Foreign Investment and Technology Transfer Act 2019

I. Introduction to FITTA 2019

The Foreign Investment and Technology Transfer Act 2019 (FITTA 2019) represents a significant milestone in Nepal’s efforts to attract and regulate foreign investment. Enacted on March 27, 2019, this legislation replaces the previous Foreign Investment and Technology Transfer Act of 1992, marking a new era in Nepal’s investment landscape.

FITTA 2019 aims to create a more conducive environment for foreign investors while safeguarding national interests. The Act provides a comprehensive framework for foreign investment, technology transfer, and related matters, aligning with Nepal’s broader economic goals of sustainable development and job creation.

Key objectives of FITTA 2019 include:

1. Promoting foreign investment to boost economic growth
2. Facilitating technology transfer to enhance Nepal’s technological capabilities
3. Streamlining investment procedures to improve ease of doing business
4. Protecting investors’ rights while ensuring compliance with national laws
5. Encouraging investments that contribute to Nepal’s socio-economic development

II. Provisions of FITTA 2019

FITTA 2019 encompasses a wide range of provisions designed to regulate and facilitate foreign investment in Nepal. Some of the key provisions include:

Definition of Foreign Investment

The Act defines foreign investment as investment made by foreign investors in the form of equity capital, reinvestment of earnings, or acquisition of shares or assets of an existing entity in Nepal.

Investment Modalities

FITTA 2019 recognizes various forms of foreign investment, including:

1. Equity investment in Nepali companies
2. Investment as a foreign company registered in Nepal
3. Investment through venture capital funds
4. Investment in securities listed on the Nepal Stock Exchange
5. Lease financing in specific sectors as prescribed by the government

Sectors Open for Foreign Investment

The Act provides a comprehensive list of sectors open for foreign investment, subject to certain conditions and restrictions. These sectors include manufacturing, energy, tourism, agriculture, infrastructure, and services, among others.

Minimum Investment Threshold

FITTA 2019 sets a minimum foreign investment threshold of NPR 50 million (approximately USD 420,000), subject to periodic review by the government.

Technology Transfer

The Act facilitates technology transfer through various means, including licensing agreements, franchising, technical assistance, and management contracts.

Repatriation Rights

Foreign investors are granted the right to repatriate invested capital, profits, and dividends in foreign currency, subject to applicable laws and regulations.

Investment Protection

FITTA 2019 provides guarantees against nationalization and expropriation of foreign investments, except in cases of public interest and with fair compensation.

III. Foreign Investment Approval Procedure

The foreign investment approval process under FITTA 2019 involves several steps, designed to ensure compliance with legal requirements while facilitating efficient processing of investment proposals.

A. Step 1: Sector identification and eligibility check

Prospective investors must first identify the sector in which they intend to invest and verify its eligibility for foreign investment as per the provisions of FITTA 2019 and related regulations.

B. Step 2: Preparation of investment proposal

Investors are required to prepare a comprehensive investment proposal, including details of the proposed project, investment amount, technology transfer (if applicable), and expected socio-economic benefits.

C. Step 3: Submission to Department of Industry

The investment proposal, along with required documents, must be submitted to the Department of Industry (DOI) or other relevant government agency as prescribed by law.

D. Step 4: Approval process

The DOI or relevant agency reviews the proposal and may seek additional information or clarifications. For investments exceeding certain thresholds or in strategic sectors, approval from the Investment Board of Nepal (IBN) may be required.

E. Step 5: Post-approval compliance

Upon approval, investors must fulfill various post-approval requirements, including company registration, obtaining necessary licenses and permits, and complying with reporting obligations.

IV. Documents Required for Foreign Investment in Nepal

The following documents are typically required for foreign investment approval:

1. Duly filled application form as prescribed by the DOI
2. Detailed project proposal
3. Company registration certificate (for existing companies)
4. Memorandum and Articles of Association
5. Joint Venture Agreement (if applicable)
6. Technology Transfer Agreement (if applicable)
7. Financial statements and tax clearance certificates (for existing companies)
8. Passport copies of foreign investors or authorized representatives
9. Board resolution authorizing the investment (for corporate investors)
10. Any other documents as required by the approving authority

V. Foreign Investment Advisory Services

To facilitate foreign investment, the Government of Nepal provides various advisory services through dedicated institutions:

1. Investment Board Nepal (IBN): Offers one-stop services for large-scale investments
2. Department of Industry (DOI): Provides guidance on investment procedures and regulations
3. Nepal Investment Promotion Board: Assists in investment promotion and facilitation
4. Office of the Company Registrar: Supports company registration processes

These institutions offer services such as information dissemination, guidance on legal and regulatory matters, and assistance in obtaining necessary approvals and licenses.

