In a significant development aimed at improving the investment climate in Nepal, the Government of Nepal has introduced an ordinance that brings key amendments to the Foreign Investment and Technology Transfer Act, 2019 (“FITTA”) and related investment laws, including the Nepal investment law amendment. The ordinance, issued on January 10, 2025, simplifies procedures for foreign investors to repatriate funds. It enables Nepalese IT companies to establish branches abroad and introduces flexibility in participating in ESOPs. This update provides a comprehensive overview of the legal changes introduced through the ordinance and their impact on various stakeholders concerning the Nepal investment law amendment.
1. Simplification of Foreign Investment Repatriation Process
The Nepal investment law amendment also focuses on enhancing the capabilities of foreign investors and streamlining investment processes in the country.
This new development under the Nepal investment law amendment is expected to attract a higher volume of foreign investments.
Overall, the Nepal investment law amendment aims to create a more favorable investment environment.
One of the significant changes brought by the Ordinance is the simplification of the process for foreign investors to repatriate their investments. Under the previous law, foreign investors had to apply to the Department of Industries (“DOI”) for permission to repatriate funds. This process could take up to 15 days for approval. If investors were dissatisfied with the decision, they could appeal to the concerned ministry, which had up to 30 days to resolve the case.
The new ordinance has shortened the approval process to 7 days. Any appeal must now be resolved within 15 days. The Ordinance has also ruled out the requirement of a separate recommendation for foreign currency convertibility under the previous law.
With the Nepal investment law amendment, Nepalese IT companies can now explore new markets more efficiently.
The Nepal investment law amendment has opened doors for Nepalese IT companies to establish a global presence.
Compliance with the Nepal investment law amendment will also help safeguard the interests of investors.
The benefits from the Nepal investment law amendment extend to various sectors within the country.
This initiative under the Nepal investment law amendment will be crucial for fostering innovation.
2. Repatriation Simplified under Investment Amendment Law
Foreign investors can significantly benefit from the provisions of the Nepal investment law amendment.
The sectoral exemptions set by the Nepal investment law amendment will encourage diverse investments.
| Process | Earlier Timeline | New Timeline |
| Approval for Fund Repatriation | Upto 15 days | 7 days |
| Appeal Resolution | 30 days | 15 days |
Industries will find new opportunities through the Nepal investment law amendment.
The Nepal investment law amendment represents a significant shift towards openness and collaboration.
Through the Nepal investment law amendment, ESOPs will empower employees and enhance retention.
3. Nepalese IT Expansion Permitted Under Nepal Investment Law Amendment
Investors will need to familiarize themselves with the implications of the Nepal investment law amendment.
It’s essential to stay updated on the Nepal investment law amendment to ensure compliance.
Understanding the Nepal investment law amendment will be vital for strategic planning.
The Ordinance introduces provisions allowing Nepalese IT companies to invest abroad by opening branches or liaison offices in foreign countries. This marks a significant change, as previously, Nepalese companies were restricted from making any investments outside the country.
The ordinance also specifies the types of investments that Nepalese companies can make in foreign entities:
Under the amended law, IT companies established in Nepal can now set up foreign offices to facilitate their international operations. They must comply with the regulatory framework issued by the Nepal Rastra Bank (NRB). The detailed process, including the applicable documents required for such investments, is expected to be drafted by the NRB as part of the regulatory framework.
The ordinance also specifies the types of investments that Nepalese companies can make in foreign entities:
| Investment Type | Description | Limit |
| Unlisted Foreign Entities | Investments in foreign businesses such as limited liability partnerships, investment funds, etc. | No Cap |
| Listed Foreign Entities | Investments in foreign entities listed on a foreign stock exchange | Up to 20% of paid-up capital |
| Funds Earned by Nepalese Citizens Abroad | Investments made using funds earned while residing abroad | No Cap |
4. Who Benefits from the Sectoral Change in Nepal Investment Law Amendment?
Ordinance also categorizes the area where foreign investments have now been opened:
| Investment Type | Description | Limit |
| IT and Related Industries | Industries classified under industrial business laws as IT sectors are permitted to invest abroad. | Foreign Investment Prohibition Act, 2021 (Clause 3(2)) |
| Nepalese Citizens Residing Abroad | Nepalese citizens can invest funds earned while residing abroad without being subject to the 20% investment cap. | FITTA, 2075 (Clause 7(a)(2)) |
| Foreign Investors with Specific Funds | Foreign investors who have received funds under Clause 7(a)(2) of FITTA, 2075 are permitted to make foreign investments. | Clause 7(a)(2) of FITTA |
This sectoral exemption opens new avenues for industries that previously faced prohibitions on investing in foreign markets.
5. Introduction of Employee Share Ownership Plans (ESOPs)
The Ordinance also permits foreign companies operating in Nepal to offer employee share ownership plans (“ESOPs”) to their Nepal-based employees. This provision enables employees to receive shares as part of their compensation without the need to convert them into foreign exchange (if the payment is deducted from their pay slip instead of employing paying from Nepal). Since, foreign companies will not be required to withold the tax as per the Nepalese law, the employee may also be expected to calculate the tax after the exercise option date of such shares as their employment income. This also effectively rules out sell-to cover transaction which are exercised for ESOPs issued by Nepalese companies which entailed selling a part of the shares from the allotted stocks to cover the taxes. Employee will also be expected to account for the capital gain taxes on profit at the time of disposal of the shares.
6. Investment Opened in Specialized Investment Funds
The Ordinance introduced by the Nepalese government has opened the door for investments in Specialized Investment Funds (SIFs), enabling investors to participate in these funds upon obtaining approval from the Securities Board of Nepal (SEBON). This regulatory oversight ensures a streamlined process for investment while safeguarding transparency and compliance in Nepal’s financial markets.
7. New Cap on Sectors
Ordinance has set specific caps on foreign investments in various aviation and related sectors. The limits are:
| Sector | Limit |
| International Air Services | 80% |
| Domestic Air Services | 49% |
| Training Centers | 95% |
| Repair and Maintenance Services | 95% |
8. Transfer of the Investment Amount
Under the Ordinance, foreign investors in Nepal are allowed to transfer their partial or total investment amount to any entity, subject to prior approval from DOI. This provision facilitates operational flexibility, such as exiting an investment or reallocating resources for corporate restructuring.
When such a transfer takes place without or with partial consideration, the recipient may still face tax implications. From a tax perspective, receiving an amount or asset for free can be considered a form of economic benefit. Under the Income Tax Act, 2002 of Nepal, such transactions might be categorized as a gift or deemed income, thereby making the recipient potentially liable for taxation based on the market value of the transferred amount.
When such a transfer takes place without or partial consideration, the recipient may still face tax implications. From a tax perspective, receiving an amount or asset for free can be considered a form of economic benefit. Under the Income Tax Act, 2002 of Nepal, such transactions might be categorized as a gift or deemed income, thereby making the recipient potentially liable for taxation based on the market value of the transferred amount.
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