INVESTMENT

Foreign Investment Checklist

Foreign investment can be made in any business in Nepal provided three conditions are fulfilled
Must be an industry

Foreign Investment can be made in any business that is classified as an industry as per the Industrial Enterprise act, 2076. Industrial Enterprise act, 2076 categorizes industry on the basis of capital and further on the basis of scope/nature of operation. Full details about the classification of industry and businesses falling under the definition of industry can be accessed from below.

View Classification

Must not fall under the Negative List

In addition to the business falling under the definition industry, foreign investment can only be made in those industries that do not fall under the negative list i.e. those industries restricted from foreign Investment. Foreign Investment and Technology Transfer act, 2075 provides a detail list of industries falling under the negative list.

View List

Minimum Investment threshold

A final thing investors must note is that only investments above NPR 50,000,000 are permitted. The Minimum investment threshold was set after a notification in the Nepal Gazette dated May 29, 2019. The notice can be accessed here.

View Notice


Modes of Foreign Investment


Share Investment/ Reinvestment

Section 5 of FITTA, 2075 permits foreign investors to invest in any pre-existing Nepalese Industry by purchasing assets or shares. Furthermore, dividends so earned from such investment can also be further invested in such industry. Investors however, must note that certain sectors will have a limitation on the foreign investment. For instance, in case of Telecommunication, only 80 percent foreign Investment is permissible, in case of consulting services only 51 percent shareholding is permissible.

Joint Venture Agreement with an already existing industry

Section 4 of FITTA, 2075 permits foreign investors to invest in Nepal by entering into a Joint venture agreement with an existent industry in Nepal. Foreign investors can also invest singly or jointly. A joint venture agreement must be concluded between the foreign investor and the Nepalese industry in question.

Lease Investment

Lease investment in Airlines, Ships, Machinery and equipment, Construction equipment is permitted as per Section 6 FITTA, 2019. Provisions relating to lease investment were previously non-existent in the repealed FITTA, 1992.  Lease investment can be made by Individual Foreign Investors, Foreign Institutional Investors and Non-Resident Nepali.

Technology Transfer

Technology transfer arrangements are valid under section 7 of FITTA, 2019. Previously Technology Transfer arrangements were considered as a separate category, the prevailing legislation on foreign investment considers Technology transfer as a form of foreign investment. The terms of Technology transfer are governed by the Technology Transfer agreement between the relevant parties and repatriation of royalty is permissible under the foreign investment regime of Nepal.

Loan Investment

Per section 12 of FITTA, 2019 Industries in Nepal where foreign investment has been made can avail loan facilities from foreign financial institutions. Such loans can take the form of Project Loans or Project Financing Agreements upon receiving recommendation of Ministry of Industry Commerce and Supplies and approval from Nepal Rastra Bank. However the current legislation remains unclear on whether such lending facilities can be availed from Foreign Shareholders.

Venture Capital

Per Section 9 of FITTA, 2019, Foreign investors seeking to make equity investment in any Nepalese industry are permitted to establish a venture capital fund in the form of a limited liability company. Investment from this mode is only permitted to Institutional Investors upon approval from the Securities Exchange Board of Nepal.  

Branch Industry

A company that has been incorporated in any foreign country can commence business operations in Nepal by establishing its Branch in Nepal. Section 8 permits foreign companies to operate a branch industry in accordance with the prevailing Companies act 2007, which details out the provision relating to registration and incorporation of foreign companies in order to commence operation in Nepal. Alternatively Foreign Companies can also establish a Liaison Office in Nepal.

By issuance of Securities

Companies Incorporated in Nepal can raise capital by issuing bonds and other forms of securities in the capital market of a foreign company. Furthermore, Companies incorporated in Nepal having foreign investment can raise capital by issuing securities in the Nepalese Market. The capital issued can only be used within in Nepal as per section 11 of FITTA, 2019.


