Introduction to the Act Restricting Investment Abroad 1964
The Act Restricting Investment Abroad 1964 is a piece of legislation enacted by the Government of Nepal to control and restrict outward investment by Nepali nationals and entities. This act was promulgated during a period when Nepal was establishing its foundational economic framework. The primary objective of this law is to prevent unauthorized capital outflow from Nepal to foreign countries.
Nepal enacted this legislation alongside related financial laws such as the Foreign Exchange (Regulation) Act, 1962 (2019 B.S.) to maintain monetary stability, protect foreign exchange reserves, and regulate the movement of financial resources outside the country. The Act Restricting Investment Abroad 1964 remains one of the significant pieces of law governing outward financial transactions from Nepal.
This law applies to all Nepali citizens, resident foreigners, and business entities operating within Nepal. Any individual or organization planning to invest money, assets, or financial instruments in a foreign country must comply with the provisions set out under this act. Violation of this law carries serious legal consequences including fines and imprisonment.
What Is the Act Restricting Investment Abroad 1964?
What does the Act Restricting Investment Abroad 1964 mean?
The Act Restricting Investment Abroad 1964 is a Nepalese statute that prohibits or restricts Nepali nationals and entities from making investments in foreign countries without prior authorization from the Government of Nepal or the Nepal Rastra Bank. The term “investment abroad” refers to any financial activity where money or assets are deployed outside the territorial boundary of Nepal for the purpose of generating returns, profits, or economic benefits.
This law defines “investment abroad” to include:
- Purchase of shares or securities in a foreign company
- Acquisition of property or real estate in a foreign country
- Transfer of funds to a foreign bank account for investment purposes
- Participation in joint ventures or partnerships in foreign jurisdictions
- Lending money to foreign nationals or entities for business purposes
The law aims to stop unauthorized capital flight from Nepal, which can weaken the national economy and deplete foreign exchange reserves maintained by the Nepal Rastra Bank (NRB).
Key Provisions of the Act Restricting Investment Abroad 1964
What are the main legal provisions under this act?
The Act Restricting Investment Abroad 1964 contains several key provisions that define the scope, restrictions, penalties, and exceptions applicable to outward investment from Nepal.
Section-by-Section Overview
| Section | Subject Matter | Key Provision |
|---|---|---|
| Section 2 | Definitions | Defines “investment abroad,” “investor,” and related terms |
| Section 3 | General Restriction | Prohibits investment abroad without authorization |
| Section 4 | Authorization Process | Specifies conditions under which investment may be permitted |
| Section 5 | Penalties | Prescribes fines and imprisonment for violations |
| Section 6 | Exemptions | Lists categories of persons or transactions exempt from restriction |
| Section 7 | Enforcement Authority | Designates government authorities responsible for enforcement |
The act is administered in coordination with the Nepal Rastra Bank and the Ministry of Finance, Nepal. Any Nepali citizen or entity wishing to invest abroad must obtain prior approval from the designated authority before proceeding with the investment.
Who Does the Act Restrict?
Who is covered under the Act Restricting Investment Abroad 1964?
The Act Restricting Investment Abroad 1964 applies broadly to:
- Nepali citizens residing in Nepal or abroad
- Business entities registered in Nepal
- Foreign nationals who are residents of Nepal
- Partnerships and sole proprietorships operating within Nepal
- Non-governmental organizations registered under Nepali law
The restriction covers any person who holds Nepali citizenship or who is a legal resident of Nepal and intends to transfer financial resources outside Nepal for investment purposes. Even Nepali citizens living abroad (Non-Resident Nepalis or NRNs) are required to follow the provisions under this act unless specifically exempted under a separate legal framework.
What Types of Investments Are Restricted?
What investment activities does this act prohibit?
The act restricts a wide range of investment activities conducted outside Nepal. These include but are not limited to:
- Direct equity investment in foreign companies or startups
- Purchase of foreign government or corporate bonds
- Real estate acquisition in a foreign country
- Bank deposits in foreign financial institutions intended for investment
- Funding foreign business ventures through loans or capital contributions
- Purchase of foreign stocks or shares through international markets
- Cryptocurrency investments hosted on foreign platforms (as interpreted under modern regulatory guidance from Nepal Rastra Bank)
The Nepal Rastra Bank has issued multiple circulars and directives to clarify the scope of the act in the context of modern financial instruments. The Foreign Exchange Management framework in Nepal works closely with this act to ensure compliance with outward investment norms.
Penalties for Violating the Act Restricting Investment Abroad 1964
What happens if someone violates this law?
The Act Restricting Investment Abroad 1964 prescribes strict penalties for persons found guilty of unauthorized investment abroad. The penalties are both monetary and custodial in nature, reflecting the seriousness of the offense under Nepali law.
Penalty Structure
| Type of Violation | Applicable Penalty |
|---|---|
| Unauthorized investment abroad | Fine up to the amount of investment made |
| Repeated violations | Enhanced fines and imprisonment |
| Failure to repatriate returns | Seizure of assets plus fine |
| Assisting in illegal outward investment | Fine and criminal prosecution |
| False declaration of investment intent | Fine and legal proceedings |
Persons convicted under this act may also face:
- Confiscation of invested funds or equivalent domestic assets
- Travel restrictions imposed by government authorities
- Blacklisting from future financial transactions
- Criminal record affecting future immigration or financial applications
The enforcement of penalties is carried out by the Department of Revenue Investigation, Nepal Rastra Bank, and other designated financial crime units.
Exceptions and Authorized Investment Abroad
Are there any cases where investment abroad is permitted?
