Foreign Direct Investment in Nepal: An Overview

Introduction

Foreign Direct Investment (FDI) refers to investment made by foreign individuals or entities in businesses operating within Nepal. The government of Nepal actively encourages foreign investment to boost economic development, transfer technology, and create employment. The legal framework supporting FDI includes various acts and regulations that outline the procedures, eligibility, and restrictions for foreign investors.

Legal Framework & Approval Authorities

The primary law governing foreign investment in Nepal is the Foreign Investment and Technology Transfer Act (FITTA). Other supporting laws include the Industrial Enterprises Act, Companies Act, and the Public Private Partnership and Investment Act.

FDI approvals are granted based on the scale and nature of the investment:

  • Investments below a certain threshold are approved by the Department of Industry (DOI).

  • Larger investments, or those involving specific sectors like hydropower projects above a defined capacity, are processed by the Investment Board of Nepal (IBN).

  • After government-level approval, foreign investors must also obtain approval from Nepal Rastra Bank (NRB) to remit capital into the country.

Restricted Sectors

Nepal maintains a Negative List that restricts foreign investment in certain sectors. These include primary agricultural production, small-scale services like tailoring and beauty parlors, internal courier services, real estate trading (excluding construction), and certain consulting services. Foreign investment is also restricted in businesses that conflict with national security or cultural values.

Investment Process

The typical process for foreign investment in Nepal includes the following steps:

  1. Submission of an FDI proposal to the appropriate authority (DOI or IBN).

  2. Registration of a company in Nepal.

  3. Approval from Nepal Rastra Bank for bringing foreign capital into the country.

  4. Completion of tax registration and acquisition of sector-specific licenses, if applicable.

This multi-step process ensures that the investment is legally recognized and protected under Nepalese law.

Ownership and Equity

Nepal permits up to 100% foreign ownership in most eligible sectors. Investors may choose to establish a wholly foreign-owned enterprise or enter into a joint venture with a Nepalese partner. The structure depends on the nature of the business and the investor’s strategic goals.

Repatriation and Investment Protection

Foreign investors are allowed to repatriate profits, dividends, and capital in foreign currency, subject to compliance with local tax and financial regulations. The law also ensures protection of investments against nationalization, provided the investment is made in compliance with all legal requirements.

Role of Legal Advisors

Legal advisors play a crucial role in facilitating FDI by:

  • Conducting legal due diligence and feasibility analysis

  • Structuring investments and drafting agreements

  • Assisting with approvals from DOI, IBN, and NRB

  • Ensuring compliance with tax and regulatory obligations

  • Advising on repatriation, dispute resolution, and exit strategies

Conclusion

Nepal presents promising opportunities for foreign investors in sectors like energy, tourism, infrastructure, manufacturing, and information technology. With a liberal investment policy and legal mechanisms for protection and repatriation, Nepal aims to attract sustainable foreign capital. Strategic legal guidance is essential for navigating the procedural and regulatory landscape and ensuring a secure and successful investment journey.


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