Foreign Direct Investment FAQs

1. What is Foreign Direct Investment (FDI)?

Foreign Direct Investment (FDI) refers to foreign investors’ investments in a company or industry. Foreign investors are permitted to profit from their investments in FDI.

Foreign direct investment-related legal provisions have been enshrined in Nepal’s Foreign Investment and Technology Transfer Act 2019, (FITTA). Direct investments can be made in Nepal. It is referred to as Foreign Direct Investment (FDI), and investments in shares are referred to as Foreign Portfolio Investment (FPI/FII).

2. What are the benefits of Foreign Direct Investment (FDI)?

• It helps build the national economy; • It expands knowledge of technological sources and tools.
• It generates job opportunities.
• It encourages international trade.
• It fosters a competitive business environment.
• It encourages investment.

3. What laws govern foreign investment in Nepal?

• Foreign Investment Technology and Transfer Act of 2019 (FITTA)
• Industrial Enterprises Act of 2020 (2076) (IEA)
• The Patent Design and Trademark Act of 2022 (1965) (PDTA)
• Private Firm Registration Act of 2014 (1958) (PFR)
• Foreign Exchange Regulation Act of 2019 (FERA)

4. What are the procedures in Nepal for foreign investment?

Step 1: Obtain approval from the industry department established for investment purposes. Section 17 of the FITTA) Foreign Investment Technology and Transfer Act 2019 requires the department of the industry to approve investments up to $6 billion. For investments exceeding $6 billion, permission from the Investment Board is required.

Step 2: The approval is granted within 7 days of the submission of the application for foreign investment. Following approval for company registration or foreign direct investment, the MoA and AoA should be drafted and registered in the Office of the Company Registrar.

Step 3: It should be registered in the Tax office once it has been registered in the Office of the Company Registrar. The certificate of company registration received from the Office of Company Registrar (OCR) and other relevant documents are required in order for it to be registered with the Tax Office.

Step- 4: After registering with the Tax Office, it must be registered with the Rural Municipality or Municipality in accordance with the current Local Government Operation Act of 2017. (2074).  

Step-5: A recommendation from the local authority is required in order for it to be registered with the department of industry.

Step 6: Registration with the Industry Department.

Step 7: According to the Foreign Investment and Technology Transfer Act (FITTA), the source of foreign investments that are about to be brought to another country must be self-declared as a legal source. To attract foreign investment, the Nepal Rastra Bank has established procedures.

5. What are the regulatory bodies in Nepal that oversee foreign investment?

• Nepal Rastra Bank (NRB)
• Department of Industry (DOI)
• Ministry of Industry Commerce and Supplies
• Industry and Investment Promotion Board. (IIPB).

6. What types of investments are permitted in Nepal?

• Large projects such as the Ropeway vast tank and the Road Tunnel
• International Airport
• Local Airport
• Airport Management
• Waste Management Provisions
• Petroleum Refinery Industry
• Rasayanik Mal Fertilizer
• Bridges
• Financial Institutions and Banks
• Insurance or reinsurance business
• Medical colleges or hospitals with a capacity of more than 300 beds
• Hydropower of 500 MWs or greater.
•  Economic, Information Technology Park, and Economic Zone

7. Are there any country-specific restrictions on foreign investment in Nepal?

There are no restrictions on which citizens of which countries can invest in Nepal. In Nepal, there are no investment restrictions. Except for certain sectors, such as financial institutions, any individual, firm, or corporate entity may bring investment into Nepal. Foreign financial institutions may invest.

8. What information is critical for foreign investments?

The Foreign Investment and Technology Transfer Act of 2019 (FITTA) creates lists of prohibited investments. (FITTA).The proposed business venture must not be on the FITTA’s negative list of industries. According to IEA, the proposed business project must be classified as an Industry (Positive List)

9. What is the minimum investment requirement in Nepal?

Investment in Nepal requires approval from the Department of Industry. Section 17 of the Foreign Investment and Technology Transfer Act 2019 requires approval from the Department of Industry for foreign investments up to $6 billion. Foreign investment in excess of $6 billion requires approval from the Investment Board. However, the Department of Industry requires a minimum investment of NPR 5 million.

Although the law does not specify a minimum level of foreign investment, the Department of Industry (DOI) requires each foreign investor to invest at least NPR 5 million in order to meet Nepal’s foreign investment requirements.

10. What are the Negative list businesses/industries in Nepal that are not allowed foreign investments?

The Foreign Investment and Technology Transfer Act of 2019 creates a negative list of foreign investments. The lists are as follows:

• Poultry production
• Fishing, beekeeping, fruits and vegetables, oil seeds, and pulse seeds
• The milk industry, as well as other primary agricultural sectors
• Personal service businesses (hairdressing, tailoring, driving, and so on);
• Cottage and small industries;
• ammunition, bullets, shells, gunpowder, or explosives
• Industries producing arms, nuclear, biological, radioactive materials, atomic energy, and chemical weapons;
• Consultancy services with more than 51 percent foreign investment.
• Internal courier service, local catering service, money changer, and remittance service are all available.

If you need such legal assistance, please contact us at +977-9849517735 or info@corporatelawyernepal.com.np