Interview on FDI- Nepali Patra

5/29/16 Foreign investor's trip to Nepal in the quest of investment opportunities have never been stopped
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Foreign investor's trip to Nepal in the quest of
investment opportunities have never been
stopped
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Few weeks ago, British Trade Delegates visited Nepal with an intention of examining
foreign investment opportunities in Nepal. Their visit was facilitated by British-Nepal
Chambers of Commerce (BNCC). Altogether, there were 11 companies from Britain on
their trade mission to Kathmandu. In their visit, the BNCC facilitated to arrange meeting
with high officials of several ministries, corporate houses, FNCCI and CNI including
other trade associations, where they discussed and shared various investment issues,
prospects and areas of investment including investment environments and
Government's position towards foreign investors.
During their visit, BNCC also organized a presentation and an interaction program
regarding legal aspects of foreign investment in Nepal. BNCC invited a legal
practitioner in investment laws, who is also the law graduate from UK, Advocate Saroj
K Ghimire (Partner, Pradhan, Ghimire & Associates) for the presentation and to
interact with business delegates on various issues of investment including
opportunities and facilities of foreign investment in Nepal and challenges. This
interview is thus based on the presentation and interaction Advocate Ghimire had with
the business delegates of BNCC in Nepal.
How have you taken the initiation of BNCC to facilitate the trip of British
Delegates in Nepal for investment hunt?
Advocate Saroj K Ghimire

First of all, I would like to thank BNCC on behalf of all involved for making it possible for
the British business delegates to visit Nepal. I believe the delegates had very good time
in this beautiful country which is full of resources and has ample opportunities for
investment. I believe the delegates also received affirmative responses and
commitments from the various Ministries and Governmental offices to facilitate foreign
investors to inject foreign capital to enhance economic activities within the country.
Further, witnessing the country's political scenario post 1990s, after the restoration of
democracy, Nepal went through several difficult political and socio economical
transition. However, foreign investor's trip to Nepal in the quest of investment
opportunities has never ceased. In continuation of this, the visit of the trade delegates
from Britain is expected to attract investments from Britain, should the government
authorities' work as per the commitments given by laws and policies of Nepal. Thus,
despite various unpleasant situations faced by the country due to the earthquake and
the economic blockade, their visit has given some hope of a growing foreign investment
scenario in the country.
What were major areas of investment concern of business delegates?
Observing the corporate background and interest of the delegates, I believe that they
were highly interested in investing in a variety of sectors which included transportation,
training and development, health and hospitals, chain restaurants and franchise
businesses, education, hydropower,banking sector, art, culture and the movie industry.
Could you explain the area how foreign investment is facilitated by the laws
of Nepal for foreign investors?
In Nepal, foreign investment is governed by the Foreign Investment and Technology
Transfer Act 1992 (“FITTA”). As per FITTA, foreign investment in Nepal should be in the
form of foreign currency or capital assets or foreign loans. The re-investment of
earnings from foreign investment also constitutes as foreign investment. A foreign
investor can make an investment either in the form of a wholly owned foreign venture
(subsidiary) or a joint-venture or in the form of technology transfer.
The FITTA permits foreign investors in equity participation up to 100 percent in almost
all sectors except telecom, aviation, banking and insurance, and consultancy services
relating to accounting, engineering and management etc., where local equity

participation is a must. The minimum threshold amount of foreign investment in Nepal
is NPR 5 million (approximately US$ 50,000) which a foreign investor must meet to get a
Foreign Direct Investment approval from the Department of Industry.
In addition to those direct forms of foreign investment in the form of use of rights,
specialization, formulae processes and patents of foreign origin, use of foreign owned
trademarks and goodwill and use of foreign technical, consultancy, management and
marketing services are treated as technology transfers under the FITTA, which may be
borrowed in Nepal by the local industries and businesses. Any foreign investor, who is
desirous of making a foreign investment in or transfer technology to Nepal, requires to
obtain necessary approvals from the Department of Industry and/or any relevant
governmental authorities as per the nature of business, the foreign investor seeks to
invest.
Further, the FITTA has allowed foreign investment in various other sectors including
manufacturing, hospitals, education, hotels and restaurant, information technology,
energy, tourism, mineral resource, agro-based industries, service industries,
construction industries etc. In the year 2010, the Parliament enacted the Investment
Board Act 2010 and formed the Investment Board for facilitating mega projects relating
to infrastructure and service sectors in the areas of construction, mining industry,
tourism industry and airlines service industry, having a fixed capital of at least one
billion rupees project cost with various modalities including foreign investment and
Public Private Partnership.

What would be the investment mode that foreign investor require to comply
in Nepal?
As of now, FITTA allows only direct forms of investment in equity or shares, although
the Government has recently committed to introduce port folio investment in the
Investment Policy, 2015 as well. An equity investment may be made in a new entity or
an existing industry by transfer of shares. Foreign investment in an existing industry by
transfer of shares may be done in two ways; either by transferring the shares of
existing shareholder or by issuing new shares to a foreign partner, which may be
issued either from the reserved shares or by increasing the issued share capital of the
company.
Are there any areas where foreign investment is restricted by the investment
laws of Nepal?
Yes, there are certain sectors where foreign investment is not allowed. These sectors
are mentioned in the Negative List of FITTA. FITTA restricts foreign investment in the
areas of cottage industries which includes knitting, pashmina, garments, handicrafts,
boutique, dolls and toys industries. In addition, industries relating to beauty parlor,
tailoring, real estate business excluding construction, motion pictures, retail business,
trekking agency, water rafting are other areas which fall under the negative list and
hence, are prohibited for foreign investments.
Is there any conditions that the concerned authority considers to approve
investment or its just simply grant permission for foreign investment?
All foreign Investors may not be granted approvals, even in the sectors where foreign
investments are permitted by the FITTA. There are various factors that are taken into
consideration by the relevant government authority, before granting such investment
approval. Major factors of consideration for foreign investment are based on financial
and technical viability of the investment project.
Apart from this, other major factors of consideration for evaluation and approval of
foreign investment and technology transfer projects include foreign investor's
potential contribution to employment generation, foreign exchange earnings,
availability of raw materials, requirement of foreign currency for the purchase of raw
materials, manufacturing process (in case of production industry)., project inputs

requirement (power, water etc.), the impact of industry on the environment, the
pollution control measures proposed to be set up under the project, market aspects
and national benefits including value addition etc.
How Nepalese investment laws have assured to the foreign investor for the
protection of their investment?
Nepal has always realized the importance of foreign investment due to its immense
potential as a stimulant for development. The laws and policies relating to foreign
investments have given several commitments for protection of foreign investment and
creation of an investor friendly environment. Recently, the Constitution of Nepal 2015
has also realized the importance of foreign capital for the economic development of
the country and has given a commitment for the protection of foreign investments.
Thus, Nepal ensures protection of investment of foreign investors in various ways. For
example, a statutory provision guarantees the non-nationalization of industries under
any circumstances. Apart from the statutory provision, Nepal has ratified various
international conventions including Multilateral Investment Guarantee Agency (MIGA),
WTO, BIMSTEC, SAFTA, Avoidance of Double Taxation Agreement, Paris Convention on
IPR and The New York Convention relating to Arbitral Awards and has committed to be
abided by the ratified Treaties.

Further, Nepal has also entered into Reciprocal Encouragement and Protection of
Investment Agreements with India, Finland, France, Germany, the UK and Mauritius
which ensures protection of the foreign investments by guaranteeing equitable and
non-discriminatory treatment for use, enjoyment or disposal of investments,
compensation for losses and expropriation, free transfer of capital, loans and profits
and access to legal remedies.
Foreigner investors have shown their serious concern regarding repatriation
of their earnings as there are few examples where the concerned authority
have been objecting to repatriate foreign investment earnings. In this
scenario, does investment law restrict repatriation of investment earnings in
Nepal?
Repatriation of profits and earnings generated from foreign investments are regulated
but not prohibited under the laws of Nepal. The FITTA has ensured that foreign
investors may repatriate principal, profits, interests, technology transfer fee and
royalty. In addition, a foreign investor is entitled to repatriate the amount generated
from the sale of shares, the dividend or profits received from the investment, the
principal and interest of the foreign loan, and the fee and royalty received for the
technology transfer. Repatriation up to 75 percent of salaries, allowances and other
earnings is also permitted for foreign expatriates. However, repatriation is permitted
upon recommendation of the concerned department. The authorities in Nepal are
more concerned with the procedural compliances, as every investment are subject to
approval and are to be transferred in and out of Nepal strictly via banking channels.
Any concerns that the authorities might have raised may be due to procedural
compliances and not for restricting repatriation. Hence, repatriation is fully secured
but procedural compliances are mandatory at the same time.
Foreign investors also showed their concern relating to enforcement of
arbitral award in Nepal, could you briefly state the scenario of enforcement
of arbitral award in Nepal?
FITTA has provided to facilitate the settlement of investment disputes amicably and in
the failure of the same, the dispute may be settled by arbitration in accordance with
the prevailing arbitration Rules of the United Nations commission on International
Trade Law (UNCITRAL). Investors are free to mention the dispute settlement
mechanism in their contracts with the local parties. In addition, the law of Arbitration of

Nepal ensures that foreign arbitral awards are recognized and enforced in Nepal,
provided that such awards are in conformity with Nepalese laws. Though, I have not
witnessed the recognition and enforcement of a foreign arbitral award in my
experience, we are hopeful of getting an affirmative decision in this aspect from the
competent courts of Nepal, which will no doubt ensure that the confidence of foreign
investors remains high in the investment prospects in Nepal.
Would you point out other affirmative commitments of the government that
may motivate the foreign investors for their investment in Nepal?
In addition to the various commitments expressed legislatively and administratively for
facilitating foreign investment in Nepal, recently the Ministry of Industry has framed
Foreign Investment Policies 2015 with the commitment to facilitate foreign investors by
reforming laws and policies in timely manner, adapting simplified investment
procedure, enhancing competence, structural reforms in the administration of foreign
investments, forming and mobilizing industrial security forces, adopting flexible
immigration policies, enhancing and adopting economic diplomacy, opening portfolio
investment, facilitating Non Resident Nepalese for bringing investments in all sector
sand enhanced protection of intellectual property rights in a more effective manner to
create a foreign investment friendly environment within the country.
At the end, what would be your suggestion for creating foreign investment
friendly environment in Nepal?
Nepal lies between two of the biggest nations in terms of population and economy and
is surrounded by four big host economies of Asia including India, China, Pakistan and
Bangladesh. China is the biggest host nation worldwide. China today is the largest host
nation, not because of its size and resources, rather due to the opportunities and
investment attitudes that it maintains all around, which are the key factors
instrumental in creating an investor friendly environment and attracting foreign direct
investments.
Referring to our country, attracting foreign investments in Nepal is quite a challenge.
Unless, our concerned governmental authorities demonstrate their positive attitude
and responsible behavior in administrative reforms, structural competence along with
an investment aptitude, responsiveness and humility towards foreign investors, and

eradicating or minimizing corruption and maintaining ethical and moral standards,
legal commitments made in the foreign investment sector will be highly ineffective in
achieving the desired goals.
Advocate Saroj K Ghimire , Partner at Pradhan, Ghimire & Associates, Corporate law
Firm of Nepal. He is also an Asst. Prof. of Law at Tribhuvan University, Nepal and
available at: sarojghimire@hotmail.com
 BNCC (/news/tag/BNCC)  Foreign investment (/news/tag/foreign investment)
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5 Comments Sort by
Bikas Baral · Tribhuvan University
very good infomration for Investor
Like · Reply · Apr 4, 2016 3:36pm
Jiblal Pandey · Bhanukta ma b
relevence knowledge & good information interview.
Saroj Ghimire · Partner at Pradhan Ghimire & Associates
A slight error on the amount related to project cost that would be facilitated by the Investment
Board which is NPR 10 Billion whereas its mentioned NPR One Billion.
Uddhav Babu Tripathi · Director(Sales) at Kasturi Pharmaceuticals Pvt.Ltd.
I read interview thoroughly n convinced that we have good laws and government has various
commitment to facilitate FDI but we require to improve our attitude especially Civil servants .
It's a grt interview to be benefitted by all prospective foreign investor. Great Saroj we wish to
read more in the days ahead. Thanks to Nepali Patra for making possible to read by
Europeans n Brtish nationals n NRNs
Nir Bdr Pakhren · Legal Advisor at Panchpokhari Weekly
Very informative idea sir....
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