This article relates to the Foreign Direct Investment in Nepal and its prospects.

1. Background of Foreign Investment
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According to Encyclopedia foreign investment means “flows of capital from one nation
to another in exchange for significant ownership stakes in domestic companies or other
domestic assets”. Typically, foreign investment denotes that foreigners take a somewhat
active role in management as a part of their investment. Foreign investment typically
works both ways, especially between countries of relatively equal economic stature.
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The foreign investments in Nepal are `and administered by Foreign Investment and
Technology Transfer Act (FITTA) 1992 and Industrial Enterprises Act (IEA) 1992. The
Department of Industries (DOI) is the sole agency for administration and implementation
of Foreign Investment & Technology Transfer Act in Nepal.
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As per Decision of Government, minimum amount of FDI has increased to NPR 5
million for each investor.

2. The wave of change in the world economic order has affected all nations, big and small. In
the process of adjusting the economy in line with these changes, neighboring countries have
also adapted an open and liberal policy for strengthening their economic system.
Accordingly, it is necessary for Nepal to introduce timely changes and reforms in various
sectors of its economy to introduce dynamism in the process of economic development. In
this context, it is opportune for us to make foreign investment attractive by framing a timely,
liberal and open policy. In pursuance to this goal the government of Nepal has formulated
foreign investment policy.

3. Accordingly, this policy document clearly explains the objectives of foreign
investment, the forms of such investment, their procedural aspects, the facilities and
concessions to be provided to them, the speedy and efficient administrative and
institutional services to be made available through an one window system and such
other aspects with the belief that implementation of this policy will lead to the
import of capital, modern technology, management, technical skills, access to
international markets, development of competitive attitudes and awareness about
increasing productivity, and their help in the development of an industrial culture in
the private Sector.

4. Objectives of Foreign Investment Policy 1992:
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To build a strong and dynamic economy by generating additional
opportunities for income and employment through expanding
productive activities.
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To increase private sector participation in the process of
industrialization.
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To increase productivity by mobilizing internal resources and materials
in productive sectors and by importing foreign capital, modern
technology management and technical skills.
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To increase the competitiveness of Nepalese industries in international
markets.

5. Forms of Investment
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Equity investment made by foreign investors in the form of foreign
currencies of capital assets and reinvestment of the income there-from.
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Loans obtained in the form of foreign currencies of capital assets.
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Use of rights, specialization, formulae processes and patents relating to
any technology of foreign origin.
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Use of foreign owned trademarks, goodwill.
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Use of foreign technical, consultancy, management and marketing
services.

6. Provision for Repatriation
Foreign investors who have received permission to invest in convertible currency can
repatriate the following amounts outside Nepal at the prevailing rate of exchange:u
The amount received by sale of the whole or any part of the equity investment.
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The amount received as benefits or dividends from foreign investment.
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The amount received as payment of principal and interest on foreign loans.
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The amount received under an agreement for the transfer of technology.
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The amount received as compensation for the acquisition of any property.
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Foreign experts, working in Nepalese industries with prior approval from countries
where convertible currencies are in circulation, shall be permitted to repatriate in
convertible currency up to 75% of the amount received by them as salaries, allowances
etc.

7. Facilities and Concessions
The following facilities shall be granted to industries established with foreign investment,
without prejudice, to avail the additional facilities if any, available under the industrial
Enterprises Act:
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Interest income on foreign loans shall be taxed at a rate of 15% only.
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Royalties, technical and management fees shall be taxed at a rate of 15% only.
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No income tax shall be levied on the income earned from exports. Income tax will be
levied at 15% on the income earned from export.
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Industries established with foreign investment are entitled to enjoy all the facilities and
incentives including income tax facilities provided to the industries established with
local investment under the Industrial Enterprises Act.

8. Other Facilities
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Facilities on Electricity- industries shall be given priority in the supply of electricity. No
fee shall be charged if an industry generates electricity for its own use.
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Relief from Double Taxation- For the purpose of avoiding double taxation on incomes of
foreign investors Government of Nepal shall take necessary action to conclude
agreements for the avoidance of double taxation with the countries of the concerned
foreign investors.
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Custom duty, excise duty and sales taxes levied on raw materials and auxiliary raw
materials of export oriented industries shall be reimbursed to the exporters on the basis
of the quantum of exports within 60 days from the receipt of the application for such
reimbursement.
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Industries exporting 90% or more of its total production are entitled to enjoy the same
facilities provided to industries established in the Export Processing Zone. The bonded
warehouse facilities shall also be continued.

