Foreign Investment By NRNs Into Nepal

The legal regime for foreign investment by Non-resident Nepalis (NRNs) into Nepal is primarily regulated by the Non-Resident Nepali Act 2064, and the Foreign Investment and Technology Transfer Act 2075. NRNs are of two types, namely, a) foreign citizen of Nepali origin: any person whose father, mother, grandfather or grandmother was a citizen of Nepal at any time and has subsequently acquired the citizenship of any other foreign country other than a member country of the South Asian Association for Regional Cooperation (SAARC), and b) Nepali citizen residing abroad: any Nepali citizen who is residing in any foreign country for at least two years and involved in any profession, occupation, business and employment except in the SAARC region. The definition of NRN also excludes any person who is serving in a diplomatic mission or consulate situated in a foreign country under the assignment of the government of Nepal or who is studying in an academic institution situated in a foreign country.

With regards to foreign investment, NRNs may, through him/herself or through a foreign company in which s/he owns more than 50% of the shares can invest his/her money earned abroad in entities classified as an ‘industry’ in terms of the Industrial Enterprises Act, 2076, except in the following areas:

  • Poultry farming, fisheries, bee-keeping, fruits, vegetables, oil seeds, pulse seeds, milk industry and other sectors of primary agro-production.
  • Cottage and small industries
  • Personal service business (hair cutting, tailoring, driving etc.)
  • Industries manufacturing arms, ammunition, bullets and shell, gunpowder or explosives, and nuclear, biological and chemical (NBC) weapons; industries producing atomic energy and radioactive materials.
  • Real estate business (excluding construction industry), retail business, internal courier service, local catering service, moneychanger, remittance service.
  • Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay
  • Business of mass communication media (newspaper, radio, television and online news) and motion picture of national language.
  • Management, account, engineering, legal consultancy service and language training, music training, computer training.
  • Consultancy services having foreign investment of more than 51%.

Further, the specific concessions for undertaking certain industries and/or businesses may also be issued by the Government of Nepal from time to time.
For an NRN to open a bank account in Nepal in convertible foreign currency, one needs to have an ID card. This ID card will be issued to an NRN only if s/he is registered with the Chief of the concerned Mission, if s/he is abroad, or with the concerned Secretary of the Foreign Ministry, if s/he is in Nepal.

Further, the amount of foreign investment made by an NRN must be injected through a licensed commercial bank or financial institution in Nepal. NRNs may even hold a top management position in the industry s/he has made such investment in, without losing the NRN status. As such, if an individual wishes to hold such a position, then it is advised that the foreign investment be made in the name of the individual and not in the name of his/her company.

Additionally, considerations also need to be made in relation to visa, repatriation, employment law, and taxation. Inflow of foreign currency through an NRN is subject to some tax relief in terms of Section 12 of the Non-resident Nepali Act 2064.

It is also the duty of the NRN to inform the Nepali authorities of the foreign investment s/he has made in Nepal. This information is to be given in the format prescribed in Schedule 7 of the Non-resident Nepali Rules 2066. Further, an NRN is entitled to receive a certificate of capital foreign investment from his/her bank (through which the concerned capital was transferred). NRNs are also required to have their inward investments recorded with Nepal Rastra Bank.

Generally the documents to be prepared include: (i) willingness letter to subscribe/purchase shares of the Company, (ii) charter documents of the investor (only applicable if the investor is a company), (iii) financial credibility certificate issued by the concerned bank of the investor, (iv) commitment letter of not repatriating the share transfer amount for at least one year of its investment, (v) letter stating the time schedule within which the investor brings in the investment amount in Nepal, (vi) letter stating source of income of the investor.

For a clearer understanding, the investment flow chart below provides for the brief outline of the process map for foreign investment by an NRN in Nepal:

STEP 1: Registration/Recording as NRN
STEP 2: Acquiring ID Card as NRN
STEP 3: Acquiring approval from Department of Industries (DoI) / Investment Board Nepal (IBN) for foreign investment (this will depend on the nature of the industry and the volume of the proposed investment). This is presently being reviewed in relation to NRNs with Nepali citizenship.
STEP 4: Incorporation of local industry, if applicable.
STEP 5: Bank account, PAN, local body registration, industry registration (along with sector specific permissions), and industrial and environmental clearances, if applicable.
STEP 6: Acquiring certificate of investment from the concerned bank.
STEP 7: Nepal Rastra Bank recording
STEP 8: Informing Ministry of Foreign Affairs of the investment made in the prescribed format.
STEP 9: Recruitment of employees, and compliance with labour laws, if applicable.

With regard to the practical issues relating to the aforementioned, there is some on-ground ambiguity as a result of some contractions between the Non-Resident Nepali Act 2064, and the Foreign Investment and Technology Transfer Act 2075. Because of this, it will remain important for NRNs to seek adequate legal advice while bringing in foreign investment into Nepal.

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Nida Doon-Malla Dharma Acharya

Nida Doon-Malla is a Consultant at Pioneer Law Associates with a focus on Investment, Infrastructure, Development Sectors, and Alternative Dispute Resolution. Dharma Acharya is an Associate at Pioneer Law Associates and focuses his practice in the areas of Employment and Investment Law while also appearing before the courts of Nepal.

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