Permitted Activities


Trading in securitiesPermitted to companies operating Venture Capital Fund
Issuance of SecuritiesPermitted
Repatriation of IncomePermitted after payment of relevant taxes and fulfilling the prescribed formalities
Re-investment of DividendPermitted except in Industries falling under the Negative List
Sale/Transfer of OwnershipPermitted (Information of such sale/transfer must be provided within 30 days to the Foreign Investment Approving Body)
Escrow AgreementPermitted
Sub-ContractAll activities except the main production

Facilities


Visa Facility

Non Tourist VisaTourist Visa and Working VisaBusiness VisaResidential Visa
Non-Tourist Visa not exceeding six-months is provided to foreign citizens for the purposes of initial survey and research in relation to foreign investment.Foreign experts, technical or managerial employee to be employed in any industry having foreign investment require a working visa. Initially they are provided with a tourist visa to enter Nepal after which proceedings for acquiring working Visa can be acquired. Upon receiving all the relevant approvals, the category of Visa is changed from Tourist Visa to Working VisaBusiness Visa is granted to the foreign investor/his or her represantive/ family members of the investor or the representatives.Residential Visa is granted to the foreign investor/his or her represantive/ family members of the investor or the representatives in case where the amount of investment exceeds one million US Dollars. 

Foreign Exchange Facility

Industries with foreign investment can avail the facility for Foreign Exchange equivalent to the amount required for the purposes of payment of remuneration to foreign experts/employees, repatriation of income earned, payment of principal amount or interest for debt instruments issued in a foreign market. Approval of the Foreign Investment approving agency and Nepal Rastra Bank is mandatory for availing such facility. Additionally, Industries with foreign investment can also open an account in Convertible Foreign Currency in any Bank in Nepal authorized to deal with convertible foreign currency after receiving approval from Nepal Rastra Bank.

National Treatment/ Non Nationalization

FITTA 2019 provides for national treatment of any industry in Nepal having foreign investment for such period after investment has been made and remains in Nepal in matters pertaining to management, maintenance, utilization, transfer or sale of investment. The treatment on such term shall be no less than those accorded to any investment made by a Nepalese Person. Industries with foreign investment can subject to the prevailing law:

  • – Determine the price of goods and services
  • – Shall be free to conduct trade
  • – Shall be free to repatriate incomes

National Treatment however is not accorded in relation to

  • – Compulsory Licensing of intellectual property rights, transfer of title as specified in any agreement made under the World Trade Organization
  • – Exemptions or facilities, if any, granted to any domestic industry or goods in accordance with the Public Procurement act
  • – Grants or concessions provided by the Government of Nepal
  • – Non-commercial services provided by the Government of Nepal
  • – Commercial services managed and provided by the government as deemed necessary
  • – Financial services managed and provided by the government as deemed necessary for the protection of investors
  • – Special treatment provided by the government as a result of Nepal being a party to regional or multilateral economic, monetary organizations or organizations of similar nature
  • – Circumstances where the regulating agency has specified any terms in matters pertaining to repatriation of income, repayment of loan and payment of service fee outside of Nepal
  • – Circumstances where protection of public health, animals, plant or environment is deemed necessary

FITTA, 2019 also provides for non-nationalization of industries having foreign investment either directly or indirectly except for public purposes after the payment of appropriate compensation.

Dispute Settlement

Investors can enter into a separate agreement with the relevant parties prescribing the mode of settlement of dispute, the governing law of the dispute and the nature of disputes that can be settled through such mode. In case no such agreement exists, the dispute is to be settled through arbitration by adhering to the prevailing laws on Arbitration.Foreign Awards are enforceable in Nepal on the basis of reciprocity and is governed by the Arbitration Act 2055, which is based on the UNCITRAL model act. FITTA 2019, requires mandatory notification of settlement of dispute within 15 days of the settlement to the foreign investment approving agency.

Incentives and concessions

Industries with foreign investment in Nepal are accorded the same form of concessions accorded by the prevailing Industrial Enterprise act to any Nepalese Industry. Industrial Enterprise act provides tax concessions under different headings ranging from an exemption of twenty five percent to complete exemption from taxes depending on the nature of the business. Additionally, concessions and exemptions provided by the annual Finance act will also be provided.  

