1. Sector Eligibility and Investment Limits
Before investing, a foreign investor should establish whether the proposed activity is open to foreign investment, whether the applicable minimum investment requirement is satisfied and whether any foreign ownership limit applies.
Section 3 of the Act permits foreign investment in eligible industries, subject to the Act’s Schedule. Minimum investment thresholds and exemptions are prescribed through Gazette notifications and should be assessed against the proposed activity and investor category.
Industry classification is therefore an important preliminary step. The commercial description of a business may not, by itself, establish its eligibility.
2. Permitted Investment Structures
FITTA recognises several investment routes, subject to the applicable requirements:
- Establishing an industry independently or jointly with Nepali or foreign investors;
- Acquiring shares or assets of an existing industry;
- Lease investment in specified machinery, equipment and other assets;
- Investing through technology transfer;
- Establishing or expanding a branch industry;
- Investing through eligible investment funds and securities arrangements; and
- Obtaining project financing from foreign financial institutions.
The appropriate structure depends on the business objectives, sector restrictions, financing arrangements and regulatory requirements.
3. Restricted Sectors
The Act’s Schedule restricts foreign investment in specified activities, including:
- Certain agricultural activities, subject to stated exceptions;
- Micro and cottage enterprises;
- Personal services such as tailoring, hairdressing and driving services;
- Specified arms, explosives and nuclear-related industries;
- Real estate trading, excluding construction industries, retail trading, internal courier services, local catering, money-changing and remittance services;
- Specified travel, guiding and rural tourism activities;
- Mass media and specified film businesses; and
- Certain professional, consultancy and training services.
The Schedule also imposes foreign ownership limits on specified consultancy services and ride-sharing businesses. Each proposed activity should be assessed against the exact wording, exceptions and applicable notifications.
4. Foreign Investment Approval
Under Section 15 of the Act, an application must include the prescribed particulars, an investment implementation plan and a timetable for bringing funds into Nepal.
The Department of Industry is the approving authority under FITTA. Projects governed by separate legislation, including the public-private partnership and investment framework, require assessment under that framework as well.
The Act provides a seven-day approval period for approval process subject to fulfillment of documentation requirements.
Investment approval must be followed by the necessary company incorporation, industry registration, tax registration and operational licences.
5. Technology Transfer Agreements
FITTA recognises technology transfer arrangements involving intellectual property, technical knowledge, processes and specified technical, management and marketing services.
Under Section 7 of the Act, the technology transfer agreement must be approved by the foreign investment approving authority. It should clearly address the rights or services provided, permitted use, duration, fees, royalties, performance obligations, termination and dispute resolution.
Royalty payments must comply with the approved agreement and applicable limits. The Act also permits technology transfer to Nepali-owned industries in restricted sectors with Department approval, subject to the relevant requirements.
6. Bringing Funds into Nepal and Recording Investment
Section 16 of the Act requires notification to Nepal Rastra Bank, including a declaration that the investment originates from a legitimate source.
Investment funds must enter through the banking system in accordance with the prescribed procedure. Convertible foreign currency is generally required, while Indian investors may also invest through banking channels in Indian currency.
Investors should complete the applicable recording requirements and retain remittance evidence. Proper documentation supports subsequent ownership transactions, dividend payments and repatriation.
7. Investor Protections
FITTA provides several protections for qualifying foreign investment:
- National treatment: treatment no less favourable than comparable domestic investment, subject to statutory exceptions.
- Protection against nationalisation: acquisition for public purposes remains subject to the applicable legal process.
- Protection of approved investment terms: safeguards concerning changes to investment conditions and facilities within the scope of the Act.
8. Repatriation of Investment and Earnings
Section 20 of the Act recognises the right to repatriate eligible amounts, including:
- Proceeds from the sale of shares;
- Profits and dividends;
- Remaining funds following liquidation and settlement of liabilities;
- Royalties under approved technology transfer agreements;
- Eligible lease payments;
- Compensation or damages received through legal proceedings; and
- Eligible proceeds and returns from specified investment funds.
Repatriation requires compliance with the applicable tax, documentary, approval and foreign exchange procedures. Where an industry is sold or liquidated, outstanding liabilities must be settled before the remaining amount is remitted.
Investors should plan for repatriation from the outset by maintaining accurate investment records, financial statements, tax documents and supporting agreements.
9. Dispute Resolution
Sections 39 and 40 of the Act address investment agreements and dispute resolution. The Act provides for facilitation of settlement through discussions or negotiations and recognises arbitration arrangements between the parties.
Where the parties have agreed on a dispute resolution mechanism, its terms should be examined alongside the statutory requirements. FITTA also provides a framework where an adequate agreement is absent.
Investment agreements should clearly specify the arbitration rules, seat, applicable law, tribunal appointment procedure and any preliminary settlement process.
10. Continuing Compliance and Investment Changes
Foreign investment approval carries continuing obligations. Investors must implement the investment within the prescribed periods, operate within approved objectives and comply with the conditions attached to their investment.
Changes in ownership or beneficial ownership must be reported and recorded as required under Section 19 of the Act, including relevant transactions outside Nepal. Applicable taxes must also be addressed.
Reinvestment of profits may proceed without fresh foreign investment approval where the statutory conditions are satisfied, while other registration, licensing and reporting obligations continue to apply.
Approval validity should be monitored throughout the investment lifecycle, including restructuring, transfer and exit.
Frequently Asked Questions
Can a foreign investor wholly own a company in Nepal?
Yes, where the relevant activity permits full foreign ownership. Sector restrictions and ownership limits must be checked before proceeding.
Does FITTA prescribe one minimum investment amount for every business?
No. Applicable thresholds and exemptions are determined through Gazette notifications and must be assessed for the proposed investment.
Does investment approval alone authorise business operations?
No. Company incorporation, industry registration, tax registration and sector-specific approvals may also be required.
Can a foreign investor acquire an existing Nepali business?
Yes. FITTA recognises share and asset acquisitions, subject to eligibility, approvals and other applicable requirements.
Can dividends and sale proceeds be remitted abroad?
Yes, subject to the applicable tax, documentary, regulatory and foreign exchange requirements.
Is an automatic approval route available?
FITTA authorises an automatic route through notified arrangements.
How Alpha Law Associates Can Assist
Alpha Law Associates advises foreign investors on sector eligibility, investment structures, approvals and technology transfer agreements. We also assist with investment recording, continuing compliance, ownership changes, repatriation and dispute resolution.