Legal framework on foreign investment in Nepal

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Foreign Investment in Nepal is firstly welcome in Nepal through a policy on foreign direct investment 1992 which included one-window system and currently, there are many policies and law that encourage foreign investment such as Foreign Investment and Technology Transfer Act 2076, Public Private Partnership Act 2019, Industrial Enterprises Act 2020 and Foreign Exchange (Regulation) Act 1062 etc. 

Foreign Investment is a means to reach to the goal of national economy, competitive, strong and employment-oriented investment by making investment friendly environment. Nepalese laws are comprehensive but there are no separate laws for the technical areas of investment like patent, design and collection marks are included in same authority, despite the technicality of such subjects are to be study separately. Even though there are many areas of foreign investment that Nepalese laws have regulated, which are as follows:
Validity of foreign investor is limited as foreign individual, firm, company, non-resident Nepali or foreign government or international agency or other corporate body of similar nature that makes foreign investment and it also includes foreign investor that is an institutional foreign who is ultimate beneficiary of such institution. This is broad definition of foreign investor is a sign of making investment friendly environment. 
On the other hand the areas of foreign investment has excluded 
the loan investment and it mostly focus on secondary investment areas such as share, re-investment in industry of dividends, lease finance, securities, share of company established in Nepal, through 
banking channels, technology transfer, and investment to expand industry in Nepal. At same time, under schedule, it has clearly enlisted certain restrictions for foreign investment such as real estate business, personal service business, sectors of primary agro-production, cottage and small industries, tourism industries, consultancy services already having more than 51 percent of foreign investment, industries producing atomic energy and radio-active materials. 
The process of taking approval for the foreign investment requires to comply with the specified amount by government of Nepal by Nepal gazette, and it allows individual or joint investments with the specified areas, like technology transfer, by branch of the industries, by establishing venture capital fund, by bond, debentures, and other securities. Also it states to execute a tripartite 
agreement with partner investors or foreign investors with commercial bank and the targeted industries that requires to be recognised by Nepal Rastra Bank. 

According to Public-Private Investment Act 2019 has formed a board that coordinate with the concerned agency of Government of Nepal to develop Nepal as destination of foreign investment having prepared an investment- friendly atmosphere, and in order to attract foreign investment to have negotiations with the countries which the Board deems fit on bilateral investment agreements and double taxation avoidance agreements or to establish mechanism and to make recommendation to conclude treaties and agreement as necessary. The Act also formed, a investment Unit which carries out function to implement the private investment to carry out necessary coordination, collaboration and facilitation for creating an investment friendly atmosphere. For the economic prosperity of the country through investment even by native or 
foreign private sectors in infrastructure construction and services sectors, and to consolidate the legal provision relating to investment. This Act regulates the approval of investment up to six billion 
rupees of more. 

On the other hand, Industrial Enterprises Act 2019 has included the intellectual property in its area of enforcement, likewise, the registration is made compulsory to start industry limited under section 
4. Section 4 allows an industry established with foreign investment, and it has provision of adverse effects on environment to be mitigated, which make the Initial Environment Assessment compulsory 
for the establishment and operation of industry.

All these Acts have carried somewhat similar preamble for the investment purposes, and they put together strict and compulsory area of foreign investment, procedure for foreign investment which reflected the importance of department of industries, Central Bank of Nepal and many other relevant investment Boards and committee of Nepal.
Besides, the FITTA 2019 have included, a strict procedures for foreign investment but the technical area of technology transfer doesn’t have comprehensive procedures, which requires a separate laws on patent, design, trademark and collective mark is also included in it according to the notice published by Department of Industries. These are technical thing which needed to be develop and 
law must strictly make separate procedure for this, because the intellectual property has the 
possibilities to achieve economic prosperity, on the other hand, in the name of investment friendly atmospere, the provision of providing residential visa for the family of investors is also provided, since the main purpose of allowing foreign investment in Nepal is to increase employment and 
national economy, Nepal have to develop more mechanism to make the procedure of providing license efficient. Since Nepal is 117 the in Nepal Corruption Rank which is seriously in invading situation in the national economy so it is important to put more effort to eliminate corruption and meanwhile the mechanism to check the source of currency proposed for investment in Nepal 
requires more attention. 

The provision on Repatriation of investment and earnings allows foreign investors to repatriate their profits limited to the proportion of foreign investment including FDI after paying the tax related liabilities according to the laws, through selling the shares or by auctions, have to make applications in the approving authority, Nepal Rastra Bank for foreign currency exchange facility. There are many other facilities that the foreign investors can exercise; such as land acquisition facilities, Bussiness visa arrangement for FDI investors, foreign exchange and repatriation facilities. 
In the situation of disputes, Nepal has ratified New York Convention on Recognition and Enforcement of Foreign Arbitral Award, and enacted Arbitration Act based on Model UNCITRAL Commercial Arbitration Act and ICSID Convention which have directed Nepalese laws as well. 

There are three tires of dispute resolution mechanism, firstly mutual consultation in the presence of Department of Industries, Arbitration under UNCITRAL Arbitration Rules and thirdly if the foreign investment exceeding Rs 500 million may be settled by design agreed by the parties, this freedom to decide the manner for dispute resolution is flexible solution. 

Therefore, the legal framework for foreign investment is comprehensive but the preamble is not fulfilled in terms of mechanism of optimum utilisation of available resources and infrastructure development for progress in national economy and employment.

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