Foreign Direct Investment (FDI) in Nepal refers to capital, technology, or expertise brought into the country by foreign individuals or companies to support Nepali businesses and economic activities. The approval and regulation of FDI fall under the Foreign Investment and Technology Transfer Act (FITTA) 2019, which outlines the legal framework for foreign investment in Nepal.
FDI can enter Nepal through multiple pathways, such as:
- Setting up a fully foreign-owned company
- Forming joint ventures with Nepali investors
- Purchasing or acquiring shares of existing Nepali businesses
- Investing in large-scale infrastructure or development projects
Reliable Bizz Solutions provides professional legal support through its team of experienced FDI and corporate lawyers. Their expertise in investment and company incorporation laws helps foreign investors navigate regulatory requirements and establish a smooth entry into the Nepali market.
What are the laws that govern foreign investment in Nepal?
Foreign investment in Nepal is primarily governed by several key laws and regulations. These legal frameworks outline the procedures, rights, and obligations for foreign investors entering the Nepali market. The major laws include:
1. Foreign Investment and Technology Transfer Act, 2019 (FITTA)
FITTA serves as the backbone of Nepal’s foreign investment regime. It establishes the fundamental legal provisions for allowing foreign investment, covering areas such as technology transfer, joint ventures, repatriation, and investment approvals.
2. Foreign Investment and Technology Transfer Regulations, 2021
These regulations were introduced to support and operationalize FITTA. They provide clarity on procedural requirements, documentation, approval timelines, and other compliance matters to ensure effective implementation of the Act.
3. Industrial Enterprises Act, 2020
Focused on promoting and regulating industrial activities in Nepal, this Act aims to create a business-friendly environment for both domestic and foreign investors. It offers incentives, simplified procedures, and provisions to encourage industrial growth.
4. Companies Act, 2006
The Companies Act outlines the legal requirements for forming, registering, and operating companies in Nepal. It governs company structures, shareholding patterns, compliance obligations, and corporate governance standards applicable to all companies, including those with foreign investment.
5. Public Private Partnership and Investment Act, 2019 (PPPIA)
PPPIA encourages private-sector and foreign participation in Nepal’s infrastructure, construction, and service sectors. It sets the framework for developing and managing projects under Public-Private Partnership (PPP) models and aims to attract foreign capital into large-scale national projects.
What are the governing authorities for foreign investment?
Foreign Direct Investment (FDI) in Nepal is overseen and regulated by several key authorities. Each authority is responsible for approvals based on the nature and scale of the investment:
| Â | Governing Authority | Role / Approval Responsibility |
|---|---|---|
| 1 | Department of Industry (DOI) | Handles approval for foreign investments below NPR 6 billion. |
| 2 | Investment Board Nepal (IBN) | Responsible for approving foreign investments exceeding NPR 6 billion, as well as hydropower projects above 200 MW. |
| 3 | Nepal Rastra Bank (NRB) | Provides the final approval for bringing foreign investment into Nepal, ensuring compliance with foreign exchange and monetary regulations. |
These authorities collectively manage the approval, regulation, and monitoring of foreign investments to ensure that they align with Nepal’s legal and economic framework.
Approval for Foreign Investment Approval
1. Investment Approval
The first stage involves securing formal approval from either the Department of Industry (DOI) or the Investment Board Nepal (IBN), depending on the size and nature of the investment.
2. Company and Industry Registration
Once investment approval is granted, the investor must register the company and, where applicable, the industry in accordance with the conditions outlined in the approval.
3. Nepal Rastra Bank (NRB) Approval
Before any foreign capital can be brought into Nepal, investors must obtain permission from Nepal Rastra Bank to remit foreign currency as per the approved investment plan.
4. Foreign Currency Remittance and Recording
The approved investment amount is then transferred through authorized banking channels. Nepal Rastra Bank records and verifies the remittance to ensure compliance with foreign exchange regulations.