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VI. Typical Timeframe for Investment Approval

The timeframe for investment approval under FITTA 2019 varies depending on the nature and scale of the investment. However, the Act stipulates the following general timelines:

1. For investments up to NPR 6 billion: 7 working days
2. For investments between NPR 6 billion and NPR 10 billion: 15 working days
3. For investments exceeding NPR 10 billion: 30 working days

It’s important to note that these timelines may be extended if additional information or clarifications are required from the investor.

VII. Investment Protection and Incentives

FITTA 2019 provides several protections and incentives to encourage foreign investment:

Investment Protection

1. Non-discrimination between foreign and domestic investors
2. Protection against nationalization and expropriation
3. Right to repatriate capital and profits
4. Access to international arbitration for dispute resolution

Incentives

1. Tax holidays and exemptions in specific sectors
2. Duty-free import of capital goods and raw materials for export-oriented industries
3. Land acquisition facilitation for industrial purposes
4. Visa facilitation for foreign investors and expatriate employees

VIII. Relevant Authorities

Several government bodies play crucial roles in regulating and facilitating foreign investment under FITTA 2019:

1. Ministry of Industry, Commerce and Supplies: Formulates policies related to foreign investment
2. Department of Industry: Processes and approves foreign investment applications
3. Investment Board Nepal: Approves large-scale investments and provides one-stop services
4. Nepal Rastra Bank: Regulates foreign exchange transactions and repatriation
5. Department of Immigration: Handles visa-related matters for foreign investors

IX. Foreign Investment Practices in Nepal

Foreign investment practices in Nepal have evolved significantly since the enactment of FITTA 2019. Some notable trends and practices include:

1. Increased focus on infrastructure and energy sectors
2. Growing interest in information technology and business process outsourcing
3. Emphasis on joint ventures with local partners
4. Rising investments in tourism and hospitality sectors
5. Increased use of technology transfer agreements

However, challenges such as bureaucratic hurdles, infrastructure deficits, and political instability continue to impact foreign investment in Nepal.

X. Conclusion

FITTA 2019 represents a significant step forward in Nepal’s efforts to attract foreign investment and promote economic growth. The Act provides a comprehensive framework for regulating foreign investment while offering various protections and incentives to investors.

While challenges remain, the government’s commitment to improving the investment climate, coupled with Nepal’s strategic location and abundant natural resources, presents promising opportunities for foreign investors.

Prospective investors are advised to thoroughly review the provisions of FITTA 2019 and seek professional guidance to navigate the investment landscape effectively.

FAQs

1. What sectors are open for foreign investment?

FITTA 2019 allows foreign investment in most sectors of the economy, with some exceptions. Key sectors open for investment include manufacturing, energy, tourism, agriculture, infrastructure, and services. However, certain sectors such as defense, real estate (with some exceptions), and primary agriculture are restricted or prohibited for foreign investment.

2. What’s the minimum foreign investment amount?

The minimum foreign investment amount under FITTA 2019 is NPR 50 million (approximately USD 420,000). However, this threshold is subject to periodic review by the government and may be adjusted based on economic conditions and policy objectives.

3. Can foreigners own 100% of Nepali companies?

Yes, FITTA 2019 allows 100% foreign ownership in most sectors open for foreign investment. However, certain sectors may have specific equity restrictions or require mandatory local partnerships.

4. How long does the investment approval process take?

The approval process typically takes 7 to 30 working days, depending on the investment amount. However, complex projects or those requiring additional clearances may take longer.

5. What technology transfer provisions exist?

FITTA 2019 facilitates technology transfer through various means, including licensing agreements, franchising, technical assistance, and management contracts. The Act provides a framework for registering and protecting intellectual property rights associated with technology transfers.

6. Are there restrictions on profit repatriation?

Foreign investors have the right to repatriate profits, dividends, and invested capital in foreign currency. However, such repatriations must comply with foreign exchange regulations and may be subject to applicable taxes.

7. What dispute resolution mechanisms are available?

FITTA 2019 provides for both domestic and international dispute resolution mechanisms. Investors can opt for negotiation, mediation, or arbitration. The Act also recognizes international arbitration as per investment agreements.

8. How does FITTA 2019 differ from previous laws?

FITTA 2019 introduces several improvements over its predecessor, including a broader definition of foreign investment, streamlined approval processes, enhanced investment protection measures, and provisions for technology transfer and intellectual property rights.

9. Are there local employment requirements?

While FITTA 2019 does not impose strict local employment quotas, it encourages the employment of Nepali citizens. Foreign companies are generally expected to prioritize local hiring, especially for non-technical positions.

10. What tax incentives exist for foreign investors?

Nepal offers various tax incentives for foreign investors, including income tax exemptions or reductions for investments in priority sectors, export-oriented industries, and enterprises established in special economic zones. Additionally, customs duty exemptions are available for the import of capital goods and raw materials for certain industries.