Nepalese History

Constitutional and Legislative Development

of
Investment Laws in Nepal
 Background
• Since the dawn of democracy in Nepal 9 Five Year Plan and 3
Three Year Plan have already been implemented.
• Thirteenth Plan (Three Year Plan) is currently being
implemented since mid-July 2013.
 Phases of Development
• Pre 1951 Stage
• Since the initial stage of industrialization, the investment policy of
government has been to encourage investment in private sector,
both from Nepalese and Foreigners.

• Enactment of Company Act, 1936 (The first company Act of

Nepal)

• That Act had no provision foreign company. However, handful of

Indian companies had strangely operated in Nepal.
Cont’d…
• 1951-1990
• enactment of Industrial Enterprises Act, 1961, based on first
Industrial Policy 1958 June.
• Industrial Enterprises Rules, 1964
• Welcome foreign capital and technology
• Granted permission to foreigners to establish medium and large
industries
• Restriction: Allowed to repatriate 10% of capital investment and
25% net income per annum.
Cont’d…
• Enactment of Industrial Enterprises Act, 1974, based on
second Industrial Policy 1974.
• More liberal than IEA 1961
• Fixation of time limit for licensing and financing
• Concept of One-Window Policy
• Incentives to private investor through increased tax exemptions,
duty free import of raw materials and spare parts
• Restriction: Repatriation of 35% profits
Cont’d…

• Foreign Investment and Technology Act (FITA), 1981 in order to implement

the new Industrial Policy of 1981 and to give major boost to foreign
investment.
• Allowed wholly owned foreign investment in large scale industries and majority
or joint venture in the medium scale industries.
• Foreign investment to be incorporated as limited liability company
• Repatriation of dividends, capital, salary were liberally allowed.
• No expropriation
• Sovereign Guarantee on long term loans

• Other Acts: Industrial Enterprises Act, 1981; Nepal Petroleum Act,1983;

Petroleum Regulations, 1985
Cont’d…
• Industrial Enterprise Act, 1981 Second amendment in 1987
owing to Industrial Policy 1987.
• Uniform 30% protection to industries
• Perk of custom duty, income tax and sales tax concessions
• Empowerment of Industrial Promotion Board to realize One-
Window concept into reality
Cont’d…
• 1990 and afterwards
• Adopted an open and liberal economic policy
• Industrial Policy 1992
• Foreign Investment and One Window Policy 1992,
• Hydropower Development Policy, 1992
• Sole or joint venture investment
• Hundred percent foreign investment
• Aim to privatize the public sector industries and guaranteed no
expropriation
 Existing Acts Related with
FDI

1. Foreign Investment and Technology Transfer Act, 2019/ 1992

2. Industrial Enterprises Act, 1992
3. Board of Investment Act, 2010
4. The Companies Act, 2063
5. Foreign Exchange Regulation Act, 2058
6. Environment Protection Act, 2053
7. Privatization Act, 1993
8. Special Economic Zone Bill
 Acts having FDI Related
Provisions
1. Nepal Airlines Act, 2019
2. Registration of Ship Act, 2027
3. Electricity Act, 2049
4. Water Resource Act, 2049
5. Education Act, 2028
6. Bank and Financial Institution Act, 2063
7. Insurance Act, 2049
8. Telecommunication Act, 2053
Foreign Investment and Technology
Transfer Act, 2075 (FITTA)

Presented by:
Avoidances of Inconsistencies
• “FITTA” shall mean Foreign Investment and Technology Transfer
Act,2019
• “GON” denotes Government of Nepal
• “DOI” shall mean Department of Industry
• “NRB” shall mean Nepal Rastra Bank
• “Approving Body” shall mean DOI or Investment Board
• “NRN” shall mean Non-Resident Nepali
• “UNCITRAL” denotes United Nations Commission on International
Trade Law
CHAPTER I

