Nepal Rastra Bank (NRB), with the rights conferred by section 12 of the Foreign Exchange Regulations Act, 2019 and section 110 (2) of Nepal Rastra Bank Act, 2058, has formulated and released Foreign Investment and Foreign Loan Management By-Laws, 2078 (2021 AD) on 8 June 2021. The major highlights of the much awaited By-laws are given hereunder:

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Feasibility Study and Pre-Operating Expenses

The foreign investor is not required to obtain prior approval for foreign investment or approval of NRB to bring the foreign currency for feasibility study and pre-operating expenses. Such amounts shall be considered as foreign investment to the extent of 3% of paid up capital of the entity upon certification of related expenses by the Auditor. However, any excess amounts of pre-operating expenses above 3% of paid up capital shall not be eligible for repatriation.

Previously, the limit for feasibility study and pre-operating expenses was 1% of paid up capital

Foreign Investment

Foreign investors shall not be required to obtain prior approval from NRB for remittance of foreign currency to Nepal after obtaining approval of foreign investment from the foreign investment approving body. However, the forex facilitation unit under one stop services centre (the “Unit”) should be notified before remitting such amounts

Previously, approval of NRB was required to remit the approved foreign investment

However, approval of NRB is required on inbound or outbound remittance of foreign currency due to changes in shareholding structure of the entity.

The bank or financial institution shall issue certificate of foreign currency pertaining to foreign investment in prescribed format after receipt of foreign investment.

Foreign Loan

Prior approval of NRB is required to obtain loan in Indian Rupee or convertible foreign currency for Nepalese person, firm, company, bank or financial institution and other entities.

The NRB shall notify to the applicant within 15 working days of submission of prescribed documents to the Unit or Department.

The bank or financial institution shall issue a certificate of foreign currency received as foreign loan in prescribed format after receipt of foreign loan.

Repayment of Foreign Loan

The borrower can get the convertible foreign currency from the bank or financial institution for repayment of interest and principal of loan which was earlier approved and accounted for by NRB for inbound purpose. For such outbound remittance, approval of NRB is not required.

Previously, approval of NRB was required for foreign currency needed for repayment of loan

The bank or financial institution shall notify in writing within 7 working days of submission of prescribed documents. In general, the loan shall be remitted to the same lender and same country from which it was previously remitted to Nepal.

Notification/Accounting of Foreign Investment and Loan

The entity or foreign investor shall notify to the Unit within six month of foreign currency remitted or foreign investment made.

In case of foreign loan, the borrower shall notify to the Unit or Forex Department of NRB within six month of foreign currency remitted.

The foreign investment made prior to enforcement of this By-laws or foreign investment made as per prevailing laws but not notified previously need to be notified to the Unit within one year from enforcement of this By-laws.

Similarly, foreign loan obtained prior to enforcement of this By-laws but not notified previously need to be notified to the Unit or Forex Management Department of NRB within one year from enforcement of this By-laws.

Repatriation of Foreign Investments

NRB shall provide approval to repatriate the amounts as per provisions of section 20 and 26 of the Foreign Investment and Technology Transfer Act, 2075.

The NRB shall provide approval for repatriation of foreign investment and earning thereof based on the approval/recommendation of foreign investment approving authority. But for the transaction where approval/recommendation of foreign investment approving authority is not available or foreign currency transaction is related with branches, the approval shall be provided based on justification.

The NRB shall notify to the applicant within 15 working days of submission of prescribed documents.

Reanda Biz Serve Comments

The revisit on the existing laws and issuance of new regulations by NRB is really a commendable step and have removed lots of administrative red tape and eased to the foreign investors. This will fortify the FDI sector in Nepal and is expected to help improving the ease of doing business ranking of the nation.

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