Procedure of Investment in Nepal By Indian Nationals

Investment in Nepal by Indian nationals is subject to specific regulations and guidelines outlined by the Nepalese government. Notably, the regulatory environment in Nepal is relatively open, as there are no restrictions on the types of entities that can invest in the country. Individuals, corporate entities, or firms, including foreign nationals such as Indians, are generally permitted to make investments across various sectors. 

1. What are the laws and regulatory bodies governing investment in Nepal by Indian nationals?

Foreign investment in Nepal by Indian nationals is regulated by regular laws without a specialized framework. The Foreign Investment and Technology Transfer Act 1992 has propositions for the requirements of foreign investment, sectors of investment, and the repatriation of such investment.

The Industrial Enterprises Act 2016 has facilitated opportunities for industries and import-export trade for foreign investors and established the requirement of operating a manufacturing industry within the limitations of the Act.  The Department of Industries, Investment Board of Nepal, and Nepal Rastra Bank are the leading regulatory bodies for foreign investment in Nepal by Indian nationals.

2. What are the methods of investment in Nepal?

Fundamentally, Indian nationals can prefer either of the two forms of investment or occupation in Nepal that have been discussed:

3. Investment in Nepal without FDI through India-Nepal Peace and Friendship Treaty, 1950

Indian Nationals are permitted to engage in commercial activities, including the establishment of local businesses, as per the terms of the India-Nepal Peace and Friendship Treaty of 1950. Indian Nationals are also exempt from Special Requirements when it comes to conducting Businesses in Nepal. Alternatively, Indian Nationals can opt to invest in Nepal without the usual method of Foreign Direct Investment.  However, for the purposes of Opening Small Businesses or starting minor Occupation through a Small Investment, Indian Nationals will be required to register such Business to the Ward Office. 

3.1. What is the procedure for Indian Nationals to Register a Business in Nepal?

3.1.1. Submit a Business Card Application to the Embassy of India

Indian Nationals must first submit an application for a Business Card that authorizes them to engage in Normal Business Activities in Nepal, which primarily involve modest businesses and commerce. When applying for a Business Card, an applicant must provide evidence of Indian nationality in addition to the other mandatory documentation.

3.1.2. Business Card Issuance

The Embassy then issues a Card allowing for the conduct of Business Transactions within Nepal after a thorough review and application submission.

3.1.3. Construct a House Rent Agreement

Business Entities are legally obligated to have a house rental agreement to operate businesses in Nepal. Indian Nationals must therefore execute this agreement.

3.1.4. Register Business With the Ward Office

The Business must be registered in the appropriate Ward Office following the conclusion of the House Rent Agreement. Along with the house rent agreement and proof of Indian nationality, the individuals will be required to present their business card. Following review, the Ward shall register such a Business.

3.1.5. Register PAN Number.

Last but not least, the Indian National must register their PAN Number with the district’s Inland Revenue Office. Physical Presence at the Department is typically required for Indian Nationals. Indian Nationals can conduct business in Nepal without restriction after registering their PAN Number.

3.2. What is the minimum capital requirement necessary to make an investment in Nepal?

For Indian Nationals to register and conduct business in Nepal, no minimum capital requirement or threshold has been established.

3.3. How long does it take for Indian Nationals to Register a Business in Nepal?

While not explicitly specified, the entire process typically requires two to three weeks to complete.

4. Investment in Nepal through FDI

For large foreign investments, Indian nationals can opt for the regular mode of investment, where the procedure for FDI must be followed.

4.1. What Sectors are Open for Indian Investors?

The permissibility of foreign investment is contingent upon the nature of the activities and compliance with regulatory frameworks. Notably, industrial activities are open for foreign investment, while trading activities are restricted. However, there is a nuanced provision within the Industrial Enterprises Act (IEA) that allows manufacturing companies, under prescribed terms and conditions, to engage in import activities. The sectors open for foreign investment, including Indian investors, are determined based on two criteria. Firstly, the investment should be in activities classified as “industry” under Section 3 of the IEA. Secondly, foreign investment is permissible in sectors not included in the “Negative List.”

4.2. Are Government Approvals necessary for Indian Investors to Invest in Nepal?

Yes, government approvals are indeed necessary for Indian investors looking to invest in Nepal. The first approval, referred to as the “Foreign Investment Approval,” is granted by the Department of Industry (DOI), the Investment Board of Nepal (IIPB), or the Investment Board of Nepal (IBN).

