Foreign Direct Investment (FDI) in Nepal-Quick Summary

Starting a business in Nepal? When you intend to start a business you must choose a legal structure for your business. There are various legal forms and options for an entrepreneur to start business which include proprietorship, partnership, limited liability company (Private/Public). We help you to incorporate your business in appropriate legal form and help you to get it registered under appropriate regulatory authorities. Our professionals help you with both local business set up and business with foreign investment. We provide entry support services specific to Nepal with an objective to facilitate foreign Investors.

Foreign investment in Nepal is regulated and administered by the Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. The Department of Industries (DOI) is the sole agency for administration and implementation of the Foreign Investment and Technology Transfer Act in Nepal.

Major Highlights:

• The Government decision on September 6, 2012 has increased the minimum amount of FDI to NPR 5 million (Approx. 50,000 USD) for each investor from USD 20,000 (Approximately NPR 1.6 million).
• Foreigners are allowed to invest only in private limited companies and in public limited companies registered with the Company Register Office (CRO). They are not allowed to invest in proprietorship or partnership firms.
• There is no discrimination between a Nepali and foreign investors, and among various foreign investors in matters of licensing, incorporation, tax, availability of visa, labor relation and repatriation.
• Nationalization of industries by Government is prohibited.

Foreign Investment can be made in any industry in the following forms:

1. Investment in shares (equity);
2. Reinvestment of the earnings derived from equity;
3. Investment made in the form of loans or loan facilities; and
4. Investment in kinds, e.g. machinery and equipment.

Foreign investor making investment in foreign currency shall be entitled to repatriate the following amounts:

1. The amount received by the sale of the share of foreign investment as a whole or any part thereof;
2. The amount received as profit or dividend from foreign investment;
3. The amount received as the payment of principal or interest on any foreign loan;

Provisions Relating to Visa:

(1) A foreign national visiting Nepal in connection with undertaking any study or carrying out any research with the objective of making investment in Nepal shall be provided a non-tourist visa for up to six months.

(2) A foreign investor or dependent family or authorized representative of such a foreign investor and dependent family of such authorized representative shall for the purpose of stay in Nepal be provided a business visa until the foreign investment is retained.

Provided that a foreign investor who, at a time, makes investment in an amount no less than one hundred thousand United States dollar or in convertible foreign currency equivalent thereto, and his/her dependent family shall be granted a residential visa until such investment is retained.

Dispute Settlement

• For industries with fixed assets investment of up to NRs. 500 million, if the dispute cannot be settled by mutual consultations in the presence of the DOI, it shall be settled by arbitration in accordance with the prevailing arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL)
• For industries with fixed assets investment of above NRs. 500 millions, disputes may be settled as mentioned in the Joint Venture Agreement/Share Purchase Agreement.

Foreign investors are permitted to own up to 100% equity share in any industries except the following:

• Cottage industries (except industries using electricity more than 5 kW)
• Personal service businesses (e.g. hair cutting, beauty salon, tailoring, driving training, etc.)
• Arms and ammunition industries
• Gunpowder and explosives
• Industries related to radio-active materials
• Real estate business (excluding construction industries)
• Film industries (national languages and other recognized languages of Nepal)
• Security printing
• Bank notes and coins
• Retail business (excluding international chain retail businesses with business in at least two countries)
• Tobacco (excluding more than 90% exportable)
• Internal courier service
• Atomic energy
• Poultry
• Fisheries
• Bee keeping
• Consultancy services (e.g. management, accounting, engineering, legal services); (Maximum of 51% FI is allowed)
• Processing of food grains on rent
• Local catering Services
• Rural tourism

Foreign Investors are allowed only certain percentage of Equity in industries specified below:

Financial Services/ Banks And Finance Companies and Branch Office of a Foreign Bank

Maximum FDI Permissible:(20 to 85) %

Remarks :Approval of Nepal Rastra Bank is required.

Airline Industry international airlines

Maximum FDI Permissible:(49 to 95) %

Remarks :FDI is permissible in domestic airlines,international airlines, flying schools and Repair and maintenance work.

Telecommunications

Maximum FDI Permissible:80%

Remarks : Approval of Nepal telecommunication Authority is required to operate services And obtain license prior to operation.

Consultancy and management services

Maximum FDI Permissible:51%

Remarks :Accountancy, Engineering, Legal and Management services not allowed.

Major Documents Required For FDI Approval (NEW INDUSTRY):

1. Project Report (Eg. Feasibility Report )
2. Joint Venture Agreement (JVA), in case of more than one investor
3. Citizenship certificate of local party or Certificate of Incorporation, including Memorandum of Association and Articles of Association if the local party is a company
4. Copy of passport of foreign party or Certificate of Incorporation, including Memorandum of Association and Articles of Association if the party is a company
5. Bio-data / Company profile of the foreign party
6. Financial Credibility Certificate (FCC) of the Foreign Investor provided by a home country bank or domiciled country bank
7. Authority letter from the concerned companies or individuals to carry out any necessary work on their behalf, if applicable

Foreign Investment in an Existing Industry by Share Transfer:

1. Request from the share transferor
2. Request from the share transferee
3. Share Transfer Agreement
4. Copy of minutes of the Board meeting of Nepalese company regarding inclusion of foreign investor into the company
5. Copy of minutes of Board meeting, Certificate of Incorporation and company profile of the foreign party if the party is a company
6. Copy of passport and Bio-data of foreign party, if party is an individual
7. Financial Credibility Certificate of the Foreign Investor provided by a bank
8. Current Share Holders’ List as certified by the Company Registrar’s Office
9. Auditor’s Report
10. Tax clearance certificate
11. Authority letter(s) from the companies concerned to sign on behalf of the companies

FDI Approval Flow Chart

After obtaining approval for foreign investment, the industry is required to apply for registration of industry at the DOI within 35 days. If the registration cannot be done within the stipulated time, the investor will have to apply for an extension of the validity period.

Note: If the capital investment is more than NRs. 10 billion, the Investment Board can directly deal with the investor, and the procedure will be followed accordingly.

Disclaimer:The information contained in this blog does not constitute legal advice .Legal advice, must always be tailored to your circumstances, and nothing on this Document should be viewed as a substitute for the advice of a competent consultant.