Foreign Direct Investment (FDI) in Cargo and Logistics Sector in Nepal

Introduction

Efficient cargo movement and logistics are essential for Nepal, which depends heavily on imports and exports for its economic growth. Improving infrastructure such as inland container depots (ICDs), warehouses, freight forwarding services, and transit corridors can lower trade costs and foster regional connectivity. FDI in the cargo and logistics sector can bring in much-needed capital, advanced logistics technology, global supply-chain expertise, and integration into regional networks. The Government of Nepal has promoted foreign investment through liberal laws like the Foreign Investment and Technology Transfer Act, 2019, and recent reforms have simplified approval processes. However, the scale of FDI actualized in the cargo-logistics space remains limited.

Services Provided by Cargo and Logistics Sector in Nepal

The cargo and logistics sector in Nepal provides a wide range of services essential for domestic and international trade. These services ensure the efficient movement, storage, and management of goods across the supply chain. The major services include:

1. Freight Forwarding Services
   Freight forwarders coordinate the transportation of goods via air, land, or sea. They handle booking cargo space, managing customs clearance, and ensuring the safe and timely delivery of goods.
2. Warehousing and Storage Services
   Logistics companies provide warehousing facilities for short-term and long-term storage of goods. These warehouses are often equipped with inventory management systems and security measures to maintain product quality and safety.
3. Customs Clearance and Documentation
   Cargo service providers assist in preparing and processing customs documents required for import and export. This includes handling clearance procedures, paying duties, and ensuring compliance with Nepal’s trade regulations.
4. Transportation and Distribution
   The sector manages the movement of goods from ports, airports, and factories to retailers or end consumers. This includes road transport within Nepal and cross-border logistics to India, China, and other countries.
5. Packaging and Handling Services
   Cargo companies provide professional packaging and labeling to ensure products are protected during transportation, especially fragile or perishable items.
6. Courier and Express Delivery
   Some logistics firms also offer courier and express parcel delivery for small and urgent shipments within Nepal and internationally.
7. Supply Chain Management and Consultancy
   Many logistics companies offer end-to-end supply chain management solutions from procurement and inventory planning to delivery helping businesses reduce costs and improve efficiency.

Global Trends and FDI Dynamics in the Logistics Sector

Despite the Covid-19 pandemic causing a global decline in FDI, the logistics sector saw growth due to rising e-commerce and demand for efficient supply chains. Multimodal transport, warehousing, and distribution hubs were the main areas of investment, with major global players like DHL, UPS, and Amazon expanding operations and creating thousands of jobs. These trends indicate strong potential for FDI in Nepal’s cargo and logistics sector, particularly in warehousing, cargo handling, and distribution infrastructure, supporting trade and supply chain efficiency.

Provisions and Regulations for Foreign Investment in Nepal

1. Minimum Investment Threshold:
   Any foreign investor must invest at least NPR 20 million in a project. There is no upper limit for foreign investment.
2. Restrictions on Equity Holding:
   Foreign investors are allowed specific equity holding percentages depending on the industry:
   1. Aeroplane service: up to 80%
   1. Telephone service: up to 80%
   1. Consultancy service: up to 51%
   1. Casino industry: must have a local partner
3. Form of Investment:
   Foreign investors can invest in cash or kind.
   1. Cash investment: Must be in convertible foreign currency transacted through Nepal Rastra Bank and transferred directly to the company’s account.
   1. Investment in kind: Especially machinery or equipment, requires prior approval from the Department of Industry.
4. Post-Registration Approvals:
   Industries must obtain approval from the Department of Industry for certain events, including:
   1. Change in company name, ownership, production capacity, product type, location, or electricity capacity
   1. Approval of foreign investment in an existing industry through Share Purchase Agreement, Loan Agreement, or Technology Transfer Agreement
   1. Extension of operation date or license
   1. Closure or cancellation of license
5. Expatriate Salary Repatriation:
   Expatriates are allowed to remit 75% of their salary, allowances, and emoluments abroad.
6. Single-Person Company:
   Foreign investors are permitted to establish single-person companies in certain industries. In other sectors, they can establish companies without requiring a local or foreign partner.
7. Equal Treatment:
   All foreign and local investors enjoy equal facilities and incentives as provided under the applicable laws and regulations, without any discrimination.

Governing Authorities Involved in Registration and Regulation of Cargo and Logistics Companies in Nepal

Office of Company Registrar (OCR)	Primary authority for company registration under the Ministry of Industry, Commerce, and Supplies. Responsible for approving company name, incorporation, and issuing registration certificates.
Inland Revenue Department (IRD)	Issues Permanent Account Number (PAN) and VAT registration for taxation purposes. Ensures companies comply with Nepal’s tax laws.
Department of Transport Management (DoTM)	Regulates and licenses transportation services, including vehicle registration, route permits, and cargo movement permissions.
Local Municipality Office	Grants business operating licenses based on location and ensures compliance with local business regulations.
Nepal Rastra Bank (NRB)	Regulates foreign currency transactions and monitors companies engaged in international trade or receiving FDI.
Department of Customs	Oversees import and export activities, customs clearance, and tariff compliance for cargo and logistics companies.

Process for Registering a Cargo and Logistics Company in Nepal

1. Name Reservation: Apply for company name approval through the Office of Company Registrar (OCR).
2. Document Preparation: Prepare the Memorandum and Articles of Association (MoA & AoA) and other supporting documents.
3. Online Application: Fill up the online form and upload all required documents on the OCR website.
4. Fee Payment: Pay the registration fee either online or through a designated bank.
5. Application Review: The OCR verifies and approves the application.
6. Registration Certificate: After approval, a digital company registration certificate is issued.
7. PAN Registration: Obtain a Permanent Account Number (PAN) from the Inland Revenue Department (IRD).
8. Industry-Specific License: Apply for licenses related to cargo and logistics operations (through the Department of Transport Management and Department of Customs).
9. Local Registration: Register with the respective local government for a business operating license.
10. For FDI: Foreign investors must also register their investment with the Department of Industry (DOI) or Investment Board Nepal (IBN) before starting operations.

Documents Required for FDI in Cargo and Logistics in Nepal

1. Application Form: Completed FDI registration form submitted to DOI or IBN (for large-scale projects).
2. Company Registration Documents:
   1. Certificate of incorporation of the foreign company.
   1. Memorandum & Articles of Association (MoA & AoA).
   1. Business registration certificate of the Nepali entity (if joint venture).
3. Investment Proposal / Project Report:
   1. Project details, objectives, scope, investment amount, expected employment, technology transfer, and timeline.
   1. Financial projections and capital structure.
4. Board Resolution / Approval: Approval from the foreign parent company for investment in Nepal.
5. Bank Statement / Proof of Fund: Evidence of funds available for investment.
6. Tax Registration / Tax Clearance: PAN/VAT and tax clearance certificates (if applicable).
7. Environmental Clearance (if applicable): EIA or IEE for projects with potential environmental impact.
8. Land Lease / Ownership Proof: Evidence of project site ownership or lease agreement.
9. Power of Attorney: Authorizing a representative in Nepal to handle investment registration and project implementation.
10. Cargo-Specific Documents:
    1. Vehicle registration certificates.
    1. Driver licenses.
    1. Insurance certificates for vehicles and cargo.

Conclusion:

FDI in Nepal’s construction, cargo, and logistics sectors enhances infrastructure, technology, and trade efficiency. Joint ventures with domestic firms and supportive legal frameworks ensure sustainable development and employment generation. Despite current limitations, FDI remains vital for Nepal’s economic growth and global integration.