The specific authority depends on two key factors: the amount of fixed assets associated with the industry in which the Indian investor intends to invest and the nature of the projects being pursued. The second approval is granted by the Nepal Rastra Bank (NRB) and is a common requirement regardless of the specific authority handling the Foreign Investment Approval.

4.3. What is the Minimum Amount of Foreign Investment by Indian National?

While Nepalese law does not explicitly impose a minimum foreign investment requirement, there is a practical guideline set by the Department of Industry (DOI) for foreign investors. The DOI has stipulated that a foreign investor must invest a minimum amount of NPR 2 Crores to be considered eligible for foreign investment in Nepal

4.4. What are the Ceilings on Ownership of Economic Sectors in Nepal?

Sectors

Percentage of Max. Foreign Ownership

Manufacturing

100

Hotel

100

Energy

100

Construction

100

Telecommunication

80

Domestic Aviation Industry

49

International Aviation Industry

80

Consultancy works

51

Insurance

80

4.5. How much Time will it Take to an Indian Investor to obtain Approval in Nepal?

The timeline for an Indian investor to obtain approval for setting up a business in Nepal is contingent upon various regulatory processes. Typically, the approval process involves obtaining consent from the Department of Industry (DOI) and the Nepal Rastra Bank (NRB). In the usual course of affairs, this procedure takes approximately three months. However, it is important to note that if additional approval from the Investment Implementation and Promotion Board (IIPB) or the Investment Board Nepal (IBN) is deemed necessary, the overall duration may extend to a period of six months

4.6. What are the Documents Required for Investment by Indian Nationals in Nepal?

The Documents Required for Investment by Indian Nationals in Nepal are as follows:

  1. Application in standard format
  2. Joint Venture Agreement (if there is more than one investor)
  3. Share Subscription Agreement or Share Purchase Agreement (if investing in an existing company)
  4. Project Report outlining the project background, market aspects, technical aspects, financial aspects, details of sources of funds, etc.
  5. Copy of certificate of registration and other registration documents (Memorandum of Association (“MOA”), Articles of Association (“AOA”), etc.) of the Indian investor (if a company).
  6. Profile of the Indian investor.
  7. Financial credibility certificate issued by any bank in India.
  8. Corporate resolution of the Indian investor.
  9. Bio-data with a passport-size photo of the representative of the Indian investor.
  10. Approval is required from the competent authority of India to make foreign investment in Nepal (if required).
  11. Copy of the decision of the local company (entity) accepting the foreign investment.
  12. Incorporation Certificate, MOA, AOA, Permanent Account Number (“PAN”) Certificate, and Tax Clearance Certificate of the local company.
  13. A report from the Credit Information Bureau evidencing that the local company is not blacklisted.
  14. Commitment letter of the Indian investor.
  15. Source of investment and the time schedule of investment by the Indian investor.
  16. Audited financial statements of the Indian investor (if a company) and passports of the directors of the Indian investor.

4.7. How can an Indian national repatriate their investment from Nepal?

To initiate the foreign direct investment (FDI) repatriation procedure, an Indian national must commence by submitting a formal application in accordance with the prescribed form to the foreign investment approving body. Upon satisfaction with the investor’s compliance, the approving body is mandated to grant approval for repatriation within fifteen days of receiving the application.

Following this approval, the investor is then entitled to submit an application for a foreign currency exchange facility with the Nepal Rastra Bank. There are limitations imposed on the amount a foreign investor can repatriate concerning their investment or profit based on the rate of the investor’s initial investment in the respective company.

5. Conclusion

Two forms of investment methods are available for Indian nationals in Nepal: investment through the embassy for larger investments following FDI procedures, and direct investment for small businesses, requiring registration with the Ward Office. Government approvals are mandatory for Indian investors, involving two approvals: the Foreign Investment Approval from the Department of Industry, Investment Board of Nepal, or Investment Board Nepal, and a second approval from Nepal Rastra Bank. While there is no explicit minimum foreign investment requirement, the Department of Industry suggests a practical guideline of NPR 5 million (approximately USD 50,000). Ceilings on foreign ownership in various sectors vary, with certain sectors allowing 100% foreign ownership. The timeline for obtaining approval for setting up a business in Nepal is approximately three months, though it may extend to six months if additional approvals are needed.

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