DEFINITIONS
 Foreign Investment is an investment where a company or individual from one
nation invests in assets or ownership stakes of a company based in another
nation.
• In Nepal, the following investment made by foreign investors in the industry or
the company; [FITTA, §2j]
a. share investment made in foreign currency
b. reinvestment in an industry of dividends derived from foreign currency or
shares
c. lease finance
d. investment made in venture capital fund
e. investment made in listed securities through secondary securities market
f. investment made by purchasing share or assets of the Company incorporated
in Nepal
g. investment received through banking channel after issuing securities in a
foreign capital market by an industry or company incorporated in Nepal
h. investment made through technology transfer
i. investment made by establishing and expanding an industry in Nepal
 "Foreign Investor” means the foreign person, firm, company, non-
resident Nepali or foreign government or international agencies or other
bodies of similar nature.
• the ultimate beneficiary of the organization in case of any
institutionalized foreign investor. [FITTA, §2k]
• The foreign investor may invest in the industry and take profit from such
investment thereafter [FITTA, §3.1]
• The entity shall be registered in Office of Company Registrar and DOI
prior making foreign investment.
• Moreover, it is not permitted to make foreign investment in the
industries with an amount lesser than 50 Million [FITTA, §3.3].
 “Non-resident Nepali” means a person holding the NRN identity card
in accordance with the prevailing law relating to non-resident Nepalese.
[FITTA, §2d]
 “One Stop Service Center” means the One Stop Service Center
established in accordance with the prevailing law relating to industrial
enterprises. [FITTA, §2c]
• Industries or Businesses Restricted for Foreign
Investment [FITTA, §3.2]
• 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, computer training, and
• Consultancy services having foreign investment of more than fifty-one
percent
CHAPTER - II

FOREIGN INVESTMENT
 Foreign investment may be made individually or jointly:
A foreign investor may make foreign investment individually or jointly or
by establishing an industry jointly with an industry established in Nepal or
a Nepali citizen. [FITTA, §4]
Foreign investment may be made by purchasing assets or shares of
industry
A foreign investor may make foreign investment by purchasing the assets
of or shares not exceeding the prescribed percent of any industry
established in Nepal [FITTA, §5]
Lease investment may be made
A foreign investor may make foreign investment, subject to the prescribed
ceiling, in any aircraft, ship, machinery and equipment, construction
equipment or similar other equipment. [FITTA, §6]
Foreign investment may be made by establishing a branch
Any industry incorporated in a foreign country may make foreign
investment by establishing or expanding its branch industry in Nepal,
subject to the prevailing law [FITTA, §8].
  Investment may be made through technology transfer [FITTA, §7]
A foreign investor may make foreign investment by making technology
transfer in any industry established in Nepal. The terms of technology transfer
to be made shall be as specified in the technology transfer agreement entered
into between the concerned industry and the foreign investor.
The agreement has to be got approved by the foreign investment approving
body. While the foreign investment approving body may, in giving approval,
specify the necessary terms on the basis inter alia of international practices on
foreign investment and production and selling capacity of the industry.

Agreement with Commercial Bank [FITTA, §14]

For the purpose of investment, the foreign investors may enter an
agreement with its partner investors or another foreign investor and any
commercial bank or development bank. The bank entering in such
escrow agreement shall work as agent among the parties of agreement.
CHAPTER- III

Approval and Repatriation of Foreign

Investment
Approval and Return of Foreign Investment [FITTA, §15]
• Foreign Investors desiring to invest within Nepal shall make an
application to Approving Body stipulating the details of time table from
the entrance of foreign investment in a prescribed format.
• Upon receiving an application if the fulfillment of document is seen
then such Approving Body shall approve such application within 7 days
of application made.
• Take permission for registration of industry or company or tax or any
other purposes, if required
• In case upon examination, if it is not found suitable to provide approval
then the concerned body shall inform the applicant about it by clarifying
the grounds and reasons of it within 7 days of application.
• If the applicant does not agree with the decision made by DOI, then s/he
may make an application to the concerned ministry for review. The
decision over the application shall be within 30 days after proper
investigation.
• If the foreign investors wants to invest on other industries from the
profit earned from first industry then s/he shall take approval again.
 Notice to Nepal Rastra Bank [FITTA, §16]
• Upon receiving an approval for foreign investment, the foreign investor
shall make a written notice to NRB by self-declaring that the amount for
investment is earned from a legitimate source.
• Foreign investors can bring such amount to Nepal after such notice to NRB
is made.
• Such amount shall be brought in convertible foreign currencies through
banking system.
• However, the Indian investors are allowed to invest such amount in Indian
currencies itself

