Translated by Lifang
Verified by Sun Dali
Foreigninvestors in Nepal need to bring 70 percent of their proposed investment beforebeginning operations, and the rest in the next two years, according to a newregulation issued under the Foreign Investment and Technology Transfer Act(FITTA). The regulation, which was published in the Nepal Gazette on January11, also says that investors have to transfer the capital they have pledgedwithin a year of their project being approved. And for the first time, foreigninvestors will be issued identity cards according to the size of theirinvestment.
Investorsputting in Rs50 million to Rs250 million are categorised as 'general foreigninvestors'. Those spending between Rs250 million and Rs1 billion are classifiedas 'special foreign investors', and investors making an investment of more thanRs1 billion are called 'very special foreign investors'. The identity cardswill be provided to all foreign investors and their official representatives. Businessvisas will be issued to foreign investors or their official representatives andtheir family members as per the investment portfolio. Investors or theirofficial representatives and their family members will get residential visas ifthey make an investment of $1 million at one time.
“Thenew provision will eliminate the practice of delaying the investment plan aftergetting the go-ahead and extending the deadline,” said Jiblal Bhusal, directorgeneral of the Department of Industry. Under the new regulation, foreigninvestors whose firms have been registered in Nepal for more than a year mustsubmit their working procedure within six months. Foreign investors arecategorised according to the amount of capital they bring into the country, andthey receive facilities accordingly, Bhusal said.
"Theregulation is clear about the repatriation of royalties and profits, and theprocess of expanding their enterprises." The FITTA was amended in 2019,and the regulation was introduced to define it with greater clarity, he said. Asper the recently issued regulation, foreign investors can buy 100 percent ofthe stock of companies registered in Nepal. They can make lease investments inaircraft, ships, construction equipment and machineries with certainrestrictions.
Ifany Nepali company has made a technology transfer agreement with more than oneinvestor, the repatriation of royalty in one fiscal year may not exceed 5percent of total sales, excluding taxes, in case of goods sold within thecountry, and 10 percent of total sales, excluding taxes, in case of goodsexported to foreign countries. The regulation allows any foreign company toopen a branch in Nepal by getting its foreign direct investment approved as perexisting law.
Accordingto the new regulation, if any foreign invested company makes changes in theearned property, assets or shares, it should apply with the related documentswithin 30 days of the transaction. If any foreign investor wants to repatriatethe profits, the decision should be approved by the company's annual generalmeeting. If foreign investors, who have received approval to invest in theenergy, production, infrastructure or mine sectors, are unable to buy therequired land through their own efforts, they can apply to a government agencywith the proper documents.
Thenew regulation has allowed manufacturing industries with foreign investment toopen retail sales desks on their premises after getting approval from therelated government bodies. The director general of the Department of Industrycan order an investigation in response to complaints from foreign investorsregarding industry registration, regulation and inspection, The directorgeneral can order any head of the Department of Industry to conduct aninvestigation if it receives information that any company with foreigninvestment has engaged in activities beyond the conditions laid down by it. Bhusalexpects that the new regulation will facilitate foreign investment.
Thedepartment received foreign investment pledges of around Rs38 billion in thelast fiscal year 2019-20. Investment commitments in the first half of thecurrent fiscal year totalled around Rs21 billion, said Bhusal.
Nepalaims to become a middle-income country and achieve the Sustainable DevelopmentGoals by 2030. But the current level of investment is not enough for thecountry to reach the middle-income stage from the current low-income status astargeted, according to a World Bank report. One of the major sources ofbridging the financing gap is foreign direct investment, but Nepal is among thecountries attracting the lowest amount of investment in recent years.
TheSystematic Country Diagnostic Report published by the World Bank in Februarylast year revealed that foreign direct investment averaged just 0.2 percent ofthe gross domestic product over the last decade, which is one of the lowest inthe world. Foreign direct investment is vital for accessing new technologies,business practices, and markets. In the past few years, capital inflow in thecountry has seen an upward trend, but it still lags behind most South Asiancountries.