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 a 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.
The following objectives were set for the foreign investment:
- 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.
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 trademarks, goodwill.
- Use of foreign technical, consultancy, management and marketing services.
Permission for Industries to be established under Foreign Investment
- Foreign investment in the industries classified in Annex shall not be permitted. In case of other industries, permission for foreign investment should be obtained.
- Foreign investment will be permitted upto 100% in large and medium scale industries.
- If an application is made for an investment, the Department shall, for the industries with fixed assets upto five hundred million rupees, grant permission itself. However, in the case of industries exceeding above mentioned limit, in accordance with the decision of the Board, grant permission within thirty days from the date of application. The Department will communicate the decisions so made to the applicant.
- No permission will be granted for foreign investment to the industries as set forth in the Annex. However, permission for technology transfer may be granted for such industries.
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 or principal and interest on foreign loans.
- The amount received under an 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 upto 75% of the amount received by them as salaries, allowances etc.
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% 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.
- Industries will be given priority in the supply of electricity. No fee will be charged if an industry generates electricity for its own use.
- For the purpose of avoiding double taxation on incomes of foreign investors, Government of Nepal will take necessary action to conclude agreements for the avoidance of double taxation with the countries of the concerned foreign investors.
- Custom 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% 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 custom 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.
- Custom duty, excise duty and sales tax levied on the production of intermediate goods used in the production of exporting 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 their establishment 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.
Arrangements relating to the One Window System
The following arrangements will be made to provide services through a One Window System to industries operating under foreign investment:
1. Permission and registration
- 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 coordination 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.
- One Window Committee will be formed to provide infrastructure facilities such as registration, land, electricity, water and facilities on taxation etc. under a one window system for industries to be established with foreign investment. 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.
- The facilities and concessions to which an industry is entitled shall be specified in the letter granting approval.
- 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.
2. Institutional arrangements
- 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 the Government of Nepal.
- The power and authority concerning facilities and services of the agencies like Ministry of Finance and its departments, Department of Commerce, Nepal Rastra Bank, Department of Immigration etc. will be delegated to the One Window Committee.
3. Other arrangements
- 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. This provision was made by First Amendment of 2052.