Foreign Direct Investment (FDI) Approval Procedure in Nepal

Foreign Direct Investment (FDI) plays a crucial role in Nepal’s economic development. As a developing nation, Nepal welcomes foreign investments to boost its economy, create job opportunities, and enhance technological advancements. This article provides a comprehensive guide to the FDI approval procedure in Nepal, covering essential aspects such as FDI process in Nepal, application approval, required documents, and relevant laws.

TCN Advisors have long-standing decades of experience in Foreign Direct Investment, specially in obtaining approval from the Department of Industry, quickly and reliably.

Email: info@taxconsultantnepal.com

What is Foreign Direct Investment (FDI)?

Foreign Direct Investment refers to an investment made by a foreign individual or entity in a business or production facility in another country. In the context of Nepal, FDI is defined under the Foreign Investment and Technology Transfer Act (FITTA) 2019. According to Section 2(j) of FITTA 2019, FDI includes:

1. Investment in shares of a company in foreign currency
2. Reinvestment of earnings from foreign investment
3. Investment made through technology transfer in an industry
4. Investment made in the form of loan or loan facilities in foreign currency

FDI is crucial for Nepal’s economic growth, as it brings in capital, technology, and expertise from foreign investors. The government of Nepal has implemented various policies and incentives to attract FDI and create a favorable investment climate.

How to Get FDI Approval in Nepal?

1. Step 1: Obtain FDI Approval from the Department of Industry
2. Step 2: Registration of Company at OCR
3. Step 3: Tax and Business Registration at IRO & Ward
4. Step 4: Recommendation and Registration of Industry at DOI
5. Step 5: Opening Bank Account and Recording Investment at NRB

Obtaining FDI approval in Nepal involves a systematic process governed by the Department of Industry (DOI) and other relevant authorities. Here’s a step-by-step guide on how to get FDI approval in Nepal:

1. Identify the sector for investment: Determine the industry or sector you wish to invest in, ensuring it aligns with Nepal’s FDI policies.
2. Prepare required documents: Gather all necessary documents, including business proposals, financial statements, and identification papers.
3. Submit application: Apply to the Department of Industry (DOI) or the Investment Board Nepal (IBN) for projects exceeding NPR 6 billion.
4. Undergo document verification: The authorities will review and verify the submitted documents.
5. Attend meetings: Participate in meetings with relevant officials to discuss your investment proposal.
6. Receive approval: Upon successful review, you will receive FDI approval from the concerned authority.
7. Register the company: After obtaining FDI approval, register your company with the Office of the Company Registrar.
8. Obtain additional permits: Secure any additional licenses or permits required for your specific industry.

What is the Process of FDI Approval?

The FDI approval process in Nepal involves several steps and interactions with various government bodies. Here’s a detailed overview of the process:

1. Submission of application: The investor submits an application to the Department of Industry (DOI) or the Investment Board Nepal (IBN), depending on the investment amount.
2. Initial screening: The relevant authority conducts an initial screening of the application to ensure all required documents are provided.
3. Detailed evaluation: A thorough evaluation of the investment proposal is carried out, considering factors such as economic impact, environmental concerns, and alignment with national priorities.
4. Recommendation: Based on the evaluation, the authority prepares a recommendation for approval or rejection.
5. Decision-making: The final decision is made by the appropriate authority, either the DOI or the IBN, depending on the investment amount.
6. Issuance of approval: If approved, an FDI approval certificate is issued to the investor.
7. Post-approval procedures: The investor proceeds with company registration and obtaining necessary licenses and permits.

This process ensures that foreign investments align with Nepal’s economic goals and regulatory requirements.

What Documents are Required?

To apply for FDI approval in Nepal, investors need to submit various documents. The required documents may vary depending on the nature and scale of the investment, but generally include:

1. Application form for FDI approval
2. Detailed project proposal or business plan
3. Financial statements of the foreign investor (audited for the last three years)
4. Copy of the passport of foreign investor(s) or registration certificate of the foreign company
5. Joint venture agreement (if applicable)
6. Technology transfer agreement (if applicable)
7. Environmental Impact Assessment (EIA) or Initial Environmental Examination (IEE) report (if required)
8. Land ownership documents or lease agreement for the project site
9. CV and experience certificates of key personnel
10. Bank statement showing the availability of funds for investment

Ensuring all required documents are properly prepared and submitted can significantly expedite the approval process.

How Long Does FDI Approval Take?

The duration of the FDI approval process in Nepal can vary depending on several factors, including the complexity of the project, the completeness of the application, and the workload of the approving authorities. Generally, the process takes:

• For investments up to NPR 6 billion: 15-30 days (handled by the Department of Industry)
• For investments exceeding NPR 6 billion: 30-45 days (handled by the Investment Board Nepal)

However, these timeframes are indicative, and actual processing times may differ. It’s advisable to maintain regular communication with the relevant authorities to track the progress of your application and address any queries promptly.

What is the Cost of FDI Approval?

