Investment Law Nepal

The Foreign Investment and Technology Transfer Act 1992 lays down the law governing foreign investment and the applicable rules and regulations. Foreign investment is expected to supplement domestic private investment through foreign capital flows, transfer of technology, improvement in management skills and productivity and providing access to international markets.
The importance attached to foreign investment is clearly reflected in the constitution of the kingdom of Nepal. In the directive principles of the Constitution, it is stated that a policy of attracting foreign capital and technology shall be adopted.
Foreign Investment is may be made in the form of share (equity). Reinvestment of earnings derived from foreign investment also constitutes foreign investment. In addition to this, investment made in the form of loan or loan facilities also constitutes foreign investment.
In the granting of approval for foreign investment involving new investment, modernization, diversification or expansion, the projects will be assessed taking into account the following criteria:
  1. priority will be granted to investments in industry prescribed by HMG;
  2. financial and technical viability;
  3. contribution to employment generation;
  4. foreign exchange earnings or savings;
  5. competitiveness of products in international markets;
  6. appropriateness of technology;
  7. terms and conditions of investment and technology transfer;
  8. participation of Nepalese nationals in investment and management.
The Foreign Investment and Technology Transfer Act 1992 defines "Technology Transfer" as any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:
  1. Use of any technological right, specialization, formula, process, patent or technical know how of foreign origin.
  2. Use of any trademark of foreign ownership.
  3. Acquiring any foreign technical, consultancy, management and marketing service.
The employment of foreign technical personnel in industries is permitted with the approval of the Department of Labour. In such cases, arrangements should be made to train counterpart staff in the technical/ managerial operations within a time bound program. Foreign experts are permitted to remit up to 75% of their earnings in convertible currency.

Nepal has been a member of Multilateral Investment Guarantee Agency (MIGA) since 1994. MIGA provides guarantees to foreign investors against non commercial risks like currency transfer, expropriation, breach of contract and war and civil disturbance in the host country. Besides this, the statutory provision of Nepal itself sufficiently guarantees the security of investments. No Industries will be nationalized.

Foreign investment is allowed in Nepal in every sector of economic activities with the exception of the following:-
  1. Cottage Industries
  2. Personal Service Business (Business such as Hair Cutting, Beauty Parlour, Tailoring, Driving Training, etc.).
  3. Arms &Ammunition Industries.
  4. Explosives, Gunpowder.
  5. Industries related to Radio-Active Materials.
  6. Real Estate Business (excluding Construction Industries).
  7. Motion Pictures Business (Produced in national languages and the language of the nation).
  8. Security Printing.
  9. Currencies &Coinage Business.
  10. Retail Business.
  11. Travel Agency.
  12. Trekking Agency.
  13. Water Rafting.
  14. Pony Trekking.
  15. Horse Riding.
  16. Cigarette, Bidi (Tobacco), Alcohol (excluding those exporting more than 90%).
  17. Internal Courier Service.
  18. Atomic Energy.
  19. Tourist Lodging.
  20. Poultry Farming.
  21. Fisheries.
  22. Bee-keeping.
  23. Consultancy Services such as Management, Accounting, Engineering and Legal Services.
With the exception of cigarette, bidi, cigar, chewing tobacco. khaini industries and industries producing other goods of a similar nature utilizing tobacco as the basic raw material alcohol and beer producing industries, Handloom, Pedalloom, Semiautomatic loom, Warping, Dyeing and Printing, Tailoring (Other than Readymade Garments), Knitting, Handknitted Woolen Mat and Blanket (Radi, Pakhi), Woollen Carpet, Pashmina, Woollen Garments, Carpentry, Wooden Artistic, Product, Cane and Bamboo Works, Natural Fibre Products, Hand Made Paper and Goods made up thereof, Gold, Philigiree Products including Silver, Brass, Copper, Precious and Semi-Precious Stones, Ornaments, Sculptures and Pottery, Leather Cutting and Tanning, Rural Tanning and Leather Goods producing Works, Jute, Sabai Grass, Babio, Choya, Cotton Thread Products, Artistic Products made up of Bones and Horns, Stone Carving, Ceramic Fine Arts, Pauwa, Boutique, Incense Stick (Dhup), Dolls and Toys Industries and cottage industries with the fixed asset of up to two hundred thousand rupees.
However, no restriction is made for the transfer of technology in industries specified above.
Nepal encourages foreign investment as joint venture operations with Nepalese investors or as 100% foreign owned enterprises. The broad areas open for foreign investment includes manufacturing industries, energy based industries, tourism industries, mineral resource based industries, agro-based industries and service industries.
Nepal has signed Reciprocal Encouragement and Protection of Investment Agreements with France, the Federal Republic of Germany and the United Kingdom. Nepal is underway to conclude such agreements with other countries. Under these Agreements, investments enjoy full protection and security.
This agreement guarantees equitable and non-discriminatory treatment, free transfer of payments such as capital, profits and loans, and free access to the court. In case of investment disputes, provision exists for its settlement through arbitration under the International Center for the Settlement of Investment Disputes.
Foreign investors who have received permission to invest in convertible foreign currency are permitted to repatriate the following outside Nepal at the prevailing rate of exchange:-
  1. the amount received by sale of the whole or any part of the equity investment;
  2. amounts received as profits or dividends in lieu of foreign investment;
  3. amounts received as payment of principal and interest on foreign loans;
  4. amounts received under an agreement for the transfer of technology;