Overview of the Foreign Investment and Technology Transfer Regulations, 2021

5 November 2023

The Foreign Investment and Technology Transfer Regulations, 2021 (“FITTR”) provides the guidelines for foreign investors, elucidating the investment procedure, time frames, and associated processes, facilitating a transparent and efficient investment environment.

This article briefly outlines the salient features of the FITTR:

A) Investment

Rule 3 and 4 of FITTR provides that foreign investment can be made through acquisition of property or acquisition of up to 100% share of industries not prohibited by the Foreign Investment and Technology Transfer Act, 2019 (“FITTA”). Investment can be made through lease of airplane, ship, machinery, construction equipment in convertible currency equivalent to NPR 20 million (Nepalese Rupees Twenty Million) or more.

Note: NPR 20 million (Nepalese Rupees Twenty Million) is the minimum threshold for foreign investment in Nepal pursuant to notification in the Nepal Gazette dated 14 November 2022.

B) Royalty

The ceiling for repatriation of royalty and other fees has been laid down under FITTR and has been prescribed up to 5% of the total local sales and up to 10% of total export sales.

Additionally, FITTR provides calculation of royalty as a percentage of the net profits up to 15% from local and up to 20% from export sales. However, in case where an agreement has been concluded on technology transfer and royalty amount in the operation of an industry, the royalty amount or other fees will be pursuant to the agreement.

The following table provides an understanding of the royalty ceiling and other fees:

Ceiling of royalty or other fees for technology transfer (industry)

RoyaltyLocal salesExport sales
Lump sum or gross sales revenueUp to 5% of gross sales revenue excluding taxesUp to 10% of gross sales revenue excluding taxes
Net profitUp to 15% of net profitUp to 20% of net profit

Ceiling of royalty or other fees (trademark)

IndustryLocal salesExport sales
Alcohol and tobacco industriesUp to 2% of gross sales revenue excluding taxesUp to 5% of gross sales revenue excluding taxes
Other industriesUp to 3% of gross sales revenue excluding taxesUp to 6% of gross sales revenue excluding taxes)

C) Branch Industry

Other than branch office, foreign investors willing to set up a branch industry in Nepal can do so upon obtaining the required approval and registering the branch industry with the Department of Industry (“DOI”).

D) Escrow Agreement

Pursuant to Rule 7 of the FITTR, a copy of the Escrow Agreement must be submitted at the DOI. FITTR mandatesmaintaining the records of the same. The DOI can, if necessary, add any condition at the time of granting approval of theforeign investment.

E) Application and Approval

A foreign investor willing to invest in any industry in Nepal must submit an application along with the followingdocuments:

  1. Copy of investment report and project report;
  2. Copy of joint venture agreement in case of more than one investor;
  3. Copy of the personal bio-data and passport in case the investor is a natural person;
  4. In case where the investor is a company, a copy of the certificate of incorporation in the home country and othercompany related documents along with a board resolution of the company approving the foreign investment;
  5. In case where the investor is a firm, a copy of the certificate of incorporation in the home country and other firm related documents, firm profile along with the partners’ decision for foreign investment;
  6. In case where the investor is a Non-Resident Nepali (NRN), documents in support of the same;
  7. In case where the investor is an international organization, the charter documents, profile of the organization along with documents that reveal the identity of the directors of the organization;
  8. Power of Attorney (POA) in case where the foreign investor cannot be physically present in Nepal;
  9. Financial credibility certificate issued by a bank in the home country of the foreign investor; and
  10. Any other documents requested by the DOI upon submission of

 

The DOI upon necessary inquiry, grants the approval or rejection within 7 (seven) days. However, a foreign investor is not required to obtain approval if they wish to retain the profit earned and invest it into the same or different industry in Nepal.

Nepal has recently opened automatic route to ease the process of foreign investment through notification in the Nepal Gazette dated 02 October 2023 for investment ceiling up to NPR 500 million.

F) Investment time-frame

Once the foreign investor has obtained the approval, the investment amount that must be brought in within one year of such approval has been stated in the following table:

Total Investment for which approval has been obtainedPercentage to be brought in within one Year
Minimum threshold- NPR 20 million25% of the total amount
More than NPR 20 million and less than NPR 250 million15% of the total amount
More than NPR 250 million and less than NPR 1 billion10% of the total amount
Above NPR 1 billion5% of the total amount

Additionally, the FITTR requires the capital to be brought as per the following timeline:

a) 25% of approved capital i.e. NPR 2 million within the first year of obtaining foreign investment approval from the DOI;
b) Upto 70% (including above 25%) before starting commercial operations; and
c) Remaining 30% within the next 2 years from the date of commercial operation.

G) Transfer of Rights

A foreign investor must provide details of any sales of assets, transfer of rights or assets or change in ownership within 30(thirty) days of such transaction to the DOI along with the following details:

  1. Agreement relating to such sale or transfer;
  2. A copy of the audit report along with the document certified by the auditor specifying value per share of theCompany;
  3. Schedule of repatriation of the proceeds from the sale or transfer;
  4. Tax clearance certificate; and
  5. Shareholder’s registry approved by the

H) Repatriation

A foreign investor must submit an application along with the following documents to repatriate their investment or returns from the investment after obtaining approval from the DOI:

  1. Approval of repatriation by the Board of Directors and general meeting of the company;
  2. Authenticated Shareholder’s and Director’s share registry by the Office of the Company Registrar (OCR);
  3. Audit report and tax clearance of the previous fiscal year of the Company;
  4. Proof of investment;
  5. In case of sale of shares, the approval and share purchase agreement of the same;
  6. Decision of the general meeting of the company regarding distribution of the profit or dividend and the proof of bonus according to the prevailing laws and audit report of the fiscal year;
  7. Documents related to lease investment in case payment has to be made pursuant to same;
  8. Documents related payment made as per the final decision in case proceedings, arbitration or similar legalproceedings in Nepal;
  9. In case of royalty, documents related to same;
  10. Evidence showing disposal of property, shares or transfer of rights; and
  11. Any other documents as requested by the

I) Facilitation

Rule 12 of the FITTR provides for identity card (classification) to the foreign investors based on their investment amount. Such card will be issued to the investor or to the authorized representative of the investor and will cease to exist uponcancellation of investment.

Investment AmountType
From NPR 20 million to NPR 250 millionGeneral foreign investor
From NPR 250 million to NPR 1 billionSpecial foreign investor
Above NPR 1 billionExtra/Most special foreign investor

Pursuant to Rule 13 of the FITTR, Business Visa is granted to the foreign investor, their authorized representative and their family members. The FITTR provides that Residential Visa will be provided if the foreign investment is more than USD 1 million.

  In order to obtain the business visa an application must be submitted at the DOI along with the following documents:

  1. Copy of letter approving the foreign investment;
  2. Copy of passport of the person applying for business visa;
  3. Proof of appointment of the authorized representative by the investor;
  4. In case of family member applying for business visa proof of relationship from the authorized authority or Nepalese embassy situated in the home country of the investor; and
  5. In case of non-tourist visa, a copy of the work visa and permit.

I) Facilitation

The foreign investment which has been approved can be cancelled by the DOI if the foreign investor has not complied withthe terms and conditions specified while approving the foreign investment.

Furthermore, non-compliance with the prevailing laws relating to operation of the industry can result in cancellation of the investment. The cancellation is initiated after necessary investigation is made on to the matter which may includevisitations and providing sufficient opportunity to the investor to submit justification on the act committed or omitted.

Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein. The copyright of the contents of this article is vested with Imperial Law Associates.

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