9. u
In case an industry sells its product within the country in foreign currency, the excise
duty levied on the quantity of sold and the custom duty, excise and sales taxes levied on
the raw materials used in such products shall be reimbursed to such industry within 60
days upon the receipt of application of such reimbursement.
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Custom duty, excise duty and sales taxes levied on the production of intermediate goods
used in the production of exportable goods and sales tax levied on the production shall
be reimbursed to the exporter on the basis of the quantity of goods exported within 60
days from the receipt of the application for such reimbursement.
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Priority shall be given to arrange infrastructure facilities required for the establishment of
industries.
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Government land and land within the industrial districts shall be made available to
industries for the establishment of industries on priority basis.
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No intervention shall be made in fixing price of the products of the industry.
No taxes shall be levied on machinery and equipment, raw materials and finished
exportable products of industries established within the Export Processing Zone.
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10. Visa Arrangement
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A non-tourist visa will be granted to a foreign investor or his authorized representative as
well as their dependents to stay in Nepal for the period during which a foreign investor
maintains his/her investment.
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A non-tourist visa up to a period of six months shall be granted to any foreign investor
who has come to Nepal to undertake research and study with the purpose of investing in
Nepal.
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If any foreign investor makes a lump sum investment equivalent to more than US$
200,000 in convertible foreign currency, the investor and his/her dependants shall be
granted permanent resident visa for the period he/she maintains his/her investment in the
industry. No industries shall be nationalized.

11. Why Invest in Nepal ?
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Nepal is a landlocked Himalayan nation with a population of just under 30 million.
Located between India and China, two of the largest and fastest growing economies of
the world, Nepal promise tremendous investment potentials. With liberal policies
adopted by the Government of Nepal, it has attracted the attention of many foreign
investors in recent years particularly in hydropower, agriculture, manufacturing, tourism
and service. Below is a very high level synopsis for each of these sectors.

12. Hydropower
Theoretically, Nepal has a capacity of 83,000 MW out of which 44,000 MW is said
to be techno-economically feasible. Nepal’s baseline for electricity is hydro but less
than 1 percent has been harnessed so far.
Despite the huge potential, Government of Nepal has declared national energy crisis
due to the mismatch between the demand and supply. Nepal Electricity Authority
(NEA) has signed Power Purchasing Agreements (PPAs) worth 714.77 MW in
2011 for domestic consumption and many are under way. Also there is a huge
potential of supplying generated power to India.

13. Tourism
Nepal has a rich geography and has eight of the world’s ten tallest mountains,
including the highest point on the Earth, Mount Everest. Also there are world
heritage sites such as Lumbini (the birth place of Buddha), Chitwan National Park,
Sagarmatha National Park, Pashupatinath, Swayambhunath, Bouddhanath, Changu
Narayan, Kathmandu Durbar Square, Bhaktapur Durbar Square, and Patan Durbar
Square.
The influx of tourists is in increasing trend. According to Nepal Tourism Board,
Nepal has seen more than 598,200 tourists in 2012, a 10 percent increase over 2011,
making tourism one of the largest sources of revenue. As such, there is a huge scope
for investment in hotels and resorts, eco tourism, religious pilgrimages and
adventure sports.

14. Agriculture
Although the major contributor to Nepalese GDP is agriculture, it relies
heavily in traditional methods of farming. Despite the major labour force
being engaged in agriculture (66 percent), Nepal is heavily dependent on other
countries for its food supply. Low productivity is the stark reality. Domestic
production is unable to meet the growing demand.

