This Q&A guide gives an overview of Nepal's investment regulations with a primary focus on legal and regulatory matters. It also provides information on establishment of liasion and branch offices of foreign companeis. The information in this Q&A investing guide is accurate as of November 2017 but should not be relied upon as legal advice.
Q1. What are the laws regulating foreign investment in Nepal?
Following are the key legislative instruments regulating foreign investment in Nepal:
- Foreign Investment and Technology Transfer Act 1992
- Industrial Enterprises Act 2016
- Foreign Exchange (Regulation) Act 1965
- Company Act 2006
- Investment Board Act 2013
In addition, foreign investment is also regulated by the regulations, guidelines, directives and circulars issued by the concerned regulatory bodies in Nepal. Some of the other important laws other than directly related to investment that investors should take into consideration of are:
- Arbitration Act 1999
- Contract Act 2000
- Customs Act 2007
- Civil Code (Muluki Ain) 1853 (revised 1962)
- Electricity Act 1992
- Environment Protection Act 1997
- Export-Import Control Act 1957
- Income Tax Act 2002
- Labour Act 2017
- Local Self Governance Act 1999
- Private Financing of Building and Operation of Infrastructure Act 2006
- Public Procurement Act 2006
- Value Added Tax Act 1996
Investors also need to be aware of the provisions of the Double Tax Avoidance Treaties, and Investment Promotion and Protection Treaties related to their home jurisdiction.
Q2. What are the regulatory bodies of foreign investment in Nepal?
The regulatory bodies of the foreign investment in Nepal are as follows:
- Department of Industries
- Industry and Investment Promotion Board
- Investment Board
- Nepal Rastra Bank (the Central Bank of Nepal)
- Insurance Board
- Civil Aviation Authority
- Nepal Telecommunications Authority
- Ministry of Environment
Q3. Who can invest in Nepal?
Any foreign individual or corporate entity can invest in Nepal. There are no restrictions based on nationality.
Q4. What is the minimum capital requirement for foreign investment in Nepal?
The minimum capital requirement for the foreign companies and individuals investing in Nepal has been fixed at NPR 5,000,000 (Five Million Nepali Rupees) which is equivalent to around USD 50,000. The investor will have to purchase shares equivalent to this amount or lend over this amount. This does not apply in establishing contact/liaison offices or branch offices of foreign companies.
Q5. Which sectors can a foreign investor invest in?
A foreign investor can invest in following industries subject to certain restrictions (See Question 6):
- Manufacturing Industries
- All manufacturing industries that manufactures goods from raw materials. This includes assembly industry
- Mining Industries
- Extraction and processing of all types of mines and minerals
- Energy Industries
- Industries producing energy from hydro, wind, solar, coal, natural oil and fuel and gas, bio-gas, bio mass or other resource, and industries producing devices used for producing energy from above mentioned industries
- Electricity transmission line
- Electricity distribution system
- Agricultural Industries
- Fruits farming and fruits processing
- Food product processing
- Animal rearing, bird rearing (including ostrich), animal and birds breeding and meat production and processing
- Dairy industries (includes milk product production)
- Production of fish fry, processing and packaging
- Silk farming and processing
- Tea garden and processing
- Coffee farming and processing
- Herbs farming and processing
- Vegetable seeds production
- Vegetable farming and processing
- Green house establishment and operation
- Flower farming, flower processing (including making of garland, decorating, floral arrangement and production of seeds and saplings)
- Nursery business
- Rubber farming, initial processing of rubber and operation
- Cold store, agriculture market
- Community, leasehold, partnership and private forest establishment and management
- Cash crop business farming and processing (like: sugarcane, cotton, jute, drumstick, sweet sargham (turnip), stevia rebaudiana, tobacco, black cardamom, ginger, saffron , edible oil and related spice crops, lentils etc)
- Bamboo farming and their products
- Plant gardening, establishment and management
- Plant breeding business (including tissue culture)
- Seed and sapling processing
- Other industries based on forest product other than wood
- Tourism Industries
- Tourist residence, hotel, motel, resort and restaurant
- Travel agency, tour operator, healing centre, casino, massage, spa
- Adventure tourism: skiing, gliding, water rafting, hot air ballooning, cannoning, para sailing, horse riding, elephant riding, bungee jumping, mountaineering and site seeing
- Golf course, polo, pony trekking, hiking
- Home stay and ecological tourism
- Cultural, religious, assembly, conference and sports tourism
- Entertainment park
- Wildlife protection
- Mountain flight operation
- Information, Transmission and Communication Industry
- Technology park
- IT park
- Biotech park
- Software development
- Computer and related services
- Date processing
- Cyber cafe
- Digital mapping
- Business process outsourcing (BPO)
- Data mining, cloud computing
- Telephone, mobile telephone, mobile satellite telephone
- Teleport service
- Satellite establishment and operation, Establishment of satellite transmission centre, Vsat
- Broadband, infrastructure, telecom tower, optical network satellite network
- F.M. radio, Digital radio services
