FDI Rules in Nepal – Executive Summary of Foreign Investment and Technology Transfer Regulation – Exclusive 7 Mins Read

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Foreign Investment and Technology Transfer Regulations or FDI Rules was effectively enforced in 2021 by the Government of Nepal while exercising the rights granted by Section 51 of the Foreign Investment and Technology Transfer Act, 2019 (2075). This article provides an Executive Summary of the FDI Rules by highlighting the major provisions.

1. Who are eligible to make foreign investments (FDI) in Nepal? Any foreign individual, firm, company, Non-resident Nepali or foreign government or international agency or other corporate body of similar nature.
2. What are the types of Foreign Investment (FDI)?
   – Share investment in foreign currency
   – Re-investment in an industry of dividends derived from foreign currency or shares
   – Lease investment
   – Investment made in venture capital fund
   – Investment made in listed securities through secondary securities market
   – Investment made by purchasing shares or assets of a company incorporated in Nepal
   – Investment received through the banking channel after issuing securities in a foreign capital market by an – Industry or company incorporated in Nepal
   – Investment made through technology transfer
   – Investment maintained by establishing and expanding an industry in Nepal.
3. How to make Foreign Investment (FDI)in Nepal? The Foreign Investor may make foreign investments (FDI) by purchasing assets or 100 percent shares of the industry established in Nepal. However foreigners can’t make investment in the industry restricted by the Government of Nepal. The Foreign Investor may make lease investment in the aircraft, ship, machinery, appliances, construction equipment or other similar.

4. What are the industries or businesses restricted for foreign investments (FDI)?

Industries Restricted for Foreign Investment
S.N.	Types of Industry
1	Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production
2	Cottage and small industries
3	Personal service business (hair cutting, tailoring, driving etc.)
4	Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (N.B.C.) weapons; industries producing atomic energy and radio-active materials
5	Real estate business (excluding construction industries), retail business, internal courier service, local catering service, moneychanger, remittance service
6	Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including home stay
7	Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language
8	Management, account, engineering, legal consultancy service and language training, music training, computer training
9	Consultancy services having foreign investment of more than fifty-one percent

5. Royalty Amount: The royalty amount or other fees related to the technology transfer for the preparation of the industry’s operation shall be based upon the agreement entered in between two parties.
6. How to establish a Branch Industry? If any industry established in a foreign country is willing to establish or expand its branch industry in Nepal, then it has to be approved as a foreign investment and it shall be registered or extended as a branch industry by incorporating an industry.
7. How to make an application for FDI? Any foreign investor willing to invest in any industry shall submit an application before the authority approving the foreign investment. Electronic submission may be made.
8. What are the documents required for FDI? The following details and the documents are required:

S.N.	Documents	Copies
1	Project Proposal including Action Plan of the investment	2 copies
2	In case of more than one investor, a joint investment agreement between them	2 copies
3	Where the foreign investor is a natural person, a copy of passport and personal details (Biodata) of that person	1 copy
4	Where the foreign investor is a company, a certificate of registration of incorporation that company in the related country, Memorandum of Association, Articles of Association, documents that reflects Director and Shareholders, company’s profile and the decision of the Board of Directors of the company regarding the investment in Nepal	1 copy
5	Where the foreign investor is a firm, then the certificate of registration of incorporation of that firm and in the case of partnership, the document reflecting partnership details and the decision of the partners regarding the investment in Nepal and profile of the firm	1 copy
6	Where the foreign investor is a foreign citizen of Nepali Origin or Nepali citizen residing in a foreign country, the document proving the same.	1 copy
7	Where the foreign investor is an international organization, a constitution of the  organization, document revealing the identity of the directors, profile of the organization and an organizational decision regarding the investment in Nepal	1 copy
8	If the foreign investor is not able to attend, a copy of power of attorney given by them and the document revealing the identity of an Attorney	1 copy
9	Financial Creditability Certificate of a foreign investor issued by the related foreign bank.	1 copy
10	Any other details and documents requested pursuant to a decision by the authority approving the foreign investment	1 copy

9. What is the required time-limit? Within 7 days. If rejected, rejection notice shall be given no later than 7 days after the date of decision.
10. Time schedule for Foreign Investment: The foreign investor getting an approval for the foreign investment has to bring in the following foreign investment within one year after the date of such approval:

Category of Foreign Investor	Investment Amount	Percentage of Investment
Foreign investor	Minimum Amount (USD)	At least 25% amount
Ordinary Foreign Investor	above the minimum required amount and up to 250,000,000 rupees	At least 15% amount
Distinguished Foreign Investor	above 250,000,000 rupees and up to 1,000,000,000	At least 10% amount
Highly Distinguished Foreign Investor	above 1,000,000,000	At least 5% amount

• The foreign investor shall bring in at least 70% of the approved investment before the commencement of an industrial production or operation of the industry or enterprise of their investment.
• The remaining 30% shall be invested within 2 years after the commencement of an industrial production or operation of such industry or enterprise.
• Any foreign investor making an investment by purchasing the shares of any industry in operation shall bring in such foreign investments within a year of the approval of the foreign investment.
• The industry with an approval of a foreign investment and which is in operation during the enactment of this regulation if unable to bring in investment, shall get an approval and bring in foreign investment within six months.