Foreign Investment Approving Body [FITTA, §17]

• Department of Industry- Investment upto 6 Billion Rupees
• Investment Board- Amount exceeding 6 Billion Rupees

Time period for making Investment [FITTA, §18]

• The amount as approved shall be invested within 2 years [FITTA, §43]
• Industries not depositing money within given time period with no any valid
reasons shall have its approval cancel from the Approving Body.
To give information on sale of or transfer of title to
shares [FITTA, §19]
• In the case of sale of, or transfer of title to, or otherwise change in the
ownership,the concerned company shall, not later than thirty days of
the effect of transaction, give information along with the relevant
documentary evidence, to the body giving approval.
• In the case of change in the ownership of the industry as a result of the
transfer of title to any property, assets, shares or any other financial
equipment of any holding company, the concerned branch industry or
unit of the industry shall have the liability to give information.
• In the case of a transaction, it shall not be recorded until tax is paid by
the concerned
• Other provisions relating to the sale of and transfer of title to shares
shall be as given.
Repatriation of the Investment and Earnings [FITTA, §20]
• The foreign investors may take the invested amount or the earnings back
to his/her country upon selling his/her shares or may sell the industry
fully or partially in accordance with law after the payment of all kinds of
tax from Nepal.
• Following investments may be repatriated in the same currency they
invested or convertible foreign currencies upon taking approval of NRB
Amount received from the sales of share of foreign investment
 Amount received from the profit or dividend of foreign investment
 Amount remaining after the payment of all liabilities in case of
liquidation or winding up of Company/Industry
 Amount received from royalty obtained under technology transfer
agreement.
 Amount of lease rent under lease investment
 Amount received as damages or compensation from the final settlement
of any law suits, arbitration or any other legal procedures (if any)
 Amount allowed to repatriate as per existing laws
• Repatriating amount shall be repatriated by making conversion at the
prevailing exchange rate.
• In the case of termination of a lease agreement because of non-
payment in accordance with the lease agreement or breach of its
terms, the foreign investor may repatriate its investment and the
property invested in the lease.
• A foreign investor who wishes to repatriate the foreign investment or
amount shall make an application, to the foreign investment
approving body for approval to that effect.
• While examining such received application, it appears that the
foreign investor has fulfilled the terms and liabilities, the foreign
investment approving body shall give approval to repatriate the
foreign investment or amount earned within 15 days of the date of
receipt of the application.
• After obtaining the approval, the foreign investor may make an
application to the NRB for the foreign currency exchange facility.
After which NRB shall, provide the exchange facility to the foreign
investor for the repatriation of foreign investment.
• If any foreign investor is not satisfied with a decision made by
the body giving such approval in the course of repatriation of
the amount of its investment, the investor may make an
application to the Ministry. The Ministry shall make a decision
on such an application within 30 working days.
CHAPTER - IV

Promotion, Facilitation and

Regulation of Foreign Investment
Functions, duties and powers of the Board [FITTA,§21]

