Foreign Investment and Technology Transfer Act, 2019 (2075)

What is the Foreign Investment and Technology Transfer Act, 2019 (2075) ?

Foreign Investment and Technology Transfer Act of 2019 (FITTA 2019). FITTA 2019:

• Purpose: This act aimed to attract foreign investment and technology transfer to Nepal’s economy.
• Strategies: o Offered streamlined procedures for foreign businesses to invest and operate in Nepal. o Provided visa incentives for foreign investors and their dependents. o Allowed foreign investors to repatriate their profits earned in Nepal (subject to regulations). o Permitted investment in various sectors of the Nepalese economy. o Enabled technology transfer through agreements between foreign and domestic companies.
• Limitations: There might have been regulations outlining limitations on: o The percentage of foreign ownership allowed in certain industries. o The types of technology transfer permitted.

How does the act define foreign investment?

Section- 2(j) of Foreign Investment and Technology Transfer Act defines foreign investment as “Foreign investment” means the following investment made by a foreign investor in an industry or company: (1) Share investment in foreign currency, (2) Re-investment in an industry of dividends derived from foreign currency or shares, (3) Lease finance made in accordance with Section 6, (4) Investment made in venture capital fund in accordance with Section 9, (5) Investment made in listed securities through secondary securities market in accordance with Section 10, (6) Investment made by purchasing shares or assets of a company incorporated in Nepal, (7) Investment received through the banking channel after issuing securities in a foreign capital market by an industry or company incorporated in Nepal in accordance with Section 11, (8) Investment made through technology transfer, or (9) Investment maintained by establishing and expanding an industry in Nepal.

What sectors are open to foreign investment?

Nepal welcomes foreign investment in a broad range of sectors, aiming to attract foreign capital and expertise. Here’s a general overview:

• Open Sectors: Most manufacturing, service industries, tourism, construction, agriculture, and energy sectors are open for foreign investment, with some limitations.
• Negative List Approach: Nepal follows a “negative list” approach, where specific sectors are restricted for foreign investment. These might include sensitive industries like arms, security printing, or real estate (excluding construction).

Are there any restricted sectors for foreign investment?

Yes, Nepal restricts foreign investment in certain sectors like cottage industries, retail, and some professional services

What incentives are provided to foreign investors?

Foreign investors are often provided with a range of incentives to encourage investment. These can include tax breaks, such as reduced corporate tax rates and exemptions on import duties. Governments may offer subsidies, grants, or low-interest loans.

Special Economic Zones (SEZs) and free trade zones can provide additional benefits like simplified customs procedures and infrastructure support. Investment protection agreements, fast-track approval processes, and access to local markets are also common incentives. These measures aim to create a favorable investment climate, attract foreign capital, and stimulate economic growth as per Foreign Investment and Technology Transfer Act, 2019 (2075).

How is technology transfer regulated under the act?

The Foreign Investment and Technology Transfer Act of 2019 (FITTA 2019) laid the groundwork for regulating technology transfer in Nepal Enabling Technology Transfer:

• FITTA 2019 likely allowed foreign investors to transfer technology to Nepali industries through agreements.
• These agreements might have covered various aspects of technology transfer, such as: o Use of patents, designs, trademarks, and technical know-how from the foreign investor. o User licenses for technology use by the Nepali industry. o Sharing of technical expertise and knowledge (franchise agreements). Potential Regulations:
• The Act might have outlined limitations on the type of technology transferable.
• It’s possible that specific industries or technologies were restricted for security or strategic reasons. Agreement Approval:
• Agreements likely required approval from a designated government body (details might be unclear in FITTA 2019 itself, but likely specified in accompanying regulations).

What are the requirements for technology transfer agreements?

Technology transfer agreements in Nepal under the Foreign Investment and Technology Transfer Act (FITTA) likely involve these key requirements:

• Written Agreement: A formal written document outlining the terms and conditions of the technology transfer must be established.
• Technology Details: The agreement should clearly specify the technology being transferred, including patents, know-how, or technical specifications.
• Royalty Limits: There might be limitations on the royalty fees a foreign investor can receive for the transferred technology.
• Government Approval: The agreement likely needs approval from a designated government body responsible for foreign investment oversight.
• Compliance with FITTA: The agreement’s terms must comply with the provisions outlined in Foreign Investment and Technology Transfer Act, 2019 (2075).

