Foreign Direct Investment (FDI) in Nepal
Comprehensive legal guide by FinLex Associates
Foreign Direct Investment (FDI) in Nepal is governed by the Foreign Investment and Technology Transfer Act (FITTA) 2019. This page explains the procedures, requirements, regulations, and timeframes for obtaining FDI approval in Nepal.
Understanding Foreign Direct Investment (FDI) in Nepal: Key Laws and Procedures
1) Key Laws Governing Foreign Investment in Nepal
Foreign investment in Nepal is primarily regulated under the following laws:
Foreign Investment and Technology Transfer Act, 2019 (FITTA)
This is the foundational law for foreign investment in Nepal, governing aspects such as technology transfer and joint ventures.
Foreign Investment and Technology Transfer Regulations, 2021
The regulations under FITTA provide more detailed rules and guidelines to ensure the smooth implementation of FDI policies.
Industrial Enterprises Act, 2020
This law promotes industrial development and offers incentives for both domestic and foreign investors.
Companies Act, 2006
The Companies Act regulates the formation and operation of companies in Nepal, including foreign entities.
Public-Private Partnership and Investment Act, 2019 (PPPIA)
This act encourages private investment, particularly in infrastructure and construction sectors.
2) Key Authorities for Approvals and Regulation of FDI in Nepal
Various government authorities are involved in the approval and regulation of foreign investments:
Department of Industries (DOI)
Handles foreign investments below NPR 6 billion.
Investment Board of Nepal (IBN)
Deals with investments exceeding NPR 6 billion, as well as large-scale projects like hydropower ventures over 200 MW.
Nepal Rastra Bank (NRB)
Final approval for the inflow of foreign funds is provided by NRB.
|
Authority |
Approval Process |
|
Department of Industries (DOI) |
For foreign investments below NPR 6 billion |
|
Investment Board of Nepal (IBN) |
For investments over NPR 6 billion or large-scale hydropower projects |
|
Nepal Rastra Bank (NRB) |
Final approval for remitting foreign funds |
3) Eligibility Requirements for FDI in Nepal
The eligibility criteria for obtaining FDI approval include the following:
Negative List Check
The proposed business should not fall within the negative list of industries specified in FITTA's schedule.
Industry Status
The business must qualify as an "industry" under the Industrial Enterprise Act of Nepal.
4) Restricted Sectors for Foreign Investment (FDI Negative List)
FDI is restricted in the following sectors:
- Primary agricultural activities (e.g., poultry, dairy farming, etc.)
- Small and cottage industries
- Personal services such as tailoring, hairdressing, and driving
- Manufacturing of arms and ammunitions
- Real estate, retail businesses, and local courier services
- Media businesses including newspapers, radio, television, and national language films
- Certain professional services (e.g., legal consultancy and language training)
5) Stepwise FDI Process in Nepal
Follow these key steps to obtain FDI approval in Nepal:
Step 1: Investment Approval
Apply to the DOI or IBN depending on the investment amount for initial approval.
Step 2: Company Incorporation
Register the company with the Office of the Company Registrar.
Step 3: Tax Registration
Obtain tax registration from the Inland Revenue Office.
Step 4: Local Business Registration
Register the business with the local Ward Office.
Step 5: Industry Registration
Register the business as an industry with the Department of Industries.
Step 6: Non-Blacklist Certificate
Obtain a certificate from the Credit Information Bureau confirming the company is not blacklisted.
Step 7: NRB Approval
Obtain final approval from the Nepal Rastra Bank to remit the investment funds.
Step 8: Fund Infusion
Transfer the foreign investment funds into a local bank account and obtain an Investment Certificate.
Step 9: Filing with NRB
File the invested capital amount with NRB.
6) Minimum Investment Threshold
The minimum capital required to obtain FDI approval is NPR 20 million (approximately USD 155,000).
