Kathmandu, Aug 16 (IANS): Foreign investors can register investment companies in Nepal but under certain strict conditions as per the new rules introduced by the Himalayan nation's government.

Foreigners who want to register an investment company in Nepal can bring foreign investments only in the form of share capital, according to the notice published by the Ministry of Industry, Commerce and Supplies, reports Xinhua news agency.

"Foreign investments in the form of loans, bonds and debenture won't be entertained to establish an investment company in Nepal," said the notice.

Jiblal Bhusal, director general at the Department of Industry, told Xinhua on Sunday that such a provision was made to control the outflow of foreign exchanges on a large scale.

"If the investment comes in the form of debt -- borrowings from foreign banks, bonds or debenture, that shall be repaid along with interests leading to a possible outflow of foreign exchanges in large amount," he said.

As Nepal is heavily reliant on remittances for foreign exchange earnings, its foreign exchange reserve is vulnerable to the external environment.

Under the new rules, foreign investors planning investment companies need to state that their investments would be made only in different sectors of Nepal, and they should also disclose the ultimate beneficiaries of their investments.

Likewise, an investment company having foreign investments needs to go through the foreign direct investment approval process for making an investment in each sector in Nepal.

In addition, such a company should declare whether it would invest in foreign currencies or local currency.

The new rules also restrict investments in Nepal through shell companies and ban any transactions with shell banks.

"The provision was made to avoid the risk of money laundering and tax evasion through shell companies," said Bhusal.

An investment of at least 1 billion Nepali rupees ($8 million) is needed to establish an investment company in Nepal, and the investment company cannot take loans from domestic banks and other financial institutions.

"They cannot receive loans from domestic banks even on a guarantee from foreign banks," the notice said.