It also objectivizes to manage the projects to be conducted in Public Service Partnership. According to the Act, a PPP arrangement involves the sharing of risks, resources, and responsibilities between the public and private partners, with the objective of leveraging private sector expertise, efficiency, and capital to deliver public projects. The Act specifies that PPPs can take various forms, including Build-Operate-Transfer (BOT), Build-Own-Operate (BOO), Build-Transfer-Operate (BTO), and other hybrid models.

Institutional Framework:

Deparment of Industries

An industries establishing with an foreign investment requires an application to the Department of industry for the registration.

Industry and Investment Promotion Board:

Under the power, function and duties of Board; it is mentioned that “to make recommendations to the Government of Nepal for the adoption of necessary policy decisions on foreign investment and technology transfer, subject to the prevailing law”. Similarly to carry out, or cause to be carried out, studies, research woks and surveys as required in the context of enhancing domestic and foreign investment in the industrial sector.

Establishment of One Stop Service Centre:

For the purpose of providing the incentives, exemptions, facilities or concessions easily to those industries or investors entitled under this Act (Industrial Enterprises Act) and other prevailing laws and performing the functions to be discharged by various bodies of the Government of Nepal through one place in a timely manner and delivering industry administration related services from the permission to establish, registration, expansion and liquidation of, industries, the Government of Nepal may establish and bring into operation a One stop Service Centre, as prescribed.

Nepal Rastra Bank

Office of Company Registrar

Forms of Foreign investor in Nepal

A foreign investor may make foreign investment in any industry and derive gains from such investment. Such investor may make foreign investment individually or jointly or by establishing an industry jointly with an industry established in Nepal or a Nepali citizen. A foreign investor may make foreign investment by purchasing the assets of or shares not exceeding the prescribed percent of any industry established in Nepal. A foreign investor may make foreign investment, subject to the prescribed ceiling, in any aircraft, ship, machinery and equipment, construction equipment or similar other equipment. A foreign investor may make foreign investment by making technology transfer in any industry established in Nepal. Foreign investment may be made by establishing a branch. Foreign investment may be made by establishing venture capital fund.

Procedure regarding the Operation of Foreign Direct Investment in Nepal:

Approval:

There are two main governmental body which are responsible for the approval of foreign investment in Nepal. The Department of Industry approves Foreign Investment less than NPR 6 Billion whereas the Investment Board of Nepal approves Investment above NPR 6 Billion. An application shall be made to the investment approving authority with all details of investment projects in prescribed manner. After an application has been made such authority shall provide approval with in 7 days or inform about the cause and reason of disapproving the foreign investment. In case of satisfying with the decision of approving authority the investor may file application of review to the concerned ministry. And such ministry shall decide with in 30 days of application submition.

Incorporation of Company at Office of Company Registar:

Any person desirous of undertaking any enterprise with profit motive may, either singly or jointly with others, incorporate a company for the attainment of one or more objectives set forth in the memorandum of association. Any person desirous of incorporating a company shall make an application to the Office, in such format and accompanied by such fees as prescribed, and along with the following additional documents, as well: “Where the promoter is a foreign person or company or body, permission obtained under the prevailing law to make investment or carry on business or transaction in Nepal. Where the promoters is a foreign person, a document proving the country of his citizenship,. Where the promoter is a foreign company or body, a certified copy of the incorporation of such company or body and major documents relating to such incorporation.”

Business Registration at the Local Ward Office

An industry established by foreign investment is generally required to register with the local body, typically the Ward Office or Municipality, in addition to federal and provincial level registrations in Nepal. This local registration often involves obtaining a recommendation letter from the Ward Office or Municipality, which is a prerequisite for registering the industry at the Department of Industry (DOI).

Registration of Industry at DOI

A person, firm or company that intends to establish any industries with foreign investment shall make an application to the Department for registration. When examining an application if it appears that any required details and documents are not submitted, the industry registration body shall immediately inform the applicant to submit such details or documents within a maximum period of ninety days.

Tax Registration at the Inland Revenue Office

Any business entity, including industry that has to pay income tax or Value Added Tax (VAT) should obtain the PAN. The industry has to be registered with the District office of the Inland Revenue Department or Inland Revenue Office (IRO) before its operation. PAN registration is essential for buying land, building and clearance of goods at custom office. Therefore, it is recommended that the companies are registered with IRO immediately after incorporation. For this, the company has to apply with an application form as shown in Income Tax Act and .

Non-Blacklisted Certificate from CIB (Credit Information Bureau)

Obtaining approval from NRB to infuse the Investment Amount Upon obtaining the approval for foreign investment in accordance with Section 15, the foreign investor shall give information in writing, along with the self-declaration to the effect that the amount of such investment has been earned from any legitimate source, to the Nepal Rastra Bank. After giving such information, the foreign investor may bring the amount of such investment into Nepal.

• Infusion of investment amount in local bank and obtaining Investment Certificate.