- Digital terrestrial television, satellite television, cable television
- IPTV, online services
- Digital cable TV network, direct to home satellite service, MMDS network
- Recording studio, broadcast studio
- Print media industry, audio visual material and production industry, advertisement making industry
- Cinema production, cinema hall, multiplexes cinema hall, film city establishment, and film studio establishment
- Service Industry
- Mechanical workshop
- Press and printing services
- Professional consulting and development, management, engineering and designing, and legal, account, audit, educational and vocational consultancy services
- Ginning and baling business
- Film making business
- Exhibition service
- Cultural and entertainment business
- Construction business
- Public transportation business
- Nursing home
- Educational and training institute
- Library, archives and museum service
- Airways service
- Sports service
- Cold store operation (excluding agricultural)
- House wiring electrical fitting and repair
- Waste collection and cleaning, waste reprocessing
- Heavy equipment related to construction renting, repairing and operation
- Veterinary services
- Battery recharging
- Health examination (services like, X-ray, CT Scan, MRI, ultrasound etc ) and health examination laboratory
- Operation of the constructed infrastructure (like operating services of assembly and conference hall, drinking water supply, pipeline to supply fuel and fuel related gas, warehouse and storehouse, airport, bus park , stadium, sports complex, ropeway, road, irrigation, electricity transmission, electricity house, railway service, cargo complex, inland clearance dipo (I.C.D) etc) businesses
- Food production, grinding, packing related work
- Colouring of cloth and thread, sizing and printing of cloth (excluding the work done by knitting industry for its own propose)
- Cargo business
- Packaging, refilling service (including LPG gas and vehicle gas refilling station)
- Courier service
- Dry cleaning business
- Interior decoration
- Security service business
- Publication service
- Advertisement service
- Service of preparation of advertisement tools
- News telecast service
- Production and broadcast of documentary, telefilm and other programs through television
- Soil testing service
- Health club
- Water transportation and distribution service
- Zoological park operation
- Geological park operation
- Business incubation service
- Business complex operation
- Foreign employment service
- Biotech park
- Cinema hall
- Multiplex theatre
- Stiching and knitting
- Study and experiment of minerals
- Research and development service
- Construction Industry
- Road, bridge, tunnel
- Ropeway, railway, tram, trolley bus, cable car, monorail and sliding car
- Runways and airports
- Industrial structure and infrastructural complex
- Assembly and conference centre
- Sewage and sewage outlet
- Drinking water supply and distribution
- Irrigation infrastructural
- Sports house and stadium
- Vehicle parking centre and parking house
- Import processing area
- Special economic zone
- Cargo complex
- Contaminated water processing centre
- Telephone tower, optical fiber network, satellite, satellite broadcast centre
- House and residence buildings
- Film city construction, film studio construction, business complex
If the foreign investor wants to invest in a sector that is not included in the list above, then special permission from the Investment and Industrial Promotion Board chaired by the Minister of Industry is required to classify such business as an industry, followed by decision from Council fo Ministers.
This list does not apply when registering a Liaison Office or Branch Office of Foreign Companies, and to banks and financial institutions and insurance companies, which their own respective regulators may permit under specific laws governing those sectors.
Q6. Are there any restrictions on foreign investment in Nepal?
Generally, the laws of Nepal do not discriminate between foreign shareholders and domestic shareholders. However, there are certain sectors in Nepal where foreign investment is restricted. The restricted sectors are:
- Household and cottage industries (including traditional industries)
- Personal service businesses such as barber shop, beauty parlours, tailoring, driving training
- Arms and ammunition industry
- Explosives and gunpowder
- Radioactive elements related industries
- Buying and selling of land and houses (except construction businesses)
- Movies, films of Nepali language
- Security printing
- Currency and coins businesses
- Retail businesses with operations in less than three countries
- Beedi (traditional cigarette) industry (except industries that export more than 90%)
- Internal courier service
- Atomic energy
- Chicken farming
- Fish farming
- Bee farming
- Domestic food production methods in rent
- Local catering business
- Rural tourism
In addition, there are certain sectors where foreign investment is restricted to certain percentage as set below:
- Advisory and consultancy business other than legal, accounting, engineering, management (maximum 51% of foreign shareholding)
- Airlines Industry (49% to 95% of foreign shareholding)
- Financial Services/Banks and Finance Companies (20% to 85% of foreign shareholding)
- Telecommunication (maximum 80% of foreign shareholding)
- Media (maximum 25% foreign shareholding)
However, technology transfer (franchising, technology licensing, management, trademark licensing etc.) and loans are allowed in all the industrial sectors including those for which shares investment is not allowed.