Yes. The Act Restricting Investment Abroad 1964 does not impose an absolute prohibition. Certain investments abroad are permitted under specific conditions and subject to prior government or Nepal Rastra Bank approval.
Authorized outward investments include:
- Foreign Direct Investment (FDI) by Nepali entities approved under the Foreign Investment and Technology Transfer Act (FITTA) 2019
- Investments by Non-Resident Nepalis (NRNs) under the NRN Act 2008 and its related provisions
- Government-to-government investment agreements
- Investments in international financial institutions where Nepal holds membership
- Overseas investment by Nepali banks and financial institutions under NRB-approved frameworks
The Foreign Investment and Technology Transfer Act (FITTA), 2019 provides the modern legal basis for Nepali entities to invest abroad under regulated conditions. However, the Act Restricting Investment Abroad 1964 still remains operative and acts as the base restriction law that any outward investment must be measured against.
To apply for authorized outward investment, entities must submit an application to the Nepal Rastra Bank or the Department of Industry, along with supporting documents such as:
- Business registration certificate
- Tax clearance certificate
- Project feasibility report
- Board resolution approving overseas investment
- Details of the foreign entity receiving investment
Relationship with Other Nepali Laws
How does this act relate to other laws of Nepal?
The Act Restricting Investment Abroad 1964 does not operate in isolation. It forms part of a broader legal framework governing financial transactions and economic activities in Nepal.
Related Laws and Regulations
- Foreign Exchange (Regulation) Act, 1962 (2019 B.S.): Governs foreign exchange transactions including sending and receiving money across borders. Closely linked to the Act Restricting Investment Abroad 1964.
- Nepal Rastra Bank Act, 2002: Empowers the Nepal Rastra Bank to regulate foreign exchange and oversee compliance with outward investment restrictions.
- Foreign Investment and Technology Transfer Act (FITTA), 2019: Provides the updated framework for inward and outward foreign direct investment and technology transfer.
- Income Tax Act, 2002: Governs the taxation of income earned from foreign investments by Nepali nationals and entities.
- Anti-Money Laundering Act, 2008: Prohibits the transfer of illegally obtained funds abroad and penalizes money laundering connected to unauthorized foreign investments.
- Non-Resident Nepali Act, 2008: Provides investment-related rights and obligations to NRNs, including provisions for permitted overseas investment.
For more information, visit the official website of the Nepal Rastra Bank and the Ministry of Finance, Nepal.
How to Apply for Permission to Invest Abroad
What is the process to get authorization for outward investment?
Any Nepali citizen or entity seeking to invest abroad legally must follow the prescribed procedure under the act and supplementary regulations issued by the Nepal Rastra Bank.
Steps to Apply for Outward Investment Authorization
- Prepare a detailed investment proposal describing the nature, location, and amount of the proposed foreign investment.
- Obtain tax clearance certificate from the Inland Revenue Department.
- Get the board resolution or individual authorization if applying as a company or partnership.
- Submit the application to the Nepal Rastra Bank’s Foreign Exchange Management Department or the Department of Industry.
- Provide supporting documents including business registration, financial statements, and feasibility reports.
- Await review and approval by the designated authority, which may conduct due diligence on the proposed investment.
- Comply with post-approval requirements such as regular reporting of investment returns and repatriation of profits.
The Nepal Rastra Bank regularly updates its guidelines on outward investment. Applicants should review the latest NRB Foreign Exchange Directives before submitting any application.
Conclusion
The Act Restricting Investment Abroad 1964 remains a foundational piece of Nepali financial law that controls and restricts outward capital movement. It protects Nepal’s foreign exchange reserves, prevents unauthorized capital flight, and ensures that any investment made outside Nepal is conducted through legal channels with proper governmental oversight. Nepali citizens, business entities, and resident foreigners must comply with this law before engaging in any form of overseas investment.
The act works alongside the Foreign Exchange (Regulation) Act 1962, FITTA 2019, and Nepal Rastra Bank directives to form a comprehensive outward investment regulatory regime. Any person or entity planning to invest abroad should seek legal advice and obtain proper authorization from the Nepal Rastra Bank or Ministry of Finance before proceeding.
FAQs
1. What is the Act Restricting Investment Abroad 1964?
The Act Restricting Investment Abroad 1964 (2021 B.S.) is a Nepali law that prohibits Nepali citizens and entities from investing money or assets in foreign countries without prior authorization from the Government of Nepal or Nepal Rastra Bank.
2. Can Nepali citizens invest in foreign stocks or shares?
No. Without proper authorization from Nepal Rastra Bank or the Government of Nepal, Nepali citizens cannot legally invest in foreign stocks, shares, or securities. Unauthorized investment is a punishable offense under this act.
3. What are the penalties for violating the Act Restricting Investment Abroad 1964?
Violations attract fines equivalent to the invested amount, asset confiscation, imprisonment, and criminal proceedings. Repeat offenders face enhanced penalties under this law and related financial crime legislation.
4. Are Non-Resident Nepalis (NRNs) covered under this act?
Yes. Nepali citizens residing abroad are also covered under this act. However, NRNs may access specific investment provisions under the Non-Resident Nepali Act 2008 and NRB directives applicable to their status.
5. Is the Act Restricting Investment Abroad 1964 still in force?
Yes. The act remains operative in Nepal. It is supplemented by modern laws like FITTA 2019 and NRB directives but has not been repealed. It continues to serve as the base restriction framework for outward investment.
6. Where can I get official information about this act?
Official information is available at the Nepal Rastra Bank website at www.nrb.org.np, the Ministry of Finance at www.mof.gov.np, and the Nepal Law Commission at www.lawcommission.gov.np.