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The Foreign Exchange Regulation Act of 1962, The Immigration Rules, 1994, Customs Act, 2007, The Industrial Enterprise Act of 2016 and its 2020 revision, Public Private Partnership And Investment Act, Special Economic Zone (SEZ) Act of 2016 and its 2019 amendment, The Companies Act (2006), Public Private Partnership and Investment Act, 2019 and the Income Tax Act (2002) are the most significant foreign investment laws. FITTA 2019 allows businesses to collect loans from foreign banks and financial institutions with the categorization of Nepal rastra Bank. The Department of Industry approves investments up to NPR 6 billion and The Investment Board of Nepal approves above 6 Billion.

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One of Delta Law's main areas of strength is its ability to assist foreign investors on the legal framework for investment in Nepal.

Some of our services include:

Legal consultation and advice to foreign investors on investment laws, regulations, policies, incorporation of legal entities such as foreign industries, branches, obtaining licenses in Nepal, drafting and Reviewing necessary documents for company registration, drafting various types of contracts and agreements related to foreign investment such as joint ventures, partnership agreements, and many more, In case of dispute resolution, Delta law provides legal representation and assistance.

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Mr. Babu Ram Aryal

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All aspect of investment which includes sectors of foreign direct investment, which includes rules and regulations, financial incentives, and repatriation.

The Foreign Exchange Regulation Act of 1962, The Immigration Rules, 1994, Customs Act, 2007, The Industrial Enterprise Act of 2016 and its 2020 revision, Public Private Partnership And Investment Act, Special Economic Zone (SEZ) Act of 2016 and its 2019 amendment, The Companies Act (2006), Public Private Partnership and Investment Act, 2019 and the Income Tax Act (2002) are the most significant foreign investment laws.

 In accordance with section 15 (1,2) of The Foreign Investment and Technology Transfer Act, 2019 (2075), a foreign investor who wishes to make a foreign investment must submit an application to the Foreign Investment Approving Body for approval, outlining the details and including an action plan on industry investment as well as a timeline for bringing foreign investment into Nepal. When the required paperwork is submitted, the Foreign Investment Approving Body will, within seven days of receiving the application, approve foreign investment in the format specified.

Foreign direct investment requires approval from a number of authorities, they are:

  • The Department of Industry authorizes any foreign investment that doesn't exceed six billion rupees.
  • In accordance with the Investment Board Act, 2011 (2068), foreign investments worth more than six billion rupees must be approved by the Investment Board. 

Step 1: Get DOI/IBN approval for a foreign investment.

Step 2: Register the company at the company registrar's office

Step 3: Register for taxes at the Inland Revenue Department

Step 4: Obtain a letter of recommendation from the local level

 Step 5: Register your business with the local ward office

 Step 6: Industry Registration with DOI

 Step 7: Obtain the Non-Blacklisted Certificate from the Credit Information Bureau in step seven.

Step 8: Secure NRB Authorization to Receive the Investment Amount.

The following list of papers is needed to get permission for a foreign investment:

  1.  A project report that includes information about the project's background, the market, technology, finances, and specifics of the funding, among other things.
  2. A copy of the foreign investor's certificate of registration and other registration documents, such as their articles of association and memorandum of association.
  3. The foreign investor's biographical information and company profile
  4. A Financial Credibility Certificate from any bank in the nation where the foreign investor is registered or where they now reside.
  5.  The foreign investor's corporate decision to invest in Nepal.
  6. Power of Attorney empowering a person to finish the registration and approval process at the appropriate organizations.
  7. Documentation outlining the investment's source and timeline
  8. The passport of the foreign investor, if it is an individual, and the passport of the foreign investor's directors, if it is an entity.
  9. Joint Venture Agreement (in case of joint company) 
  10.  Investor's commitment letter specifying that the foreign investor won't withdraw their money for a year.

According to Section 21B of The Patent, Design and Trade Mark Act 2022 (1965), Any patent, design, or trademark that is registered in a foreign nation is not transferable to Nepal unless the owner registers it there.

The act also mentioned that if an application is filed for the registration of a patent, design, or trade mark along with certificates of registration in a foreign country, the Department may register them without conducting any inquiries. Additionally, the Department will provide the registration holder with the facility in accordance with the Paris Convention for the Protection of Industrial Property 1883 in Section 21C.

Subject to applicable laws and regulations, foreign investors are allowed to repatriate their earnings, dividends, royalties, and other income overseas. Foreign Investment and Technology Transfer act 2019 and the Tax Act offer a plethora of financial and non-financial advantages, such as tax exemptions, which are among the profitable provisions for foreign direct investment. Tax holidays, lowered tax rates, or waivers from customs charges on imported machinery and equipment are a few examples of these incentives. 

