Provisions for Foreign Direct Investment (FDI)

The government promotes foreign investment in the travel and tourism sector The majority of tourism subsectors allow 100% Foreign Direct Investment (FDI), with the exception of rural tourism, local catering services, travel agencies, trekking agencies, river rafting, pony trekking, horseback riding, and tourist accommodation facilities. The facilitative strategy has allowed foreign firms from more than 30 countries to inject about USD 90 6 billion of FDI into the tourism sector, representing 21.6%

Governing Body

of the total FDI inflow in Nepal . Hotels and restaurants have been the primary focal sub-sectors for FDI in the tourism sector

The minimum investment required for obtaining FDI approval is NPR 20 million. Industries restricted from foreign investment (Negative List) related to tourism:

-Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay

Foreign direct investment in Nepal has to go through two tiers of approval, the first from either Department of Industry (DOI), or Investment Board of Nepal (IBN) and the second from Nepal Rastra Bank (NRB). Despite the FITTA 2019 provisioning for self-declaration of foreign investment, it also stipulates that foreign investment must be brought through banking channels following procedures set by NRB

Generally, it takes around 3 to 6 months for the completion of this process . Despite the Foreign Investment and Technology Transfer Act 2021 (FITTA) allowing for the approval of foreign direct investment through the automatic route, this has not been implemented yet and thus the approval-based route is still followed. Further, the financial ordinance for the financial year 2022/23 also states that arrangements will be made to approve FDI worth NPR 100 million through the automated route . In this regard, Nepal can take lessons from India, where FDI is permitted without approval in sectors such as manufacturing, telecom services and financial services fall, thus falling under the automatic route. While sectoral limits are still applicable on some of the sectors allowed in the automatic route, the system of automatic approval eases FDI inflow into the country. Nepal could therefore benefit immensely if it implements an automatic approval route for selected sectors or selected investment levels.

Non-Resident Nepalis (NRNs)

One key benefits for NRNs include lower tax rate in Nepal, with NRNs income being taxed at a flat rate of 25% whereas income of resident Nepalis is taxed at a progressive tax rate with the highest applicable rate of 36% Further, the tourism sector has high potential for capital growth, and a clear demandsupply gap in luxury hotels . Considering this, Nepal also has tried to create a conducive regulatory environment for NRN investment.