Foreign Direct Investment Approval Process in Nepal

Foreign Direct Investment (FDI) in Nepal refers to the investment made by foreign individuals or entities in Nepali businesses or economic activities. Foreign Direct Investment Approval Process in Nepal involves the transfer of capital, technology, and expertise from foreign sources into Nepal’s economy. FDI plays a crucial role in Nepal’s economic development by bringing in much-needed capital, creating employment opportunities, and fostering technological advancements.

The Foreign Investment and Technology Transfer Act (FITTA) 2019 governs FDI in Nepal. This act defines foreign investment as investment made by foreign investors in shares, reinvestment of earnings derived from foreign investment, and investment made in the form of loan or loan facilities. The Nepal government encourages FDI to stimulate economic growth, increase productivity, and enhance the country’s competitiveness in the global market.

FDI in Nepal can take various forms, including:

1. Establishment of wholly-owned subsidiaries
2. Joint ventures with Nepali partners
3. Acquisition of existing Nepali companies
4. Investment in infrastructure projects

The current status of Foreign Direct Investment in Nepal shows a growing trend, with the government actively promoting Nepal as an attractive investment destination. The impact of Foreign Direct Investment on Nepal has been significant, contributing to job creation, technology transfer, and overall economic development.

Axion Partners has skilled and experienced Foreign Direct Investment FDI Lawyers in Nepal that specialize in Investment and Incorporation Laws to assist companies and investors to enter the Nepali Market.

How to incorporate a company in Nepal as a Foreigner?

1. Obtain approval from the Department of Industry (DOI) or Investment Board Nepal (IBN), depending on the investment amount.
2. Register the company with the Office of Company Registrar (OCR).
3. Obtain a Permanent Account Number (PAN) from the Inland Revenue Department.
4. Register with the Nepal Rastra Bank (NRB) for foreign currency transactions.
5. Obtain necessary licenses and permits from relevant authorities.
6. Open a bank account in Nepal for the company.
7. Inject the approved foreign investment amount into the company’s account.

The process requires compliance with the Foreign Investment and Technology Transfer Act (FITTA) 2019 and other relevant laws. Foreign investors must ensure they meet all legal requirements and obtain necessary approvals before commencing business operations in Nepal.

Requirements for Business Incorporation in Nepal through FDI

To incorporate a business in Nepal through FDI, the following requirements must be met:

1. Minimum investment amount as prescribed by the government
2. Investment in permitted sectors
3. Approval from relevant authorities (DOI or IBN)
4. Compliance with FITTA 2019 and other applicable laws
5. Proper documentation, including business proposal and feasibility study
6. Proof of foreign investor’s identity and financial capacity
7. Appointment of a local representative or agent in Nepal
8. Compliance with environmental and social impact assessments, if applicable

Foreign investors must also ensure they have a clear understanding of Nepal’s business environment, tax regulations, and labor laws before proceeding with incorporation.

Permitted Sectors for Establishing a Business in Nepal

Nepal welcomes foreign investment in various sectors, including:

1. Agriculture and agro-based industries
2. Tourism and hospitality
3. Energy and hydropower
4. Information technology and business process outsourcing
5. Manufacturing and processing industries
6. Infrastructure development (roads, airports, telecommunications)
7. Education and health services
8. Financial services (banking, insurance)
9. Mining and mineral exploration
10. Pharmaceuticals and biotechnology

These sectors offer significant Foreign Direct Investment opportunities in Nepal. The government actively promotes investment in these areas to boost economic growth and development.

Restricted Sectors for Establishing a Business in Nepal

While Nepal encourages FDI in many sectors, some areas are restricted or prohibited for foreign investment:

1. Poultry farming
2. Fisheries
3. Primary agriculture (excluding agriculture industries)
4. Real estate business (excluding construction industries)
5. Multilevel marketing
6. Arms and ammunition industries
7. Explosives, gunpowder
8. Radioactive materials
9. Mass communication media (radio, television, and newspapers)
10. Film industries producing Nepali languages

Foreign investors should consult the latest FDI negative list issued by the government to ensure compliance with current regulations.

Minimum Investment for FDI in Nepal

The minimum Foreign Investment in Nepal varies depending on the sector and type of investment:

1. For manufacturing industries: NPR 20 million (approximately USD 150,000)
2. For service industries: NPR 20 million (approximately USD 150,000)
3. For technology-based industries: NPR 20 million (approximately USD 150,000)
4. For IT-Based Industries: No Minimum Investment Required

These thresholds are subject to change, and investors should verify the current minimum investment requirements with the Department of Industry or Investment Board Nepal before proceeding with their investment plans.