Nepal has created Special Economic Zones (SEZs) to encourage exports and draw in international capital. These zones provide various benefits to investors operating inside their borders, such as simplified regulatory procedures, infrastructural support, and tax savings.

The laws relating to foreign exchange relating to investment are mentioned in Section 26 of Foreign Investment and Technology Transfer act 2019:

With permission from Nepal Rastra Bank and the foreign investment authorizing authority, an industry with foreign investment may be able to get a foreign exchange facility for certain uses:

  • It includes principal or interest on bonds or debentures, compensation for foreign expertise, technical or management staff, and repatriation of overseas profits or investments.

After receiving approval from Nepal Rastra Bank, industries that receive foreign investment are permitted to utilize approved foreign currency. After paying income tax in Nepal, foreign professionals, technicians, or managers may return home with savings in convertible foreign currency. Exchanges or repatriations follow open market exchange rates.

As per the section 40 of Foreign Investment and Technology Transfer Act 2019: 

  • The Department may facilitate disputes between Nepali and foreign investors regarding foreign investment through mutual discussions or negotiations.
  • If there is a joint investment or dispute settlement agreement in place and the matter cannot be reached within 45 days, the agreement will be followed for the settlement of the dispute.
  • Within fifteen days following the dispute resolution, the parties are required to give information to the Foreign Investment Approving authority on the settlement.
  • If the agreement mentioned above does not contain provisions for dispute resolution, conflicts will be settled in accordance with Nepali arbitration legislation.
  • Unless the parties agree differently, arbitration under United Nations Commission on International Trade Law's (UNCITRAL) procedures must be used to settle disputes involving foreign investments.
  • The substantive law of Nepal governing arbitration shall be applicable, and the arbitration will take place in Nepal.
  • If no agreement was made before a dispute arose or if parties realize it's inadequate, they can make an agreement post-agreement, which will be disclosed to the industry registration body.

In accordance with Public-Private Partnership and Investment Act of 2019 clause 52, foreign nationals may study, research, and examine any approved foreign investment for a period of six months with a non-tourist visa. Similar to this, business visas will be granted to the foreign investor, one approved representative, and their family members for the duration of their stay in Nepal as long as investments are made there. Additionally, foreign workers who obtain labor visas for the project will be permitted to remain in Nepal for the duration of their investment.

The Repatriations regarding Foreign Investment is mentioned in Section 20 of Foreign Investment and Technology Transfer act, 2019. With selling stocks or industries, abiding with Nepali laws, and paying taxes, foreign investors are able to repatriate their investments from Nepal. Remittances in the same currency or one that is convertible are permitted as long as they comply with tax duties and Nepal Rastra Bank's requirements. By exchanging their funds at the current exchange rate, they may also return money that they have made in Nepal or invested outside. Upon receipt, the Nepal Rastra Bank provides foreign exchange services. Investors can file a complaint and receive a response from the Ministry within thirty working days.

According to section 43 of the Foreign investment and technology transfer act, 2019, as long as the investment is made in Nepal, the approval for foreign investment is still in effect. However, if the investment is not made in Nepal within two years, if ownership of the enterprise is transferred to a Nepali investor, or if the registration is canceled as a result of nonpayment, it can be considered ineffectual. The defined terms also apply to the validity period.

Yes, there are sectors or industries in Foreign Investment which are restricted and prohibited in Nepal. Those industries are mentioned in Schedule of The Foreign Investment and Technology Transfer act, 2019:

  • Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production, 
  • Cottage and small industries, 
  • Personal service business (hair cutting, tailoring, driving etc.), 
  • 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, 
  • Real estate business (excluding construction industries), retail business, internal courier service, local catering service, moneychanger, remittance service,
  • Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay,
  •  Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language, 
  • Management, account, engineering, legal consultancy service and language training, music training, computer training, and 
  • Consultancy services having foreign investment of more than fifty-one percent.

There are four countries with which Nepal has active bilateral investment agreements: France (1985), Germany (1988), the United Kingdom (1993), and Finland (2011). 

  • Furthermore, Nepal and Mauritius have a 1999 bilateral investment agreement inked, however it is not currently in effect. A second one was signed in 2011 with India and ended in 2017.

Although Nepal and the US do not have a free trade agreement or bilateral investment treaty, they do have a Trade and Investment Framework Agreement (TIFA). Nepal, China, India, Mauritius, Sri Lanka, Pakistan, South Korea, Thailand, Austria, Norway, and Qatar have all signed "Double Tax Avoidance" treaties.

  • The Indo-Nepal Treaty of Trade, which was signed in 2002, is a free trade agreement between Nepal and India.  
  • Nepal, Bangladesh, Bhutan, India, Pakistan, Sri Lanka, and the Maldives are all parties to the South Asian Free Trade Area (SAFTA). 

