Foreign Direct Investment in Nepal
Foreign Direct Investment (FDI) in Nepal: Trends and Prospects
Introduction
FDI is a cross-border investment in which a resident in one economy (the direct investor) acquires a lasting interest in an enterprise in another economy (the direct investment enterprise). By convention, a direct investment is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting power of an enterprise abroad. FDI may involve the creation of a new establishment or investment, joint ventures, or the acquisition of an existing enterprise abroad (cross-border mergers and acquisitions). A direct investment comprises not only the initial transaction establishing the investment relationship between the direct investor and the direct investment enterprise, but also all subsequent transactions between investors and affiliated enterprises.
Once established, increases in FDI can take the form of injections of additional equity capital, the reinvestment of earnings not distributed as dividends and intercompany debt, such as the extension of suppliers’ credits or loans.
Nepal and Foreign Investment
With the expectation to supplement domestic private investment through foreign capital flows, transfer of technology, enhancement in management skills and productivity and to get into the global market, the Government of Nepal (GON) has created a competitive and investment friendly environment. It provides attractive incentives and facilities to the foreign investors. It does not levy income tax on dividends, export earning and interest earned on foreign loan. There is an exemption of tax, duty and fee on the products, machinery, equipment, tools and raw materials used by an export industry.
FDI flows to Nepal during 1980s were very low but it showed a distinct acceleration during the 1990s averaging Rs. 1564.39 million per annum during 1990-2000. FDI peaked in 1997 at Rs. 2395.54 million while the fiscal year 1999/2000 actually had the lowest annual
Introduction
FDI is a cross-border investment in which a resident in one economy (the direct investor) acquires a lasting interest in an enterprise in another economy (the direct investment enterprise). By convention, a direct investment is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting power of an enterprise abroad. FDI may involve the creation of a new establishment or investment, joint ventures, or the acquisition of an existing enterprise abroad (cross-border mergers and acquisitions). A direct investment comprises not only the initial transaction establishing the investment relationship between the direct investor and the direct investment enterprise, but also all subsequent transactions between investors and affiliated enterprises.
Once established, increases in FDI can take the form of injections of additional equity capital, the reinvestment of earnings not distributed as dividends and intercompany debt, such as the extension of suppliers’ credits or loans.
Nepal and Foreign Investment
With the expectation to supplement domestic private investment through foreign capital flows, transfer of technology, enhancement in management skills and productivity and to get into the global market, the Government of Nepal (GON) has created a competitive and investment friendly environment. It provides attractive incentives and facilities to the foreign investors. It does not levy income tax on dividends, export earning and interest earned on foreign loan. There is an exemption of tax, duty and fee on the products, machinery, equipment, tools and raw materials used by an export industry.
FDI flows to Nepal during 1980s were very low but it showed a distinct acceleration during the 1990s averaging Rs. 1564.39 million per annum during 1990-2000. FDI peaked in 1997 at Rs. 2395.54 million while the fiscal year 1999/2000 actually had the lowest annual