Considering the declining trend of the FDI in Nepal and to attract foreign investors, the central bank has recently introduced the Foreign Investment and Loan Management Bylaw 2021.This new bye law has provided more relaxation in its administrative and compliance mechanism.
It is to be noted that this is not a policy level relaxation rather it is an administrative one.
This write up is all about the major provisions and the relaxations given in the byelaw that you need to know.
No NRB Approval for the Foreign Investment:
The bye law has provided that prior approval of the NRB is not required in case of the foreign investment approved by the regulatory authority. However, after such foreign investment is approved written information to this effect shall be given to the NRB in form prescribed in Annex 2.
Further, prior approval of the NRB is required in case the foreign investment represents the sum arising out of change in ownership in the shares of such a company or industry. In such a case application to this effect shall be given to the NRB along with the documents as prescribed in Annex 4.
It may be noted that the prevailing law requiring such foreign investment to take prior approval of the Investment Board or Department of Industries is still in force.
Recording of the Foreign Investment with NRB:
The bye law has provided that such foreign investment shall be recorded with the NRB along with the application to this effect & prescribed documents as prescribed in Annex 6 & 7 respectively, within the 6 month from the date of receiving foreign currency in banks & financial institutions or date of making foreign investment.
Further, foreign investment which is made before this byelaw comes into force and still has not got recorded with the NRB, shall be recorded within 1 year from the introduction of this byelaw.
NRB, after receiving the application & documents as above, will decide about the same and issue the certificate to this effect within 7 working days.
No NRB Approval for Feasibility Study & Pre- Operation Expenses:
There will not be any requirement of getting approval of NRB for bringing foreign investment via banking channel for the feasibility study & pre- operation expenses by any company or industry up to the limit of 3% of its paid up capital. It may be noted that foreign investment shall also include these expenses upto the above 3% limit. Further these expenses shall also be subject to the audit.
In case the amount could not be invested or the amount exceeds the above limit, the said amount or the excess amount can not be repatriated again from Nepal.
Audit Provision in the Bye Law:
The bye law has provided that the audit is not required in the following cases:
Such foreign investment is of $ 1 millions or less , or
Such financial statements are supplemented with a proof to the effect that the
audit is not required
The above relaxation is available only to the foreign investors but once the company is incorporated in Nepal by such foreign investor the audit in relation to the transactions carried out by such company shall be done as per the laws prevailing in Nepal.
Forex Facility for the Repatriation of Foreign Investment & Earned Money:
NRB allows to obtain foreign exchange facilities for the repatriation of foreign investment & earned money for the following purpose.
Amount arising out of the transfer of share acquired or made in foreign investment
Profit or dividend arising out of the foreign investment
In case of liquidation of company or industry, amount left after discharging all the liabilities
Royalty arising out of the agreement of technology transfer (However, in case of the alcohol industry other than the 100% export oriented alcohol industry, repatriation shall be carried out as per the provision of the Foreign Investment & Technology Transfer Regulation 2077)
lease or rental amount arising out of the lease investment
Compensation or any amount arising out of settling down of any lawsuits, arbitration or any other legal procedures in Nepal
Amount permitted to be repatriated as per the prevailing laws
To avail this facility, foreign investors or the company/industry in which the foreign investment is made shall make an application to this effect to the NRB along with the documents as prescribed in Annex-9. NRB, after receiving the application and the documents, will decide about the same within 15 working days and communicate the applicant about the same.
While repatriating such foreign currency from Nepal, one must keep in mind that the such foreign currency shall be deposited into the bank account of the same foreign investor and generally to the same foreign country.
Prior Approval of NRB for Obtaining Foreign Debt/loan:
Except otherwise exempted by any laws or regulation prevailing in Nepal, NRB has mandated all Nepali individuals, companies, banks & financial institutions or other organisations to get its approval before obtaining any debt in foreign currency. Here, foreign currency includes Indian Currency (INR) too.
For obtaining the approval, an application shall be made to the NRB along with the documents as prescribed in Annex 11. NRB, after receiving the application and the documents, will decide about the same within 15 working days and communicate the applicant about the same.
The bank or financial institution which is in receipt of such foreign amounts shall issue a certificate to this effect.
Recording of Foreign Loan with the NRB:
Once the amount is remitted to Nepal, it is also mandatory to get recorded of such loan and for this purpose, application shall be made along with the documents as prescribed in Annex 13 & 14 respectively to the NRB within 6 month from the date of remitting such loan in Nepal.
In case the loan is remitted to Nepal before this byelaw comes into force which is not yet recorded with the NRB, the same shall be recorded with NRB within 1 year from date of introduction of this byelaw. In such a case NRB shall decide about the same and issue the certificate to this effect within 7 working days.
Foreign Exchange Facility for Repayment of Foreign Loan:
The bye law has further provided that no NRB approval is required for repayment of foreign loan via banking channel which is pre approved by the NRB and got recorded with it. However, the principal & interest repayment schedule shall be approved by the NRB.
To effect the payment, application shall be given to the bank & financial institutions along with the documents as prescribed in Annex 16. The bank & financial institution, after receiving the application and the documents, shall decide about the same within 7 working days and communicate to the applicant in writing.
While affecting the payment, one must keep in mind that such foreign currency shall be deposited into the bank account of the same foreign investor and generally to the same foreign country.