Chapter-5 of Foreign Investment and Technology Transfer act, 2019 has mentioned the facilities related to foreign investment in Nepal:

  • Facility of Foreign Currency: 
  1. Foreign investors or industries can open accounts in Nepali and foreign currency with commercial banks, infrastructure development banks, and financial institutions licensed to deal with convertible foreign currency.
  2. Any foreign investor who makes the necessary foreign investment may be issued an identity card by the Department.
  • Facility relating to Visa Facility:
  1. A non-tourist visa for foreign citizens visiting Nepal for study, research, or investment is six months long.
  2. A business visa allows foreign investors or authorized representatives to stay until a minimum investment amount is maintained.
  3. Until the required investment amount is maintained, a residential visa is awarded to foreign investors who make more than one million US dollars or the equivalent all at once, as well as to their authorized representative and family members.
  • Facility relating to Land:
  1. Foreign investors are expected to manage the land that is necessary for their enterprise, either legally or autonomously. However, the foreign investment approval body will offer the required advice, coordination, and support for the acquisition in the event that it is unable to buy or manage land.

The Government of Nepal may establish and open a One Stop Service Center as required in order to facilitate the provision of incentives, exemptions, facilities, or concessions to industries or investors as permitted by the Act and other applicable laws; to expeditiously execute functions to be carried out by various bodies of the Government of Nepal through one location; and to provide industry administration related services, ranging from permission to establish, registration, expansion, and liquidation of industries. The provisions relating to the services through One Stop Service Centre are mentioned in section 37 of The Industrial Enterprises Act, 2076. 

  • It performs functions relating to the Ministry of Industry and Business Administration, such as company dissolution, licensing, and registration. 
  • It makes it easier to get bonded warehouses and export-import codes, locates and acquires the paperwork needed for registration, plans the acquisition of laws, and helps with land provision. 
  • It also creates an investing site, sends notifications about investments, and serves as a suggestion and facilitation tool. It also carries out the Board's and Ministry's directives.

 Under Nepali laws, the DOI's approval of the Environmental Impact Assessment (EIA) and the Initial Environmental Examination (IEE) are prerequisites for starting a new industry or expanding and diversifying an existing one. Compliances are granted in accordance with the 2019 Environment Protection Act.

According to Sec 7 of Industrial Enterprise Act, 2076,  Before beginning operations, production, or transactions, an industry must go through an initial environmental investigation or environmental impact assessment. Industries that are altering their goals, relocating, or investing more cash must also do this evaluation. Environmental impact mitigation falls under the purview of the industry, and registration bodies are able to keep an eye on developments. An industry must state that it is committed to mitigating environmental concerns even if it is not obligated to complete an evaluation.

The procedure which should be maintained in order to get the Investment Board Nepal (IBN) approval for an investment is mentioned in Section 10 of Investment Board Act, 2068 (2010): 

  •  If someone wants to invest in a project, they must apply to the Board using the required format, along with the investment proposal and the required fee.
  •  Within seven days, the Executive Chief will review the application and begin the process of inquiry and evaluation. 
  • After thirty days, the office will review the application and provide a recommendation to the Board. 
  • In the event that a technical study, evaluation, or inquiry is necessary, the office may engage an expert committee or taskforce to conduct the study, assessment, or inquiry. 
  • After receiving the suggestion, the Board will decide and notify the applicant within seven days. The Board may have talks with the applicant if they are necessary.
  •  The applicant may ask the Board to extend the deadline for obtaining the license or registering the business if the investor neglects to do so. 
  • The Board may grant three months' notice in the event that an environmental impact study or assessment is necessary. 
  • The Board may suggest that the Government of Nepal take action against the official in the event that the relevant body is unable to reach a resolution.
  •  The project shouldn't be built just on the basis of registration or permission.

There are still several issues that need to be resolved in spite of the Foreign Investment and Technology Transfer Act's (FITTA) advancements in promoting foreign direct investment in Nepal. 

  • Nepal's potential for FDI has been hindered by insufficient promotional measures, with international investors unaware of joint venture industry prospects and government policy reforms.
  • A Single Window System has been added to the Foreign Investment and Technology Transfer Act (FITTA) in order to expedite the clearance process for foreign direct investment; however, not all sectors have fully implemented this system.
  • Approval from Nepal Rastra Bank, several government ministries, and occasionally the Department of Industry is necessary for the repatriation of foreign investment in Nepal.
  • To increase output and reduce trade imbalances, Nepal must create an environment that welcomes foreign direct investment (FDI). To do this, stakeholder engagements are necessary to reform laws that restrict FDI, not just in traditional sectors.

According to Section 36 of Foreign Investment and Technology Transfer act, 2019, if a foreign investor or industry that has received foreign investment is discovered to have violated any of the mentioned provisions of the Act, its governing regulations, or the conditions attached to the approval of foreign investment, that approval may be withdrawn or may be required to be corrected after the necessary procedures have been completed.

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