Investment from India to Nepal must be conducted by incorporating a Company, requiring Foreign Direct Investment Procedure. Indian Citizens, investing above NPR 5 Lakhs must obtain authorization from Department of Industry and must invest at least NPR 20 Million. Alternatively, for investments below NPR 5 Lakhs, the Law has allowed Indians to register their businesses in the Ward Office.
Legal Framework for Indian Investment in Nepal
The legal framework governing Indian investment in Nepal comprises several key laws and agreements:
- Foreign Investment and Technology Transfer Act (FITTA) 2019
- Nepal-India Trade Treaty
- Nepal-India Investment Protection and Promotion Agreement
- Industrial Enterprises Act 2020
- Company Act 2006
- Foreign Exchange Regulation Act 1962
While Indian investors are subject to the general FDI regulations under FITTA 2019, they also benefit from certain special provisions due to the bilateral agreements between India and Nepal.
Sectors Open for Indian Investment
Indian investors can invest in most sectors of the Nepalese economy, including:
- Manufacturing
- Hydropower and renewable energy
- Tourism and hospitality
- Information technology
- Healthcare
- Education
- Agriculture and food processing
- Infrastructure development
However, some sectors remain restricted or prohibited for foreign investment, including Indian investors. These include:
- Primary agriculture production
- Real estate (except construction)
- Cottage and small industries
- Personal service businesses
- Arms and ammunition manufacturing
Indian investors should carefully review the latest negative list before proceeding with their investment plans.
Special Provisions for Indian Investors
Indian investors enjoy certain advantages in Nepal due to bilateral agreements:
- Investment in Indian currency: Unlike other foreign investors, Indian investors can invest in Indian Rupees.
- Easier repatriation: The Nepal-India Trade Treaty facilitates smoother repatriation of profits and investments for Indian businesses.
- National treatment: Indian companies receive treatment on par with Nepalese companies in many aspects of business operations.
- Visa-free entry: Indian citizens do not require visas to enter Nepal, simplifying business travel and operations.
- Preferential trade access: Indian goods enjoy preferential access to the Nepalese market under the trade treaty.
Process of Obtaining Investment Approval to Nepal for Indian Citizens
The investment approval process for Indian investors involves several steps:
The Process of obtaining Approval for Investment for Indian Investors are:
Step 1: Preparation of Required Documents including Project Proposal
Indian investors must submit a detailed project proposal to the Department of Industry (DOI) for investments up to NPR 6 billion. For larger investments, proposals go to the Investment Board Nepal (IBN).
Step 2: Review by Department of Industry
The DOI reviews the proposal to ensure compliance with FDI policies and regulations. They may request additional information or clarifications.
Step 3: Approval from DOI
After review, the DOI issues an approval letter for the investment. This process should officially take 7 days but may extend to several weeks in practice.
Step 4: Company Registration at Office of Company Registrar
Upon receiving FDI approval, the Indian investor must register the company with the Office of Company Registrar. This involves submitting various documents and paying registration fees.
Step 5: Obtaining Sectoral Permits for Specific Industries
Depending on the sector, additional licenses and permits may be required from relevant government agencies before commencing operations.
Step 6: Obtaining NRB Approval to Inject Fund
Indian investors must obtain approval from Nepal Rastra Bank (NRB) to bring investment funds into Nepal, even when investing in Indian Rupees.
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 Indian Investors to invest in Nepal
Indian investors typically need to submit the following documents:
- Detailed project proposal
- Company profile of the Indian investor
- Copy of passport or citizenship certificate of Indian investor
- Joint venture agreement (if applicable)
- Bank certificate confirming financial credibility
- Environmental impact assessment report (if required)
- Power of attorney
- Commitment letter for investment schedule
- Tax clearance certificate from Indian authorities
Ensuring all documents are complete and accurate can help expedite the approval process.
Timeline for Investment Approval
The official timeline for investment approval 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, the entire process from proposal submission to final approval and company setup can take 1-3 months, depending on the project complexity and document completeness.
