Investment Abroad by a Nepali Entity and a Person

Nepal has been encouraging inward foreign investments while strictly prohibiting outward investments to avoid capital outflow. However, the Government of Nepal’s recent amendments to the Foreign Exchange (Regulation) Act, 2019, particularly incorporating a new definition under Section 2G(4) ‘Investment Abroad’ and replacing  Section 10A with a new provision, indicate a significant policy shift to outward investments that allow Nepali companies and entities to invest abroad. This change is intended to align Nepal with global economic practices and stimulate national growth.

Key amendments include:

1. Expanded Definitions of Investment Abroad, Section 2G(4):
   • Equity Investment in Foreign Entities: Nepali companies can invest in unlisted foreign companies, partnerships, investment funds, etc.
   • Investment in Listed Foreign Companies: Nepali companies can invest up to 20% of the paid-up capital of the foreign companies listed on stock exchanges.
   • Establishment of Foreign Branches or Liaison Offices: Nepali companies can open branches or liaison offices overseas with regulatory approval.
   • Deposits in Foreign Banking Accounts: Nepali entities’ funds in foreign bank accounts are now considered investments abroad.
   • Reinvestment of Returns from Existing Investments: Reinvestment of profits or dividends earned from listed and unlisted companies abroad.
2. Entities/persons allowed to invest abroad (Section 10A):
   • Entities allowed as per Section 3 of the Act Restricting Investment Abroad. So far no such entities have been prescribed and permitted under this Act.
   • Industries classified under communication and technology by the industrial enterprise laws. This provision is not precise; however, it seems as if it mainly focuses on Section 17 (2)(g) of the Industrial Enterprise Act.
   • Nepali citizens can invest abroad using their income earned while living abroad.
   • Entities through the transfer of technology abroad as prescribed by the Foreign Direct and Technology Transfer Act.

In addition, the new changes allow Nepali employees to hold shares abroad, as mentioned below:

2. Nepali citizens residing and employed in the company established in Nepal, are allowed to own and generate income from the shares from the employee share purchase plan implemented by the main/holding company abroad or other foreign subsidiary companies of such main/holding company abroad.

These efforts of amendments show that the Nepal Government is gradually and cautiously opening up to the international market. This is a sign of progress that aims to modernize Nepal’s financial regulations, promote diaspora engagement in the international arena, and support economic growth while ensuring careful regulation to prevent capital flight.