The Foreign Investment and Technology Transfer Act (FITTA), first enacted in 1992 and comprehensively revised in 2019, is Nepal’s core legislative framework for governing foreign investment and technology transfer.
Its main goal is to attract international investors by allowing them to bring in money, skills, and technology to help Nepal’s growth and development.
It provides legal clarity and protection to foreign investors, laying out the rights, responsibilities, procedures, and benefits related to investing in Nepal.
FITTA covers a wide range of areas, including the types of businesses open for foreign investment, procedures for getting approvals, conditions for repatriation of profits, and provisions for dispute resolution.
At the same time, while promoting a welcoming investment environment, FITTA also protects Nepal’s national interests by restricting foreign investment in certain sensitive sectors. These restricted areas are often related to national security, traditional livelihoods, and local culture.
By balancing openness to foreign investors with the protection of key domestic sectors, FITTA plays a crucial role in shaping Nepal’s investment landscape.
Who Manages Foreign Investment in Nepal?
Several government bodies play important roles in managing foreign investment under FITTA:
- Department of Industries (DoI) – the main approval authority for foreign investments. They handle registration, ensure rules are followed, monitor investments, and assist with visas for investors.
- Investment Board Nepal (IBN) – helps regulate big projects, advises the government on investment policies, and resolves any investment disputes.
- Nepal Rastra Bank (NRB) – manages foreign currency transactions and oversees financial regulations related to foreign investment.
How Does FITTA Define Investment?
The FITTA does not directly define the term investment, but Section 2(j) outlines what counts as a “foreign investment” when made by a foreign investor in a company or industry.
- Share investments in foreign currency
- Reinvestment of dividends
- Venture Lease financing
- Capital funds and listed securities
- Purchase of shares or assets in Nepal-registered companies
- Technology transfers involving intellectual property, licensing, and technical services agreements
The law also allows investments through debt instruments in foreign capital markets and project financing loans from foreign financial institutions, subject to approvals from the NRB and relevant authorities.
What Approvals Are Required?
Under the Foreign Investment and Technology Transfer Act (FITTA), foreign investments and technology transfers must be approved by the appropriate authority. There are two main approvals based on the size of the investment:
- Department of Industry (DoI) – Handles foreign investments below NPR 6 billion (around USD 53 million).
- Investment Board Nepal (IBN): Responsible for approving investments above NPR 6 billion.
According to Section 15(2) of the FITTA, once all required documents are submitted, approvals should be granted within 7 days.
However, since the detailed regulations have not been published yet, it is still unclear which specific documents are required.
In the past, a second approval from the Nepal Rastra Bank (NRB) was required under the Foreign Exchange Act 1962.
Now, Section 16(1) of the FITTA says a notification to NRB is enough after the first approval from the DoI. But since Section 16(2) says NRB’s procedures still apply, it is wise for investors to continue applying for NRB approval until the matter is officially clarified.
How Do Foreign Investors Get Approval Under FITTA?
To bring in foreign investment (FDI) in Nepal, investors need to follow a set process. It starts with applying for an investment proposal to the relevant approving authority.
Here is a step-by-step breakdown of what needs to be done:
- Get Foreign Investment Approval – Apply to the Department of Industry (DoI) or Investment Board Nepal (IBN), depending on the investment amount.
- Register the Company – Incorporate your company with the Office of the Company Registrar.
- Register the Business Locally – Register your business at the local ward office (municipal or rural municipality).
- Get a Tax Registration (PAN/VAT) – Apply for a PAN or VAT number at the Inland Revenue Office.
- Register the Industry – If applicable, register the industry with the Department of Industry.
- Get a Non-Blacklisted Certificate – Obtain a certificate from the Credit Information Bureau (CIB) confirming you are not blacklisted.
- Get Bank Approval to Bring Investment – Get permission from the local bank where your company has an account to bring in the foreign funds.
- Notify Nepal Rastra Bank (NRB) – Send a formal notice to Nepal Rastra Bank informing them about the foreign investment injection.
What Are the Requirements for Capital Injection Under FITTA?
FITTR divides the foreign investment injection process into three stages, each with its own timeline. This is known as the investment schedule. They are:
| Stage | When to Inject | Details | Required Investment Injection |
|---|---|---|---|
| Stage 1 | Within 1 year of getting FDI approval | Based on the total approved investment amount |
- NPR 20 million (minimum): 25% - NPR 20–250 million: 15% - NPR 250 million–1 billion: 10% |
| Stage 2 | When the company starts operations or commercial transactions | Usually, when the business becomes active | Up to 70% of the total investment |
| Stage 3 | After 2 years of starting production or transactions | Final investment phase | The remaining 30% of the total investment |
In Which Areas Is Foreign Investment Not Allowed Under FITTA?
FITTA explicitly restricts foreign investments in specific sectors to safeguard national interests and promote local entrepreneurship. These include:
- Poultry farming, fisheries, beekeeping, fruits, vegetables, oilseed farming, pulse seeds, milk industry, and other primary agricultural sectors
- Cottage and small industries
- Personal service businesses such as hair cutting, tailoring, and driving
- Manufacturing of arms, ammunition, explosives, and nuclear, biological, and chemical weapons
- Real estate trading (construction industries are allowed)
- Retail business, internal courier service, local catering service, money changer, and remittance services
- Travel agencies, tourist guiding, trekking, mountaineering guide services, rural tourism, including homestays
- Mass communication media (newspapers, radio, television, online news) and production of national language motion pictures
- Professional consultancies (management, accounting, engineering, legal) and training institutions (language, music, computer) with foreign ownership exceeding 51%
Why These Restrictions?
The rationale for these exclusions is grounded in:
- Protection of national security and sensitive sectors.
- Safeguarding opportunities for small-scale and traditional Nepali entrepreneurs.
- Preservation of national identity, culture, and media sovereignty.
- Ensuring technology transfers and investments benefit Nepal’s prioritized sectors rather than disrupt local livelihoods.
Conclusion
In summary, FITTA 2019 modernizes Nepal’s approach to foreign investment with clear regulatory pathways, sectoral guidelines, and investor protections. The Act strategically balances fostering FDI inflows and technology transfer with safeguarding sensitive sectors and promoting sustainable economic growth.
For foreign investors and stakeholders, understanding FITTA alongside complementary laws such as the Public-Private Partnership and Investment Act (PPPI), Industrial Enterprises Act (IEA), and Foreign Exchange Regulation Act (FERA) is critical for successful investment ventures in Nepal.
Babita Pariyar
Babita is a law student with a keen interest in property accountancy and legal compliance. She contributes insightful, well-researched articles that reflect a fresh and analytical perspective on evolving legal matters.
