Summary of the Foreign Investment and Technology Transfer Rules 2021 (2077)
As soon as the Foreign Investment and Technology Transfer Act, 2075 (hereinafter referred to as “Act”) was enacted, foreign investors, entrepreneurs and other stakeholders were all set to welcome its Rules as it would materialize what the Act had envisioned. Rightfully so, the Foreign Investment and Technology Transfer Rules, 2077 (hereinafter referred to as “Rules”) has further enhanced and simplified the process relating to foreign investment in Nepal specifically relating to compulsive investment periods, repatriation of investment yields, and so on.
Here are some major highlights of FITTR, 2021 that aids to expedite foreign investment in Nepal.
- Detailed routes of investment in Nepal ( Rule 3 & 4 )
As per Rule 3, any foreign investor may make foreign investment in Nepal by purchasing the assets of any industry or business established in Nepal, other than the industries or businesses mentioned in the schedule of the Act, or by acquiring 100% shares of such industry. Further, they can also make lease investments in airplanes, watercraft machine tools, construction equipment or other similar equipment. Industry established abroad can establish or expand its branch industry subject to various procedural requirements.
- Documentation requirement (Rule 8)
A foreign investor willing to make a foreign investment in an industry in Nepal, must submit the following details and documents to the foreign investment approving authority:
|Two copies of Project Proposal with Investment Action Plan,
|In case of more than one investor, two copies of the joint investment agreement between such investors,
|If the foreign investor is a natural person, a copy of their passport and their bio-data,
|In the event where such foreign investor is a company, certificate of registration of the company issued in the respective country, Memorandum of Association, Article of Association, details regarding the Board of Directors (BOD) and the shareholders, the company profile, and the BOD resolution regarding investment in Nepal,
|If the foreign investor is a firm, registration certificate of such firm, and in case of a partnership firm, the details of the partner and the decision between the partners regarding investment in Nepal and the profile of the firm,|
|If the foreign investor is a foreign national of Nepali origin or a Nepali citizen living abroad, documents to confirm such,|
|If the foreign investor is an international organization, the identity of the constitution of such organization, the profile of the organization and the organization decision regarding investment in Nepal,
|Financial credibility certificate issued by a foreign bank,
|If the foreign investor is unable to attend in person, power of attorney by them and identification document of such authorized person.
Note: Submission of the aforementioned documents through online medium has been introduced by the Rules.
- Period within which Foreign Investment has to be made (Rule 9)
Specifying the time limit whereby the foreign investment is to be made, the Rules provides for the following:
|S.N||Approved Investment Limit||Percentage of Investment amount to be made within one year|
||Minimum investment amount for foreign Investment specified by the Government of Nepal||At least 25% of the approved investment amount|
||Minimum amount specified by Government of Nepal to 250 million NPR||At least 15% of approved investment amount|
||250 Million to 1 Billion NPR||At least 10% of approved investment amount|
||More than to Billion NPR||At least 5% of approved investment amount|
However, the foreign investor must invest at least 70% of the approved investment amount before the commencement of commercial production or transaction of the industry or business and the remaining 30% shall be invested within two years of starting commercial production or transaction.
- Repatriation Provisions (Rule 5 & 11)
Repatriation of the royalty amount and other charges pursuant to the technology transfer shall be determined by the agreement between the parties. Introducing the ceiling amount for such repatriation, the Rules has provisioned for following limitation in the repatriation of the royalty amount and other fees:
Limit on Royalty or other charges relating to the technology transfer
|Royalty||In case of sales within Nepal
|In case of quantity of foreign exportation|
|Royalty on lump sum or in total sales amount
|Up to 5% of the total sales price excluding taxes
|Up to 10% of the total sales price excluding taxes
|Royalty on net profit||Up to 15% of the net profit||Up to 20% of the net profit
Limit on Royalty or other charges against use of Trademark only
|In case of sales within Nepal
|In case of foreign export of Quantity|
|For liquor and tobacco based industries, 2% of the total sales price excluding tax||For liquor and tobacco based industries, up to 5% of the total sales price excluding tax|
|For other industries, up to 3% of the total sales price excluding tax.||For other industries, up to 6% of the total sales price excluding tax.|
Further, the Rules provides for the details regarding repatriation of various forms of investment yields. As per Rule 11, any foreign investor willing to repatriate their foreign investment and the output thereof, shall be required to submit an application to the foreign investment approving authority in a prescribed format, along with following documents:
|The minute of the general meeting and the meeting of the Board of Directors of the company regarding repatriation of money earned from the investment made by the foreign investor,|
|Updated Share Register and Directors’ Register certified by Office of the Company Registrar,|
|Audit report of the previous financial year of the company and tax clearance certificate,|
|Proof that the concerned investor has invested in accordance with the prevailing law,
|In case of an amount earned from the sale of shares, approval of sale of shares and a copy of approved share purchase agreement,|
|Amount and the details of profit or dividend, minute of the General meeting concerning the distribution of such, proof of distribution of bonus in accordance with the prevailing law and the audit report of such financial year as per the prevailing law,|
|If payment has to be made in accordance with the lease agreement under the lease investment, documents related thereto,|
|In case of an indemnification or compensation to be made, owing to the finalized case or mediation, the documents related thereto,
|In case of royalty amount, the documents related thereto,|
|Proof relating to the records of sale of property and transfer of entitlement to shares,|
|Other documents prescribed by the foreign investment approving authority.|
- Identity card facility (Rule 12)
The Rules has initiated the provision of identity cards to the foreign investors based on their investment amount, in following manner:
|S.N||Investment amount||Type of Identity Cards|
||NPR 50 million to NPR 250 million||Ordinary foreign investor|
||NPR 250 million to NPR 1 billion||Special foreign investors|
||More than NPR 1 billion||Extraordinary investors|
- Flexibility of opening sales room (Rule 15)
The industry established under a foreign investment shall be allowed to open a separate salesroom in it s industrial premises for the retail sale of its products with the approval of the concerned body. However, only goods produced by the same industry can be sold from the salesroom opened accordingly.
With an aim to make the national economy competitive, strong and employment-oriented through the creation of an investment friendly environment for foreign capital, technology and investment, the Rules has definitely established a detailed framework regarding the foreign investment operation in Nepal. Furthermore, such an elaborated legal framework acts as a catalyst for the development in the sectors of import substitution and export promotion through increase in productivity and infrastructure development.
Disclaimer: The article is intended for information purpose and reading reference only. Professional advice is to be seeked if required.
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