Foreign Direct Investment in Nepal step by step guide 2081

Foreign Direct Investment (FDI)

Investing in Nepal involves a structured process that aligns with the country’s legal and regulatory framework. Here’s a step-by-step guide to Foreign Direct Investment (FDI) in Nepal:

Step 1: Understand Nepal’s Investment Environment

1. Legal Framework:

• Familiarize yourself with the Foreign Investment and Technology Transfer Act (FITTA), 2019.
• Understand the regulations from the Industrial Enterprises Act, Company Act, Labor Act, and other relevant laws.

2. Investment Sectors:

• Identify permissible sectors for FDI, as some industries may have restrictions or be prohibited from foreign investment.

Step 2: Prepare for Investment

1. Market Research:

• Conduct thorough market research to understand the opportunities and risks in Nepal.
• Identify local partners or advisors who can assist with market entry.

2. Business Plan:

• Develop a detailed business plan outlining your investment, projected growth, financial projections, and market strategy.

Step 3: Obtain Approval for FDI

1. Approval from Investment Board Nepal (IBN):

• For investments above NPR 6 billion, obtain approval from IBN.
• Apply with the business plan and financial details.

2. Approval from the Department of Industry (DoI):

• For investments below NPR 6 billion, apply to the DoI.
• Submit the required documentation and obtain an approval letter.

Step 4: Company Registration

1. Reserve Company Name:

• Apply to the Office of the Company Registrar (OCR) to reserve a company name.

2. Documents Required:

• Memorandum and Articles of Association.
• Details of promoters (passport copies, photos, etc.).

3. Submission:

• Apply the required documents to the OCR.
• Obtain a Certificate of Incorporation upon approval.

Step 5: Register for Tax and Other Licenses

1. Tax Registration:

• Register with the Inland Revenue Department (IRD) to obtain a Permanent Account Number (PAN) and Value Added Tax (VAT) registration if applicable.

2. Sector-specific Licenses:

• Obtain necessary licenses and permits specific to the industry you are investing in (e.g., environmental permits, sectoral clearances).

Step 6: Foreign Currency Exchange and Capital Injection

1. Foreign Currency Exchange:

• Open a foreign currency account in a local bank.
• Transfer the investment amount through the banking channel.

2. Capital Injection:

• Inject the capital into the company’s account.
• Obtain a remittance certificate from the bank.

Step 7: Set Up Office and Operations

1. Office Setup:

• Lease or buy office space.
• Set up the infrastructure and recruit staff as per the business plan.

2. Compliance with Labor Laws:

• Access labor laws, including employment contracts, working conditions, and other regulations.

Step 8: Reporting and Compliance

1. Regular Reporting:

• Submit regular reports to regulatory bodies such as the DoI and IBN.
• Maintain proper accounting and auditing practices.

2. Compliance:

• Ensure ongoing compliance with tax, labor, environmental, and sectoral regulations.

Step 9: Repatriation of Profits

1. Repatriation Procedure:

• Follow the procedures for repatriation of profits, dividends, and capital as per the FITTA and Central Bank regulations.

2. Documentation:

• Ensure all necessary documents, including financial statements, tax clearance, and audit reports, are prepared for the repatriation process.

Step 10: Exiting the Investment

1. Exit Strategy:

• Develop a clear exit strategy that considers the legal and financial implications.

2. Dissolution:

• If dissolving the company, follow the legal procedure for liquidation or sale, ensuring all liabilities are settled.

Additional Resources

1. Investment Board Nepal (IBN):

• Website: IBN
• Offers support and facilitation services for large-scale investments.

2. Department of Industry (DoI):

• Website: DoI
• Provides information on industrial regulations and FDI procedures.

3. Nepal Rastra Bank (NRB):

• Website: NRB
• The central bank provides guidelines on foreign exchange and investment.

Engaging with local legal and financial advisors is crucial throughout the process to navigate the complexities and ensure compliance with all local laws and regulations.

Industries Not Granted Permission for Foreign Investment

1. Cottage Industries:

• Traditional handloom, traditional blacksmith, pottery, and other traditional small-scale industries, except for the export-oriented and those involving traditional art and craft.

2. Personal Service Businesses:

• Businesses such as hairdressing, beauty parlors, tailoring, driving training schools, etc.

3. Bidi Production:

• Manufacturing of Bidi (a traditional hand-rolled cigarette).

4. Real Estate:

• Real estate business, including buying and selling of land and houses (excluding real estate development companies meeting certain conditions).

5. Retail Trading:

• Retail trading of consumer goods, with the exception of international retail chains with a significant minimum investment threshold.

6. Tobacco Products:

• Manufacturing of tobacco and tobacco products, including cigarettes.

7. Alcohol Production:

• Production of alcohol and alcoholic beverages, except for export purposes.

8. Weapons and Ammunition:

• Manufacturing of arms, ammunition, explosives, and allied products.

9. Radioactive Materials:

• Production and processing of radioactive materials.

10. Security Services:
    • Private security services and related businesses.
11. Money Laundering Activities:
    • Businesses involved in financial transactions related to money laundering.
12. Criminal Activities:
    • Any business involving illegal activities, including narcotics and human trafficking.
13. Gambling and Betting:
    • Operations related to gambling and betting activities.

