Foreign Direct Investment (FDI) Approval Process in Nepal

Foreign investment is subject to approval. Following are the authorities that provides FDI approval based on the investment amount:

Investment Amount	Approving Authority
For NPR 6 billion or Less	Department of Industry (“DOI”)
Above NPR 6 billion and Hydropower project more than 200 MW	Investment Board of Nepal (“IBN”)

 

Note:Prior to NRB by Laws that came on 8 June 2021, NRB approval for foreign investment was required before injecting the investment amount in Nepal. Currently such approval is waived. However, the waiver is conditional, the NRB approval is required in case of investment through share purchase.

 

Foreign Investment is not permissible in every business. Following two conditions has to be fulfilled for the permissibility of FDI Companies in Nepal: 

 

 

Following are the industrial sector where foreign investment is not permissible: 

 

• Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production;
• Cottage and small industries;
• Personal service business (hair cutting, tailoring, driving etc.);
• Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (N.B.C.) weapons; industries producing atomic energy and radio-active materials;
• Real estate business (excluding construction industries), retail business, internal courier service, local catering service, moneychanger, remittance service
• Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay;
• Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language;
• Management, account, engineering, legal consultancy service and language training, music training, and computer training; and
• Consultancy services having foreign investment of more than fifty-one percent.

 

The procedure of foreign investment approval is mentioned herein:

• Step 1: Obtaining the Foreign Investment Approval from DOI or IBN

• Step 2: Registration of company at Office of the Company Register

• Step 3: Tax Registration at Inland Revenue Office

• Step 4: Business Registration at Local Ward  Office

• Step 5: Obtaining the recommendation letter from the Local Ward Office for Industry Registration

• Step 6: Registration of industry before the Department of Industry.

• Step 7: Obtaining the "non-black certificate" from the Credit Information Bureau

• Step 8: Opening the local bank account of the company

• Step 9: Recording the investment amount before NRB

 

The graphical represenation of the above steps is outlined as below

• 

 

The minimum capital required for obtaining foreign investment approval has been fixed as NPR 20 million (Approx. USD 153846).

 

Following are the documents required for registration of FDI Company in Nepal: 

S.N.	Documents
1.	Company incorporation certificate, Memorandum of Association, and Article of Association of Investor (Notarized)
2.	Copy of Passport in case of Individual Investor (Notarized)
3.	Company profile of the investing company (Bio Data in case of an individual investor)
4.	Copy of Passports of all the Directors and shareholders of the Investor (Notarized)
5.	Copy of passport/citizenship of Investor’s authorized representative (Notarized)
6.	Project report for the operation of a local subsidiary company
7.	Schedule for investment in the industry
8.	Financial Credibility Certificate (FCC) of Investor issued by a local bank in the home country
9.	Latest audit report of Investor (Notarized)
10.	Resolution of Investor for investing in Nepal
11.	Signed company profile of the Investor
12.	Power of attorney authorizing individuals to complete the approval and registration process
13.	Joint Venture Agreement in case of two or more than two investors

 

The overall time period for the registration of foreign direction investment in Nepal takes about three to five (3 to 5) months.

 

Government fee applicable for FDI approval in Nepal is as mentioned;

S.N.	Particulars	Government Fee
1.	Guarantee amount to be deposited at DOI	NPR 20,000 (Approx. USD 155)
2.	Government fee for Company Registration	Depends on the authorized capital of the company.
3.	Business Registration at Ward Office	NPR 5,000 to 15,000 per year (Approx. USD 38 to 115). Note: The business registration fees are specific to each local level.
4.	House Rent Tax	10% of the house rent amount per month. (Please note house rent rates depend on each local level and are subject to change every fiscal year).

 

FERA has categories 3 stages of timeline to inject the foreign investment amount. The schedule of investment as mentioned: 

Stages	Details	Percentage of Injection of Investment
Stage I	Within 1 year of receiving the investment approval:	Depends on the amount of investment
	Minimum investment amount i.e. NPR 20 Million	25%
	20 to 250 million NPR	15%
	250 million NPR to 1000 Million	10%
Stage 2	When the company starts production or does start the commercial transaction	Up to 70% of the investment amount
Stage 3	After 2 years of production or commencement of transaction	Remaining 30% of the investment amount

 

Certain regulated businesses are also subject to additional business specific approvals or licenses for the commencement of their business activities even after getting FDI approval. Licensing/Approval requirement depends on the nature of business of company. Following are some business which requires additional specific approval before commencement of business activities:

S.N.	Nature of Business	Institution to Grant License/Approval
1.	Colleges	Affiliated University
2.	Insurance Company	Nepal Insurance Authority
3.	Bank and Financial Institution	Nepal Rastra Bank
4.	Hydropower	Department of Electricity Development
5.	Travels and Trek	Ministry of Tourism, Culture and Civil Aviation
6.	Food Industries	Department of Food, Technology and Quality Control
7.	Business related to telecommunication	Nepal Telecommunication Authority

 

Foreign investors can invest 100% of ownership in local subsidiary companies. However, for few sectors the domestic law restrict investment through investment capping which are as mentioned:

Sector	Investment Percentage Ratio
Telecommunication	80%
Banking and Financial Institution	Minimum 20% and Maximum 85%
Insurance Companies	80%
Consultancy Business	51%

 

Following are the main compliances that FDI company has to do after the FDI approval process:

• Submission of 3 months compliance document before OCR, 
• Recording of investment at NRB,
• Submit Annual Compliance Document at OCR, 
• Compliance with Companies Act, Labor Act, Tax Law and other applicable law of Nepal during the operation of the local subsidiary company.

 

A foreign investor is allowed to repatriate the following:

• Earnings through dividend or through sale proceeds against investment in shares, 
• Compensation and Indemnity, 
• Sale Proceeds upon Share Transfer, 
• Returns of Capital at the Time of Liquidation, 
• Technology transfer fees, royalty and license fees that have been earned through technology transfer and 
• Lease rent under lease financing.

 

The investor has obligation to show that all local subsidiary company have complied all the laws, obtained all the necessary approval, pay tax and compiled with all the obligation before repatriation. Approval from DOI or IBN and NRB approval is required before repatriation. Investor can repatriate the investment and earning in the same currency or in other convertible foreign currency. 

 

 

Date of Publication:18 August 2023 

 

Disclaimer: Bhandari Law and Partners is one of the leading law firm in Nepal  with team of best professional lawyers in Nepal.This article published on website of the law firm is just for information purpose only. It shall not be taken as the legal advice, advertisement, personal communication, solicitation or inducement. Bhandari Law and Partners or any of the team members of the firm shall not be liable for the consequence arising of the information provided. As the factual situation may be different on your case, thereof if you need further legal advice on the subject matter, please Contact Us.