15. TOP 10 IMPORTED AGRO COMMODITIES
(Source: Ministry of Agriculture & Co-operatives)
COMMODITIES
Total commodities
Vegetable products
Prepared foodstuffs
Edible oils
Cereals
Edible vegetables
Edible fruits and nuts
Live animals
Maize corn
Betelnuts
Dairy products
Value (in Rs)
79.89 billion
21.72 billion
16.48 billion
13.88 billion
5.03 billion
4.36 billion
3.63 billion
2.37 billion
2.27 billion
2.05 billion
925 million
Fiscal Year: 2010-11

16. The geographical landscape is Nepal’s assets. For instance, within less than 100 km
stretch, Nepal offers suitable places for Mango and Apple cultivation.
Identification of cash crops/fruits/ live stocks and use of scientific methods for
higher productivity is necessary.
On the other hand, Nepalese tea, ginger, cardamom, lentils and sugarcane have a
high demand in the international market. Further expansion in this sector is a viable
option.

17. Manufacturing
The GON has promulgated a new Industrial Policy 2010 to develop the industrial sector
and to provide protection and facilities to investors. Similarly, the draft of a Foreign
Investment Policy has been prepared. Industrialization is considered one of the most
vital indicators of economic growth and prosperity of the nation. Therefore, the GON is
committed in supporting industrialization by establishing industries based on
agriculture and local resources in rural sector, and establishing and developing
industrial zones in urban areas.
Steel–rolling mills, cement, cigarettes, jute, sugar, tea, beer, carpets, garments, textiles,
oilseed mills, and food mills are some of the most viable areas for investment in
manufacturing and production industries in Nepal.

18. Service
Although Nepal is categorized as a Least Developed Country according to the United
Nations, there is a growing middle class. According to a study conducted by the
Asian Development Bank (ADB 2010), based on a 2004 survey, Nepal had a middle
and higher class population of 23.36 percent with a combined annual expenditure of
US$10.72 billion in purchasing power parity (PPP) terms. The increasing trend of
middle class opens up the avenue for further investment in education, hospitals and
IT businesses.

19. Areas allowed for Foreign Investors
Foreign investors are permitted to own up to 100% equity share in any industries except the
following:
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Cottage industries (except industries using electricity more than 5 kW)
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Personal service businesses (e.g. hair cutting, beauty salon, tailoring, driving training, etc.)
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Arms and ammunition industries
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Gunpowder and explosives
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Industries related to radio-active materials
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Real estate business (excluding construction industries)
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Film industries (national languages and other recognized languages of Nepal)
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Security printing
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Bank notes and coins
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Retail business (excluding international chain retail businesses with business in at least two
countries)

20. u
Tobacco (excluding more than 90% exportable)
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Internal courier service
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Atomic energy
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Poultry
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Fisheries
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Bee keeping
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Consultancy services (e.g. management, accounting, engineering, legal
services); (Maximum of 51% FI is allowed)
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Processing of food grains on rent
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Local catering Services
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Rural tourism

21. FDI Approval Process of Nepal
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Once the applicant submits the application with required documentation at the
registration unit, it goes to the Director General who then forwards it to the FDI Director.
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The documents are assessed by the officers and staff at the FDI section.
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The application is presented in the FDI approval committee.
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Copies of the project reports must be sent to the License Director and Technical Director
prior to the meeting.
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The members of the committee study the documents, discuss it objectively, and express
their concerns, if any.
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Even if there are concerns expressed or other documents to be received, the applications
are generally recommended for final approval with the condition that the concerns are
addressed and the documents received.
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Once these conditions are fulfilled, the application is sent to the Director General for
final approval. It takes 5-10 days for FDI approval, from the application date.

22. Flowchart for Approval Procedure

23. After obtaining approval for foreign investment, the industry is required to apply for
registration of industry at the DOI within 35 days. If the registration cannot be done
within the stipulated time, the investor will have to apply for an extension of the
validity period.
Note: If the capital investment is more than NRs. 10 billion, the Investment Board can
directly deal with the investor, and the procedure will be followed accordingly.

24. Prepared By:
T P ADHIKARI & ASSOCIATES,
Chartered Accountants

25. For more information & query:
Contact at:
T P ADHIKARI & ASSOCIATES
Chartered Accountants
2nd Floor, 723/60, Anamnagar-32, Kathmandu
G.P.O. Box: 10915
Ph: 01-4247917
Mob: 9851094055

26. Thank you…