Foreign Investment and Technology Transfer Act of Nepal

Foreign Investment and Technology Transfer Act of Nepal

The Foreign Investment and Technology Transfer Act of 2019 (FITTA) replaced the Foreign Investment and Technology Transfer Act of 1992. The goal of FITTA is to modernize Nepal's existing foreign investment legislative framework in order to facilitate new investments. This act intends to increase industrialization and foreign investment for sustainable growth of the national economy and attract more foreign investment under this act by utilizing available resources and forming the legal framework.

Any foreign investors should acquire approval from the regulatory department of industries and the investment board of Nepal.

Scope of FITTA

FITTA which governs foreign investment and technology transfer has a wider scope than the previous one. The definition of a foreign investor now includes Non-Resident Nepali (“NRN “) alongside foreign individuals, firms, organizations, and governments.

According to the law, investors must transfer their pledge funds within a year of the project’s approval. The international investors will be given an identity card based on the amount of money they invest. All foreign investors and their official representatives will receive identity cards. According to the investment portfolio, business visas will be awarded to foreign investors, their official representatives, and their family members.

FITTA act previously covered the following

a) Investment in share (Equity);

b) Earning from the investment are re-invested

c) Investment made in form of loans or loan facilities as an investment.

 

Now FITTA act covers the following areas in foreign investment:

 

(a) Investment in shares in foreign currency;

(b) Re-investment of the profits earned from foreign currency or shares, dividends;

(c) Investment through the lease of airlines, ships, machinery, construction equipment;

(d) Investment in venture capital fund;

(e) Investment in the secondary stock market;

(f) Investment by issuing securities in foreign stock markets through the means of secondary securities market

(g) Investment done by purchasing shares or assets of the company established in Nepal;

(h)Technology transfer (foreign intellectual property licensing, franchising, management, technical, and marketing services) and investment

(i) Investment done by establishment and expansion of industry in Nepal.

A foreign investor can invest individually or jointly in any approved industry, or through a joint venture with a Nepalese citizen or firm based in Nepal. The law does not specify a minimum or

maximum threshold for foreign investment.

 

Technology Transfer, Approval and royalty

 

Licensing of foreign intellectual properties such as patient, design, trademark, goodwill, formula, process, user license, technical know-how, franchise, and foreign technical consulting and management services are all part of technology transfer.

A foreign investor can invest in any Nepalese business through technology transfer. The terms of technology transfer must be in conformity with the Technology Transfer Agreement. The approving authority for foreign investment must approve such an arrangement. The Department of Industry must authorize any technology transfer deal, and technology transfer is permitted even in areas where foreign investment is prohibited.

After the Department of Industry gives its approval, royalties and fees from technology transfer agreements can be repatriated.

 

Investment amount

 

Pursuant to the notice of the Ministry of Industry, Commerce, and Supplies dated 29 May 2019, a foreign investor is required to invest at least NPR 50 million (approx. USD 450,000) as a minimum investment amount.

The regulations will specify a timeline for investment. If the investment is not completed within the stated time frame without justifiable cause, the approval will be canceled.

 

Foreign loan

 

On the suggestion of the Ministry of Industry, Commerce, and Supplies and with the consent and approval of the Nepal Rastra Bank, any company with foreign investment can obtain loans from a foreign institution under the ‘Project Loans' or ‘Project Financing' arrangement. However, FITTA does not classify loans as foreign investments and keeps them separate, DOI permission is no longer required to obtain loans.

The FITTA allows a public corporation or a corporate body (that is permitted to issue securities) to get a loan by selling debentures, bonds, or other securities on a foreign stock exchange.

On overseas commercial borrowing, there is a rate cap of One Year Libor + 5.5 percent, as well as other conditions to show that borrowing from local banks and financial institutions is not practicable.

 

Approving Authority

 

The approving authority of foreign investment is determined by the amount of investment as set out below:

     

Visa facilities

The FITTA clearly defines eligibility for several sorts of visas, such as non-tourist visas, business visas, and residential visas for foreign people who invest in the United States, and is in line with the Immigration Law. Following facilities related to visas will be provided for the foreign investor:

1.    Foreigners willing to come to Nepal for study, research, or survey for investment will be provided with a 6-month non-tourist visa.

2.    Investor or one authorized representative of the investor and his/her family members will be provided with a business visa for the investment made up to the minimum investment amount.

3.    For investors investing more than the fixed minimum investment amount, a business visa is provided to a maximum of two-person and their family members.

4.    For investors investing more than USD 1 million at a time, such investor or representative and their families will be provided with a residential visa.

5.    Foreign specialists, technicians, or managerial staff will be provided with a non-tourist visa.

After obtaining a work permit, foreign technicians and managerial staff can be enrolled in the company if that kind of manpower is not available in Nepal.

One-stop service mechanism

FITTA has incorporated a new provision of a one-stop service mechanism that was not included in the previous provision to provide exemptions, facilities, concession, or services to the foreign investor through a single service mechanism. One-stop Service Centre has recently been established within the premises of the Department of Industry for the facilitation of foreign investment.

The services include registration of industries, labor permits, visa services, other approval, and quality control of the products.

Repatriation

FITTA enables foreign investors to repatriate all forms of investment as per the law after clearing all applicable taxes. FITTA permits to repatriate profits, benefits, income, proceeds of the sale of shares. Foreign investors should confirm that they have followed “laws, agreements and obligations” so as to be permitted to repatriate. Investors can repatriate the amount of investment in the same currency of investment or in other convertible foreign currency with the approval of Nepal Rastra Bank.

Process of repatriation:

1. Issue an application for repatriation to the DOI/IBN

2. DOI/IBN inquiry for the fulfillment of terms and liabilities

3. DOI/IBN Issue the recommendation for repatriation

4. Apply application for the facility of foreign currency exchange

5. NRB provides the approval for repatriation

Dispute settlement mechanism

The FITTA allows parties to engage in an agreement for the resolution of a dispute. This means that an investment agreement can be controlled by foreign law, and any disputes arising out of it can be brought before foreign courts or arbitrated.

If a foreign investor and Nepalese nationals have a disagreement, it should be resolved by mutual conversations or negotiations. If a problem cannot be addressed by mutual discussions or negotiations within 45 days of its occurrence, it must be resolved according to the joint investment agreement or a dispute resolution agreement, if one exists.

Within 15 days of a dispute's resolution, the Department of Industry/Investment Board must be notified. If the disagreement cannot be settled after the aforementioned actions have been taken, the case must be resolved according to Nepal's current arbitration statutes.

Restricted areas for investment

The following sectors are restricted by FITTA for foreign investment:

Animal husbandry, pisciculture, beekeeping, fruits, vegetables, oilseeds, dairy products, poultry farming, and other primary sectors of agriculture

Cottage industries and small industries

Personal service-related business such as tailoring, driving, barbershop, beauty parlor;

Arms and ammunition industry that manufactures arms and ammunitions, explosives, nuclear biological and chemical weapons, atomic energy, and radioactive materials;

Purchasing and selling real estate other than residences, as well as remittance services;

Travel agencies, tour guides, hiking and mountaineering guides, and rural tourism such as homestays

Newspapers, radio, television, and online news, as well as national language films; 

Management, accounting, engineering, legal consultation services and language training, music training, computer training; and

Any other consulting services having more than 51% of foreign investment

 

 

Share:
Other Blog
Browse Lawyers Alphabetically