The cost of FDI approval in Nepal includes various fees and charges associated with the application process. While the exact costs may vary, here are some typical expenses:

1. Application fee: NPR 20,000 for investments up to NPR 6 billion, NPR 100,000 for investments exceeding NPR 6 billion
2. Registration fee: Varies based on the authorized capital of the company
3. Legal and consultancy fees: Depends on the complexity of the project and services required
4. Document preparation and translation costs
5. Environmental Impact Assessment (EIA) or Initial Environmental Examination (IEE) costs (if applicable)

It’s important to note that these costs are subject to change, and additional expenses may arise during the approval process.

What are the Requirements for FDI?

To be eligible for FDI approval in Nepal, investors must meet certain requirements set by the government. These requirements include:

1. Minimum investment threshold: As per FITTA 2019, the minimum FDI amount is NPR 50 million
2. Sector restrictions: Investments should be in sectors open to FDI as per the negative list
3. Compliance with environmental regulations: Projects must adhere to environmental standards and obtain necessary clearances
4. Job creation: Preference is given to projects that generate employment opportunities for Nepali citizens
5. Technology transfer: Investments that bring in new technologies are encouraged
6. Foreign currency investment: FDI must be made in convertible foreign currency through proper banking channels

Meeting these requirements is crucial for obtaining FDI approval and ensuring a smooth investment process in Nepal.

Where to Apply for FDI Approval?

The application for FDI approval in Nepal should be submitted to the following authorities:

1. Department of Industry (DOI): For investments up to NPR 6 billion Address: Tripureshwor, Kathmandu, Nepal Website: www.doind.gov.np
2. Investment Board Nepal (IBN): For investments exceeding NPR 6 billion Address: ICC Complex, New Baneshwor, Kathmandu, Nepal Website: www.ibn.gov.np

Investors should ensure they submit their applications to the appropriate authority based on their investment amount to avoid delays in the approval process.

What Laws Govern FDI in Nepal?

Several laws and regulations govern Foreign Direct Investment in Nepal. The primary legislation includes:

1. Foreign Investment and Technology Transfer Act (FITTA) 2019: This act provides the main legal framework for FDI in Nepal, outlining procedures, incentives, and restrictions.
2. Industrial Enterprises Act 2020: This act regulates industrial enterprises and provides various facilities and concessions to industries.
3. Companies Act 2006: This act governs the registration and operation of companies in Nepal.
4. Labor Act 2017: This act outlines the rights and obligations of employers and employees, including those in foreign-invested companies.
5. Foreign Exchange (Regulation) Act 1962: This act regulates foreign exchange transactions related to FDI.
6. Income Tax Act 2002: This act provides the framework for taxation of foreign investments and repatriation of profits.
7. Environment Protection Act 2019: This act ensures that foreign investments comply with environmental regulations.

Understanding these laws is crucial for foreign investors to ensure compliance and take advantage of available incentives and protections.

Which Authority Handles FDI Approval?

In Nepal, two main authorities are responsible for handling FDI approvals:

1. Department of Industry (DOI): The DOI is the primary authority for FDI approvals for investments up to NPR 6 billion. It operates under the Ministry of Industry, Commerce and Supplies and is responsible for promoting and facilitating industrial development in Nepal.
2. Investment Board Nepal (IBN): The IBN handles FDI approvals for investments exceeding NPR 6 billion. It was established under the Investment Board Nepal Act 2011 to promote and facilitate large-scale investments in Nepal.

These authorities work in coordination with other government agencies to ensure a comprehensive evaluation of FDI proposals and their alignment with national economic objectives.

Can All Industries Receive FDI?

While Nepal encourages foreign investment in various sectors, not all industries are open to FDI. The government maintains a negative list of sectors where FDI is restricted or prohibited. As per the current regulations, some industries that are not open to FDI include:

1. Poultry farming
2. Fisheries
3. Primary agriculture (except for commercial farming and agriculture industries)
4. Cottage industries
5. Personal service businesses (e.g., hair salons, beauty parlors)
6. Arms and ammunition industries
7. Real estate business (excluding construction industries)
8. Travel agencies
9. Domestic courier services

It’s important for foreign investors to consult the latest negative list and seek professional advice to ensure their proposed investment is in an eligible sector.

Is Repatriation of Profits Allowed?

Yes, repatriation of profits is allowed for foreign investors in Nepal. The Foreign Investment and Technology Transfer Act (FITTA) 2019 guarantees the right of foreign investors to repatriate their investments and returns. According to Section 17 of FITTA 2019, foreign investors can repatriate the following:

1. Amount received from the sale of shares
2. Profit or dividend from foreign investment
3. Payment of principal and interest on foreign loans
4. Amount received under technology transfer agreement
5. Amount received as compensation for nationalization or acquisition of property

However, repatriation must be done through proper banking channels and in compliance with Nepal’s foreign exchange regulations. The Nepal Rastra Bank (central bank) oversees the repatriation process to ensure adherence to legal requirements.

In conclusion, while Nepal offers attractive opportunities for foreign direct investment, navigating the approval process requires a thorough understanding of the legal framework and procedural requirements. By following the outlined steps and complying with relevant laws, foreign investors can successfully obtain FDI approval and contribute to Nepal’s economic growth while benefiting from the country’s investment potential.