• To give suggestions to the GON for policy, institutional and procedural

reforms in order to be made for the attraction of foreign investment in
industrial and infrastructure development
• To set strategies and programs for enhancement of attraction of foreign
investment in Nepal and promotion and protection.
• To give approval for the establishment of industries and infrastructures with
foreign investment, and promote foreign investment,
• To facilitate for foreign investment by enhancing, expanding and protecting
foreign investment, and also facilitate, if any problem of repatriation of
foreign investment or amount earned
• To make coordination at the policy and implementation levels of foreign
investment,
• To assist in the implementation of policies and laws relating to foreign
investment,
• To make arrangements to foreign investors from the Single Stop Service
Centre,
• To obtain information, whether the activities of giving approval for foreign
investment and delivery of services have been carried out properly or not .
Functions, duties and powers of the Department [FITTA, §22]
• To create conducive environment for the establishment and operation of
industries to be established with foreign investment,
• To facilitate foreign investors to obtain any approval or permission including
initial environmental assessment, environmental impact assessment in
accordance with the prevailing law,
• To maintain updated records of foreign investments approved or permitted and
also of the technology transferred in Nepal,
• To give approval to repatriate investment and remuneration for foreign
investors, and foreigner experts, technicians or managerial employees who are
engaged in the industries
• To make and enforce Standard Operating Procedures in order to make foreign
investment transparent and to make procedural simplification,
• To make recommendation for visas to the foreign investors and their authorized
representatives, and employees engaged in industries and make facilitation for
that purpose.
• To supervise and monitor foreign investment industries, if they had misused any
facility granted in accordance with this Act,
• To facilitate foreign investment industries in establishing industries in an
industrial zone or special economic zone
Service to be provided by Single Stop Service Centre [FITTA, §23]
• The GON may make necessary arrangement so that exemptions,
facilities, concessions or services to be provided to the foreign investors
through the Single Stop Service Centre. While managing it the
necessary provision shall be made so that the following services are
provided gradually:
 Registration and administration of industries,
 Approval of foreign investment and loan,
 Registration and administration of companies,
 Labour permit,
 Visa facility,
 Testing and control of quality of goods produced by industries,
 Approval of environmental study report,
 Energy and infrastructure development, and necessary coordination for that
purpose, as well as focal point among other bodies,
 Exemptions, facilities to which industries are entitled,
 Provision of permanent account number,
 Foreign exchange approval
CHAPTER - V

Exemptions, Facilities and

Concessions
Facilities to be obtained by industries [FITTA, §24]
• Exemptions, facilities or concessions as may be available under the
prevailing Industrial Enterprises Act and other prevailing law.
• However, such facilities to which a sick industry is entitled in
accordance with the prevailing law shall not be available to any industry
with foreign investment.

Facilities to deal in foreign currencies [FITTA, §25]

• In order to make transaction with any commercial or infrastructural
development bank or any financial institution with foreign currencies,
may do so by opening an account in such banks or financial institution
having license to make transaction in foreign currency.
• Permission from NRB shall be taken prior opening a bank account and
doing any transaction in convertible foreign currencies.
 Facility of foreign currency[FITTA, §26]
• By recommendation of the foreign investment approving body, and
approval of the NRB, the foreign exchange facility for such amount as
may be required for the following purposes:
a. To pay such remuneration as may be payable to any foreign expert,
technical or managerial employee employed in the industry
b. To pay the principal or interest of any bonds or debentures issued
c. To repatriate the foreign investment or income earned

• Any foreign expert, technical or managerial employee employed in an

industry may repatriate to his or her country in convertible foreign
currency, after paying income tax in Nepal.
• The exchange or repatriation of convertible foreign currency shall be
made according to the open market exchange rate.
 Provision relating to experts, top-level technical and
managerial employees [FITTA, §27]
• An industry with foreign investment shall fulfill the positions of experts in its
top-level management, high-level technical, managerial employees or
technical employees from amongst the Nepali citizens.
• However, if an industry with foreign investment cannot fulfill the positions of
experts in its top-level management, high-level technical, managerial
employees or technical employees from amongst the Nepali citizens and it is
necessary to transfer technical knowledge or skill through any technical or
expert of another country in such an industry, the industry may employee any
foreign citizen in accordance with the prevailing law.
• The concerned industry shall provide details relating to the foreign citizens
employed to the Department, who provide details to the Ministry of Finance,
Ministry of Home Affairs and Ministry of Labour, Employment and Social
Security.
• Industrial security shall be provided to any industry with foreign investment
as may be available to any other industry established in Nepal. [FITTA, §28]
• The Department may provide an identity card to any foreign investor who
makes such foreign investment [FITTA, §29]
 Provision relating to visa facility[FITTA, §30]