Percentage of Ownership for Businesses in Nepal by Foreign Entities

Type of Business	Maximum Foreign Ownership
Manufacturing Industries	100%
Service Industries	100%
Banking and Financial Institutions	Up to 85%
Insurance Companies	Up to 80%
Air Transport Services	Up to 49%
Domestic Air Transport	Up to 49%
Trekking Agencies	Up to 51%
Travel Agencies	Up to 67%
Consultancy Services	100%
Retail Business	Up to 51%

It’s important to note that these percentages may be subject to change based on government policies and regulations. Foreign investors should consult with the Department of Industry or Investment Board Nepal for the most up-to-date information on ownership restrictions.

Authorities approving Foreign Investment in Nepal

Investment Amount	Approving Authority
Up to NPR 6 billion	Department of Industry (DOI)
Above NPR 6 billion	Investment Board Nepal (IBN)
Hydropower projects above 500 MW	Investment Board Nepal (IBN)
Special economic zones	Investment Board Nepal (IBN)
Public-private partnership projects	Investment Board Nepal (IBN)
Industries requiring EIA	Ministry of Forests and Environment
Banking and financial institutions	Nepal Rastra Bank (NRB)
Insurance companies	Insurance Board
Telecommunication services	Nepal Telecommunications Authority

Foreign investors must obtain approval from the relevant authority based on their investment amount and sector. The approval process may involve multiple agencies depending on the nature of the project.

Procedure of Foreign Direct Investment in Nepal

Step 1: Foreign Direct Investment Approval at Department of Industry

Step 2: Incorporation of Company at Office of Company Registrar

Step 3: Tax and Local Business Registration at Respective Offices

Step 4: Registration of Industry at DOI

Step 5: Nepal Rastra Bank Approval for Capital Infusion

Step 6: Recording of Investment Amount

Step 7: Commencement of Operations

Step 1: Foreign Investment Approval (DOI/IBN)

Obtain approval for Foreign Direct Investment (FDI) under the Foreign Investment and Technology Transfer Act, 2019 from the Department of Industry (DOI) or Investment Board Nepal (IBN). This process is essential for legal validation of foreign investment and includes submitting detailed project reports, business plans, and investment commitments.

Step 2: Company Incorporation (OCR)

Register the company with the Office of the Company Registrar (OCR) under the Companies Act, 2006. This step involves selecting the company structure, reserving a name, and submitting required documents, including Articles of Association and Memorandum of Association. Registration ensures the company is recognized as a legal entity in Nepal.

Step 3: Tax Registration (Inland Revenue Office)

Register the company with the Inland Revenue Office for Value Added Tax (VAT) and Permanent Account Number (PAN) under the Income Tax Act, 2002. This ensures compliance with Nepal’s tax system and enables legal operations, including invoicing, tax filings, and employee-related tax obligations.

Step 4: Business Registration (Local Ward Office)

Obtain business registration approval from the local ward office as per the Local Governance Operations Act, 2017. This involves submitting company details, lease agreements, and other supporting documents to secure a recommendation letter, which is often necessary for industry-specific registrations.

Step 5: Industry Registration (DOI)

Register the industry with the Department of Industry as required by the Industrial Enterprises Act, 2020. This step is mandatory for companies engaging in industrial or manufacturing activities. It involves obtaining a recommendation from the ward office and completing the prescribed forms.

Step 6: Non-Blacklist Certificate (Credit Information Bureau)

Acquire a “Non-Blacklist Certificate” from the Credit Information Bureau (CIB) under Nepal Rastra Bank’s directives. This certificate ensures that the directors and stakeholders are not blacklisted for financial irregularities, enhancing credibility for foreign investors and local partners.

Step 7: NRB Approval for Investment Amount Infusion

Secure prior approval from Nepal Rastra Bank (NRB) to remit the proposed foreign investment amount as per the Foreign Exchange Regulation Act, 1962. This step includes submitting details of the source of funds, investment plan, and proof of compliance with foreign exchange laws.

Step 8: Infusion and Recording of Investment Amount (NRB)

Infuse the approved investment amount through a local bank, which will issue an Investment Certificate. Subsequently, record the investment with NRB to ensure it complies with foreign currency regulations. This process solidifies the legitimacy of the capital brought into Nepal under FDI laws.

Documents Required for FDI in Nepal

1. Application form for foreign investment approval
2. Detailed project proposal and feasibility study
3. Joint venture agreement (if applicable)
4. Copy of foreign investor’s passport or company registration certificate
5. Financial statements of the foreign investor
6. Board resolution authorizing the investment (for companies)
7. Power of attorney for local representative
8. Environmental Impact Assessment report (if required)
9. Land ownership or lease documents (if applicable)
10. Curriculum vitae of key personnel
11. Technology transfer agreement (if applicable)
12. Bank guarantee or commitment letter for investment
13. Proof of intellectual property rights (if applicable)
14. Tax clearance certificate from the investor’s home country
15. Any other sector-specific documents required by regulatory authorities

Timeline of Approvals of Foreign Investment in Nepal

Stage	Approximate Timeline
Initial screening of proposal	7-10 working days
Detailed evaluation	15-30 working days
Approval in principle	7-10 working days
Company registration	3-5 working days
Foreign Investment Approval Certificate from NRB	5-7 working days
Final approval	7-10 working days
Total estimated timeline	44-72 working days

Note: These timelines are approximate and may vary depending on the complexity of the project and the efficiency of the approval process.

