Nepal recently enacted Foreign Investment and Technology Transfer Act, 2019 (2075) (hereinafter referred to as FITTA 2019) with significant improvements extending security to foreign investors with multiple investment options. FITTA 2019 has further eased the registration and operation process and has introduced Single Spot Service Center or what may be known as One Window Service Center, however, such investors should acquire the necessary approval through Nepal Rastra Bank as well.

The procedural guidelines and updates brought by this “New Act” (FITTA 2019), shall briefly be discussed below:

Foreign Investment Approval:

Any investor desirous of operating a service or manufacturing-based industry should acquire regulatory approval through the Department of Industries or the Investment Board of Nepal. Department of Industries holds the jurisdiction to approve the projects with proposed investment up to NPR. 6 Billion (~USD 54 Million), whereas, the Investment Board of Nepal holds the jurisdiction for the approval of foreign investment of more than NPR. 6 Billion (~USD 54 Million).

Modes of Foreign Investment:

FITTA 2019 allows the following modes of investment:

  • Equity investment in an industry (Greenfield Investment);
  • Share purchase of existing industry (Brownfield Investment);
  • Purchase of industrial property of existing industry;
  • The investment made by leasing airlines, ships, machinery, and industrial equipment;
  • Transfer of technology, such as:
    1. Licensing of foreign intellectual property (Trademark, Patent, Design, Copyright, Trade Secret, et cetera);
    2. Assignment of Franchise (brand name or goodwill of foreign industry); and
    3. Providing management, consultancy, or marketing services to industries established in Nepal.
  • Investment by establishing and through a Venture Capital Fund;
  • Purchase of shares of the existing industry via the secondary stock market;
  • Issuance of securities of the foreign industry via foreign stock market; and
  • Reinvestment of profits derived from preceding foreign investment industry.

The FITTA 2019 provides separate provisions for equity investment and loan investment. However, it has kept both ends open and has categorized loan investment under two separate headings: (1) Loan investment from Nepalese banking and financial institutions; and (2) Loan investment from foreign banking and financial institutions. However, Nepal Rastra Bank (Central Bank of Nepal), has put forward a threshold in the interest rate of 5.5% to issue such loans, excluding the applicable Libor Rate.

FITTA 2019 also allows investment by entering into an Escrow Agreement with commercial banking institutions licensed under Nepal Rastra Bank. This further eases the sale and purchase of shares, and secures transaction thereof.

Though various options have been provided for equity investments and loan investments for foreign investment in FITTA 2019, a loan from a parent company abroad has not clearly been mentioned in the Act.

Further to acquire approval for the foreign investment, the investor should be registered with the following authorities:

  • Office of Company Registrar
  • Local Authority (Municipal Office or Ward Office)
  • Inland Revenue Office or Taxpayers’ Service Office
  • Department of Industries (Registration of Industry)
  • Nepal Rastra Bank

The exception to this is, that a few of the licenses for regulated businesses and environmental approvals might also be required for some specific industries, depending on the objective of the industry mentioned in the Memorandum of Association of such Industry.

Miscellaneous provisions in FITTA 2019:

FITTA 2019 has assimilated a number of provisions for securing foreign investors in Nepal. These provisions are as briefly described below:

National Treatment:

Section 32 of the Act provides that the Government shall treat foreign investors on an equal footing as it treats Nepali investors. However, there are a series of exceptions to it, including, but not limited to, matters relating to public procurement, government concessions, and matters relating to the environment.

Non-Nationalization:

FITTA 2019 assures that no industries shall be nationalized either directly or indirectly. However, it remains silent over the provisions mentioned in other acts of Nepal regarding the nationalization of projects after specified years.

Change in Laws and Policy:

If the Government of Nepal changes certain policies or laws that might affect the industry already registered before enforcement of such laws and policies, the Government of Nepal ensures to cause no harm to such industries because of the changes brought in such laws and policies.

Debt Recovery:

FITTA 2019 allows the industry established via foreign investment to provide loans to other national industries by securing collateral and further allows to recover the debts by auctioning such collateral or guarantee, in case of default by the debtor, similar to rights provided to any other banking or financial institutions.

Automatic Route and Online System:

FITTA 2019 allows the foreign investor to make an application to the approving authority from an online platform to ensure reliability and transparency. The application received by the authority shall then follow an automated or standardized route for efficiently providing approvals to foreign investors.

The assistance of the Government:

Any foreign investment industry is allowed to purchase land or other real estate. The Government ensures that it shall assist in the purchase of land if the investor fails to purchase land on their own.

Threshold of Foreign Investment in Nepal:

Minimum Foreign Investment:

FITTA 2019 has no provision regarding the minimum amount to be invested by foreign investors. The minimum investment shall be as prescribed by the Foreign Investment and Technology Transfer Regulations, which have not yet been enacted. However, the minimum investment until such enactment shall remain NPR. 5 Million, which is being practiced by the approving authorities to date.

Restricted Areas for Foreign Investment in Nepal:

Foreign investment in the areas provided below is restricted by FITTA 2019:

  • Agricultural Sectors such as animal husbandry, poultry farming, horticulture, dairy, et cetera);
  • Small and Cottage Enterprises;
  • Personal service businesses, such as barbers, tailors, et cetera;
  • Arms and Ammunitions;
  • Realtor;
  • Retail businesses;
  • Remittance services;
  • Catering;
  • Travel and Trekking Agency;
  • Homestay and Rural Tourism;
  • Guide services for travel and trekking;
  • Media businesses such as newspaper, radio, television, and online news;
  • Film-making in the national language;
  • Businesses relating to management, audit & accounts, the legal profession, engineering, and courses relating to music, language, and computer training; and
  • Consultancy services with foreign investment of more than 51%.
    (Explanation: Foreign investors may invest in consultancy service-oriented industry by maintaining a maximum investment of 51%, whilst providing the remaining shares for subscription by at least one Nepali investor).
  • Ride-sharing businesses with more than 70% foreign investment.

Investment through bilateral or multilateral agreements between Nations:

The Government of Nepal may enter into bilateral or multilateral agreements with other Government/s, for the establishment of industry in Nepal. FITTA 2019 provides certain essentials to be fulfilled in the Agreement, such as (1) the Terms and Conditions of the Agreement; (2) the proportion of profit distribution; and (3) Dispute settlement.

This write-up should not be considered a legal opinion or expert opinion. This has been written for disbursing basic minimal knowledge to curious foreign investors and business personnel.

  • If you have any queries relating to this write-up, please consult:
  • Mr. Riwaj Sharma Acharya
  • Attorney-at-Law
  • Partner
  • A.H.N. Legal Pvt. Ltd.
  • Phone Number: +9779851080791
  • Email Address: riwaj@ahnlegal.com