 


Timeline for bringing in foreign investment


Rule 9 of Foreign investment regulation sets out the timeline for bringing in investment. The following timeline has been provided for bringing in investment

  1. In case the amount of foreign investment is NPR 50,000,000, a minimum of 25 percent of the amount of investment must be brought into Nepal within one year from the date of FDI approval
  2. In case the amount of foreign investment exceeds NPR 500,000,000 but is not above 250,000,000, a minimum of 15% of the total amount of investment must be brought into Nepal within one year from the date on which approval for FDI has been received.
  3. In case the amount of investment is more than 250,000,000 but does not exceed NPR 1,000,000,000 a minimum of 10% of the amount of investment must be brought into Nepal within 1 year from the date of receipt of FDI approval
  4. In case the amount of foreign investment exceeds NPR 1,000,000,000 a minimum of 5 percent of the total amount of investment must be brought into Nepal within a year from the date of receipt of FDI approval.
  5. In case the mode of foreign investment is share investment the investor needs to bring in the total amount of foreign investment within a year from the date on which FDI approval has been received
  6. In case foreign investment has been made through the establishment of a new industry in Nepal or through investment in an existing industry, 70 percent of the total amount of foreign investment must be brought before the date of commercial operation, the remaining 30 percent is to be brought within 2 years from the date of commercial operation.

Royalty ceiling

Rule 5 of the foreign investment regulation provides for a ceiling on the total amount of royalty. The ceiling on royalty is determined on the basis of determination of royalty to be paid in accordance with the technology transfer agreement.

Royalty ceiling for all types of technology transfer in an industry

Royalty determination mode based on TTARoyalty ceiling in case of sales within the territory of NepalRoyalty Ceiling in case of export
Lump-sum amount or on the total value of salesFive percent of total sales value excluding tax (Gross Sales Revenue)Ten percent of total sales value excluding tax (Gross sales Revenue)
Profits earnedFifteen percent of total profit(Net sales revenue)Twenty percent of total profit (Net sales revenue)

Royalty ceiling for use of trademarks

Type of industryIn case of sales within the territory of NepalIn case of exports
Liquor and Tobacco industryTwo percent of the total sales value excluding taxes.Five percent of total sales value excluding taxes
Industries other than Liquor and tobaccoThree percent of total sales value excluding taxesSix percent of total sales value excluding taxes

In case an industry has entered into a multiple technology transfer agreement with the same foreign investor, the amount of royalty to paid cannot exceed the ceiling provided in any given fiscal year.

Repatriation of profits

FITTA, 2019 section 20 and FITTA regulations Rule 11 specifically provides for repatriation profits after submission of an application in the format prescribed in Annex 4 of the FITTA regulation to the Foreign Investment Approving agency. The following documents need to be submitted along with the application.

  1. BoD and General Meeting decision regarding repatriation of profits by the foreign investor
  2. Updated Share registry and BoD registry verified by the Company Registrar’s office
  3. Audited financial statement of the preceding year and proof of payment of taxes
  4. Proof of FDI approval
  5. In case the amount to be repatriated is earned through sale of shares, a copy of share purchase agreement and proof of permission for sale of shares
  6. In case of repatriation of amount pertaining to lease agreement, copy of lease agreement
  7. In case of repatriation of royalty, copy of technology transfer agreement  

Foreign Investment Approval Process


  1. Enter into a loan agreement with a Domestic company
    FITTA, 2019 permits domestic companies with foreign investment to avail loan facilities. Domestic companies and the lending institution need to enter into a loan agreement specifying the terms of the loan facility. Simultaneously, the domestic company also needs to complete the second step.

  2. Pass Board Resolution to Avail loan facility
    The domestic company needs to pass a BoD resolution on availing loan facility. Details of the total amount of loan and reasons for availing loan facility must be clearly stated while passing a BoD resolution.

