KATHMANDU, Jan 13: The government, often criticized for not fostering an investment-friendly environment, has introduced significant legal reforms to ease the process for investors. Through three key ordinances, including ordinance to amend some Nepal Acts, the government has made it simpler for domestic and non-resident Nepali investors to invest.
The recent ordinances, passed during the cabinet meeting on Friday, focus on policy reforms related to land, investment, and government service delivery. The Foreign Investment and Technology Transfer Act and the Companies Act have been amended to improve the economic and business environment and attract more investment.
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI), Nepal Chamber of Commerce (NCC), and other business organizations had long called for legal changes to encourage private sector investment. In response, the government has made legal reforms, including the amendment of nine laws prior to the investment summit, and now through these ordinances, it aims to further support investment.
The reforms simplify company registration and address the challenges of company liquidation. A discount has been introduced on fines for companies that are liquidated without conducting business. To help Nepali companies compete in foreign markets, new provisions allow them to open branches abroad, engage in business, and repatriate income to Nepal. Additionally, the process of repatriating foreign investments and earnings has been streamlined.
In response to concerns from the private sector about delays in government processes, the reforms now require decision-making authorities to act within a maximum of seven days when deadlines are specified in the law.
When making foreign investments in industries registered in a province, the same certificate will now suffice, and no additional recommendation from the provincial government is required. Currently, only manufacturing industries are allowed to operate in special economic zones, but the new amendments also enable service-oriented industries to be established in these zones.
Lack of investment-friendly laws raises concerns as Investment...
The government has also amended the law to allow up to 40 percent of sweat shares to be issued to those who contribute in various ways to startup companies. The sweat share ratio is set at a maximum of 20 percent for general enterprises and up to 40 percent for startups.
The legal provisions now allow startup companies to issue shares based on their ideas, reputation, intellectual property, value addition, business goodwill, technical information, or knowledge transfer from individuals. This provides a clearer path for companies to raise capital by recognizing intangible assets.
Additionally, the law stipulates that approval is not required when a private company is converted into a public company. The Companies Act also allows a public company—except those in the banking, finance, and insurance sectors—to have a director who also serves on the board of another public company with a similar purpose.
The private sector has welcomed these legal reforms, which have been long advocated for. Chandra Prasad Dhakal, President of the FNCCI and Industry, noted that these reforms will help create a better investment environment by gradually addressing the needs raised by the private sector. "The provisions amended through the ordinance will further encourage investment," Dhakal said.
The government had formed a law reform task force to improve the investment climate. Pratap Paudel, an expert member of the task force, said that the government had included the task force's recommendations in the ordinance, which aims to remove cumbersome regulations and establish new ones to foster economic and business-friendly reforms. "Policy reforms have been made to ease the process for investors," Paudel said, highlighting the government's commitment to implementing the task force’s suggestions. The task force had identified challenges and proposed solutions regarding service delivery.
Non-resident Nepali (NRN) citizenship holders and their family members will now be eligible for a free 10-year visa to stay in Nepal, as well as a free two-year multiple-entry visa for travel. These provisions aim to facilitate investment by non-resident Nepalis in the country.
NRN citizenship holders will also be able to open companies in Nepal without needing to follow the process outlined in the Foreign Investment and Technology Transfer Act. Clear guidelines have also been established for the sale of employee shares received by company staff.
The updated aviation policy includes provisions for foreign investment, allowing up to 80 percent foreign ownership in international airlines, 49 percent in domestic airlines, and up to 95 percent in aviation training and maintenance institutions, all covered under the Foreign Investment Act.
The new provisions also open up foreign investment in agricultural technology and mechanization. Beyond foreign investments, other industries will now be able to take loans from foreign financial institutions. Previously, only foreign-invested industries could borrow from foreign banks, but now a provision allows foreign financial institutions to provide project loans, with the borrower's property in Nepal acting as collateral.
The Department of Revenue Investigation (DRI) has been granted the authority to resolve revenue disputes up to three million rupees without filing cases in the Revenue Tribunal. In revenue leakage cases, settlements can be made by paying fines and amounts without waiting for a case decision. Additionally, a fast-track mediation process has been introduced to address delays in resolving government contract disputes.
Similarly, the Nepal Planning Commission (NPC), in coordination with the Ministry of Finance, has been provided with forecasts for available resources over the next three years and the spending limits for the current fiscal year. This will help in formulating the medium-term expenditure structure and preparing the budget and programs for the next fiscal year.
The NPC, following the resource and expenditure limits set by the Resource Estimates Committee, is required to submit guidelines for proposing projects and programs to the Finance Minister by Falgun 7 (February 19) of each fiscal year. These guidelines should include the budget limit, the framework for the medium-term expenditure structure, and multi-year resource assurances for national pride projects, to aid in the budget formulation for the next three years.
In the budget formulation process, the Ministry of Finance has established a provision to finalize the budget by adjusting or modifying the budget amounts, programs, or activities proposed by the relevant ministries and central bodies, based on the availability of resources, expenditure requirements, and spending capacity.
Likewise, if a foreign grant or loan agreement is made during the middle of a fiscal year and additional funds are required for an ongoing project, the Ministry of Finance may transfer funds or resources for the project upon request from the concerned ministry or central agency, without increasing the total amount of foreign aid specified in the Appropriation Bill.
