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 bylaw 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 bylaw 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 a form prescribed in Annex 2.
Further, prior approval of the NRB has required in case the foreign investment represents the sum arising out of a change in ownership in the shares of such a company or industry. In such a case applied 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 from 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 months from the date of receiving foreign currency in banks & financial institutions or date of making a foreign investment.
Further, the foreign investment which is made before this by-law comes into force and still has not got recorded with the NRB shall be recorded within 1 year from the introduction of this bylaw.
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 up to 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 million or less
- 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 investors the audit of 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 & earn 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 a company or industry, the amount left after discharging all the liabilities
- Royalty arising out of the agreement of technology transfer (However, in the 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 any lawsuits, arbitration, or any other legal procedures in Nepal
- The amount permitted to be repatriated as per the prevailing laws
To avail of 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 with the applicant about the same.
While repatriating such foreign currency from Nepal, 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.
Prior Approval of NRB for Obtaining Foreign Debt/loan:
Except otherwise exempted by any laws or regulations prevailing in Nepal, NRB has mandated all Nepali individuals, companies, banks & financial institutions, or other organizations 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 with the applicant about the same.
The bank or financial institution which receives 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 a record of such loan and for this purpose, the application shall be made along with the documents as prescribed in Annex 13 & 14 respectively to the NRB within 6 months 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 the date of introduction of this bylaw. 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, the 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.
To read the full text of the bylaw, kindly click on this link.