  3. Obtain FDI Approval
    Depending on the amount of loan investment, approval from either the Department of Industries or the Investment Board of Nepal will be required. For investment less than NPR Six billion, DOI will act as the approving agency, while for investment above Six Billion the function is carried out by the Investment Board of Nepal. Approval is granted after submission of application in the standard format along with the prescribed documents.

    • Application in the prescribed format
    • Tax clearance report
    • Audit report
    • Copy MOA, AOA and company registration certificate
    • Copy of Industry Registration Certificate
    • Company profile of the lending agency
    • Copy of Company registration certificate of the lending agency
    • Loan agreement
    • Copy of BoD decision to avail loan facilities


  4. Receive Non-Blacklisted Certificate from CIB
    A certificate stating that the domestic company is not blacklisted will be required for receiving approval from NRB for bringing in investments

  5. Obtain approval from NRB
    Under Foreign Exchange (Regulations) Act, approval from Nepal Rastra Bank will be required for any investment to be made in convertible foreign currency. An application along with the following documents


    • Application in the standard format
    • A copy of DOI Approval
    • Project report detailing the purpose of use of loan, the mode of payment of loan
    • All other documents submitted for DO/IBN Approval


    should be submitted to obtain NRB approval.

  6. Transfer Funds to the recipient company
    After receiving approvals from DOI/IBN and NRB, the amount of loan can be transferred to the bank account of the recipient company in the manner specified in the loan agreement.

  7. Record Investment at NRB
    FITTA, 2019 requires that once investment has been made, it should be recorded at the Nepal Rastra Bank. NRB must be notified of the total inbound investment after the recipient company has received the Loan facility.

  1. Enter into a share purchase agreement
    The investor and the company to be invested in needs to enter into a share purchase agreement which will be required in the later stages of the approval process.

  2. Obtain FDI approval
    Depending on the amount of Share investment, DOI/IBN approval for foreign investment will be required. For investment below NPR Six billion DOI will act as the approving agency while for investment above Six Billion IBN will act as the approving agency. The following documents


    Documents to be submitted by Domestic company.

    • Application in the prescribed format
    • Tax clearance report
    • Project report
    • Audit report
    • MOA, AOA and company registration certificate
    • Board resolution specifying the decision to issue shares to the investor
    • Shareholder’s agreement
    • Share valuation agreement

    Documents to be submitted by investor in case investor is a Legal person

    • – Board Resolution specifying the decision to buy shares
    • Company profile
    • Company registration certificate
    • Financial Credibility certificate
    • Audit report
    • Passport of director
    • Details of director to be appointed

    Documents to be submitted by investor in case investor is a natural person

    • Copy of passport
    • Bio data
    • Financial credibility certificate

    Documents to be submitted by investor in case investor is NRN

    • Copy of passport
    • Copy of NRN identification card
    • Bio data
    • Financial credibility certificate


    need to be submitted.

  3. Receive Non-Blacklisted Certificate from CIB
    A certificate stating that the domestic company is not blacklisted will be required for receiving approval from NRB for bringing in investments.

  4. Obtain approval from NRB
    Under Foreign Exchange (Regulations) Act, approval from Nepal Rastra Bank will be required for any investment to be made in convertible foreign currency. An application along with the following documents


    • Application in the standard format
    • A copy of DOI Approval
    • Non-black listed certificate issued by Credit Information Bureau certifying
    • A letter stating- (a) commitment of the Investor of not repatriating the investment amount for at least 1 year of its investment, and (b) time schedule within which the Investor brings in the investment amount in Nepal
    • Source of income of the Investor
    • All other documents submitted for DOI Approval


    should be submitted to obtain NRB approval.

  5. Transfer funds to bank account

  6. Record Transfer of shares at OCR
    After successful transfer of shares has been made, the information for the same must be provided to the Office of the Company Registrar, which will then update the information regarding transfer of share ownership. The following documents


    • Application in the prescribed format
    • Foreign Investment certificate
    • DOI approval
    • NRB approval
    • Board Resolution for issuance of share, allotment of shares, appointment of director and registering investor as shareholder
    • Shareholder’s register
    • Share valuation report
    • MOA and AOA


    need to be submitted.

