The Foreign Investment and Technology Transfer Act 2075 (2019 AD)

Foreign Investment

Foreign Investment includes the investments by a foreign investor in Nepal,

• through shares in foreign currency,
• reinvestment of earnings,
• lease financing of specified equipment like airlines, ships, machineries and equipment (up to prescribed threshold),
• investment in venture capital funds (VCFs) by institutional foreign investors,
• investment in listed securities through secondary market by VCFs,
• acquisition of shares/assets of existing companies,
• issuance of securities in foreign capital market,
• investment made through technology & know-how transfer agreement
• Investment maintained by establishing and expanding an industry in Nepal

Technology Transfer

“Technology Transfer” means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:[1]

• Patent, design, trademark, goodwill, technological specificity, formula, process,
• User’s license, technological know-how sharing or use of technological knowledge (franchise),
• Provision of foreign technical adviser, management and marketing service or other technological skill or knowledge.

Foreign Investor

“Foreign Investor” means any foreign individual, firm, company or corporate body, Non-resident Nepali, Foreign Government, International Agency and Final-Interest Holder or ultimate beneficiaries involved in foreign investment.

Permission to be obtained

For investment in an Industry with investment up to NPR 6 Billion, permission of foreign investment or technology transfer to be taken from Department of Industry (DOI), and from the Investment Board of Nepal (IBN) if it is in excess of NPR 6 Billion. Moreover, in some sectors i.e. Banking and Insurance, approval from other agencies like Nepal Rastra Bank, Insurance Board is also required.

Minimum Threshold of Foreign Investment

The minimum threshold for the foreign investment has been revised to NPR 20 million , earlier it was NPR 50 million. A foreign investor is required to invest such amount as a minimum as per the “Foreign Investor” which can be invested in tranches within prescribed time frame. Moreover, for the Investment Industry required minimum investment will be NPR 1 Billon as prescribed by the government of Nepal. In case of investment made by an Non-resident individual through an investment company established Jointly by Nepal Government and Non- Resident Nepalese, the minimum threshold shall not be applicable. (Nepal Gazette dated 14th Nov 2022).

Investment through a Venture Capital Fund

A foreign investor can establish a venture capital Fund with the approval of Securities Board of Nepal (SEBON) for investment in the equity shares of a company in Nepal.

Dealing in Securities Transactions

Entities establishing a venture capital fund may transact in securities through the stock exchange’s secondary market after registering with the SEBON. However information such as the minimum securities to be purchased, the ceiling of investment , minimum securities holding period, and foreign currency reserve fund to be maintained by the foreign investor etc.are yet to be prescribed.(This provision will be applicable after the Nepal Government publishes a  notice in Nepal Gazzette)

Issue of Bonds, Debentures or Securities

Any public company established in Nepal or a corporate body that has obtained approval for issuing debentures in accordance with the prevailing law, can, with the approval of Nepal Rastra Bank and the Securities Board, issue bonds, debentures, or securities in foreign security market to raise foreign loan or foreign currency.

Any company established in Nepal with foreign investment can raise loan from local market by issuing securities after obtaining required approvals in accordance with the prevailing law.

Such loan amounts, or foreign currency, must be invested in Nepal.

(This provision will be applicable after the Nepal Government publishes a notice in Nepal Gazzettte)

Raising Foreign Currency Loans

Any Industry with foreign investment can raise loans from foreign BFIs in the form of project loan or project financing agreement (in accordance with the prevailing law, on recommendation of the Ministry and with the approval of NRB).

Escrow Agreement

A foreign investor for the purpose of their foreign investment can enter into a tripartite escrow agreement between their partner investor or another foreign investor and any commercial bank certified by NRB or Infrastructure Development Bank. As per the separate circular issued by NRB, the bank as a party to the escrow agreement acts as an agent for the parties and will also have right of enforcement.

Repatriation

Foreign investor is entitled to repatriate the following amount outside Nepal in the currency as set out in the agreement

• The amount received by the sale of the share of foreign investment as a whole or any part thereof.

• The amount earned from profit or dividend.
• The amount received from the outstanding amount after liquidation of a Company or an Industry and after the payment of liabilities.
• The amount received as a Royalty under the Technology Transfer Agreement.
• The amount received from the Lease Rent.
• Compensation granted by tribunal after end of litigation, arbitration or other legal procedure.
• Other amount that can be repatriated under prevailing law.

