Chapter-2 Foreign Investment

 Foreign investment may be made: (1) A foreign investor may make foreign investment in any industry and derive gains from such investment.

(2)        Notwithstanding anything contained in sub-section (1), no industry operated with foreign investment may make foreign investment of profits earned or in any other manner, in any industry referred to in the Schedule.

Provided that technology transfer may, with the approval of the Department, be made in an industry referred to in the Schedule which is established with Nepali investment.

(3)        Notwithstanding anything contained in sub-section (1), approval shall not be given for making foreign investment in any industry of an amount that is less than the amount specified by the Government of Nepal by a notification in the Nepal Gazette.

  1. Foreign investment may be made individually or jointly: A foreign investor may make foreign investment individually or jointly or by establishing an industry jointly with an industry established in Nepal or a Nepali citizen.
  2. Foreign investment may be made by purchasing assets or shares of industry:A foreign investor may make foreign investment by purchasing the assets of or shares not exceeding the prescribed percent of any industry established in Nepal.
  3. Lease investment may be made: A foreign investor may make foreign investment, subject to the prescribed ceiling, in any aircraft, ship, machinery and equipment, construction equipment or similar other equipment.
  4. Investment may be made through technology transfer: (1) A foreign investor may make foreign investment by making technology transfer in any industry established in Nepal.

(2)        The terms of technology transfer to be made pursuant to sub-section (1) shall be as specified in the technology transfer agreement entered into between the concerned industry and the foreign investor.

(3)        The agreement referred to in sub-section (2) may not provide for the repatriation of royalty in excess of the prescribed ceiling.

(4)        The agreement referred to in sub-section (2) has to be got approved by the foreign investment approving body.

(5)        The foreign investment approving body may, in giving approval pursuant to sub-section (4), specify the necessary terms on the basis inter alia of international practices on foreign investment and production and selling capacity of the industry.

  1. Foreign investment may be made by establishing a branch: (1) Any industry incorporated in a foreign country may make foreign investment by establishing or expanding its branch industry in Nepal, subject to the prevailing law.

(2)        Other provisions relating to establishment or expansion of a branch of the industry pursuant to sub-section (1) shall be as prescribed.

  1. Foreign investment may be made by establishing venture capital fund: An institutional foreign investor may, for the purpose of investing equity in any industry, establish a venture capital fund by incorporating a company in accordance with the prevailing law, and by obtaining approval of the Securities Board.

(2)        An approval shall have to be obtained by fulfilling the procedures referred to in Section 15 for the investment in an industry from the fund referred to in sub-section (1).

(3)        Such a company shall provide the statements of the venture capital fund referred to in sub-section (1) to the Department in every six months.

(4)        Other provisions relating to the fund established pursuant to sub-section (1) shall be as prescribed.

  1. Trading in securities may be made: (1) An institutional foreign investor establishing a venture capital fund pursuant to Section 9 shall have to be registered in the Securities Board for trading in securities.

(2)        The foreign investor registered in the Securities Board pursuant to sub-section (1) may, through the secondary securities market, trade in securities of an industry in which foreign investment may be made pursuant to this Act.

(3)        In carrying on trading in securities pursuant to sub-section (2), the minimum number of securities to be purchased, the ceiling of investment, minimum period for which it has to held the securities after the purchase, reserve fund to be held in foreign currency for purchasing securities and other provisions related thereto shall be as prescribed.

  1. Loan may be borrowed or foreign currency acquired by issuing securities: (1) Any public limited company incorporated in Nepal or a corporate body authorised under the prevailing law to issue securities may, with the approval of the Nepal Rastra Bank and the Securities Board, borrow a loan or acquire foreign currency by issuing bonds, debentures or other securities in the capital market of a foreign country.

(2)        A company which is incorporated with foreign investment in Nepal may, subject to the prevailing law relating to securities, borrow a loan by issuing securities within Nepal.

(3)        A loan borrowed or foreign currency acquired by issuing securities pursuant to sub-sections (1) and (2) shall have to be invested in Nepal.

(4)        Other provisions relating to the issuance of securities referred to in this Section shall be in accordance with the prevailing law relating to securities.

  1. Loan may be borrowed from foreign financial institution: Any industry having foreign investment may on the recommendation of the Ministry and with the approval of the Nepal Rastra Bank, in accordance with the prevailing law, borrow a project loan from, or a loan by entering into a project financing agreement with, any foreign financial institution.
  2. Maximum Ceiling threshold of foreign investment not to be prescribed: (1) No maximum ceiling of the amount to be invested and the share of investment by a foreign investor wishing to make investment in Nepal shall be prescribed.

(2)        Notwithstanding anything contained in sub-section (1), in the case of service industry, the maximum ceiling of equity foreign investment and ceiling of investment to be made in securities pursuant to Section 10 may be so prescribed as not to be lesser than the commitment made by Nepal in respect of the concerned sector or sub-sector at the time of obtaining membership of the World Trade Organisation.

  1. Agreement may be made with commercial bank: (1) A foreign investor making investment pursuant to this Act may, for purposes of business related to its investment made in Nepal, execute a tripartite agreement (escrow-agreement) with its partner investor or other foreign investor and any such commercial bank or infrastructure development bank as recognized by the Nepal Rastra Bank.

Explanation: For the purposes of this Section, the term “escrow agreement” means an agreement by which the contracting parties agree to the effect that any amount, documentary evidence shall be handed over to any third party for the security of transaction between them or as a security for any guarantee, and such amount, documentary evidence or guarantee shall be provided to the concerned party after the completion of contractual obligations by the contracting parties.

(2)        A bank executing an escrow agreement pursuant to sub-section (1) shall act as an agent of the parties to the agreement.

(3)        Other provisions relating to an escrow agreement to be made pursuant to sub-section (1) shall be as prescribed.