  7. Record Foreign Investment at NRB
    FITTA, 2019 requires that once investment has been made, it should be recorded at the Nepal Rastra Bank. NRB must be notified of the total inbound investment

  1. Obtain FDI approval
    Depending on the amount of investment, DOI/IBN approval for foreign investment will be required. For investment below NPR Six billion DOI will act as the approving agency while for investment above Six Billion IBN will act as the approving agency. Investment through establishment of Venture Capital is only available to institutional investors. FDI approval is granted after submission of standard format application along with the prescribed documents.

    • Application in the prescribed format
    • Total amount of investment and source
    • Areas where investment will be made
    • Time frame for bringing in investment
    • Copy of registration certificate of institutional investor


  2. Obtain Company Registration certificate
    In order to carry out any business related to equity investment through the establishment of venture capital fund, the institutional investor must incorporate a company in Nepal. It can either be registered as private limited company or a private limited company. An application is to be made to the company registrar’s office along with the following documents:

    • An original copy of standard format of application for company registration depending on the type of limited company.
    • An original copy of MOA (within the prescribed format)
    • An original copy of AOA (within the prescribed format)
    • An original copy of Power of Attorney (“POA”) granting authority to do registration work on company registration office.
    • A copy of citizenship certificate of witness
    • An original copy of specific approval or permits to be obtained before registration of Company.


  3. Obtain SEBON approval
    Institutions established to invest equity in companies are regulated by SEBON under the Specialized Investment Regulations, 2075. A separate approval from SEBON is also required for operating any venture capital fund in Nepal. An application to SEBON along with the following documents prescribed in schedule 3 and 6 of Specialized Fund Regulation must be made.

  4. Obtain PAN/VAT registration
    For taxation purposes a new company must be registered with the Inland Revenue Department of Nepal. Online application must be submitted and a hard copy of said application must be presented along with the following documents


    • Copy of Company Profile
    • Copy of House Rent/Lease Agreement
    • Copy of Citizenship of Landowner/ Company Incorporation Certificate, MOA, AOA and PAN Certificate if Landowner is a Company
    • Copy of Land Ownership Certificate/ Electricity Bill/Telephone Bill
    • Hand sketched Location Map of Registered Office
    • 2 copies of the Photographs of the Managing/Executive Director/Representative signing the application
    • Copy of Company Registration Certificate
    • Copy of MOA and AOA
    • Copy of Citizenship of Directors
    • Company Seal


    for verification in order to obtain PAN/VAT number.

  5. Obtain Industry Registration
    FITTA, 2019 provides that foreign investment can only be made in industries in Nepal. therefore, the any company desirous of making equity investment must be registered as an Industry at the DoI. An application to DOI along with the following documents


    • Application for industry registration
    • Project report outlining project background, market aspect, technical aspect, financial aspect, details of funds, etc.
    • A copy of Company registration certificate
    • A copy of MOA and AOA


    needs to be made.

  6. Receive Non-Blacklisted Certificate from CIB
    A certificate stating that the domestic company is not blacklisted will be required for receiving approval from NRB for bringing in investments.

  7. Open Bank Account and transfer funds
    A bank account in any Nepalese bank must be opened in order to transfer funds since transfer of funds is permissible only through banking channels. An application along with the prescribed documents


    • Board resolution of new company for opening bank account
    • Passport size photos and copies of passport of directors
    • Application in letterhead of new company
    • All constitutional, corporate and approval documents of new company
    • Constitutional documents of Investor
    • Seal of new company


    needs is required for opening a bank account.

  8. Record Investment at NRB
    After funds have been transferred to the bank account, NRB must be notified of the inbound investment.