• Non-tourist visa - not exceeding six months - to make a study, research or

survey for foreign investment.
• Business visa - to a foreign investor or one authorized representative of him or
her and the family members of such an investor or representative to stay in
Nepal until the foreign investment equal to such minimum amount is
maintained. Explanation: For the purpose of this Section, the term “family
member” means the husband or wife, father, mother and minor son, daughter
of the foreign investor or his or her authorized representative.
• The residential visa shall be provided to a foreign investor who makes foreign
investment in an amount exceeding one million US dollars or in convertible
foreign currency equivalent thereto at one time or to the authorized
representative of him or her and the family member of such a person until the
foreign investment equal to such minimum amount is maintained.
• The tourist visa shall be provided to any foreign expert, technical or
managerial employee to be employed in an industry.
• The body giving working approval and work permit for the non tourist visa
shall make decision whether or not to give working approval or work permit,
after completing the necessary procedures not later than 15 days.
Provision regarding Land [FITTA, §31]
• An arrangement of purchase of land required for industry by the
foreign investor oneself or through any other medium shall be
made.
• If the foreign investors himself/herself could not arrange or
purchase the land, then s/he may request the Approving Body
upon which such body may do the required recommendations,
coordination and facilitation.
• For the industries operated or to be operated with foreign
investment, if requires land more than the limitation, then the
body registering industry may do necessary recommendation,
coordination and facilitation for the land
• It shall be used only for the same purpose for which it was
purchased.
National Treatment [FITTA, §32]
• Industries with foreign investment receive following protections:
a. Are treated in the same way as industry of similar nature with investment
from Nepali citizen.
b. Are free to determine the cost of products and services by remaining within
the scope of existing laws of Nepal.
c. Are not restricted from doing trade as prescribed by limiting within its
industry.
d. Are not restricted from repatriating its profit, investment by paying the
interest of loan and principal amount.
Matters where National Treatment is not applicable [FITTA,
§32.4]
• Matters of compulsory licensing about creation of intellectual property,
its limitation, and transfer of ownership or use of it as mentioned in the
agreements entered under World Trade Organization.
• Matters relating to the exemption or facility, if any, granted to any
domestic industry or goods in accordance with the prevailing Nepal law
relating to public procurement
• Matter relating to any grant or concession to be made or provided by the GON
• Matter of non-commercial services to be provided by the GON
• Matters relating to the protection of investors, participants in the securities
market, insurance policy holders or insurance policy claimants, or relating to
financial institutions having liability to safeguard the financial interests of any
persons or relating to maintaining soundness, morality or financial
responsibility of financial institutions
• Matters involving liability or provision to accord special treatment by the
GON because of being a party to any regional or multilateral economic,
monetary organization or organization of similar nature to which the GON is
or will be a party,
• Matters relating to the terms that may be specified by the regulatory body in
accordance with the prevailing law in respect of repatriation of investment to a
foreign country, repayment of loan and payment of service fees,
• Matters relating to the protection of human, animal and plant health or the
environment.
 No Nationalization or Expropriation shall be made
[FITTA, §33]

Industry with foreign investment shall not be nationalized and shall not
be expropriated directly or indirectly except for a public purpose. If it is
required to expropriate it for the public purpose, due process shall be
fulfilled.

Change in terms, services and facilities [FITTA, §34]

If any provision made in a manner to change the terms of foreign
investments and any exemption, facility or concession receivable by
foreign investors is a disadvantage of any foreign investor having
obtained approval prior to the making of such provision, such change
shall not apply to such an investor.
CHAPTER - VI

• Grievance Handling and Action

Handling of Grievances [FITTA, §35]
• If a foreign investor or industry has any grievance with respect to any
act or action performed by any authority that register, regulate or
monitor industries, such investor or industry may make an application,
setting out that content, to the DOI for its hearing.
• If a foreign investor or industry has any grievance with respect to any
act or action performed by the Department of Industry or Single Stop
Service Centre, such investor or industry may make an application,
setting out the content, to the Ministry for its hearing.
Prohibition on acts, actions contrary to the terms and Monitoring
and Inspection of Industries [FITTA, §36, §37]
• If any foreign investor or industry with foreign investment is found to
have done any act contrary to FITTA or the rules framed under this Act
and the terms specified while giving approval for foreign investment,
such approval may be revoked or it may be caused to rectify the error,
upon fulfilling the procedures as prescribed.
• Officer monitoring and inspecting such industries shall provide report to
the DOI setting out the details if any contrary actions were made or not
within 3 days of monitoring and inspection.
CHAPTER- VII

Miscellaneous
Agreement may be concluded [FITTA, §38,39]
• The GoN may bring into foreign investment by concluding a multilateral or
bilateral investment agreement with any foreign friendly country or
international institution for the promotion of foreign investment.
• In making investment in any industry jointly by a Nepali investor and a
foreign investor, a joint agreement concerning foreign investment may be
made with respect to that investment, subject to this Act.

