Foreign investors in Nepal need to bring 70 percent of their proposed investment before beginning operations, and the rest in the next two years, according to a new regulation issued under the Foreign Investment and Technology Transfer Act (FITTA).

The regulation, which was published in the Nepal Gazette on January 11, also says that investors have to transfer the capital they have pledged within a year of their project being approved.

And for the first time, foreign investors will be issued identity cards according to the size of their investment.

Investors putting in Rs50 million to Rs250 million are categorised as 'general foreign investors'. Those spending between Rs250 million and Rs1 billion are classified as 'special foreign investors', and investors making an investment of more than Rs1 billion are called 'very special foreign investors'.

The identity cards will be provided to all foreign investors and their official representatives.

Business visas will be issued to foreign investors or their official representatives and their family members as per the investment portfolio.

Investors or their official representatives and their family members will get residential visas if they make an investment of $1 million at one time.

“The new provision will eliminate the practice of delaying the investment plan after getting the go-ahead and extending the deadline,” said Jiblal Bhusal, director general of the Department of Industry.

Under the new regulation, foreign investors whose firms have been registered in Nepal for more than a year must submit their working procedure within six months.

Foreign investors are categorised according to the amount of capital they bring into the country, and they receive facilities accordingly, Bhusal said

"The regulation is clear about the repatriation of royalties and profits, and the process of expanding their enterprises." The FITTA was amended in 2019, and the regulation was introduced to define it with greater clarity, he said.

As per the recently issued regulation, foreign investors can buy 100 percent of the stock of companies registered in Nepal. They can make lease investments in aircraft, ships, construction equipment and machineries with certain restrictions.

If any Nepali company has made a technology transfer agreement with more than one investor, the repatriation of royalty in one fiscal year may not exceed 5 percent of total sales, excluding taxes, in case of goods sold within the country, and 10 percent of total sales, excluding taxes, in case of goods exported to foreign countries.

The regulation allows any foreign company to open a branch in Nepal by getting its foreign direct investment approved as per existing law.

According to the new regulation, if any foreign invested company makes changes in the earned property, assets or shares, it should apply with the related documents within 30 days of the transaction.

If any foreign investor wants to repatriate the profits, the decision should be approved by the company's annual general meeting.

If foreign investors, who have received approval to invest in the energy, production, infrastructure or mine sectors, are unable to buy the required land through their own efforts, they can apply to a government agency with the proper documents.

The new regulation has allowed manufacturing industries with foreign investment to open retail sales desks on their premises after getting approval from the related government bodies.

The director general of the Department of Industry can order an investigation in response to complaints from foreign investors regarding industry registration, regulation and inspection,

The director general can order any head of the Department of Industry to conduct an investigation if it receives information that any company with foreign investment has engaged in activities beyond the conditions laid down by it.

Bhusal expects that the new regulation will facilitate foreign investment.

The department received foreign investment pledges of around Rs38 billion in the last fiscal year 2019-20. Investment commitments in the first half of the current fiscal year totalled around Rs21 billion, said Bhusal.

Nepal aims to become a middle-income country and achieve the Sustainable Development Goals by 2030. But the current level of investment is not enough for the country to reach the middle-income stage from the current low-income status as targeted, according to a World Bank report.

One of the major sources of bridging the financing gap is foreign direct investment, but Nepal is among the countries attracting the lowest amount of investment in recent years.

The Systematic Country Diagnostic Report published by the World Bank in February last year revealed that foreign direct investment averaged just 0.2 percent of the gross domestic product over the last decade, which is one of the lowest in the world.

Foreign direct investment is vital for accessing new technologies, business practices, and markets. In the past few years, capital inflow in the country has seen an upward trend, but it still lags behind most South Asian countries.