Introduction to Foreign Direct Investment in Nepal

Foreign Direct Investment (FDI) in Nepal is governed by the Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019). It plays a crucial role in economic growth, promoting industrialization, and enhancing employment opportunities. Foreign Direct Investment in Nepal | FDI in Nepal. The FDI process involves obtaining approvals from the Department of Industry (DOI) or the Investment Board of Nepal (IBN), followed by the Nepal Rastra Bank (NRB) approval. Medha Law and Partners Is a leading law firm in Nepal. 

 

Legal Framework for FDI in Nepal

The primary laws regulating FDI in Nepal are:

1. Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019)
2. Foreign Investment and Technology Transfer Regulations, 2021
3. Industrial Enterprises Act, 2020
4. Companies Act, 2006
5. Public Private Partnership and Investment Act, 2019 (PPPIA)

 

Eligibility Criteria for Foreign Investors

Foreign investors must meet the following conditions:

1. The business must not be in the “Negative List” of industries prohibited for FDI.
2. The business must be classified as an “industry” under the Industrial Enterprises Act.
3. The minimum investment requirement is NPR 20 million (approx. USD 155,000).

 

Required Documents for FDI Approval

1. Project Report outlining the business details
2. Bio-data or company profile of the foreign investor
3. Certificate of registration and relevant company documents
4. Corporate resolution for investment in Nepal
5. Financial credibility certificate from a bank
6. Documents on the source and schedule of investment
7. Power of attorney for FDI processing
8. Passports of foreign investors or directors
9. Commitment letter stating non-repatriation of investment for one year
10. Joint venture agreement (if applicable)

 

Step-by-Step Process for FDI Registration

1. Obtain foreign investment approval from DOI or IBN.
2. Incorporate the company at the Office of the Company Registrar.
3. Register for tax at the Inland Revenue Office.
4. Register the business at the local ward office.
5. Obtain industry registration at the DOI.
6. Get a non-blacklist certificate from the Credit Information Bureau.
7. Secure NRB approval for investment infusion.
8. Transfer investment funds to a local bank.
9. Register the investment amount with NRB.

 

Government Authorities Regulating Foreign Investments

1. Department of Industry (DOI): Approves FDI less than NPR 6 billion.
2. Investment Board of Nepal (IBN): Approves FDI above NPR 6 billion or hydropower projects above 200MW.
3. Nepal Rastra Bank (NRB): Grants final approval for foreign investment transactions.

 

Investment Sectors Open for Foreign Investors

Nepal welcomes FDI in various industries, including:

• Hydropower
• Manufacturing
• Tourism and hospitality
• Agriculture and forestry
• Information and communication technology
• Infrastructure development

 

Restrictions and Prohibited Sectors for FDI

FDI is prohibited in the following sectors:

• Primary agricultural production (poultry, fisheries, beekeeping, etc.)
• Cottage and small-scale industries
• Personal service businesses (hairdressing, tailoring, etc.)
• Real estate, retail business, remittance services
• Media, tourism guiding services, and trekking
• Arms, ammunition, and nuclear energy production

 

Cost and Fees for FDI Registration

1. Foreign Investment Approval: Free with a refundable deposit.
2. Company Registration: As per the Companies Act.
3. Industry Registration:
4. Currency Exchange: No fees for foreign investment transactions.
5. Visa Fees: As per the Immigration Act.

 

Time Required for FDI Approval in Nepal

The FDI approval and incorporation process typically takes 1 to 2 months.

 

Taxation Policies and Incentives for FDI

• Corporate income tax incentives
• VAT and customs duty exemptions for specific industries
• Special tax rates for export-oriented industries
• Additional incentives for investment in remote areas

 

Compliance and Reporting Requirements for Investors

Foreign investors must:

• Comply with tax and financial reporting obligations
• Submit investment records to NRB
• Obtain necessary licenses for sector-specific approvals
• Maintain annual financial statements

Benefits and Opportunities for Foreign Investors

• Untapped market potential
• Growing infrastructure projects
• Favorable tax incentives
• Strategic location between India and China
• Government support for foreign investment

 

Conclusion and Future Outlook on FDI in Nepal

Nepal continues to develop its FDI policies to attract foreign investors. With improvements in regulatory processes and infrastructure, the country presents a promising investment destination. Future reforms are expected to streamline approval procedures and enhance investor confidence.

 

 

What is the minimum FDI amount in Nepal?

The minimum required investment is NPR 20 million (approx. USD 155,000).

How long does FDI approval take?

The entire FDI approval and registration process takes approximately 1 to 2 months.

Can foreigners own 100% business in Nepal?

Yes, except in sectors restricted by the Negative List.

What are restricted FDI sectors in Nepal?

Restricted sectors include primary agriculture, cottage industries, personal services, and media, among others.

What documents are required for FDI?

Investors need a project report, company documents, financial credentials, passport copies, and a joint venture agreement (if applicable).

What are the taxes on foreign investments?

Corporate income tax applies, with incentives available for certain sectors and export-oriented industries.

Are there incentives for foreign investors?

Yes, including tax holidays, duty exemptions, and special investment benefits for priority sectors.

What is the cost of FDI registration?

Most approvals are free, but company registration fees apply.

Can foreign investors repatriate profits?

Yes, after fulfilling tax and compliance obligations.

Which authority regulates FDI in Nepal?

The DOI, IBN, and NRB are the primary regulatory bodies overseeing FDI.