Settlement of Dispute [FITTA, §40]

• If there arises any dispute between a Nepali investor and a foreign investor
in relation to foreign investment, the DOI may do necessary facilitation in
order that such a dispute is settled by the concerned parties through mutual
discussions or negotiations.
• If the dispute cannot be settled through such process within a period of 45
days of dispute has arisen, and a joint investment or dispute settlement
agreement exists between the parties to the dispute for the resolution of such
a dispute, the dispute shall be settled in accordance with such an agreement.
The parties shall give information about the settlement of the dispute to the
Approving body not later than 15 days of its settlement.
• The parties shall not be bound to give information about on what terms
and conditions such a settlement has been made.
• If the agreement concluded between the parties has no provision about
the settlement of disputes, such a dispute shall be settled by arbitration
in accordance with the arbitration law of Nepal.
• Any dispute arising in connection with any foreign investment shall be
settled by arbitration in accordance with UNCITRAL, unless otherwise
agreed upon by the parties to the dispute.
• Arbitration to be conducted shall be held in Nepal and substantive law
of Nepal relating to arbitration shall apply.
• If no agreement was made between the parties on the settlement of
dispute prior to the arising of the dispute or if they realize that the
agreement, if any made, is inadequate, the concerned parties may make
an agreement for the settlement of a dispute even after the dispute has
arisen. Information of the agreement so made shall be given to DOI.
 • The foreign investment approving body may perform functions relating
to approval for foreign investment through recognized electronic means
[FITTA, §41].

Provisions on automatic approval process may be made

• The Government of Nepal may, by notification in the Nepal gazette,
provide services, through the automatic route in order to make the
process of foreign investment simple, easy. [FITTA, §42]

Validity period of approval of foreign investment [FITTA, §43]

• The approval of foreign investment given by the Approving Body shall
remain valid for a period until such investment remains in Nepal.
• Such approval shall be deemed to be ipso facto ineffective in the
following circumstance:
(a) In the event of failure, except for any reasonable reason, to commence
bringing into Nepal of the amount of such foreign investment within 2 years
after the date of the approval of foreign investment,
 (b) In the event of transfer of cent percent ownership of an industry with
foreign investment to a Nepali investor as a result of the sale of shares in the
industry registered with the approval of foreign investment,
(c) In the event of the revocation of its registration as a result of a default on
the part of the industry having got approval for foreign investment or the
company establishing such an industry.

Power of attorney may be given [FITTA, §46]

• A person who wishes to make foreign investment in accordance with
this Act may give a power of attorney to another person to perform any,
some or all of the acts, actions required to be performed by that person.
• All acts, actions performed by the authorized person shall be deemed to
have been performed by the investor himself or herself.
• A person who is authorized may not delegate the authority conferred on
him or her to another person.
• Power of attorney shall become invalid from the date on which the
person giving such power of attorney registers for withdrawal.
• Power Delegations
• The Board or Department may, as required, delegate some powers to any
body or officer of the Government of Nepal[FITTA, §47]. The Government of
Nepal may, by notification in the Nepal gazette, make necessary alteration
in the Schedule [FITTA, §50].

Foreign investment in any industry registered in

Province [FITTA, §48]
• If foreign investment or transfer of technology is to be made in any
industry registered by the Government of a Province in accordance with
the prevailing Federal or Provincial law, approval of the Department shall
be obtained
• The certificate of registration of industry with the Province and
recommendation of the Provincial ministry looking after the matters of
industry, among other things, shall be submitted in order to obtain the
approval.