Provisions Related to Visa

• The non-tourist visa not exceeding six months shall be granted to a foreign citizen who visits Nepal to make a study, research or survey for foreign investment
• The business visa shall be granted to a foreign investor or one authorized representative of him or her and the family members of such an investor or representative to stay in Nepal until the foreign investment equal to such minimum amount as prescribed is maintained.
• Non- tourist visa is only granted upon obtaining work permit, for high-skilled and technical workers after demonstrating that equivalent workers are not available in Nepal after undergoing a vacancy procedure as prescribed under labor law and as per the labor law maximum 5% of the total employees can have the Work permit for the foreign worker in normal situation.

Settlement of Disputes

• The dispute may be resolved from the mutual consultation, and if required, the Department of Industry may facilitate to resolve the dispute.
• If the dispute cannot be resolved with the mutual consultation, than the dispute shall be resolved as per the parties’ written agreement
• If the parties’ agreement is silent regarding the dispute settlement, then dispute shall be resolved by arbitration. Unless otherwise agreed to by the parties, the arbitration proceedings shall be in accordance with UNCITRAL Rules, the arbitration will be governed by substantive laws of Nepal and venue will be in Nepal.
• The new FITTA provides the freedom to parties to enter into an agreement for settlement of dispute. This means that investment agreement can be governed by foreign law and any dispute under such agreement can be submitted to the foreign courts or arbitration with some limitation for enforcement of arbitral award.
• Even though the new FITTA provides freedom to parties to enter into an agreement for dispute settlement, there two important concerns:

1. According the Arbitration Act, 1999 of Nepal a foreign arbitral award can enforced in Nepal only if (A) Nepal is party to a treaty related to enforcement of foreign arbitral award, and (B) the award is rendered in the territory of the party to that treaty subject to the conditions set out at the time of being party to that treaty itself. Also, it is also essential that the dispute between the parties amount to commercial dispute under lawsof Nepal as well as there needs to be reciprocity between Nepal and the foreign country for enforcement of foreign arbitral award.
2. Beside that the Mutual Legal Assistance Act, 2014 is also vital and should consider a principle legislation governing enforcement of Foreign Judgment in Nepal. As per the provisions of this act it is mandatory to have bilateral treaty as a condition for enforcement of foreign judgment in Nepal and till now Nepal has not signed any such treaty with any foreign country.

One Stop Service Centre

The FITTA 2019 has introduced One-Stop Service Mechanism, which is to be established as per the prevailing law. Government of Nepal can provide exemptions, facilities, concession or services to foreign investors through One-Stop Service Mechanism. Such services are registration of Industries, various approvals, labor permit, visa service, quality check and control of products produced by industries and others. Based on this provision, the One Stop Service Center has been established and has been functioning now within the premises of the Department of Industry (DoI).

Hiring Expatriates

Hiring of expatriates as management experts, technical experts, managerial, and technical staff can be undertaken by entities only when qualified Nepali nationals are not available for such positions. The entities must provide the training and development to Nepali staff to eventually replace such expatriates. Furthermore, the labour law has restricted the number of expatriates that can be hired by an entity to a maximum of 5% of the total workforce.

Industries or Businesses Restricted for Foreign Investment

1. Sectors of primary agricultural production as well as poultry farming, fisheries and bee-keeping, fruits, vegetable, oil seeds, pulse seeds, milk (Dairy) industry and priority production in agricultural sector
2. Cottage and small industries
3. Personal service business (hair cutting, Beauty Parlor, Tailoring, Driving etc.),
4. Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (N.B.C.) weapons; industries producing atomic energy and radio-active materials
5. Real estate business (excluding construction industries), retail business, internal courier service, local catering service, money changer, remittance service
6. Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including home-stay
7. Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language
8. Management, account, engineering, legal consultancy service and language training, music training, computer training, and
9. Other consultancy services having foreign investment of more than fifty-one percent.

The Foreign Investment and Technology Transfer Rules 2077 (2021 AD)

100% ownership allowed

Foreign investment can be made by purchasing upto 100 % of shares or property of an industry other than those listed in the negative list of FITTA 2075.

Limit of royalty repatriation

1. Annual Royalty against all types of technology transfer can be repatriated subject to following limits.

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