7) Required Documents for FDI Approval
To apply for FDI approval, submit the following documents:
- Project report detailing market, technical, and financial aspects
- Foreign investor's profile or bio-data
- Company registration certificate
- Corporate resolution authorizing the foreign investment
- Certificate of financial credibility issued by a bank in the investor's home country
- Proof of source and schedule for the investment
- Power of Attorney authorizing a representative
- Passport copies for foreign investors and company directors
- Commitment letter to retain the investment for at least one year
- Joint venture agreement (if applicable)
8) Estimated Timeline for FDI Approvals
The entire FDI approval process typically takes 1 to 2 months for completion.
9) Additional Approvals Based on Industry
Certain sectors require additional approvals, such as:
- Insurance Board for insurance businesses
Disclaimer
This article is for educational purposes only and should not be considered legal advice. FinLex Associates holds exclusive rights to this content.
Frequently Asked Questions
Find answers to common questions about Foreign Direct Investment (FDI) in Nepal
1. What governs Foreign Direct Investment (FDI) in Nepal?
FDI in Nepal is primarily governed by the Foreign Investment and Technology Transfer Act (FITTA) of 2019, along with regulations from the Foreign Investment and Technology Transfer Regulations of 2021 and other laws such as the Industrial Enterprises Act and the Companies Act.
2. Which authorities are responsible for FDI approvals in Nepal?
The main authorities for FDI approvals are:
- Department of Industries (DOI): For investments below NPR 6 billion.
- Investment Board of Nepal (IBN): For investments over NPR 6 billion or hydropower projects exceeding 200 MW.
- Nepal Rastra Bank (NRB): For approval of foreign fund remittance and recording.
3. What are the eligibility requirements for FDI in Nepal?
To be eligible for FDI approval, a business must:
- Pass a "Negative List" check to ensure it does not fall under restricted industries.
- Qualify as an "industry" under the Industrial Enterprise Act.
4. What industries are included in the FDI Negative List?
FDI is restricted in the following areas:
- Primary agricultural activities (e.g., poultry, fish farming, dairy).
- Small and cottage industries.
- Personal services (e.g., hairdressing, tailoring).
- Arms and ammunition production.
- Real estate business (excluding construction).
- Consultancy services with over 51% foreign investment.
5. What is the process for establishing FDI in Nepal?
The FDI process involves the following steps:
- Obtain investment approval from DOI or IBN.
- Incorporate the company with the Office of the Company Registrar.
- Register for tax at the Inland Revenue Office.
- Register with the local Ward Office.
- Complete industry registration with DOI.
- Obtain a non-blacklist certificate from the Credit Information Bureau.
- Secure NRB approval for remitting funds.
- Infuse funds into a local bank and obtain an Investment Certificate.
- File the invested capital with NRB.
6. What is the minimum investment required for FDI approval?
The minimum required investment for FDI approval is NPR 20 million (approx. USD 155,000).
7. What documents are needed for FDI approval?
The required documents include:
- A project report detailing the business aspects.
- Bio-data or profile of the foreign investor.
- Company registration certificates.
- A corporate resolution authorizing the investment.
- Bank certificate of financial credibility from the investor's home country.
- Proof of investment source and schedule.
- Power of Attorney for an authorized person.
- Passport copies of the foreign investor and directors.
- A commitment letter to retain the investment for at least one year.
- A joint venture agreement, if applicable.
8. How long does the FDI approval process take?
The FDI approval process typically takes 1 to 2 months.
9. Are there additional approvals needed after company incorporation?
Yes, additional approvals may be required for specific sectors:
- Insurance businesses: Insurance Board.
- Banks/Financial institutions: NRB.
- Energy projects: Department of Electricity Development.
- Tourism-related businesses: Department of Tourism.
- Food industries: Department of Food Technology and Quality Control.
10. What are the costs associated with FDI in Nepal?
The main costs include:
- Foreign Investment Approval: No deposit required (refundable upon approval).
- Company Registration: Fees as per the Companies Act.
- Industry Registration: No cost.
- Currency Exchange: No fee for foreign currency issuance.
- Visa Fees: As per the Immigration Act of Nepal.