Bharatiya investors are increasingly looking towards Nepal as a promising destination for foreign direct investment (FDI). According to the latest report released by Nepal Rastra Bank, Bharat leads the pack as the largest source of FDI for Nepal, with an investment stock of NPR 88.59 billion. This underscores the growing economic partnership between the two countries.
Despite this positive trend, there exists a notable disparity between approved FDI and actual net FDI inflows in Nepal, as stated by the report. The regulatory framework for foreign investment in Nepal, although welcoming in various sectors, presents challenges that hinder the smooth flow of investments.
Nepalese law allows foreign investment across a spectrum of industries, including electricity, manufacturing, financial services, and more.
However, trading activities remain off-limits for foreign investors. The recent amendment to the Foreign Investment and Technology Transfer Regulation, 2021, is set to open the Automatic Route for Bharatiya investors, streamlining the investment process once operational.
Navigating the FDI landscape in Nepal involves engagement with multiple regulatory bodies. The Department of Industry (DOI) handles approvals for most foreign investments, while the Investment Board Nepal (IBN) oversees hydropower projects exceeding 200 MW capacity. The Nepal Rastra Bank (NRB) plays a pivotal role in regulating and approving foreign investment inflows.
Despite a statutory timeline of 22 days for approval, the process typically takes six to eight weeks to complete, posing a challenge for investors seeking timely investments.
Bharatiya investors keen on venturing into Nepal’s financial sector must obtain prior approval from the NRB, adding another layer of complexity to the process.
Opportunities for Bharatiya investors extend to Special Economic Zones (SEZs), where industries can be established with export obligations. In addition, avenues for providing loans to local companies exist, subject to NRB approval and varying interest rates depending on the lender’s nature.
While Bharatiya investors cannot directly own land in Nepal, they can invest in housing units and establish businesses through various means, including incorporating new companies or registering branch offices.
Notably, Bharatiya nationals do not require work permits but must be registered with the Department of Labor.
Bilateral trade between Nepal and Bharat is facilitated by major customs points, dry ports, and Integrated Check Posts (ICPs), fostering economic cooperation. Moreover, the long-term agreement between the two countries goals to facilitate the export of 10,000 megawatts of electricity from Nepal to Bharat over the next decade, bolstering energy cooperation.
To avoid double taxation and prevent fiscal evasion, Nepal and Bharat have a Double Tax Avoidance Treaty (DTAA) in place. Bharatiya investors are permitted to repatriate earnings through various channels, including dividends, profits, royalties, and lease rents, ensuring a favorable investment environment.
With a comprehensive understanding of the regulatory landscape and investment opportunities, Bharatiya investors are poised to navigate the Nepalese market effectively, contributing to its economic growth while fostering stronger bilateral ties between the two countries.
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