How does the act promote joint ventures?

Nepal’s legal framework, while generally encouraging foreign investment, also recognizes the potential benefits of joint ventures (JVs) for both foreign investors and the domestic economy

Reduced Investment Risk: JVs allow foreign investors to share risks and leverage the local partner’s existing market knowledge and networks, potentially reducing the initial investment burden and navigating regulatory hurdles more smoothly.

Technology Transfer: JVs can facilitate the transfer of technology and expertise from foreign partners to the local workforce, fostering skills development and boosting domestic capabilities.

Compliance and Approval: Partnering with a local company can simplify the process of obtaining necessary licenses and permits, as the local partner might already have established relationships with relevant authorities.

Government Incentives: Nepal’s government might offer specific incentives (tax breaks, subsidized land) to encourage JVs in certain sectors, making this option financially attractive for foreign investors as per Foreign Investment and Technology Transfer Act, 2019 (2075).

What are the tax benefits for foreign investors?

Nepal offers several tax benefits to attract foreign direct investment (FDI).

• Reduced Tax Rates: Compared to the standard corporate income tax rate of 25%, foreign investors in certain sectors may benefit from a reduced tax rate. This can be particularly attractive for specific industries the government prioritizes for growth.
• Tax Holidays: Foreign enterprises established under the FDI framework might be eligible for tax holidays during their initial years of operation. This can significantly reduce their tax burden during the crucial establishment and growth phase.
• Tax Exemptions: Certain sectors or specific activities within an enterprise might qualify for exemptions on specific taxes, such as customs duties on imported machinery or equipment.
• Repatriation of Profits: Foreign investors are generally allowed to repatriate their profits and dividends earned in Nepal after paying applicable taxes. This ensures they can transfer their investment returns back to their home countries in accordance with Foreign Investment and Technology Transfer Act, 2019 (2075).

Are there any limitations on foreign ownership?

Yes, many countries impose limitations on foreign ownership to protect national interests and certain strategic industries.

1. Sector-Specific Restrictions: Foreign ownership may be limited or prohibited in sectors deemed sensitive, such as defense, telecommunications, energy, and media.
2. Equity Caps: Some countries impose caps on the percentage of ownership a foreign entity can hold in a domestic company.
3. Joint Venture Requirements: Foreign investors may be required to partner with local firms, maintaining a certain percentage of local ownership.
4. Approval Processes: Foreign investments might need government or regulatory approval to ensure they align with national policies and security concerns.
5. Land Ownership: Some countries restrict foreign ownership of land, especially agricultural or coastal properties.

How can foreign investors repatriate profits?

FITTA 2019 likely allowed foreign investors to repatriate: o Profits earned from their investments in Nepal. o The sale of their investments in Nepali companies or industries.

• The process likely involved following specific procedures and obtaining approval from a designated government body.
• There might have been regulations regarding: o Taxes on repatiated profits. o Currency conversion restrictions.

What is the role of the Foreign Investment Promotion Board?

The Foreign Investment Promotion Board (FIPB), likely replaced by the Investment Board Nepal (IBN) in 2019, attracted foreign investment to Nepal and streamlined the approval process.

How is the approval process for foreign investment?

Nepal’s foreign investment approval process generally involves these steps:

1. Project Proposal: Prepare a detailed project proposal outlining your investment plan, including the sector, funding amount, job creation potential, and alignment with Nepal’s development goals.
2. Approval Body: Depending on the investment size, submit the proposal to the Department of Industry (DoI) or the Investment Board Nepal (IBN). Smaller investments go to DoI, while larger ones exceeding a set threshold are handled by IBN.
3. Required Documents: Attach necessary documents like company registration papers, feasibility studies, and financial projections to support your proposal.
4. Government Review: The relevant government body will review your proposal, assessing its economic impact and adherence to regulations.
5. Approval or Rejection: You’ll receive notification of approval or reasons for rejection, with the possibility of revising your proposal if needed.
6. Company Registration: Once approved, proceed with company registration formalities following the Department of Company Registrar’s (OCR) guidelines.
7. NRB Approval: Finally, obtain approval from Nepal Rastra Bank (NRB) to bring in your foreign investment funds.