Government Fees for Foreign Investment in Nepal

Service	Fee (in NPR)
Foreign Investment Application	20,000
Company Registration (Private Limited)	9,500
PAN Registration	500
Foreign Investment Approval Certificate	10,000
Technology Transfer Agreement Registration	10,000
Environmental Impact Assessment Approval	50,000 – 150,000

Note: These fees are subject to change, and additional sector-specific fees may apply.

Time for Injecting Foreign Investment Amount in Nepal

Foreign investors must inject the approved investment amount into Nepal within the following timeframes:

1. For investments up to NPR 500 million: Within one year of obtaining approval
2. For investments above NPR 500 million: Within three years of obtaining approval

Extensions may be granted in exceptional circumstances upon application to the relevant authority.

Sectoral Approvals additionally Required for Investing in Nepal

Sector	Additional Approval Required
Banking and Finance	Nepal Rastra Bank
Insurance	Insurance Board
Telecommunications	Nepal Telecommunications Authority
Hydropower	Ministry of Energy, Water Resources and Irrigation
Education	Ministry of Education, Science and Technology
Health Services	Ministry of Health and Population
Aviation	Civil Aviation Authority of Nepal
Mining	Department of Mines and Geology
Tourism	Nepal Tourism Board

Post-FDI Compliance and Regulations in Nepal

After establishing a business through FDI in Nepal, foreign investors must comply with various regulations:

1. Annual reporting to the Department of Industry or Investment Board Nepal
2. Compliance with labor laws and social security regulations
3. Regular tax filings and payments
4. Environmental compliance as per approved EIA
5. Adherence to foreign exchange regulations
6. Maintenance of proper books of accounts
7. Compliance with sector-specific regulations
8. Renewal of business licenses and permits
9. Reporting of any changes in ownership structure or investment amount
10. Compliance with corporate governance norms

Failure to comply with these regulations may result in penalties or revocation of FDI approval.

Repatriation Process of Foreign Investment from Nepal

Foreign investors can repatriate their investments and profits from Nepal subject to certain conditions:

1. Obtain approval from the Department of Industry or Investment Board Nepal
2. Comply with tax obligations and obtain tax clearance
3. Adhere to foreign exchange regulations set by Nepal Rastra Bank
4. Provide necessary documentation, including audited financial statements
5. Ensure compliance with the original FDI approval terms

The repatriation process involves submitting an application to the relevant authority, which then reviews the request and grants approval if all conditions are met. The approved amount can then be remitted through authorized banking channels.

How to increase Foreign Direct Investment in Nepal?

To attract more FDI, Nepal can implement the following strategies:

1. Streamline the FDI approval process and reduce bureaucratic hurdles
2. Improve infrastructure, particularly in transportation and energy sectors
3. Enhance political stability and policy consistency
4. Strengthen the legal framework for investor protection
5. Develop skilled human resources through education and training programs
6. Promote Nepal’s investment opportunities internationally
7. Offer tax incentives and other benefits for strategic sectors
8. Improve ease of doing business rankings
9. Develop special economic zones and industrial parks
10. Foster public-private partnerships in key infrastructure projects

These measures can help improve Nepal’s attractiveness as an investment destination and boost FDI inflows.

Conclusion

Foreign Direct Investment plays a vital role in Nepal’s economic development. The country offers numerous investment opportunities across various sectors, supported by a legal framework that encourages foreign investment. While challenges exist, the government’s efforts to improve the investment climate and streamline processes are making Nepal an increasingly attractive destination for FDI.

Foreign investors considering FDI in Nepal should carefully navigate the regulatory landscape, understand sector-specific requirements, and engage with relevant authorities throughout the investment process. By following the prescribed procedures and complying with ongoing regulations, foreign investors can successfully establish and operate businesses in Nepal, contributing to the country’s economic growth while benefiting from its emerging market potential.

As Nepal continues to refine its FDI policies and improve its business environment, the country is poised to attract more foreign investment in the coming years. This influx of capital, technology, and expertise will play a crucial role in Nepal’s journey towards sustainable economic development and prosperity.

Resources: Survey Report on Foreign Direct Investment Investment Board on FDI Status of Foreign Direct Investment in Nepal