Nepal enacts new regulations for foreign investment

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Foreign investors in Nepal are required to bring in 70 percent of their planned investments before commencing operations and the remainder over the next two years, under a new regulation enacted under the Foreign Investment and Technology Transfer Act (FITTA).

The regulation published on January 11 in the Nepal Gazette also stipulates that investors must transfer their committed capital within one year of the approval of their project.

For the first time, foreign investors will receive ID cards based on the amount of their investment.

Investors who invest between 50 and 250 million rupees are categorized as “general foreign investors”. Those who spend between Rs.250 million and Rs.1 billion are classified as “Special Foreign Investors” and investors who invest more than Rs.1 billion are classified as “Very Special Foreign Investors”.

The passes are given to all foreign investors and their official representatives.

Business visas are issued to foreign investors or their official representatives and their family members according to the investment portfolio.

Investors or their officials and their family members can obtain residency visas if they make an investment of $ 1 million at the same time.

“The new provision will eliminate the practice of delaying the investment plan after receiving approval and extending the deadline,” said Jiblal Bhusal, director general of the Ministry of Industry.

According to the new regulation, foreign investors whose companies have been registered in Nepal for more than a year have to submit their work procedures within six months.

Foreign investors are categorized based on the amount of capital they bring into the country and they are given facilities to match, Bhusal said

“The regime is clear on the repatriation of royalties and profits and the process of expanding their businesses.” FITTA was amended in 2019 and the regulation was introduced to define it more clearly, he said.

According to the recently enacted regulation, foreign investors can buy 100 percent of the shares of companies registered in Nepal. You can make leasing investments in aircraft, ships, construction equipment and machines with certain restrictions.

If a Nepalese company has a technology transfer agreement with more than one investor, the repayment of royalties in a fiscal year may not exceed 5 percent of total sales (excluding taxes) for goods sold within the country and 10 percent of total sales, excluding taxes, for goods exports abroad.

The regulation allows any foreign company to open a branch in Nepal by authorizing its foreign direct investment under applicable law.

According to the new regulation, a foreign company making changes to the acquired assets, assets or shares should request this with the accompanying documents within 30 days of the transaction.

If a foreign investor wishes to repatriate the profits, the decision should be approved by the company’s general meeting.

If foreign investors who have received a permit to invest in the energy, production, infrastructure or mining sectors cannot acquire the required land on their own, they can apply to a government agency with the relevant documents.

The new regulation has allowed manufacturing industries with foreign investments to open retail sales desks on their premises after approval by the relevant government agencies.

The Director General of the Ministry of Industry may order an investigation in response to complaints from foreign investors about the registration, regulation and inspection of the industry.

The director general may appoint any director of the Department of Industry to conduct an investigation if he receives information that a foreign investing company is operating beyond the conditions he has established.

Bhusal expects the new regulation to facilitate foreign investment.

The department received approximately Rs.38 billion in foreign investment commitments in the last fiscal year 2019-20. Investment commitments in the first half of the current fiscal year were around Rs 21 billion, Bhusal said.

Nepal aims to become a middle income country and achieve the sustainable development goals by 2030. However, the current level of investment is not sufficient to move from the current low-income status to the target stage of middle income, according to a report by the World Bank.

One of the main sources of bridging the funding gap is FDI, but Nepal has been among the countries with the lowest level of investment in recent years.

The Systematic Country Diagnostic Report published by the World Bank in February of last year found that foreign direct investment averaged just 0.2 percent of gross domestic product over the past decade, making it among the lowest in the world.

Foreign direct investment is critical to accessing new technology, business practices and markets. In recent years, the capital inflow into the country has seen an upward trend, but it is still lagging behind most South Asian countries.

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