What are the legal protections for foreign investors?

Nepal offers several legal protections to encourage foreign investors and foster a secure investment environment. Here’s a breakdown of some key safeguards:

• Foreign Investment and Technology Transfer Act (FITTA) 2019: This act serves as the primary legal framework governing foreign investment in Nepal. It outlines the rights and protections accorded to foreign investors.
• National Treatment: FITTA guarantees “national treatment” to foreign investors. This means they’ll be treated no less favorably than domestic investors in terms of approvals, licenses, and general business operations.
• Dispute Resolution Mechanisms: Mechanisms exist for resolving investment disputes between foreign investors and the Nepalese government. These might involve arbitration or international tribunals, offering a neutral platform for resolving disagreements.
• Investment Guarantees: Nepal is a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank Group institution. This provides foreign investors with guarantees against certain political risks, such as expropriation or currency transfer restrictions.
• Bilateral Investment Promotion and Protection Agreements (BIPPAs): Nepal has signed BIPPAs with various countries. These agreements establish a legal framework for investment between signatory nations, offering additional protections for foreign investors from those countries.

How does the act address dispute resolution?

The Foreign Investment and Technology Transfer Act of 2019 (FITTA 2019) likely addressed dispute resolution between foreign investors and Nepali entities (individuals or companies) through a two-step approach:

1. Mutual Discussions and Negotiations:

• FITTA 2019 probably encouraged resolving disputes amicably through direct communication and negotiation between the involved parties.
• The act might have stipulated a timeframe for these initial attempts at resolving the dispute.

2. Arbitration in Case of Impasse:

• If mutual discussions failed within the designated timeframe, FITTA 2019 likely mandated resorting to arbitration.
• Arbitration involves presenting the dispute to a neutral third party (arbitrator or arbitration panel) who makes a binding decision. Possible Details (uncertain without full act):
• The specific provisions detailing the arbitration process might have been outlined in the act itself or in accompanying regulations.
• These details could have included: o The designated arbitration body (e.g., a national or international arbitration institution). o The rules and procedures governing the arbitration process. Current Legislation (FITTA 2075): It’s important to remember that FITTA 2019 is no longer the governing law. The current legislation, FITTA 2075 enacted in 2019, likely outlines the current dispute resolution mechanisms for foreign investment-related issues in Nepal.

Industrial Enterprises Act, 1992

What are the penalties for violating the act?

Penalties:

• Fines: Financial penalties were likely the most common consequence for violating FITTA 2019 regulations. The severity of the fine might have been determined by the nature and extent of the violation.
• Restrictions on Operations: In some cases, violations might have led to restrictions on the foreign investor’s business operations in Nepal. These could have included limitations on foreign ownership percentages, investment licenses being revoked, or limitations on repatriation of profits.

How does the act impact intellectual property rights?

The Foreign Investment and Technology Transfer Act (FITTA) likely aims to balance promoting technology transfer with protecting Nepal’s intellectual property (IP) rights. It might require proper licensing agreements and discourage practices harming domestic innovation.

What reporting requirements are there for foreign investors?

Foreign investors in Nepal typically face reporting requirements to the central bank (NRB) regarding foreign currency transactions and investment activities. They may also need to submit periodic reports on project progress or financial performance depending on the investment type and approval body.

Are there any environmental regulations for foreign investments?

Yes, Nepal has environmental regulations for all businesses, including foreign investments. These aim to minimize environmental impact and ensure sustainable practices.

How can foreign investors obtain work permits?

Foreign investors seeking work permits typically need to follow these steps:

1. Company Registration: Register a company or establish a business entity in the host country.
2. Investment Documentation: Provide proof of investment or business registration to demonstrate the investor’s commitment to the local economy.
3. Work Permit Application: Submit a work permit application to the relevant government authority or immigration department. This application usually includes personal information, passport details, proof of qualifications, and sometimes a business plan or details of the investment.
4. Approval Process: Await approval from the immigration authorities. The process may involve background checks and verification of the investor’s credentials.
5. Issuance of Work Permit: Once approved, the investor will receive a work permit allowing them to reside and work legally in the host country.