Government Guidelines on Registration and Operation of Investment Companies in Nepal

Background

On 2078/04/25, the Government of Nepal, through a notice published in the Nepal Gazette, issued specific guidelines governing the registration and operation of Investment Companies. Although the notice mentions both local and foreign investment companies, its primary focus appears to be on regulating Foreign Investment Companies.

Key Provisions of the Notice

1. Company Registration and Compliance

• Investment companies must be registered in accordance with prevailing laws of Nepal.
• The company must clearly specify the industry or sector in which it intends to invest.
• A full disclosure of the ultimate beneficial owner (UBO) is mandatory during registration.
• The minimum capital requirement for establishing an investment company is set at NPR 1 billion (approximately USD 8.44 million).

2. Currency of Investment

• Foreign investment companies are required to declare the currency of their investment—whether it will be in foreign currency or in Nepali Rupees (NPR).

3. Permissible Forms of Investment

• Investment is permitted only in the form of equity.
• Investments in the form of loans, bonds, or debentures are strictly prohibited.

4. Sectoral Investment Restrictions

• Investment companies are allowed to invest only in sectors listed under the prevailing Industrial Enterprises Act (IEA) and those open to foreign investment under the Foreign Investment and Technology Transfer Act (FITTA).
• The foreign investment company must specify its investment sector(s) at the time of registration, and all investments must be made within Nepal.
• Investment in the following areas is strictly prohibited:
  • Stock broker companies
  • Real estate businesses
  • Stocks traded in the secondary market

5. Prohibited Activities

Investment companies are restricted from engaging in the following activities:

• Carrying out any functions of banks or financial institutions
• Engaging in any activities of co-operative institutions
• Channeling investment through a Shell Company or Shell Bank
• Taking loans from local banks or using foreign bank guarantees to obtain loans from Nepali banks

6. Regulatory Approvals and Fund Transfers

• For each new investment sector, a separate investment approval must be obtained from the relevant authorities.
• Foreign investment companies must comply with the guidelines, policies, and directives issued by the Nepal Rastra Bank (NRB) for fund inflow and repatriation.
• They must also adhere to the procedures outlined in the Foreign Investment and Technology Transfer Act (FITTA) for all capital movements into and out of Nepal.