  9. Obtain Local Level Registration
    Any business must be registered with the local government for the purposes of paying yearly business taxes to the local government which is separate from Income Tax to be paid to the Federal Government. An application must be submitted along with the prescribed documents


    • A copy of Company Registration Certificate
    • A copy of Industry Registration Certificate
    • A copy of PAN/VAT registration
    • Board Resolution for Local Business Registration
    • A copy of MOA and AOA
    • A copy of DOI Approval
    • A copy of NRB Approval

    to the relevant local body.

  1. Obtain FDI approval
    Depending on the amount of investment, DOI/IBN approval for foreign investment will be required. For investment below NPR Six billion DOI will act as the approving agency while for investment above Six Billion IBN will act as the approving agency. A standard application along with the prescribed documents


    • Board resolution covering- (a) proposed amount of investment, (c) name of director to be appointed in the Company.
    • Company registration certificate
    • Memorandum of Association (“MOA”) and Articles of Association (“AOA”)
    • Tax registration certificate
    • Latest audit report
    • Corporate Profile
    • Financial credibility certificate issued by concerned bank of the Investor
    • Passport of current directors


    needs to be submitted to the approving agency.

  2. Obtain Company registration certificate
    The foreign company can choose to either register as a private limited company or a public limited company. An application must be made to the Office of the company registrar’s office along with the prescribed documents:

    • An original copy of MOA (within the prescribed format
    • An original copy of AOA (within the prescribed format)
    • An original copy of Power of Attorney (“POA”) granting authority to do registration work on company registration office.
    • A copy of citizenship certificate of witness
    • An original copy of unanimous agreement/ shareholders agreement or any other types of agreement concluded between and among the shareholders, if any
    • An original copy of specific approval or permits to be obtained before registration of Company.


  3. Obtain Pan/Vat Registration
    For taxation purposes a new company must be registered with the Inland Revenue Department of Nepal. Online application must be submitted and a hard copy of said application must be presented along with the prescribed documents


    • Copy of Company Profile
    • Copy of House Rent/Lease Agreement
    • Copy of Citizenship of Landowner/ Company Incorporation Certificate, MOA, AOA and PAN Certificate if Landowner is a Company
    • Copy of Land Ownership Certificate/ Electricity Bill/Telephone Bill
    • Hand sketched Location Map of Registered Office
    • 2 copies of the Photographs of the Managing/Executive Director/Representative signing the application
    • Copy of Company Registration Certificate
    • Copy of MOA and AOA
    • Copy of Citizenship of Directors
    • Company Seal

    for verification in order to obtain PAN/VAT number:

  4. Obtain Industry Registration
    FITTA, 2019 provides that foreign investment can only be made in industries in Nepal. An application to the DoI for industry registration to this extent, must be made along with the prescribed documents.

    • Application for industry registration
    • Project report outlining project background, market aspect, technical aspect, financial aspect, details of funds, etc.
    • copy of Company registration certificate
    • A copy of MOA and AOA


  5. Receive Non-Blacklisted Certificate from CIB
    A certificate stating that the domestic company is not blacklisted will be required for receiving approval from NRB for bringing in investments.

  6. Open Bank Account and transfer funds
    A bank account in any Nepalese bank must be opened in order to transfer funds since transfer of funds is permissible only through banking channels. An application along with the prescribed documents


    • Board resolution of new company for opening bank account
    • Passport size photos and copies of passport of directors
    • Application in letterhead of new company
    • All constitutional, corporate and approval documents of new company
    • Constitutional documents of Investor
    • Seal of new company


    needs is required for opening a bank account.

  7. Record Investment at NRB
    After funds have been transferred to the bank account, NRB must be notified of the inbound investment.

  8. Obtain Local Level Registration
    Any business must be registered with the local government for the purposes of paying yearly business taxes to the local government which is separate from Income Tax to be paid to the Federal Government. An application must be submitted along with the prescribed documents


    • A copy of Company Registration Certificate
    • A copy of Industry Registration Certificate
    • A copy of PAN/VAT
    • Board Resolution for Local Business Registration
    • A copy of MOA and AOA
    • A copy of DOI Approval
    • A copy of NRB Approval


    to the relevant local body.

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