Permissibility Requirements for Foreign Direct Investment (FDI) in Nepal
Foreign Direct Investment in Nepal must meet certain legal and regulatory conditions before it can be approved. The key permissibility requirements are as follows:
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Investment Must Be in a Permitted Sector
FDI is only allowed in sectors open to foreign investment. Activities listed under the negative list—such as retail trading, primary agriculture, personal services, and cottage industries—are not permitted for foreign investors. -
Minimum Investment Requirement
Under FITTA 2019, the minimum foreign investment amount is NPR 20 million (except in cases where separate sectoral laws specify otherwise). -
Compliance With FITTA 2019 and Related Regulations
The investment proposal must fully comply with the Foreign Investment and Technology Transfer Act, 2019 and the Foreign Investment Regulations, 2021. -
Approval From Relevant Authorities
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Investments below NPR 6 billion require approval from the Department of Industry (DOI).
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Investments above NPR 6 billion or hydropower projects over 200 MW require approval from the Investment Board Nepal (IBN).
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Industry and Company Registration
The investor must register the company in Nepal through the Office of the Company Registrar (OCR) and register the industry if required. -
Nepal Rastra Bank (NRB) Approval
Before injecting foreign capital, approval from NRB is mandatory to ensure proper foreign currency inflow, recording, and future repatriation rights. -
Documentation and Proof of Source of Funds
Investors must provide legally acceptable documentation showing the legitimate source of the investment funds. -
Compliance With Sector-Specific Laws
Some industries—like telecommunications, aviation, banking, hydropower, and insurance—have additional licensing or regulatory requirements. -
Environmental and Legal Clearances
Projects that may have environmental impacts must comply with environmental assessment laws (EIA/IEE), land laws, and other applicable regulations.
Step-by-Step Procedure for Establishment of Foreign Direct Investment (FDI) in Nepal
Step 1: Obtain Foreign Investment Approval
Secure approval from the Department of Industry (DOI) for the proposed investment, based on the investment size and sector.
Step 2: Company Incorporation
Register the company with the Office of the Company Registrar (OCR) under the Companies Act, 2006.
Step 3: Tax Registration
Obtain a Permanent Account Number (PAN) and register for tax purposes at the Inland Revenue Office (IRO).
Step 4: Local Business Registration
Register the business at the local ward office to obtain the necessary municipal approval for operations.
Step 5: Industry Registration
If applicable, register the industry with the Department of Industry (DOI) according to the conditions of the foreign investment approval.
Step 6: Non-Blacklist Certificate
Obtain a Non-Blacklist Certificate from the Credit Information Bureau (CIB) to confirm that the investor has no outstanding financial liabilities or defaults.
Step 7: NRB Approval for Investment Infusion
Obtain approval from the Nepal Rastra Bank (NRB) to bring the approved foreign investment amount into Nepal.
Step 8: Infusion of Investment Amount
Deposit the approved foreign capital into a local bank account and obtain the Investment Certificate as proof of investment.
Step 9: Recording of Investment at NRB
Ensure that the remitted investment amount is officially recorded and verified by Nepal Rastra Bank in compliance with foreign exchange regulations.
What are the Documents Required for Foreign Direct Investment Approval Process in Nepal?
- Application form for foreign investment approval
- Detailed project proposal and feasibility study
- Joint venture agreement (if applicable)
- Copy of foreign investor’s passport or company registration certificate
- Financial statements of the foreign investor
- Board resolution authorizing the investment (for companies)
- Power of attorney for local representative
- Environmental Impact Assessment report (if required)
- Curriculum vitae of key personnel
- Any other sector-specific documents required by regulatory authorities
Timeline of Approvals of Foreign Investment in Nepal
| Stage | Approximate Timeline |
|---|---|
| Initial screening of proposal | 7-10 working days |
| Detailed evaluation | 15-30 working days |
| Approval in principle | 7-10 working days |
| Company registration | 3-5 working days |
| Foreign Investment Approval Certificate from NRB | 5-7 working days |
| Final approval | 7-10 working days |
| Total estimated timeline | 44-72 working days |
Note: These timelines are approximate and may vary depending on the complexity of the project and the efficiency of the approval process.
