Foreign Investment Approval Process in Nepal

As a developing country, Nepal welcomes foreign capital, technology, and expertise to boost its economy. This article provides a comprehensive overview of the foreign investment approval process in Nepal, covering key aspects that potential investors need to know.

What is Foreign Investment Approval in Nepal?

Foreign investment approval in Nepal is the official process by which the government allows and regulates investments from foreign individuals, companies, or entities into the country’s economy. This approval is necessary to ensure that foreign investments align with Nepal’s economic policies, laws, and national interests.

The approval process serves several purposes:

1. It helps the government monitor and control the inflow of foreign capital.
2. It ensures that investments are made in sectors that benefit the country’s economy.
3. It protects national security interests and prevents potential economic harm.
4. It provides a legal framework for foreign investors to operate within Nepal.

Which Authority Approves Foreign Investment in Nepal?

The primary authority responsible for approving foreign investment in Nepal is the Department of Industry (DOI), which falls under the Ministry of Industry, Commerce, and Supplies. However, depending on the nature and size of the investment, other government bodies may also be involved in the approval process.

Key authorities include:

1. Department of Industry (DOI): Handles most foreign investment applications.
2. Investment Board Nepal (IBN): Deals with large-scale investments and projects.
3. Nepal Rastra Bank (NRB): Involved in matters related to foreign exchange and repatriation.
4. Ministry of Industry, Commerce, and Supplies: Oversees the overall investment policy.

What Laws Govern Foreign Investment in Nepal?

Several laws and regulations govern foreign investment in Nepal. The primary legislation includes:

1. Foreign Investment and Technology Transfer Act (FITTA) 2019
2. Industrial Enterprises Act 2020
3. Foreign Exchange (Regulation) Act 1962
4. Companies Act 2006
5. Income Tax Act 2002

The FITTA 2019 is the most recent and comprehensive law governing foreign investment. It outlines the procedures, restrictions, and incentives for foreign investors in Nepal.

What is the Process for Foreign Investment Approval?

The foreign investment approval process in Nepal involves several steps. Here’s a general overview:

1. Project Proposal Submission: The investor submits a detailed project proposal to the Department of Industry or Investment Board Nepal, depending on the investment size.
2. Application Review: The relevant authority reviews the application to ensure it complies with Nepal’s investment policies and regulations.
3. Preliminary Approval: If the application meets the initial criteria, a preliminary approval is granted.
4. Due Diligence: The authorities conduct background checks and assess the financial viability of the proposed investment.
5. Stakeholder Consultation: Relevant government agencies and stakeholders are consulted for their input.
6. Final Approval: Based on the review and consultations, final approval is granted or denied.
7. Registration and Licensing: Upon approval, the investor must register the company and obtain necessary licenses to begin operations.

This process can vary depending on the sector and scale of investment. Large-scale projects or investments in sensitive sectors may require additional steps or approvals.

What Documents are Required for Foreign Investment Approval?

To apply for foreign investment approval in Nepal, investors typically need to submit the following documents:

1. Completed application form (available from the DOI or IBN)
2. Detailed project proposal or feasibility study
3. Company registration documents from the investor’s home country
4. Financial statements of the foreign investing company
5. Joint venture agreement (if applicable)
6. Citizenship certificate or passport copy of the foreign investor
7. CV or profile of the key personnel involved in the project
8. Environmental Impact Assessment (EIA) or Initial Environmental Examination (IEE) report, if required
9. Land ownership or lease documents for the project site
10. Any sector-specific licenses or permits

It’s important to note that all documents in foreign languages must be accompanied by notarized Nepali or English translations.

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How Long Does Foreign Investment Approval Take?

The duration of the foreign investment approval process in Nepal can vary depending on several factors, including:

1. The complexity of the project
2. The sector of investment
3. The completeness of the application
4. The workload of the approving authorities

On average, the process can take anywhere from 30 to 90 days. Simple, straightforward applications may be processed more quickly, while complex projects or those requiring multiple agency approvals may take longer.