Q7. What are the modes of foreign investment in Nepal?
The modes of foreign investment in Nepal are as follows:
- Establishing a fully owned subsidiary: Foreign investors can establish a fully owned subsidiary by taking permission from Department of Industries, Industrial Promotion Board, or the Investment Board depending on the type of investment and Nepal Rastra Bank (Central Bank of Nepal).
- Establishing a joint venture company: Foreign investors can establish a new joint venture company or partly acquire an existing company to form a joint venture company by taking permission from Department of Industries, Industrial Promotion Board, or the Investment Board depending on the type of investment and Nepal Rastra Bank.
- Purchasing shares of existing companies: Foreign investor may acquire already operating company through purchase of shares, or join in as a joint venture partner through issue of new shares by obtaining permission from Department of Industries and Nepal Rastra Bank.
- Loan investment: Any foreign lending agency or individual can lend money to industries and businesses in Nepal by obtaining permission from Department of Industries and Nepal Rastra Bank. Interest, principal, fees, and other charges can be repatriated to foreign convertible currency after approvals have been obtained from both Department of Industries and Nepal Rastra Bank.
- Establishing a branch office: Foreign companies undertaking business or transactions are required to open branch office in Nepal if they are providing services from a fixed location in Nepal for over 30 days. Recommendation from a relevant ministry will be required to establish a branch office.
- Establishing a liaison office: Foreign companies are required to open a liaison office if they are appointing its representative in Nepal or intend to open an office to undertake representative activities. Generally, recommendations from ministries are not required.
In addition to these methods, investors can also undertake technology transfer agreements (management, licensing, franchising etc.) or appoint local distributors to undertake business in Nepal.
Q8. How can a company with foreign shareholder incorporated in Nepal?
The process to incorporate a company with foreign shareholder (for general projects) is set out below:
- Obtain foreign investment approval from Department of Industry
- If the foreign investment is of fixed assets up to five hundred million, then approval of Department of Industry is required, or if the foreign investment proposes more for an industry requiring fixed assets beyond an excess of two billion rupees then approval of Industrial Promotion Board is required
- Registration of company (private, public or branch) at Companies Registrar Office
- Register for tax at the Tax Office
- Register as an industry at the Department of Industry
- Obtain investment approval from Nepal Rastra Bank
- Complete the required environmental compliance procedures (if required by Environmental Protection Act)
Q9. How can a foreign company establish its branch or contact/liaison office in Nepal?
A foreign company can establish its branch or contact/liaison in Nepal as follows:
- Branch Office: A foreign company can also register its branch to undertake income-producing activities within Nepal through establishment of a subsidiary or a joint venture. Establishment of branch offices requires recommendation from a relevant Nepal government agency or entity. A branch office may be suitable for one off work e.g. providing construction services, government procurement, management and other similar activities.
- Contact/Liaison Office: Contact/liaison office may only spend and have employees but may not undertake “income generating activities” within Nepal. Contact office may be appropriate for those wishing to have a point of contact for their business within Nepal.
Q10. What is the procedure for dispute resolution arising out of the agreement relating to foreign investment?
In industries with fixed assets investment as per Industry Registration Certificate of up to NPR 500 million, the dispute between a foreign investor and national investor or the industry has to be settled by mutual consent in presence of the Department of Industries. If the dispute cannot be settled by mutual agreement then such dispute shall be settled pursuant to arbitration conducted as per UNCITRAL Model Rules in Kathmandu.
Freedom to choose jurisdiction and law is provided to agreements Industries with “fixed assets” investment of above NPR 500 millions and disputes may be settled as mentioned in the joint venture agreements, share purchase agreement, licensing agreements, or other agreements. This is not applicable for branch or liasion office.
Please note that this guide is published for information only and should not be considerd as legal advcie. You are requested to seek legal advice for specific factual situations. If you need further information on this matter please Contact Us