Establishing an Investment Company in Nepal: Nepal Government issues new guidelines

15 August 2021

The Ministry of Industry, Commerce and Supplies of the Government of Nepal has published a notice dated 9 August 2021 to lay out the terms and conditions for the establishment and operation of investment companies categoized under Schedule 8 (No. 65) of the Industrial Enterprise Act, 2076 (2020).

The terms and conditions for registration and operation of investment companies are briefly set out below:

  1. Investment companies have to specify the sectors of industry for investment prior to registration as an industry;
  2. An investment company with foreign investment to be registered as an industry is required to state that the sectors of investment will be limited within Nepal as well as submit the details of ultimate beneficiaries;
  3. Investment is allowed only in the sectors of industry classified in the prevailing Industrial Enterprise Act and permitted by the prevailing Foreign Investment and Technology Transfer Act;
  4. Investment is allowed only in share capital. Investment cannot be made through loan, loan benefits, bond or debentures;
  5. Investment companies are not allowed to perform the functions of banks and financial institutions;
  6. Investment companies with foreign investment must take approval for each sector of investment from the entity approving foreign investment;
  7. Investment companies must have a minimum capital of NPR 1,00,00,00,000 (One billion Nepalese Rupees) to be registered as an industry;
  8. Investment companies with foreign investment must specify whether the amount of investment will be in foreign currency or Nepalese currency and must abide by the procedures and directives issued by Nepal Rastra Bank and the prevailing Foreign Investment and Technology Transfer Act to bring the foreign investment amount and repatriation;
  9. Investment companies must abide by the the prevailing Industrial Enterprise Act and other laws for company registration;
  10. Operation of cooperatives is prohibited;
  11. Financial transaction with shell bank and investment from shell company is prohibited;
  12. Sale and purchase of shares or debentures from the secondary market, investment in sectors such as stock broker, market maker and real estate is prohibited; and
  13. Availing loans from local banks and financial institutions and loans from local banks based on bank guarantees provided by foreign bank is prohibited.

The notice despite providing a much needed clarity on the establishment of investment companies introduces a restrictive regime for their operation and growth within Nepal.

The official text of this notice can be accessed through this link:

https://www.doind.gov.np/detail/104.

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