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International Financial Transactions Act was authenticated on Magh 2054 B.S. to make appropriate legal provisions for International Financial Transaction in Nepal. It was enacted during the Reign of Birendra Bikram Shah and consists of 24 Sections.
As stated in the Preamble, the Act had the objective of developing Nepal as a center for International Financial Transactions while adopting Open, Liberal, and Market Oriented Economic Policies. It also aimed to regulate, operate, and assess the Financial Activities of International Financial Entities in Nepal.
License for International Financial Transaction
An International Entity or Financial Organization is required to obtain a license from the Accreditation Committee to carry out Financial Transactions in Nepal as stipulated in Section 3 of the International Financial Transactions Act.
Authorized Companies for Financial Transaction
Only limited Financial Entities are authorized to obtain licenses and carry out Financial Transactions in Nepal. The following are the authorized entities:
- (a) Foreign banks and trust companies,
- (b) International insurance and reinsurance companies,
- (c) Companies that act as the registered offices for foreign businesses,
- (d) International holding and investment companies,
- (e) Administrative or regional offices established by foreign corporations,
- (f) International trading companies,
- (g) International finance companies,
- (h) Foreign real estate holding companies,
- (i) Foreign patent and royalty companies,
- (j) Foreign mutual funds,
- (k) International leasing companies,
- (l) International merchant banks,
- (m) Entities like foreign partnerships and trusts that are established as corporate,
- (n) International sales transaction companies,
- (o) Foreign entities established to facilitate nonresident pensions or deferred bonus plans,
- (p) International financial companies with services such as stock brokerage, underwriting, investment advisory, and pension fund advisory.
Prohibitions on IFE
Any License holding IFEs are allowed to bring in foreign currencies, along with an unrestricted Foreign Exchange. They are allowed to repatriate the foreign currencies earned by it by carrying International Financial Transactions. However, their property or capital cannot be nationalized.
Moreover, IFEs aren’t allowed to commit the following acts and/or take actions listed below:
- (a) Acquiring any form of real estate property within Nepal or holding it under their name,
- (b) Engaging in international financial transactions with any individual residing in Nepal,
- (c) Purchasing shares or debentures of a company established in Nepal under the current legal framework,
- (d) Establishing an account with any commercial bank in Nepal is permissible.
Promotion Board
Section 9 of the International Financial Transactions Act has incorporated an International Financial Transactions Promotion Board to promote international financial activities in Nepal and construe Nepal as a center for International Financial transactions.
The Tenure of the members of the Promotion Board is limited to two years along with a Nepal Rastra Bank Officer Level Employee acting as the Secretary of the Promotion Board.
Members
- (a) Minister or State Minister of Finance, who will serve as the Chairperson.
- (b) Chairperson of the Finance Committee in the House of Representatives, as a Member.
- (c) Vice-Chairperson of the National Planning Commission, also a Member.
- (d) Governor of the Nepal Rastra Bank, serving as a Member.
- (e) Secretary of the Ministry of Finance, who will be a Member.
- (f) Secretary of the Ministry of Law and Justice, who is also a Member.
- (g) An individual nominated by the Government of Nepal, with experience in financial transactions, who will serve as a Member.
Functions, Duties, and Powers of the Promotion Board
The Functions, Duties, and Powers to be carried out by the Promotion Board have been listed below:
(a) To formulate necessary policies to encourage international financial transactions.
(b) To collaborate with the Government of Nepal in crafting essential legislation to promote international financial transactions.
(c) To establish and maintain coordination among relevant governmental, non-governmental, and international entities involved in international financial transactions.
(d) To provide recommendations to the Government of Nepal regarding exemptions, incentives, and concessions for international financial entities to make Nepal an attractive center for international financial transactions.
(e) To hear appeals from international financial entities contesting the suspension or revocation of their licenses by the Accreditation Committee.
(f) To perform any other functions necessary for the promotion of international financial transactions.
Accreditation Committee
An IFT Accreditation Committee has been formed in Nepal to issue licenses to IFEs to carry out International Financial Transactions in Nepal and regulate such transactions. The Tenure of Office of the Members shall be two years as stipulated by the IFT Act. An Officer-Level Employee of Nepal Rastra Bank must act as the Secretary of the Accreditation Committee.
Members
The following are the members of the Accreditation Committee:
(a) Governor of the Nepal Rastra Bank, who will serve as the Chairperson.
(b) Secretary of the Ministry of Finance, as a Member.
(c) Secretary of the Ministry of Law and Justice, also a Member.
(d) One individual nominated by the Government of Nepal from among Chartered Accountants, who will serve as a Member.
(e) One individual nominated by the Government of Nepal from among Economists, also a Member.
Functions, Duties, and Powers of the Accreditation Committee
The Functions, Duties, and Powers of the Accreditation Committee are as follows:
(a) To monitor and supervise the financial activities of license-holding entities to ensure compliance with this Act, its rules, and other relevant laws governing international financial transactions.
(b) To provide recommendations to the Promotion Board regarding incentives for international financial entities to enhance Nepal’s appeal as a hub for international financial transactions.
(c) To propose improvements to existing laws related to international financial transactions to enhance their effectiveness and management.
(d) To investigate whether license-holding entities are fulfilling the conditions specified in this Act and to require compliance if conditions are not met.
(e) To issue necessary instructions to license-holding entities concerning international financial transactions.
(f) To engage the services of national or foreign experts or specialized agencies for the promotion and development of international financial transactions.
(g) To adhere to instructions provided by the Promotion Board from time to time.
(h) To suspend or revoke the license of a license-holding entity if it violates the provisions of this Act, its rules, or other laws related to international financial transactions.
Procedure for Obtaining Transaction License
Step 1: Submit an Application
For any IFEs wishing to conduct Financial Transactions, they must fill out an application fee to the Accreditation Committee and pay the Required Application Fee. Along with it, it must fill in the necessary details and Documents. Consult a Leading Law Firm or Lawyer to know the Specification.
Step 2: Review of Application
After the submission, the Accreditation Committee shall carefully review the submitted application and determine whether a license should be granted or not.
Step 3: License Payment
If the Accreditation Committee has approved the application, the IFE shall be required to pay a license fee predetermined by the Committee.
Step 4: Issuance of License
After the license fee has been paid, the Committee issues a license along with the terms and conditions of the License.
Step 5: Required Information and Documents
The Accreditation Committee has the authority to request additional Information, Details, or Documents from the IFE for the Licensing Process.
Step 6: License Renewal
The License granted by the Committee must be renewed on an annual basis. The Fee for renewal of an IFT License is prescribed by the Regulations of IFT in Nepal.
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