Kathmandu: Nepal Rastra Bank (NRB), the country’s central bank, has introduced major policy relaxations aimed at encouraging foreign investment in the information technology sector.
By amending the “Nepal Rastra Bank Foreign Investment and Foreign Loan Management Regulation, 2021,” the bank has removed the requirement for prior central bank approval to send or receive foreign currency related to foreign investment made through changes in share ownership.
The decision was taken at a meeting of the central bank’s board of directors on December 11 and formally implemented through regulatory amendments on December 29.
Under the revised rules, licensed commercial banks are now authorized to provide foreign exchange facilities for the repatriation of foreign investment and earnings. Previously, investors needed explicit approval from NRB to take out funds earned from the sale of shares, profits or dividends, residual amounts after company liquidation, or royalty income from technology transfer agreements. Commercial banks can now process these transactions directly.
Foreign investors seeking to repatriate investment or earnings can apply for foreign exchange approval through the commercial bank where they maintain an account, further simplifying the process.
The central bank has also eased rules for Nepali IT companies investing abroad. IT firms are now allowed to invest up to US$ 20,000, or its equivalent, overseas without any requirement to have earned foreign currency through service exports. Earlier, companies had to show export earnings from IT services over the previous three fiscal years, and the maximum investment limit was tied to 50 percent of the average foreign currency earned during that period, capped at US$ 1 million.
In another significant change, NRB will no longer block foreign investment in businesses that are listed on the Credit Information Centre’s blacklist. In such cases, foreign investors or lenders must submit a self-declaration acknowledging that they are aware of the company’s blacklist status and understand that repatriation of investment or repayment of foreign loans, including principal and interest, is not permitted while the company remains blacklisted.
The documentation required to bring in foreign investment has also been substantially reduced. Investors will no longer need to submit copies of a company’s memorandum and articles of association or its latest audit report. Certified copies of foreign investment agreements, approved share purchase agreements, and documents identifying beneficial owners have also been removed from the mandatory list. If the foreign investor is an individual, a certified copy of a passport will now be sufficient.
Similar facilitation has been extended to foreign borrowing. Even if a borrower fails to draw down a foreign loan as agreed, commercial banks will be allowed to provide foreign exchange of up to US$ 5,000 per year, or its equivalent, to cover administrative fees payable to the lender as specified in the loan contract.
The amended regulation also allows loan agreements with foreign banks, financial institutions, government or intergovernmental development finance institutions, foreign governments, or regulated financial institutions to include provisions ensuring that no payments are made to third parties. If a third party is a government-owned entity, payments may be made within prescribed interest rate limits.
Following the regulatory changes, NRB Governor Dr. Bishwanath Paudel called on young entrepreneurs to innovate boldly and target global markets with confidence. He urged them to launch new products, look beyond Nepal’s borders, and believe that success on the world stage is possible from within the country, assuring that the banking sector would support their expansion.
The governor noted that Nepal’s IT sector has made significant progress in recent years. Reforms by the Ministry of Finance, including easier company registration, adjustments to foreign direct investment thresholds, and more predictable tax policies, have already begun to yield results. According to him, the number of IT companies with foreign investment grew from around 40 two years ago to nearly 400 a year ago.
He added that further reforms have now allowed Nepali exporting companies to invest up to US$ 1 million abroad, while companies that do not yet export are permitted to invest up to US$ 20,000. He assured stakeholders that these limits would be reviewed and adjusted based on outcomes.
Addressing long-standing complaints from foreign investors about excessive paperwork, Governor Paudel emphasized that removing the requirement for central bank approval to repatriate profits was a key step toward making Nepal a more attractive and globally competitive investment destination.
Comment Here