Government Fees for Foreign Investment in Nepal
| Service | Fee (in NPR) |
|---|---|
| Foreign Investment Application | 20,000 |
| Company Registration (Private Limited) | 9,500 |
| PAN Registration | 500 |
| Foreign Investment Approval Certificate | 10,000 |
| Technology Transfer Agreement Registration | 10,000 |
| Environmental Impact Assessment Approval | 50,000 – 150,000 |
Note: These fees are subject to change, and additional sector-specific fees may apply.
Time for Injecting Foreign Investment Amount in Nepal
Foreign investors must inject the approved investment amount into Nepal within the following timeframes:
- For investments up to NPR 500 million: Within one year of obtaining approval
- For investments above NPR 500 million: Within three years of obtaining approval
Extensions may be granted in exceptional circumstances upon application to the relevant authority.
Sectoral Approvals additionally Required for Investing in Nepal
| Sector | Additional Approval Required |
|---|---|
| Banking and Finance | Nepal Rastra Bank |
| Insurance | Insurance Board |
| Telecommunications | Nepal Telecommunications Authority |
| Hydropower | Ministry of Energy, Water Resources and Irrigation |
| Education | Ministry of Education, Science and Technology |
| Health Services | Ministry of Health and Population |
| Aviation | Civil Aviation Authority of Nepal |
| Mining | Department of Mines and Geology |
| Tourism | Nepal Tourism Board |
Post-FDI Compliance and Regulations in Nepal
After establishing a business through FDI in Nepal, foreign investors must comply with various regulations:
- Annual reporting to the Department of Industry or Investment Board Nepal
- Compliance with labor laws and social security regulations
- Regular tax filings and payments
- Environmental compliance as per approved EIA
- Adherence to foreign exchange regulations
- Maintenance of proper books of accounts
- Compliance with sector-specific regulations
- Renewal of business licenses and permits
- Reporting of any changes in ownership structure or investment amount
- Compliance with corporate governance norms
Failure to comply with these regulations may result in penalties or revocation of FDI approval.
What is the Minimum Investment for FDI Company Registration in Nepal?
The minimum Foreign Investment in Nepal varies depending on the sector and type of investment:
- For manufacturing industries: NPR 20 million (approximately USD 150,000)
- For service industries: NPR 20 million (approximately USD 150,000)
- For technology-based industries: NPR 20 million (approximately USD 150,000)
- For IT-Based Industries: No Minimum Investment Required
These thresholds are subject to change, and investors should verify the current minimum investment requirements with the Department of Industry or Investment Board Nepal before proceeding with their investment plans.
Frequently Asked Questions
What is Foreign Direct Investment (FDI) in Nepal?
Foreign Direct Investment (FDI) in Nepal, according to FITTA 2019, is a form of international investment where foreign individuals or companies invest capital in Nepalese businesses, gaining ownership or control of business assets. Nepal allows 100% FDI in most sectors except for a few restricted areas.
Which Sectors are open for FDI in Nepal?
Sectors open for FDI in Nepal include manufacturing, energy, tourism, agriculture, information technology, mining, construction, healthcare, education, and service industries. However, sectors like personal security services, arms manufacturing, and real estate trading remain restricted.
Who Approves FDI in Nepal?
The Department of Industry approves Foreign Investment less than NPR 6 Billion whereas the Investment Board of Nepal approves Investment above NPR 6 Billion.Â
What is the current trend of Foreign Direct Investment in Nepal?
The Current Trend of FDI in Nepal is subjective and differs according to the relevant industry. Overall, the Nepalese Government has encouraged the injection of Investment to the country.Â
What is the Foreign Direct Investment in Nepal 2023?
Foreign Direct Investment in Nepal 2023 is governed by DOI, IBN and Nepal Rastra Bank. Further, Individuals will be required to Register their Company through a Guided Process.Â
What are the Major Challenges of FDI in Nepal?
The Major Challenges of Foreign Investment in Nepal are the Approval from Department of Industry or Investment Board of Nepal and consequently the Nepal Rastra Bank.Â
How can a Foreigner Open a Company in Nepal?
A foreigner can open a company in Nepal by following these steps: obtaining DOI approval, registering the company at OCR, getting PAN/VAT registration, opening a bank account, getting industry registration, and obtaining necessary permits. The process typically takes 2-3 months.