What happens in case of Share Sale or Transfer of Title to Share? If the property, assets or share or any other financial equipment accumulated out of foreign investments by any company in Nepal, is for sale, transfer of title or change in the ownership or vested ownership of the structure, then in order to maintain record of the details at the authority approving the foreign investment, such company shall submit within 30 days after the date of operation an application along with the following details and documents:-

1. A copy of an agreement relating to the company’s property or asset or Share Sale and Purchase Agreement and a certified document that reveals the transaction of the above,
2. A document certified by an Auditor that reveals the share value of the company and a copy of Audit Report,
3. In the case of repatriation out of Share Sale and Purchase or Transfer of title of the company, any work schedule,
4. Any evidence showing that the company has paid-up tax and liability to the Government of Nepal as per the prevailing law of Nepal,
5. Updated Share Log Book of such company situated in Nepal.

Repatriation: Any foreign investor has to submit an application to repatriate their foreign investment (FDI) with the following documents:-

S.N.	Documents
1	The decision of the General Meeting and Board of Directors of the Company relating to the repatriation of the investment by the foreign investors or earnings out of such investments
2	Share Log Book and Directors’ Log Book verified by the Office of the Company Registrar
3	Company’s previous fiscal year Audit Report and Certificate of Tax Clearance
4	Proof showing the foreign investment by the concerned investor
5	In case of the amount received out of Share Sale of the foreign investment, a copy of the approval letter of the Share Sale and a copy of approved Share Sale and Purchase Agreement
6	Profit from the foreign investment or dividend amount,  a decision of the General Meeting of the Company regarding such distribution, a proof of distribution of bonus as per the prevailing law and the Audit Report of that fiscal year
7	In the case of payment of the Lease Investment pursuant to the Lease Agreement, the related documents
8	In the case of payment of damage or compensation amount pursuant to final decision regarding the case filed in Nepal, Arbitration or any other legal proceedings, the related documents
9	In the case of royalty amount, the related documents
10	Proof of the record of the detail of sale of earned property in Nepal or transfer of title
11	Any other essential documents required by the authority approving the foreign investment.

How can you get a Visa Facility by FDI?

Types of Visa	Eligibility	Documents Required
Business Visa	The foreign investor or his/her authorized representative and the family members or his/her authorized representative of such investor ·            If the foreign investor having an approval up to or above 100,000,000 rupees has already brought in 25% of the approved investment	1)      A copy of foreign investment approval letter/ Industry Registration Certificate, 2)      A copy of the passport of the person requesting for visa, 3)      In case of an authorized representative, a letter authorizing representation for the foreign investor, 4)      In case of a family member of  the foreign investor,  a certificate of relationship with the dependents issued by an authorized entity of related country, the Embassy of Nepal or diplomatic mission in such country, 5)      In case of Non-tourist visa, a copy of the executive committee and Labor approval as per the prevailing law. 6)      Power of Attorney, Identity Card, Contact Number of a person with an authority or an authorized person.

Can you acquire land above the land ceiling? Yes. The energy, manufacturing, infrastructure, and minerals based industries with a foreign investment approval can submit an application for the coordination and facilitation to purchase land or any land above the land ceiling. The following details and documents are required:-

1. A copy of foreign investment approval letter,
2. A copy of Industry Registration Certificate,
3. Approved Project Proposal of the industry,
4. Areas and Location of the land required for the industry,
5. In case if approval is required, an approval letter from any other authority,
6. Commitment letter endorsing all the necessary expenses for land acquisition,
7. Reasons for the industry being unable to purchase or acquire land.

Validity Period of Foreign Investment Approval: The validity period of the foreign investment approval shall remain in effect except in situations where the foreign investment approval becomes ipso facto ineffective or the foreign investment becomes void.

Investment out of Earned Profit: The industry with the foreign investment may make re-investments in the same industry or in any other industry opened for foreign investment, out of earned profits. In the same industry, the investment shall not be less than 10% of the minimum required investment, and in the case of other industries, it shall not be less than the minimum required investment.

Limitation on Repatriation of Royalty Amount or other Fee

A. Limitation on Royalty Amount or other Fee for all kinds of technology transfer of industry.

Royalty	In relation to Quantity Sold within Nepal	In relation to Quantity of  Foreign Export
If Lump sum Amount or total sale amount	Up to 5% of the total sale amount excluding tax	Up to 10% of the total sale amount excluding tax
If Royalty out of net profit	Up to  15% of net profit	Up to 20% of net profit

B. Limitation on Royalty Amount or other fee for the use of trademark

In relation to Quantity Sold within Nepal	In relation to Quantity of  Foreign Export
In case of industry relating to the alcohol and tobacco, up to 2% of the total sale amount excluding tax.	In case of industry relating to the alcohol and tobacco, up to 5% of the total sale amount excluding tax.
In case of other industry, up to 3% of the total sale amount excluding tax.	In case of other industry, up to 6% of the total sale amount excluding tax.

Read about how to register a FDI company in Nepal by clicking the link below:

Foreign Direct Investment in Nepal / Registration of Company by Foreigners in Nepal – Exclusive 3 Mins Read – Chintan Law Associates (lawchintan.com)

To gain more details on FDI or Foreign Investment in Nepal – Get in touch with us at info@lawchintan.com or call us at +977 9851133809.

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