The FITTA 2019 has introduced provisions to streamline the process and reduce approval times. However, investors should be prepared for potential delays and plan accordingly.

What are the Costs of Foreign Investment Approval?

The costs associated with foreign investment approval in Nepal include both official fees and indirect expenses. Here’s a breakdown:

1. Application Fee: A nominal fee is charged for submitting the investment application.
2. Registration Fees: Once approved, there are fees for company registration, which vary based on the company’s authorized capital.
3. License Fees: Sector-specific licenses may have associated fees.
4. Legal and Consultancy Fees: Many investors hire local lawyers or consultants to assist with the application process.
5. Translation Costs: Fees for translating documents into Nepali or English.
6. Notarization Expenses: Costs for notarizing required documents.
7. Environmental Assessment Costs: If an EIA or IEE is required, there will be associated expenses.

The exact costs can vary widely depending on the nature and scale of the investment. It’s advisable to consult with local experts or the DOI for a more precise estimate based on your specific project.

What are Post-Approval Requirements for Foreign Investors?

After obtaining foreign investment approval, investors must fulfill several post-approval requirements:

1. Company Registration: Register the company with the Office of the Company Registrar.
2. Tax Registration: Obtain a Permanent Account Number (PAN) from the Inland Revenue Department.
3. Industry Registration: Register with the Department of Industry and obtain an operating license.
4. Bank Account Opening: Open a local bank account for the company.
5. Visa Processing: Arrange necessary visas for foreign personnel.
6. Social Security Registration: Register with the Social Security Fund for employee benefits.
7. Annual Reporting: Submit annual progress reports to the DOI or relevant authority.
8. Repatriation Approvals: Obtain necessary approvals from Nepal Rastra Bank for repatriating profits or dividends.
9. Compliance Maintenance: Ensure ongoing compliance with Nepali laws and regulations.

These requirements help ensure that foreign investments operate within the legal framework of Nepal and contribute positively to the country’s economy.

What Sectors are Open for Foreign Investment?

Nepal has opened most sectors to foreign investment, with some exceptions. Key sectors open for foreign investment include:

1. Manufacturing and production
2. Energy and hydropower
3. Tourism and hospitality
4. Information technology and business process outsourcing
5. Agriculture and agro-processing
6. Education and health services
7. Infrastructure development
8. Mining and mineral exploration
9. Financial services (with some restrictions)
10. Telecommunications and media (with some restrictions)

However, some sectors are restricted or prohibited for foreign investment, including:

1. Poultry farming
2. Fisheries
3. Primary agriculture (except for commercial farming)
4. Real estate trading (except for construction)
5. Cottage industries
6. Personal service businesses (e.g., hair salons, tailoring)
7. Arms and ammunition manufacturing
8. Sectors deemed sensitive to national security or cultural heritage

It’s important to consult the latest version of the Negative List published by the Nepal government, as these restrictions may change over time.

What are the Benefits of Foreign Investment Approval?

Obtaining foreign investment approval in Nepal offers several benefits:

1. Legal Protection: Approved investments are protected under Nepali law and international agreements.
2. Repatriation Rights: Investors can repatriate profits, dividends, and loan repayments in foreign currency.
3. Tax Incentives: Various tax exemptions and deductions are available for approved foreign investments.
4. Land Ownership: Foreign companies can own land for business purposes.
5. Visa Facilitation: Easier processing of business visas for foreign personnel.
6. Access to Resources: Approved investors can more easily access local resources and government support.
7. Dispute Resolution: Access to international arbitration for investment disputes.
8. Currency Exchange: Simplified foreign currency exchange procedures for business operations.
9. Government Support: Assistance from government agencies in navigating bureaucratic processes.
10. Market Access: Potential preferential access to government contracts and local markets.

These benefits make the approval process worthwhile for foreign investors looking to establish a strong and legally compliant presence in Nepal’s growing economy.