The Foreign Exchange (Regulation) Act, 2019 of Nepal has undergone significant amendments through an ordinance introduced by the Government of Nepal on 29 Poush 2081. It has addressed new provisions aimed at regulating “investment abroad” made by Nepali companies and individuals. The key changes are the definition of investment abroad, the scope of permissible investments, and the conditions for such investments under section 2(G4) and 10(A).
The following comparative analysis outlines the key differences in the Act before and after its amendments, along with a summary:
| Aspect | Pre-Amendment | Post-Amendment | Impact |
| 1. Definition of Investment abroad | Undefined and unclear. |
Explicitly defined under Section 2(G4) as an Investment made abroad by companies or entities established in Nepal by: – Investing in Unlisted and listed entities abroad. – Establishment of branch or liaison offices abroad. – Depositing in foreign bank accounts or reinvestment of income derived from investment abroad. |
Provides clarity eliminating ambiguity. |
| 2. Regulation of Investments | Restrictive, with no clear exceptions. |
Investment abroad by Nepali companies and individuals is now permissible under specified conditions, such as: – Investments by IT industries. – From income earned by Nepali citizens while residing abroad. – Investments by exempted industries. – From foreign currency earnings. |
Enhances flexibility, particularly for IT industries and Nepali citizens working abroad, fostering global integration and economic opportunities. |
| 3. Regulation of Employee Stock Purchase Plans | Not addressed. |
Section 10A(2) now allows employees of Nepali Companies to acquire shares under employee stock purchase plans offered by foreign parent or subsidiary companies. However, no convertible foreign currency can be remitted outside Nepal for this purpose. |
Boosts employee engagement and retention while ensuring no outflow of foreign currency. |
| 4. Role of Nepal Rastra Bank (NRB) | Limited role with no specific provisions. |
Section 10A(3) grants NRB the authority to set: – Sectoral investment limits. – Conditions for foreign investments. – Other regulatory measures through public notices. |
Enhanced role of NRB ensures controlled and well-regulated environment for foreign investments, reducing risks to Nepal’s foreign exchange reserves. |
| 5. Utilization of Income Earned Abroad by Nepali Citizens | Not explicitly allowed. | Section 10A(C) now permits Nepali citizens to invest abroad using income earned while residing abroad. | Encourages productive use of income earned abroad, enhancing diaspora contributions to the economy. |
| 6. Investment in IT Industries | Not addressed. | IT industries classified under Nepal’s industrial laws can now invest abroad, aligning with global trends and technological advancements. | Promotes IT sector growth by allowing it to expand its presence and operations internationally. |
Summary of Key Differences:
| Aspect | Pre-Amendment | Post-Amendment |
| 1. Definition of Investment abroad | Vague and undefined | Clear and specific |
| 2. Scope of Investments | Limited and restrictive | Flexible with clear conditions |
| 3. Employee Stock Ownership | Not addressed | Permitted with conditions |
| 4. Role of NRB | Minimal | Prominent |
| 5. Utilization of Income Earned Abroad | Not explicitly allowed | Explicitly permitted |
| 6. Investments by IT Industry | Not addressed | Actively encouraged |
Conclusion
The amendments to the Foreign Exchange (Regulation) Act, 2019 mark a significant step toward updating Nepal’s foreign exchange and investment regulations. By allowing regulated investments abroad while maintaining strict oversight, the changes strike a balance between encouraging economic growth and safeguarding national interests. These provisions will likely benefit IT industries, Nepali citizens working abroad, and Nepali companies looking to expand internationally.
Disclaimer: This note is provided solely for general information and does not constitute legal opinion. For specific legal query, please seek professional counsel.
