The case for Nepal’s sovereign wealth funds to attract FDI

Nepal is setting an ambitious goal to reach a $100 billion economy within the next five years, identifying strategic foreign direct investment (FDI) as a cornerstone of this vision. Recognizing the significant Nepali diaspora in Gulf Cooperation Council (GCC) countries, estimated at 3.5 million, Nepal sees this region as a crucial source of both remittance income and potential investment.

“

As Nepal targets an ambitious growth plan to become a $100 billion economy in the next five years, strategic foreign direct investment is a cornerstone of achieving this vision.

Currently, Nepal has limited tax treaties and no bilateral investment protection agreements (BIPA) with most GCC nations. While efforts are underway to ratify more tax treaties, a process that could take years, the government is considering an alternative strategy: reforming its tax regulations to attract Sovereign Wealth Funds (SWFs). These funds, managed by entities like the Abu Dhabi Investment Authority and Qatar Investment Authority, control trillions of dollars globally.

“

Given the wealth and investment power of GCC SWFs, Nepal can benefit by crafting a tax framework that draws inspiration from the US IRC Section 892.

Nepal could draw inspiration from the U.S. Internal Revenue Code (IRC) Section 892. This provision offers foreign governments and their controlled entities an exemption from U.S. income tax on certain qualified investment income, provided they do not engage in commercial activities. By tailoring a similar tax framework, Nepal could create incentives to attract substantial investment from GCC SWFs into sectors vital to its economic development plan.

“

Under Internal Revenue Code (IRC) Section 892, foreign governments are generally exempt from US income taxation on certain qualified income received from US investments.