Foreign Direct Investment Process in Nepal

Foreign Direct Investment Process in Nepal generally requires approval from the Department of Industry and the Nepal Rastra Bank is governed by Foreign Investment and Technology Transfer Act, 2019. Nepal has been working to create a more favorable environment for foreign investors in recent years. The government aims to attract FDI in sectors like hydropower, agriculture, tourism, and infrastructure development.

This Article is an Expert Legal Guide to obtaining FDI Approval in Nepal with the experience of completing over fifty Foreign Direct Investment Projects for investors.

Legal Framework for FDI in Nepal

The primary laws governing foreign investment in Nepal are:

Foreign Investment and Technology Transfer Act (FITTA) 2019
Industrial Enterprises Act 2020
Company Act 2006
Foreign Exchange Regulation Act 1962
Public Private Partnership and Investment Act 2019

The FITTA 2019 is the main legislation that outlines the policies, procedures, and regulations for FDI in Nepal. It replaced the previous Foreign Investment and Technology Transfer Act of 1992 to create a more investor-friendly environment.

Eligible Sectors for FDI

Nepal allows FDI in most sectors of the economy, with some exceptions. The main sectors open for foreign investment include:

Manufacturing
Energy
Tourism
Information Technology
Mining
Agriculture
Infrastructure
Services

However, certain sectors are restricted or prohibited for FDI as per the negative list in the FITTA 2019. These include:

Primary agriculture production
Real estate (except construction)
Cottage and small industries
Arms and ammunition
Media and film in national languages
Retail business
Travel agencies and guides
Personal service businesses

Foreign investors should carefully review the negative list before proceeding with investment plans in Nepal.

Minimum Investment Requirements

The minimum FDI threshold in Nepal is NPR 20 million (approximately USD 153,000). This applies to investments in share capital. For technology transfer agreements, there is no minimum investment requirement.

The government may revise the minimum threshold from time to time through notifications. Foreign investors should check the latest requirements before submitting their proposals.

Foreign Direct Investment Process in Nepal

Step 1: Project Proposal Submission

The foreign investor must submit a detailed project proposal to the Department of Industry (DOI) or Investment Board Nepal (IBN), depending on the investment amount. The proposal should include:
Project description
Investment plan
Financial projections
Environmental impact assessment (if applicable)
Other supporting documents

Step 2: Department of Industry Review

For investments up to NPR 6 billion, the DOI reviews the proposal. They examine if it complies with FDI policies and regulations. The DOI may request additional information or clarifications from the investor.

Step 3: Industrial Promotion Board Approval

Investments exceeding NPR 6 billion require approval from the Industrial Promotion Board chaired by the Minister of Industry. The Board evaluates large-scale projects based on their economic impact and alignment with national priorities.

Step 4: Company Registration

After obtaining FDI approval, the foreign investor must register the company with the Office of Company Registrar. This involves:
Name reservation
Submission of memorandum and articles of association
Appointment of directors
Share allotment details

Step 5: Obtaining Necessary Licenses and Permits

Depending on the sector, the company may need to obtain additional licenses and permits from relevant government agencies before commencing operations. This could include environmental clearances, industry-specific licenses, etc.

Consult an Expert FDI Lawyer

The Firm has completed 50+ Foreign Direct Investment Projects in Nepal with experience in the New Investment Regime introduced by FITTA. The Firm’s FDI Practice is recognized throughout the Corporate Sector of Nepal.

Required Documents for FDI Approval

The key documents required for the FDI application process include:

Project proposal
Company profile of foreign investor
Copy of passport of foreign investor
Joint venture agreement (if applicable)
Bank certificate confirming investor’s financial credibility
Environmental impact assessment report (if required)
Power of attorney
Commitment letter for investment schedule
Other supporting documents as per sector requirements

Investors should ensure all documents are complete and accurate to avoid delays in the approval process.

