The FDI approval pathway under FITTA 2019

Foreign investment into Nepal is not made freely and then registered afterward. It is approved first, by a specific authority, under a specific statute, and only then may the company be incorporated and the funds brought in. Understanding this ordering — and which authority applies to a given investment — is the first decision a foreign investor's counsel needs to get right, because it sets the entire transaction timetable.

The governing statute

The Foreign Investment and Technology Transfer Act 2019 (FITTA 2019) is the primary statute. It replaced the earlier 2075 amendments and consolidated the approval regime, the permitted forms of investment, and the sectors from which foreign investment is excluded or restricted. The Foreign Investment and Technology Transfer Rules 2021 supply the procedural detail: the application form, supporting documents, and processing timelines.

FITTA 2019 permits several forms of foreign investment beyond straightforward equity subscription: purchase of shares in an existing Nepali company, reinvestment of earnings, investment through the purchase of listed shares (subject to conditions), technology transfer arrangements with a royalty or fee, and lease investment in specified sectors such as aircraft and construction equipment.

Two approving authorities

Which authority approves the investment depends on its scale and sector.

The Department of Industry is the default approving authority for most foreign investment. It handles applications up to a threshold set by the Act and revised periodically — investors should confirm the current figure rather than rely on a number that may have shifted since this was written, since thresholds are among the details most likely to change between legislative sessions.

The Investment Board Nepal approves larger and specified projects — typically capital-intensive infrastructure, energy generation above a defined capacity, and projects the government has designated as national priority. The Board also has authority to negotiate project-specific terms, which matters for infrastructure and energy investors seeking commitments beyond what a standard licence provides.

Filing with the wrong authority is a common and avoidable delay. The sector and investment size should be confirmed against the current thresholds before an application is drafted, not after it is rejected.

What the application requires

A FITTA application typically includes: the proposed investor's incorporation documents and financial statements, a project report or feasibility study, the proposed shareholding structure, and — where the investment involves a joint venture — the joint venture agreement. Sector-specific approvals (environmental clearance for certain industries, for example) may need to precede or accompany the FITTA application depending on the sector.

Processing timelines set out in the 2021 Rules are the statutory period. Practical experience is that additional queries from the approving authority — on shareholding structure, on the source of funds, on the technology transfer valuation — are common and extend the timeline. Building a realistic buffer into a transaction schedule, rather than relying on the statutory number, avoids downstream pressure on signing and completion dates.

After approval: registration, not the end of the process

FITTA approval permits the investment. It does not, by itself, complete the legal structure. The sequence that follows is:

1. Company incorporation at the Office of the Company Registrar, using the approved investment as the basis for the foreign shareholding.
2. Industry registration, where the company's activity requires a specific industrial or operating licence under the Industrial Enterprises Act 2076.
3. PAN registration with the Inland Revenue Department.
4. Recording the investment with Nepal Rastra Bank. This step is the one most frequently deferred, because it has no immediate consequence until the company wants to repatriate a dividend, and by then the paper trail — the inward remittance advice, the share certificates, the FITTA approval letter — needs to be assembled retrospectively.

Repatriation depends on the recording, not the approval

A foreign investor's counsel is usually engaged to get the investment approved and the company incorporated. Repatriation of profit is a later, separate question, and it depends on a step that happened — or should have happened — at the time the investment was made.

Nepal Rastra Bank requires the investment to be recorded before dividends, capital, or royalties can be remitted abroad. The recording confirms that the funds entered Nepal through the banking channel, in the amount and structure that FITTA approved. An investment that was approved correctly but never recorded with the central bank can leave a company unable to repatriate profit until the recording is completed retroactively — which requires reconstructing documentation that is easier to assemble at the time of investment than years later.

The practical lesson is to treat the Nepal Rastra Bank recording as part of the same transaction as the FITTA approval, rather than as a separate matter to be addressed when a dividend is eventually declared.

Where the timetable usually slips

Three points recur in FDI transactions:

• Threshold and authority confusion. An investment sized near the boundary between Department of Industry and Investment Board Nepal jurisdiction should have that question resolved before the application is filed.
• Technology transfer valuation queries. Where part of the investment is a technology transfer or licensing arrangement, the approving authority frequently queries the valuation methodology, adding a review cycle.
• The Nepal Rastra Bank recording, treated as an afterthought. As above — this should be scheduled into the transaction plan, not left until a dividend is declared.

None of these are unusual or unmanageable. They are, however, entirely foreseeable, and a transaction timetable built with them in mind holds up considerably better than one that assumes the statutory processing period will be the actual one.

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TODO(client): review before publishing. This article is a general overview and reflects the statutory framework as of the date above. Investment thresholds, processing timelines, and designated sectors are revised periodically — confirm current figures against the latest FITTA Rules and Department of Industry notices before this goes live, and add a named author once assigned.