A Complete Guide to Foreign Direct Investment (FDI) in Nepal

Foreign Direct Investment (FDI) refers to investment made by an individual or company from one country into business activities located in another country. This investment typically involves establishing business operations or acquiring physical assets—such as property, factories, or production units in the host country.

Legal Framework Governing FDI in Nepal

Nepal regulates foreign investment through several major laws and regulations, including:

• Foreign Investment and Technology Transfer Act (FITTA), 2019
• Foreign Investment and Technology Transfer Regulations, 2021
• Industrial Enterprises Act, 2020
• Company Act, 2006
• Public and Private Partnership and Investment Act, 2019

Key Government Authorities for FDI

• Investment Board Nepal (IBN): Handles foreign investment proposals exceeding NPR 6 billion.
• Department of Industry (DoI): Oversees investments below NPR 6 billion.
• Office of the Company Registrar (OCR): Responsible for company registration.
• Nepal Rastra Bank (NRB): Regulates foreign currency transactions and repatriation of investment and profits.

Basic Requirements for FDI

• The proposed business must not fall under the Negative List of Industries where foreign investment is prohibited.
• The business must qualify as an “industry” under the Industrial Enterprise Act.

Industries Where Foreign Investment Is Not Permitted

1. Cottage Industries:

   Traditional small-scale industries such as handloom, pottery, and blacksmithing (except export-oriented or traditional art-based businesses).

2. Personal Services:

   Activities like tailoring, beauty parlors, hairdressing, or driving schools.

3. Bidi Manufacturing:

   Production of traditional hand-rolled cigarettes.

4. Real Estate Trading:

   Buying and selling of land and houses (except qualified real estate developers).

5. Retail Trading:

   Retail sale of consumer goods except for large international retail chains meeting specific criteria.

6. Tobacco Products:

   Manufacturing of cigarettes and other tobacco items.

7. Alcohol Production:

   Production of alcoholic beverages, unless solely for export.

8. Arms and Ammunition:

   Manufacturing weapons, explosives, and related goods.

9. Radioactive Materials:

   Production or processing of nuclear or radioactive substances.

10. Security Services:

    Private security or related services.

11. Money Laundering–related Activities:

    Criminal Sectors: Activities involving illegal trade, narcotics, or human trafficking.

12. Gambling and Betting:

    Casino, betting houses, or online gambling operations.

Additional Restricted Sectors

Some industries allow foreign investment only with limitations or special approval:

1. Media:

   Foreign ownership capped at 20%.

2. Agriculture:

   Restrictions on primary agricultural production.

3. Financial Services:

   Banking, insurance, and other financial sectors have strict regulations.

4. Tourism:

   Certain tourism ventures require special conditions.

5. Education and Healthcare:

   Require additional permissions and compliance with national policy.

Process for Establishing and Operating FDI in Nepal

Step 1: FDI Approval

1. Through Investment Board Nepal (IBN):
   • Required for investments above NPR 6 billion.
   • Submit a comprehensive business plan and financial details.
2. Through Department of Industry (DoI):
   • For investments below NPR 6 billion.
   • Provide all necessary documents to receive an approval letter.

Step 2: Company Registration

1. Reserve a Company Name:

   Apply to the OCR to secure the desired name.

2. Required Documents:
   • Memorandum and Articles of Association (MOA/AOA).
   • Promoters’ details, including passport copies and photos.
3. Submission and Approval:
   • File all documents with the OCR.
   • Upon approval, obtain the Certificate of Incorporation.

Step 3: Tax and License Registration

1. Tax Registration:
   • Register with the Inland Revenue Department (IRD).
   • Obtain a Permanent Account Number (PAN) and VAT registration if required.
2. Industry-Specific Licenses:
   • Depending on the nature of the business, additional licenses (environmental, sectoral, or operational permits) may be needed.

Step 4: Foreign Currency Exchange and Capital Injection

1. Foreign Currency Processes:
   • Open a foreign currency bank account in Nepal.
   • Transfer investment funds through official banking channels.
2. Capital Injection:
   • Deposit the investment capital into the company’s account.
   • Collect a remittance certificate from the bank to verify the inflow.

Minimum Investment Requirement:

Nepal mandates a minimum foreign investment of NPR 20 million (approximately USD 155,000) to qualify for FDI approval.

Documents Required for FDI Approval

• Detailed project proposal
• Foreign investor’s company profile
• Passport copy of the foreign investor
• Joint venture agreement (if applicable)
• Bank certificate verifying financial capacity
• Environmental Impact Assessment (EIA), if required
• Power of attorney
• Investment schedule commitment letter
• Sector-specific supporting documents

Foreign Direct Investment plays a vital role in Nepal’s economic growth by introducing capital, technology, and managerial expertise. FDI operations are guided primarily by the Foreign Investment and Technology Transfer Act, 2019, and regulated by key authorities such as IBN and DoI.

While Nepal remains open to foreign investment, it restricts FDI in certain sensitive sectors, such as cottage industries, personal services, tobacco, and arms production to safeguard domestic interests and cultural heritage. By enforcing minimum investment requirements and sector-specific rules, Nepal ensures that foreign investment aligns with national economic priorities.

Effectively regulated FDI contributes to industrial expansion, job creation, technology transfer, and greater integration of Nepal’s economy into global markets, all while protecting national values and long-term interests.