Time Frame for FDI Approval

The official timeline for FDI approval as per FITTA 2019 is:

7 days for DOI to approve investments up to NPR 6 billion
15 days for IBN to approve investments above NPR 6 billion

However, in practice of Prime Law Associates, the approval process can take longer, often 1-2 months.

Costs Associated with FDI Process

The main costs involved in the FDI approval and company setup process include:

Application fee: NPR 20,000 (refundable)
Company registration fee: Based on authorized capital
Lawyer/consultant fees
License and permit fees (sector-specific)
Environmental clearance costs (if applicable)

Foreign investors should budget for these expenses when planning their investment in Nepal.

Key Government Authorities Involved

The primary government bodies involved in the FDI process are:

Department of Industry (DOI)
Investment Board Nepal (IBN)
Ministry of Industry, Commerce and Supplies
Office of Company Registrar
Nepal Rastra Bank (central bank)
Department of Immigration

Coordination among these agencies is facilitated through the One Stop Service Center to streamline the approval process for foreign investors.

Recent Trends and Practices in Nepal’s FDI Landscape

Some notable trends in Nepal’s FDI environment include:

Increasing focus on infrastructure and energy projects
Growing interest from investors in neighboring countries like China and India
Government efforts to improve the ease of doing business
Introduction of online application systems for faster processing
More emphasis on public-private partnerships in large projects

Foreign investors should stay updated on policy changes and emerging opportunities in Nepal’s evolving FDI landscape.

Prime Law Associates’ FDI Services

Prime Law Associates offers comprehensive legal and advisory services for foreign investors looking to establish businesses in Nepal. Our team of experienced lawyers can assist with:

FDI proposal preparation and submission
Liaison with government agencies
Company incorporation and registration
Obtaining necessary licenses and permits
Joint venture negotiations
Legal due diligence
Ongoing compliance support

We provide end-to-end guidance to help foreign investors navigate the FDI process efficiently.

Questions about Foreign Direct Investment

What is Foreign Direct Investment (FDI) in Nepal?

FDI in Nepal refers to investments made by foreign individuals, companies, or entities in Nepalese businesses. It can include equity investments, reinvestment of earnings, and investment through technology transfer.

Which sectors are open for FDI in Nepal?

The sectors that are open for FDI, including manufacturing, energy, tourism, IT, mining, agriculture, and infrastructure. However, some sectors like primary agriculture, real estate, and small-scale industries are restricted.

What is the minimum investment required for FDI in Nepal?

The minimum FDI threshold is NPR 20 million (approximately USD 153,000) for investments in share capital. There is no minimum for technology transfer agreements.

How long does the FDI approval process typically take in Nepal?

Officially, it should take 15-40 days depending on the investment amount. However, in practice, it often takes 1-2 months for full approval and company setup.

What are the documents required for FDI in Nepal?

The Document Required are:
1. Company Profile/Investor Profile
2. Detailed Project Proposal
3. Passport Copies and Bank Certificates
4. Copy of Passport
5. As Required

Which government authority oversees FDI in Nepal?

The Department of Industry oversees investments up to NPR 6 billion, while the Investment Board Nepal handles larger investments.

Can foreign investors repatriate their profits from Nepal?

Yes, foreign investors can repatriate profits, dividends, and invested capital after paying applicable taxes, with approval from the central bank.

Can foreign investors own 100% equity in Nepalese companies?

Yes, 100% foreign ownership is allowed in most sectors, except for a few restricted areas mentioned in the negative list.

What are the recent trends in FDI in Nepal?

Recent trends include increased focus on infrastructure and energy projects, growing interest from regional investors, and government efforts to improve the ease of doing business.

How to find Foreign Direct Investment Service in Nepal?

Prime Law Associates offers complete legal services for FDI, including proposal preparation, liaison with authorities, company registration, and ongoing compliance support.

Are there any restrictions on hiring foreign employees in FDI companies in Nepal?

FDI companies can hire foreign employees for technical and managerial positions, but there are limits on the number of expatriates and requirements to train local staff.

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Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or any of its members. The law office shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein.