FOREIGN INVESTMENT

Background:

The wave of changes in the world economic order has affected all nations, big and small. In the process of adjusting the economy in line with these changes, neighboring countries have also adopted an open and liberal policy for strengthening their economic system. Accordingly, it is necessary for Nepal to introduce timely changes and reforms in various sectors of its economy to introduce dynamism in the process of economic development. In this context, it is opportune for us to make foreign investment attractive by framing a timely, liberal and open policy. The elected government has expressed strong commitment to this goal from the very beginning. Accordingly, this policy document clearly explains the objectives of foreign investment, the forms of such investment, their procedural aspects, the facilities and concessions to be provided to them, the quick and efficient administrative and institutional services to be made available through an one-window system and such other aspects with the belief that implementation of this policy will lead to the import of capital, modern technology, management, technical skills, access to international markets, development of competitive attitudes and awareness about increasing productivity, and thereby help in the development of an industrial culture in the private sector.

Nepal has opened the doors to foreign investment in comparatively recent time. Within a short period, however, 399 foreign investment projects with the total project cost of Rs. 53.3 billion have been registered.

The foreign investment in these projects amounts Rs. 11.6 billion. These foreign investment projects are mainly in hydropower, mineral exploitation, chemicals, tourist hotels and restaurants, specialized services and in food and beverage industries. These investments have come mainly from India, Japan, USA, China, S. Korea, Germany, France, Hong Kong, UK, Switzerland, Thailand, Pakistan, Austria, Singapore, Bermuda, Netherlands and Taiwan.

Objectives:

• To build a strong and dynamic economy by generating additional opportunities for income and employment through expanding productive activities.
   

• To increase the participation of the private sector in the process of industrialization.
   

• To increase productivity by mobilizing internal resources and materials in productive sectors and by importing foreign capital, modern technology, management and technical skills.
   

• To increase the competitiveness of Nepalese industries in international markets.

Permission for Industries to be Established Under Foreign Investment:

• Permission will not be granted for foreign investment in the industries specified in Annexure 6 for rest of the industries a permission is required.
• Foreign investments will be permitted up to 100 percent except the negative list.
• Permission can be granted to use foreign technology in the industries specified in Annexure 6.

Provisions for Repatriation:

Foreign investors who have received permission to invest in convertible currency can repatriate the following amounts outside Nepal at the prevailing rate of exchange.

• The amount received by the sale of the whole or any part of the equity investment.
   

• The amount received as benefits or dividends from foreign investment.
   

• The amount received as payment of principal and interest on foreign loans.
   

• The amount received under the agreement for the transfer of technology.
   

• The amount received as compensation for the acquisition of any property.
   

• Foreign experts, working in Nepalese industries with prior approval from countries where convertible currencies are in circulation, shall be permitted to repatriate in convertible currency up to 75 percent of the amount received by them as salaries, allowances, etc. 

• 5 percent income tax will be levied on royalty, technical and management service fees.

• Income tax will not to be levied on export income.

• Priority will be given in supplying electricity to the industries.

• No Intervention will be made in fixing prices of the products of any industry.

• Business visas shall be granted to foreign investors or their dependent family members or authorized representatives and their dependent family members to stay in the kingdom of Nepal so long as they maintain their foreign investment.

Provided that a Foreign Investor, who makes a lump sum investment of at lest US$ 100,000, or an equivalent amount in any convertible foreign currency, and his dependent family members shall be granted residential visas so long as he maintains his investment.

Forms of Foreign Investment:

• Equity investment made by foreign investors in the form of foreign currencies or capital assets and reinvestment of the income there from,
   
• Loans obtained in the form of foreign currencies or capital assets,
   
• Use of rights, specialization, formulae, processes and patents relating to any technology of foreign origin,
   
• Use of foreign owned trade-marks, goodwill,
   
• Use of foreign technical, consultancy, management and marketing services.

Facilities and Concessions:

The following facilities will be granted to industries established with foreign investment, without prejudice to avail the additional facilities, if any, available under the Industrial Enterprises Act.

• Interest income on foreign loans will be exempted from income tax.
   

• Royalties, technical and management fees will be taxed at the rate of 15 percent only.
   

• No income tax will be levied on the income earned from exports.
   

• Industries established with foreign investment are entitled to enjoy all the facilities and incentives including income tax facilities provided to local investment under the Industrial Enterprises Act.

Other Facilities:

• Facilities on Electricity: Industries will be given priority in the supply of electricity. No fee will be charged if an industry generates electricity for its own use. 
   

• Relief from Double Taxation: For the purpose of avoiding double taxation on incomes of foreign investors, His Majesty's Government will take necessary action to conclude agreements for the avoidance of double taxation with the countries of the concerned foreign investors. 
   

• Customs duty, excise duty and sales tax levied on raw materials and auxiliary raw materials of export-oriented industry shall be reimbursed to the exporters on the basis of the quantum of exports within 60 days from the receipt of the application for such reimbursement.
   

• Industries exporting 90 percent or more of their production are entitled to enjoy the same facilities provided to the industries established in the Export Processing Zone. The bonded warehouse shall also be continued.
   

• In case an industry sells its product within the country in convertible foreign currency, the excise duty levied on the quantity so sold and the customs duty, excise duty and sales tax levied on raw materials used in such products shall be reimbursed to such industry within 60 days upon the receipt of the application for such reimbursement.
   

• Customs duty, excise duty and sales tax levied on the production of intermediate goods used in the production of expor4:04 PM 8/20/99 goods and the sales tax levied on the production shall be reimbursed to the exporter on the basis of the quantity of goods exported within 60 days from the receipt of the application for such reimbursement.
   

• Priority will be given to arrange infrastructure facilities required for the establishment of industries.
   

• Government land and land within the Industrial District will be made available to industries for the establishment of industries on a priority basis.
   

• No intervention will be made in fixing prices of the products of any industry.
   

• No taxes will be levied on machinery and equipment, raw-materials and finished exportable products of industries established within the Export Processing Zone. 

Visa Arrangements:

A business visa will be granted to a foreign investor or his/her authorized representative as well as their dependents to stay in Nepal for the period during which a foreign investor maintains his/her investment. However, a residential visa will be granted to a foreign investor and his/her dependents for the period his/her investment is maintained in the industry, if foreign investor makes lump-sum investment of at least US$ 100,000.00 or the equivalent in convertible foreign currency. 

A non-tourist visa for a period of up to six months will be granted to any foreign investor who has come to Nepal to undertake research and study with the purpose of investing in Nepal.

Industries not to be Nationalized:

No industry will be nationalized. 

Arbitration:

• If a foreign investor, the concerned industry and the Department of Industry fail to settle among themselves any dispute concerning foreign investment, it will be settled by arbitration.
   
• Arbitration will be held according to the prevalent arbitration rules of the United Nations Commission for International Trade Law (UNCITRAL).
   
• The arbitration will be held in Kathmandu.
   

• *Notwithstanding anything mentioned in sub-sections 10.1, 10.2 and 10.3, disputes arising on a foreign investment with a specified investment may be settled as mentioned in foreign investment agreement.

Arrangements Relating to the One Window System:

The following arrangements will be made to provide services through an one-window system to industries operating under foreign investment. 

• Permission and Registration:

1. In order to provide, in a quick and effective way the approval, facilities and other administrative services to industries to be established under foreign investment or technology transfer agreements and in order to establish effective co-ordination among various agencies, the Department of Industry will be designated as the one window servicing agency with the Industrial Promotion Board as a focal point as spelt out in the Industrial Enterprises Act. 
    

2. The following One-Window Committee will be formed to provide infrastructure facilities such as registration, land, electricity, water and facilities on taxation, etc. under an one-window system for industries to be established with foreign investment.
    

3. The Department of Industry will inform the applicant of the decision of the Board on foreign investment project within 30 days from the receipt of the application. 
    

4. The facilities and concessions to which an industry is entitled shall be specified in the letter granting approval. 
    

5. Application for the registration of an industry should be submitted to the Department of Industry within 35 days from the date of receipt of approval for foreign investment. The Industry will be registered within 21 days from the date of receipt of the application.
    

• Institutional Arrangements:

1. The Department of Industry will be reorganized and expanded with the objective of promoting foreign investment, granting approval and providing facilities and administrative services through the One-Window System. The Department will be upgraded and the status of the Director General will be made equivalent to the position of an Additional Secretary of HMG.
    

2. The power and authority concerning facilities and services of the agencies such as Ministry of Finance and its Departments, Department of Commerce, Nepal Rastra Bank, Department of Immigration etc. will be delegated to the One-Window Committee.

• Other Arrangements:

1. Industries established under this policy will continue to enjoy all time-bound facilities to which they are entitled even if any subsequent change is made in this policy. 

The Foreign Investment and Technology Transfer Act 1992 defines " Technology Transfer " as any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:

1. Use of any technological right, specialization, formula, process, patent or technical know how of foreign origin.
2. Use of any trademark of foreign ownership.
3. Acquiring any foreign technical, consultancy, management and marketing service.

<< Note: Please visit HMG Export Promotion Board for detail. >>