The business environment in Nepal is striving to improve. Following the signing of the peace agreement, the Maoists entered mainstream politics, and the Foreign Investment and Technology Transfer Act, which encourages foreign investment in Nepal, went into effect on March 27, 2019.
Foreign Investment and Technology Transfer Act 2019 Provisions
Following that, legislation was enacted to protect foreign investors. The Foreign Investment and Technology Transfer Act 2019 includes the following provisions:
1 The WTO’s most-favored-nation principle (MFN)
The Foreign Investment and Technology Transfer Act of 2019, which went into effect on March 27, 2019, created equal opportunities for all foreign investors looking to invest in Nepal. There is no provision that gives one nation’s citizens more benefits while giving the citizens of the other country less benefits.
Normally, countries are unable to differentiate among their trading partners. A most-favored-nation (MFN) clause requires a country to extend any concessions, privileges, or immunities granted to one country in a trade agreement to all other World Trade Organization members. Although the name implies favoritism toward another country, it actually refers to the fact that all countries are treated equally.
2. National treatment entails treating foreigners and natives equally
Section 32 of the Foreign Investment and Technology Transfer Act of 2019 ensures that both domestic and foreign investors have an equal opportunity. It levels the playing field for both domestic and foreign investors.
According to Section 18 of Nepal’s constitution, “everyone” is equal before the law and has the right to full and equal protection of the law. In this provision, the term “everyone” refers to all individuals or entities. As a result, both the FITT 2019 and Nepal’s constitution provide foreign investors with protection. In the event of a dispute, a lawsuit may be filed in Nepal’s courts.
The distinction refers to the difference between the law and how it is applied in practice. According to the law, foreigners have the same rights as Nepalese citizens.
3. Guarantees of Expropriation Protection
Section 33 of FITTA 2019 prohibits the expropriation of the property of foreign investors. Contracting states shall not be subjected to expropriation, confiscation, or nationalization unless for lawful purposes and in exchange for adequate, effective, and timely compensation. The specifics of this guarantee will be discussed in Section 33.
Confiscation can take many forms, and distinguishing between direct and indirect expropriation is vital in this context. When the state seizes property owned by an investor within the state’s territory, the state suffers a direct deprivation of wealth or property.
As an example of direct expropriation, nationalization policies that result in the systematic takeover of specific industries or sectors may be cited. The practice of direct expropriation is no longer in use. Indirect expropriation is the act of not being able to take money or property indirectly; it is a government action that would restrict access to an investor’s funds or “fruits of labor.” or Instances of indirect expropriation would be those that compel an investor to sell or transfer property at prices far below market value.
Section 20 of the FITTA Act 2019 ensures the transfer of capital, investment returns, and any compensation obtained as a result of property expropriation to foreign nationals and businesses. Article 20 of the new law still permits capital repatriation and profit remittances.
In theory, foreign investors may transfer their profit share; however, the transfer must be made in the year in which the profit is earned. Foreign employees in FDI firms may also send their earnings abroad. First, the FITTA 2019 should include a repatriation clause. Under this clause, foreign investors will be able to transfer and receive returns on their investments.
This will provide clear assurance that investment and return capital can be repatriated, ensuring that investors’ fundamental rights are not jeopardized.
5. The Investor
Section 40 of the FITTA Act 2019 provides for State arbitration in the event of a dispute. The aforementioned act is concerned with resolving disputes. This new Act allows a dissatisfied foreign investor to request the appointment of a mediator to assist in the resolution of a dispute
Any domestic competent court, independent Tribunal, or statutory body has jurisdiction in this regard. In the event of a disagreement, the new legislation allows the parties to choose from a number of dispute resolution options. The foreign investor may request international arbitration between states.
Nepal is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID) Convention, which went into effect on February 6, 1969. ICSID arbitration, in contrast to traditional international law, where states were the primary participants in interstate disputes, provides a forum for the resolution of investment disputes in which the investor may bring a claim directly against the investor.
Nell Cell Private Limited v. Federal Democratic Republic of Nepal. Ncell Private Limited submitted an application before the International Center for Settlement of Investment Disputes in the UK.
6. EMPLOYMENT AND FIRE RIGHTS
The newly enacted The Labour Act, 2017 (2074) makes it easier for foreign investors to invest in the country. The right to hire is more limited than the right to fire under the law. There are Nepali nationals available with comparable skills.
There is a provision for removing troublesome employees, which has created a favorable environment in Nepal for foreign investment.
7. START-UP PROBLEMS
The majority of the implementation start-up issues were caused by land accusation at the local government level. Start-up issues include difficulties clearing the site and delays in obtaining building permits, power lines, and water supply.
Importing machinery and equipment is also frequently delayed due to difficulties in obtaining an import permit in customs clearance. Section 31 of the new FITTA Act 2019 includes a provision that allows the Department of Industry to work with foreign investors if land is needed.
Section 35 also requires the department of industry to cooperate and provide assistance in the event of complaints or disputes.
Foreign investment in Nepal is becoming more appealing as political stability improves. In addition to sound tax policies and interconnected socio political and economic considerations, the government has improved infrastructure networks and labor force skill levels. Prime Legal Consultants and Research Center has aided clients in the formation of a foreign corporation.
Alpana Bhandari is a founding partner and CEO of Prime Legal Consultants and Research Center. She graduated from American University Washington College of Law. She specializes in corporate/arbitration and family law.