Legal Update: Key Changes in Foreign Investment Laws in Nepal

Introduction

Nepal has recently introduced significant changes to its foreign investment landscape, with amendments to the Foreign Investment and Technology Transfer Act (FITTA), Foreign Exchange (Regulation) Act (FERA), and Banks and Financial Institutions Act (BAFIA). These changes were published on January 13, 2025, through government ordinances.

Key Highlights of the Amendments

1. Foreign Exchange (Regulation) Act (FERA)

Introduction of Outward Investment:
Nepalese companies and individuals can now invest in foreign entities through equity investments, subject to Nepal Rastra Bank (NRB) regulations.
Employee Share Schemes:
Nepalese employees can now participate in Employee Stock Option Plans (ESOPs) of foreign companies, with conditions.

2. Foreign Investment and Technology Transfer Act (FITTA)

Broadened Scope of Technology Transfer:
New provisions include IT, digital data processing, HR outsourcing, and more as eligible areas for foreign investment.
Specialized Investment Funds:
Foreign investors can now invest in specialized funds for equity investments in Nepalese industries.

3. Banks and Financial Institutions Act (BAFIA)

Project Development Agreements (PDA) as Collateral:
PDAs in public-private partnerships can now serve as loan collateral for banks.
Step-in Rights for Banks:
Financial institutions can take control of PPP projects if borrowers fail to meet debt obligations.

These changes aim to create a more investment-friendly environment, encouraging foreign participation while ensuring regulatory oversight.

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