Costs and Fees
Indian investors should budget for the following costs:
- Application fee: NPR 20,000 (refundable)
- Company registration fee: Based on authorized capital
- Legal and consultancy fees
- License and permit fees (sector-specific)
- Environmental clearance costs (if applicable)
While some fees are fixed, others vary based on the investment size and sector.
Relevant Authorities and Treaties
Key authorities involved in the Indian investment process include:
- Department of Industry (DOI)
- Investment Board Nepal (IBN)
- Ministry of Industry, Commerce and Supplies
- Office of Company Registrar
- Nepal Rastra Bank (NRB)
Relevant treaties influencing Indian investment in Nepal:
- Nepal-India Trade Treaty
- Nepal-India Investment Protection and Promotion Agreement
- SAARC Agreement on Trade in Services (SATIS)
These agreements provide a framework for economic cooperation and investment protection between the two countries.
Current Investment Trends from India
Recent trends in Indian investment in Nepal include:
- Increased focus on renewable energy projects, particularly hydropower
- Growing investments in the hospitality and tourism sector
- Rising interest in IT and digital services
- Expansion of Indian banking and financial services in Nepal
- Investments in healthcare and education sectors
- Continued dominance in manufacturing and consumer goods industries
Indian investors are also showing interest in Nepal’s emerging sectors like e-commerce and digital payments.
Prime Law Associates’ Services for Indian Investors
Prime Law Associates offers specialized services for Indian investors entering the Nepalese market:
- FDI proposal preparation and submission
- Liaison with Nepalese government agencies
- Company incorporation and registration
- Obtaining necessary licenses and permits
- Joint venture negotiations and documentation
- Legal due diligence on Nepalese partners or acquisition targets
- Advice on tax implications and structuring
- Ongoing compliance and regulatory support
Our team understands the nuances of India-Nepal business relations and can provide tailored guidance to Indian investors.
Also Read:
- Foreign Direct Investment Process in Nepal
- Investment Process from China to Nepal
- Foreign Company Registration in Nepal
- FDI Repatriation Process from Nepal
Conclusion
Indian investment in Nepal benefits from the strong bilateral ties and special provisions accorded to Indian businesses. While the investment process follows the general FDI framework, Indian investors enjoy certain advantages in terms of currency, repatriation, and market access. However, navigating the regulatory landscape still requires careful planning and local expertise.
How to Incorporate a Business in Nepal from India?
This Questionnaire covers the detailed process for incorporating a business in Nepal from India.
What are the advantages for Indian investors in Nepal?
Indian investors benefit from the ability to invest in Indian Rupees, easier profit repatriation, national treatment in many aspects, visa-free entry, and preferential trade access under bilateral agreements.
Do Indian investors need a visa to invest in Nepal?
No, Indian citizens do not require visas to enter Nepal, which simplifies business travel and operations for Indian investors.
How to repatriate from Nepal to India?
Yes, the Nepal-India Trade Treaty facilitates smoother repatriation of profits and investments for Indian businesses, subject to applicable taxes and regulations.
What is the minimum investment amount for Indian investors?
The minimum FDI threshold is NPR 20 million (approximately USD 153,000) for investments in share capital, applicable to Indian investors as well.
Are there any sectors restricted for Indian investment in Nepal?
Yes, sectors like primary agriculture, real estate (except construction), cottage industries, and arms manufacturing are restricted for all foreign investors, including Indians.
Can Indian investors own land in Nepal?
Foreign investors, including Indians, cannot directly own land in Nepal but can lease land for business purposes or own land through a company registered in Nepal.
How long does it take to get investment approval from Nepal for Indian investors?
Officially, it should take 7-15 days depending on the investment amount. In practice, the entire process often takes 1-3 months.
What documents are required for Indian investors to invest in Nepal?
Key documents include the project proposal, company profile, passport/citizenship certificate copies, bank certificates, and environmental assessments if applicable.
How can Prime Law Associates help Indian investors?
Prime Law Associates provides the best legal and advisory services for Indian investors for proposal preparation, company registration, permit acquisition, and ongoing compliance support.
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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.