Trade and Investment
Bound by India in the East, South and West, and Tibet Autonomous Region of the People’s Republic of China in the North, Nepal is one of the 49 least developed countries (LDCs), one of the 48 land-locked countries and one of the 31 land-locked developing countries in the world.
Nepal became the first least developed country (LDC) to enter the WTO as a member on 23 April 2004 through accession process . Nepal, as a staunch supporter of Regional Trade Agreements (RTAs), is also associated with Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and South Asian Free Trade Area (SAFTA). Similarly, Nepal has signed double tax avoidance treaties with some ten friendly countries.
Nepal’s trade is primarily guided by the concerned domestic sectoral policies and rules that are developed in tandem with the provisions of World Trade Organization (WTO), SAFTA, BIMSTEC, World Customs Organization (WCO) and bilateral free trade agreements (FTAs).
Nepal’s trade is heavily dependent on India both in export and import due to the country’s common border in three sides. In recent days, the Government of Nepal is emphasizing in markets and products diversification for enhancing export trade with a view to reduce the burgeoning trade deficit.
Share of export and import in total foreign trade was Rs. 37.63 billion and Rs. 490 billion in 2016 (according to Trade and Export Promotion Board of Nepal). Nepal’s foreign trade is heavily lopsided with India and China while other countries occupy only a small pie of total export and import.
Major policy and legal provisions
Trade policy, 2009
Foreign Exchange (Regularization) Act, 1962
Excise Duty Act, 2002/ Regulations 2003
Customs Act, 2007/ Regulations, 2007
Income Tax Act, 2002
Value Added Tax (VAT) Act, 1996
Baggage Rules, 2008 (for passenger clearance)
Nepal Trade Integration Strategy, 2010
Consumer Protection Act, 1998
GoN is making endeavours to attract foreign investment and FDI through open, liberal and pragmatic economic policies that have been pursued uninterruptedly since the beginning of 1990s for the economic transformation of the country. FDI and technology transfer are accorded very high priority by the Government for resource mobilization. The Government is equally committed to maintain a investor-friendly investment climate in the country. To achieve these objectives, the GoN has introduced new laws and policies to attract the investors from around the world.
Potential Sectors for Investment in Nepal
- Agriculture and Dairy
- Mines and Minerals
- Service (including hotels, resorts and restaurants)
- Infrastructure Development (Road, Ropway, Cable Car)
- Airlines Industry
- Media and Advertising
- Pharmaceuticals and Chemical Industries
- Textile and Garment
- Consultancy and Management Services
- Film / Cargo Industry
- Education (medical, engineering, management)
- Insurance and Reinsurance
Technology transfer is possible even in areas where foreign investment is not allowed. Forms of Technology Transfer to be made under an agreement between an industry and a foreign investor include:
– Use of any technological right, specialization, formula, process, patent or technical know-how of foreign origin;
– Use of any trademark of foreign ownership; and
– Acquisition of any foreign technical consultancy, management and marketing service.
RETURN OF INVESTMENT
Compared to other countries in South Asia, Nepal offers the lowest tax burden in the region. Some of the reasons for comparatively high ROI in Nepal include:
– Huge investment potential in tourism, hydropower, agriculture, and mine and mineral sectors;
– Abundance of natural resources;
– Maximum income tax rate of 25% and value added tax (VAT) of 13%;
– Income tax exemption on profits from exports and interest income on foreign loans;
– Tax rate of 15% on royalties and technical and management fees; and
– Customs, excise duties, and VAT levied on raw materials and auxiliary raw materials of export-oriented industries is reimbursed to the exporter on the basis of the amount of exports within 60 days of application.
INVESTMENT CLIMATE IN NEPAL
The Government of Nepal is highly supportive of all investments. It aims to create social and economic systems that can provide reliable access to good-quality basic necessities such as education, health, and food that can generate jobs, protect health and environment, and eradicate poverty.
The GON and private sector organizations work well in tandem. Through sustainable economic development, the country is working towards political stability, peace building, trade facilitation and economic capacity building.
SIZE OF MARKET
The principal attraction for foreign investors to Nepal is the size of the market. In 2010-11, Nepal had the gross national disposable income (GNDI) of 21 billion USD. Nepal’s GDP is $16.8 billion USD, per capita GNDI in 2011 was $797 USD, and per capita GDP was $642 USD (MOF, 2011).
Similarly, the country is bordered with two Asian giants; India and China adding further incentive to the potential investors.
Please visit the following links for detailed information on Trade and Investment opportunities in Nepal.