This article will help you to know all about the procedures relating to establishing an investment company in Nepal.
On August 9, 2021, the Ministry of Industry, Commerce, and Supplies of the Government of Nepal introduced new guidelines that delineate the terms and conditions governing the establishment and operation of investment companies within the nation.
These guidelines have been crafted with the primary objective of regulating and providing lucidity regarding the operational framework of investment companies, a classification governed by Schedule 8 (No. 65) of the Industrial Enterprise Act, 2076 (2020).
In this article, we will closely look into the guidelines, both chances and challenges that investment companies might face when they try to work in Nepal.
Sector Specification for Investment
In Nepal, before an investment company can register, it must clearly state the areas or sectors where it plans to invest. This requirement is important because it sets the stage for what the company will do in the future.
It also makes sure that the company’s plans match up with the country’s industrial goals. This allows the government to monitor which sectors businesses are targeting.
It ensures that companies start off with a clear direction aligned with national priorities.
Foreign Investment Considerations
Investment companies that bring in foreign capital have to face additional examination. These firms need to clearly state that they will invest only within Nepal. They must present specific information about the final recipients of these investments.
This transparency requirement aims to track the flow of foreign capital and maintain oversight over investments.
This system safeguards Nepal’s economic interests and ensures that foreign investors contribute positively to the nation’s development.
Sectoral Boundaries in Investments
In Nepal, companies can only invest in areas listed in the current Industrial Enterprise Act and those approved by the Foreign Investment and Technology Transfer Act. These boundaries make sure that all investments fit well with Nepal’s growth plans and main objectives.
By defining these specific sectors, the government creates a structured approach to development. This also offers investors a clear understanding, guiding them on where they should and shouldn’t direct their investments.
It also provides clarity to investors, guiding them on where they should and shouldn’t direct their investments.
Investment companies primarily put their money into share capital. They aren’t allowed to invest using loans, bonds, or other similar financial instruments.
This rule emphasizes the importance of having an equity-driven approach in the business sector of Nepal.
No Banking Functions
Investment firms are strictly forbidden from performing tasks commonly carried out by banks and financial institutions.
This rule ensures that specialized entities licensed for these operations manage financial activities, upholding the integrity of Nepal’s financial sector.
Approval for Foreign Investment
Foreign-invested companies are obligated to obtain approval for their investments in specific sectors from the relevant authority responsible for overseeing foreign investments.
This necessary step adds an additional layer of scrutiny, ensuring that foreign investments are in harmony with Nepal’s economic goals.
Minimum Capital Requirement
Investment companies in Nepal are mandated to meet a minimum capital requirement of NPR 1,00,00,00,000 (One billion Nepalese Rupees) to attain industry registration.
This significant financial requirement highlights the government’s commitment to attracting serious and financially secure investors to Nepal.
Currency of Investment
Foreign-invested companies are required to indicate whether their investment will be in foreign currency or Nepalese currency.
Following the guidelines set by Nepal Rastra Bank and the Foreign Investment and Technology Transfer Act is crucial for ensuring the smooth repatriation of foreign investments.
Legal Compliance for Establishing an Investment Company in Nepal
Investment companies are required to comply with the existing Industrial Enterprise Act and all pertinent laws governing company registration in Nepal.
This legal compliance ensures that investment activities are conducted within the bounds of Nepal’s regulatory framework, promoting a secure and trustworthy environment for both investors and the nation’s economic stability.
Investment companies in Nepal are expressly forbidden from engaging in several activities, which include:
- Operating cooperatives.
- Conducting financial transactions with shell banks.
- Accepting investments from shell companies.
- Participating in the buying and selling of shares or debentures in the secondary market.
- Investing in sectors such as stock brokerage, market making, and real estate.
- Obtaining loans from local banks and financial institutions or loans secured through bank guarantees issued by foreign banks.
These prohibitions are in place to uphold regulatory standards and ensure the responsible and transparent operation of investment companies, safeguarding the integrity of Nepal’s financial sector.
Compliance with these restrictions is essential to maintain the credibility and legality of investment activities in the country.