Additional Restricted Sectors

Certain sectors may have restrictions on the extent of foreign ownership or require special approvals and conditions. These include:

1. Media:

• Foreign ownership is limited to a maximum of 20% in media businesses, including print and broadcast media.

2. Agriculture:

• Specific restrictions on foreign investment in primary agricultural production.

3. Financial Services:

• Banking, insurance, and other financial services have regulatory requirements and restrictions on foreign investment.

4. Tourism:

• Some tourism-related businesses may have specific conditions or restrictions.

5. Education and Health Services:

• Investment in these sectors requires special permissions and adherence to national policies and regulations.

Key Points to Remember

• Approval and Compliance: Foreign investors must seek approval from relevant authorities (e.g., IBN, DoI) and comply with the specific conditions set for restricted sectors.
• Policy Changes: The Negative List and investment policies may be updated periodically by the government, so it is important to check the latest regulations.

Resources for Up-to-Date Information

For the most current information on the Negative List and investment policies, foreign investors should refer to official resources such as:

• Investment Board Nepal (IBN): IBN
• Department of Industry (DoI): DoI
• Ministry of Industry, Commerce, and Supplies: Ministry of Industry, Commerce, and Supplies

Consulting with local legal and business advisors is also advisable to navigate the specific regulatory environment and ensure compliance with all applicable laws and regulations.

Foreign Direct Investment in Nepal: FAQs

Foreign Direct Investment in Nepal: FAQs

1. What is the legal framework governing FDI in Nepal?

Nepal’s FDI is primarily governed by the Foreign Investment and Technology Transfer Act (FITTA), 2019. Other relevant laws include the Industrial Enterprises Act, the Company Act, and the Labor Act.

2. Which sectors are open to foreign investment in Nepal?

Most sectors are open to foreign investment, with some restrictions or prohibitions in certain sensitive areas like defense, currency printing, and real estate. For detailed information, investors should refer to the latest negative list published by the Government of Nepal.

3. What are the minimum investment requirements for foreign investors?

The minimum foreign investment requirement is NPR 50 million (approximately USD 400,000). This threshold applies to new ventures as well as expansions of existing ones.

4. What are the key government agencies involved in the FDI process?

• Investment Board Nepal (IBN): For investments above NPR 6 billion.
• Department of Industry (DoI): For investments below NPR 6 billion.
• Office of the Company Registrar (OCR): For company registration.
• Nepal Rastra Bank (NRB): For foreign currency regulations and repatriation.

5. How do I start the process of investing in Nepal?

1. Market Research and Business Planning: Understand the market and prepare a business plan.
2. Company Registration: Reserve a name and register the company with the OCR.
3. FDI Approval: Obtain approval from the IBN or DoI, depending on the investment amount.

6. What documents are required for company registration in Nepal?

• Memorandum and Articles of Association.
• Details of promoters (including passport copies and photos).
• Proof of registered office.
• Company name reservation certificate.

7. What is the process for obtaining FDI approval?

• Submit a detailed business plan and financial details to the IBN or DoI.
• Await approval, which involves the review of the application and may require additional information or clarifications.

8. How can I repatriate profits and dividends from Nepal?

Profits and dividends can be repatriated after paying all due taxes. The process involves:

• Submitting financial statements and tax clearance certificates.
• Following the Nepal Rastra Bank’s guidelines on foreign exchange transactions.
• Obtaining a remittance certificate from a local bank.

9. What are the tax implications for foreign investors in Nepal?

Foreign investors are subject to corporate tax, VAT, and other applicable taxes. Double Taxation Avoidance Agreements (DTAAs) with various countries can provide tax relief. It’s advisable to consult with a local tax advisor to understand the specific tax obligations.

10. Are there any incentives for foreign investors in Nepal?

Nepal offers various incentives to foreign investors, including:

• Tax holidays.
• Exemptions on customs duties for importing machinery.
• Subsidies for infrastructure development in certain sectors.

11. How can I ensure compliance with local regulations?

Regularly submit required reports to regulatory bodies like the DoI and IBN. Maintain proper accounting practices and ensure adherence to labor, tax, environmental, and sector-specific regulations. Engaging with local legal and financial advisors is essential.

12. What are the options for exiting an investment in Nepal?

• Repatriation: Following legal procedures for repatriating capital and profits.
• Selling the Business: Transfer of shares or business through sale.
• Liquidation: Follow legal procedures for dissolving the company and settling liabilities.

13. Can I invest in real estate in Nepal?

Foreigners are generally restricted from directly investing in real estate. However, they can invest in real estate development projects through joint ventures with local partners or through specific approval from the government.

14. Are there any restrictions on the transfer of technology or technical know-how?

Technology transfer is allowed and encouraged, provided it aligns with the legal framework. Agreements for technology transfer should be documented and approved as per the FITTA regulations.

15. How can I find a local partner for my investment in Nepal?

Engage with local business chambers, trade associations, and investment facilitation agencies like IBN. Networking events, trade fairs, and industry conferences are also good platforms for finding potential local partners.