Foreign Direct Investment in Nepal

Nepal is intending to become a land of opportunities due to the flexible registration procedures as well as operations. Nepal is growing as a tourism and hospitality hub along with major constructions happening all around Nepal. Foreign investment in construction companies, foreign investment in hotels, foreign investment in manufacturing, foreign investment in hydroelectricity generation, and foreign investment in information technology are becoming popular due to the shorter break-even point in Nepal. Foreign Investors are also interested in opening casinos in Nepal to attract people from neighboring nations where their nationals are not allowed to play in casinos. Due to globalization, many international logistics companies, foreign and local, are operating which provide professional import and export services either via air or via road to sea transportation. Some foreign companies open their subsidiaries in order to purchase lands in beautiful places overlooking the Himalayas and have an office in Nepal. 

Keeping the charm aside, foreign investment application is pretty straightforward.  The investors need to prepare or assign us to draft a project proposal including the proposed address, proposed investors, business theme, market aspects, financial specifications, and technical specifications (equipment and infrastructure).  In case there are multiple investors, a joint venture agreement is to be prepared as well.  An online application should then be made at the Department of Industries (approving authority for foreign investment) which the project proposal, joint venture agreement (if applicable), minutes of the foreign company (if applicable), passport of investor or representative of investor, financial credibility certificate (provided by the home bank certifying good standing of the investor), and charter documents of the foreign company. After the online application is made at the department of industries, the documents should also be submitted physically for verification of the documents submitted online. Once verified, the Foreign Investment and Technology Transfer Section of the Department of Industries provides an approval letter along with the signed and sealed copies of the project proposal and joint venture agreement. No government charges are applicable for this process, however, a refundable deposit of NPR 20,000 is to be deposited prior to receiving approval from the department of industries.

After approval for foreign investment from the Department of Industries, a company must be duly incorporated by preparing drafts of charter documents (including articles and memorandum of association) and having it approved by the Office of Company Registrar.  An online application is to be filed along with the DOI approval, and charter documents. Payment for government revenues is based on the intended capital of the proposed company and could either be paid physically or online.

After registration of the company at the OCR, an industry is to be registered with the department of industries. The industry could also be registered online by providing all the documents acquired from the abovementioned steps. Registration with the tax office for obtaining a permanent account number (PAN, required for taxation) and registration with relevant local authorities could be done simultaneously with industry registration. 

After having the industry registered and a PAN obtained, the investor could proceed with opening a bank account. The amount of investment may be directly transferred to this bank account from the investor's account. The investor needs to make sure that the amount is only transferred from the account belonging to the person/company as indicated in the project proposal. If the investor company is willing to transfer the funds through a separate fund or trust, a notarized deed or agreement must be sent to the receiving bank which must state that the fund or trust may invest on behalf of the foreign company.

There used to be a requirement where foreign investors were required to obtain prior approval from the central bank of Nepal (NRB). Such requirement is now reviewed and prior approval is not required, however, the investor should record the investment with the NRB within 6 months of receiving such investment.

Also, it is necessary for the foreign investor to make sure that the local authority (ward office or municipal office) relating to the proposed industry location allows to set up such an industry in the particular area. The local authorities might also disallow the registration of industry within such areas, therefore it is to be confirmed with such local authority prior to making a proposal at the department of industries. Further, the investor also needs to make sure that the proposed business complies with the Environment Protection laws of Nepal, where the government might require the investor to conduct a brief environmental survey or initial environmental examination, or environmental impact assessment pursuant to Environment Protection Rules, 2020 either based on the nature and annual capacity of the business or based on how near the project is located from national parks and conservation areas.

The foregoing process is for the generic foreign investment companies, which do not require any regulatory approvals. Industries like hotels require approval from the tourism department, hydroelectric company requires approval from the department of electricity development, and pharmaceutical company requires approval from the department of drug administration, et al.

The law relating to foreign investment and technology transfer was recently reviewed by the parliament in 2019. It has provisioned multiple modes of investment and has also mentioned industries in which foreign investment is not permissible. Please click here to learn more about foreign investment laws in Nepal.

Please note that the above-mentioned is general information to help the investors understand the procedure of foreign direct investment in Nepal, and not to construe the same as a legal opinion. For a detailed opinion or inquiry regarding the process, please inquire: