Establishing a business in Nepal | Practical Law

Establishing a business in Nepal | Practical Law

A Q&A guide to establishing a business in Nepal.

Establishing a business in Nepal

Practical Law Country Q&A 5-623-6056 (Approx. 17 pages)

Establishing a business in Nepal

by Anup Raj Upreti and Priyadarshani Sherchan, Pioneer Law Associates
Law stated as at 01 Feb 2016Nepal
A Q&A guide to establishing a business in Nepal.
This Q&A gives an overview of the key issues in establishing a business in Nepal, including an introduction to the legal system; the available business vehicles and their applicable formalities; corporate governance structures and requirements; foreign investment incentives and restrictions; currency regulations; and tax and employment issues.
To compare answers across multiple jurisdictions, visit the Establishing a business in... Country Q&A Tool.
This article is part of the global guide to establishing a business worldwide. For a full list of contents, please visit

Legal system

1. What is the legal system in your jurisdiction based on (for example, civil law, common law or a mixture of both)?
The legal system of Nepal is based on common law with a strong influence of Hindu customary law.

Business vehicles

2. What are the main forms of business vehicle used in your jurisdiction? What are the advantages and disadvantages of each vehicle?
The main forms of business vehicle in Nepal are:
Sole proprietorship (private) firms. Individuals can register sole proprietorship firms under the Private Firm Registration Act 1957, which provides the firm with a trading name. Sole proprietorship firms do not have a separate legal personality and the liability of the proprietor is unlimited. Proprietorship firms are mostly used by individuals undertaking trading activities (such as, retailers, shops and importers of goods), and professional service providers like lawyers and accountants. The advantages of sole proprietorship firms are as follows:
  • Easy to establish, control, and dissolve.
  • Prompt and flexible decision making.
Disadvantages include:
  • Periodic renewal.
  • No separate legal personality.
Partnership firms. Partnership firms can be registered under the Partnership Act 1963. They do not have a separate corporate personality and the liability of the partners is unlimited (limited liability partnerships have not yet been introduced in Nepal). There is no restriction on the maximum number of partners in a partnership firm. Partnership firms are mostly used for trading activities (such as, retailers, shops and importers of goods), and professional service providers like lawyers and accountants.
Their advantages include:
  • Availability of larger pool of resources (as compared to sole proprietorship).
  • Flexibility in operations/decision making (as compared to companies).
Disadvantages of partnerships include:
  • Periodic renewal.
  • No separate legal personality.
Limited liability companies. Limited liability companies are incorporated under the Companies Act 2006 (Companies Act). The Companies Act provides for the incorporation of:
  • Private limited companies.
  • Public limited companies.
  • Not-for-profit companies.
Limited liability companies (largely private limited companies) are the most common form of business vehicles. Under the Companies Act, a private company can even be formed by a single shareholder.
The advantages of limited liability companies include:
  • Limited liability.
  • A separate legal personality.
  • Perpetual succession.
  • No requirement of renewal on an annual/periodic basis.
The disadvantages of limited liability companies are as follows:
  • Comparatively more expensive to incorporate, maintain and wind up.
  • High level of reporting and compliance requirements.
Co-operatives. Co-operatives are registered under the Co-operative Act 1992 and are run on the principle of co-operative (that is, business activities of the co-operatives are limited to their members). Co-operatives have a separate legal personality and members enjoy limited liability. At least 25 members are required to form a co-operative. This vehicle is not generally used for ordinary commercial transaction by business entrepreneurs.
Advantages of co-operatives include:
  • Limited liability.
  • A separate legal personality.
  • Perpetual succession.
  • No requirement of renewal on an annual/periodic basis.
Disadvantages of co-operatives are:
  • Business activities of the co-operatives limited to its members.
  • More ideal for entities with social / community oriented objective as opposed to commercial objectives.

Establishing a presence from abroad

3. What are the most common options for foreign companies establishing a business presence in your jurisdiction?
The most common options for foreign companies establishing a business in Nepal are:
Registration of local subsidiary. An overseas company can register either a joint venture company, or a fully owned subsidiary company in Nepal. A private company is the most common corporate vehicle used by foreign companies seeking to establish a business presence in Nepal, for the following key reasons:
  • Limited liability.
  • A separate legal personality.
  • No requirement of renewal on an annual/periodic basis.
Although the existing foreign investment laws do not prohibit foreign investment through any other form of business organisation, in practice, approval for foreign investments are largely only given to companies.
In case of the government projects, the bidding documents can also specifically require the successful bidder to register a company in Nepal. In some cases, unincorporated joint ventures are registered with the tax authority for tax purposes. However, such registration of unincorporated joint ventures is not in compliance with law.
Registration of a branch. The Companies Act 2006 (Companies Act) permits foreign companies to register a branch office in Nepal. The branch can carry out the business activities that the foreign company can carry out in the country of its incorporation. To register a branch office in Nepal, the company must have either (section 154(3), Companies Act):
  • Approval from competent authorities in Nepal permitting them to carry out business activity in Nepal.
  • An agreement with a competent authority in Nepal for the purpose of doing any business in Nepal.
There is no specific governmental authority responsible for approving branch offices in Nepal. The relevant authorities are the Department of Industries (DOI) under the Foreign Investment and Technology Transfer Act 1992 (FITTA) and Nepal Rastra Bank (NRB) under the Foreign Exchange Regulation Act 1962 (FERA). However, the DOI is not currently providing any approval to foreign entities for establishing a branch office and its approval is only in respect of investment in share capital. Therefore, the option of branch registration is not viable until DOI corrects its current practice in line with the existing laws.
That being said, approval for a branch office will be given for government projects with a government authority.
Registration of a liaison (contact) office. Foreign companies can register a liaison office in Nepal. The liaison office, once registered with the Office of the Company Registrar, is not subject to any periodic renewal requirement and can operate for indefinite period. The liaison office cannot undertake any income generating activities in Nepal.
4. How can an overseas company trade directly in your jurisdiction?
The following options are available for an overseas company wanting to trade directly in Nepal:
  • Registration of a branch. See Question 3, Registration of a branch.
  • Distributor/agency arrangement. A distributor, dealer or agent must register with the Department of Commerce (section 3, Nepal Agency Act 1957). If an arrangement is made without being registered, the government authorities can, inter alia, prohibit the distributor or dealer from undertaking agency business for up to a period of two years.
  • Franchise arrangement. A franchise arrangement falls under the definition of foreign investment under the Foreign Investment and Technology Transfer Act 1992. Therefore it requires a prior approval of the Department of Industries.
5. What are the formalities for setting up a partnership?
The Partnership Act 1964 is the primary legislation dealing with partnerships in Nepal. Partnership business in Nepal is largely based and established by agreement among the respective partners. The partnership must be registered by submitting an application to the relevant department (typically the Department of Commerce) providing the necessary details of the firm and its partners. Partnership firms do not have a separate legal personality and the liability of the partners is unlimited. Limited liability partnerships do not exist in Nepal.
6. What are the formalities for setting up a joint venture?
A joint venture can take the form of a limited liability company (in case of corporate entities) or a partnership firm (in case of individuals) (see Question 2). International joint ventures (JVs) between a foreign company and a local business are common in Nepal.
In order to set up a joint venture between a foreign company and a local company, the foreign investment in the relevant sector should not be prohibited. The foreign company must be satisfied that the following conditions are met:
  • The proposed business activity does not fall within the list of negative activities under the Foreign Investment and Technology Transfer Act 1992, (such as, arms and ammunition industry, real estate business (excluding construction industry) and retail business).
  • The proposed business activity must be classified as an "industry" under the Industrial Enterprises Act.
Section 3 of the Industrial Enterprise Act 1992 (IEA) provides the following seven categories of industries:
  • Manufacturing industry.
  • Energy industry.
  • Agriculture and forestry industry.
  • Minerals industry.
  • Tourism industry.
  • Service industry.
  • Construction industry.
The Government of Nepal can decide to include any industry within any category of industry under section 3 of the IEA upon the recommendation of the Industrial Promotion Board (section 14, IEA). In practice, the Government will publish notice of any additional industries in the official gazette.
In addition, Foreign Investment and Technology Transfer Act 1992 provides a maximum amount of foreign investment in the following business activities:
  • Telecommunication: 80%.
  • Insurance: 70% (for life insurance only).
  • Transportation, domestic air passenger service: 49%.
  • Transportation, international air passenger service: 80%.
  • Consultancy services, including engineering, accounting, legal and management services: 51%.
The steps for setting up a foreign joint venture company are as follows:
  • Obtaining approval from the Department of Industries for foreign investment (Foreign Investment and Technology Transfer Act 1992) and a refundable deposit of up to NPR20,000 is required.
  • Obtaining approval from Nepal Rastra Bank under the Foreign Exchange Regulation Act 1962.
  • Registering the company with the Office of Company Register (Companies Act 2006). The government fees payable will depend on the authorised capital.
  • Registering as an industry with the Department of Industries (IEA).
  • Approval of the Industrial Promotion Board (a high level board headed by the Minister or State Minister of Industries) is required if the foreign investment is in an industry with fixed assets of more than NPR2 billion.
  • Approval from the Nepal Investment Board (a high level board headed by Prime Minister) is required for making foreign or domestic investments in any of the projects listed in section 9 of the Investment Board Act 2011. These include:
    • fast track road, tunnel, railway, rope way, trolley bus;
    • construction of international and regional level airport and modernisation and management of existing airports;
    • establishment of banks or financial institutions with foreign investment of more than 51%.
  • Certain regulated businesses also require additional business specific approvals or licenses for the commencement of their business activities. These businesses include the generation of hydropower, telecommunication services, banking, insurance, travel and trekking.
  • In addition, enterprises listed in Schedule 2 to the IEA that are likely to have a substantial impact on security, public health and environment must also obtain the approval of the DOI (Section 9, IEA). These include enterprises producing alcohol, cigarettes, arms and ammunitions.
7. Are trusts available in your jurisdiction?
Trust arrangements (other than trusts with religious or social objectives) are not recognised by the laws of Nepal.
The answers to the following questions relate to private limited liability companies (or their equivalent).

Forming a private company

8. How is a private limited liability company or equivalent corporate vehicle most commonly used by foreign companies to establish a business in your jurisdiction formed?

Regulatory framework

The Companies Act 2006 is the primary legislation in relation to private companies. Private companies are registered with the Office of Company Registration (OCR). All the statutory records of the company such as the register of shareholders, register of directors, registered office of the company are also maintained with the OCR.
For more information on the OCR see box: The regulatory authorities.

Tailor-made or shelf company

Companies are tailor-made. Nepal does not use shelf companies.

Formation process

The following documents must be filed electronically or physically with the Office of Company Registration (OCR):
  • Application for the registration in the standard format. The approval for the suggested name is subject to certain conditions, namely that it should not be ambiguous or similar to an existing company.
  • Memorandum of association and articles of association of the local entity.
  • In the case of a private company, a copy of the consensus agreement (shareholders agreement signed by all the shareholders), if any.
  • Prior approval or license from the relevant authority for carrying out the particular type of business (if applicable) (see Question 6).
  • Certified copy of citizenship if the promoter is a Nepalese citizen or certificate of incorporation, and resolution of the board of directors, if the promoter is an entity.
  • Copy of the prior approval of the Department of Industries and Nepal Rastra Bank for foreign investment (see Question 6).
  • Evidence to substantiate the nationality of foreign promoter.
  • Copy of certificate of registration and other registration document of the foreign investor.
  • Corporate resolution of the foreign investor.
The registration fee payable depends on the authorised capital of the company. For example:
  • For the authorised capital of up to NPR100 million, the registration fee is between NPR1,000 to NPR43,000.
  • For authorised capital above NPR100 million, the registration fee of NPR30 for every NPR100,000 of the authorised capital is applicable.
The OCR will typically provide a certificate of incorporation in fifteen days from the filing of the documents. A private company can commence its business immediately after the certificate has been issued.

Company constitution

The memorandum of association (MoA) and the articles of association (AoA) are the fundamental documents of company that are required during incorporation. These documents are public and can be obtained by any shareholders and stakeholders in case of a private company, and by any one in case of a public company, on payment of a certain fee. Companies also have the authority to enact its bye-laws and regulations.
The MoA contains information such as the share capital of the company, types of shares, and rights vested in shares. It must be signed by each of the promoters and their witness. The AoA contains information on convening meetings, appointment of directors, power and duties of board of directors, accounts of the company for internal management and attaining the objects contained in MoA.
Although not mandatory, the shareholders of the company can enter into a shareholders' agreement (or consensus agreement) executed by all the shareholders of the company in relation to the operation of the company. This must also be submitted to the OCR on incorporation.

Financial reporting

9. What financial reports must the company submit each year?
The company must have its annual financial statement (balance sheet, profit and loss account, and description of cash flow) audited by a qualified auditor (Companies Act 2006). These audited financial statements, along with the auditor's report must be approved by the shareholders at the annual general meeting and submitted (together with the decision of the shareholders approving these documents) to the Office of Company Registration (OCR).
Tax returns are filed under a self-assessment system and must be certified by the auditor and submitted along with the audited accounts within the stipulated time.
The branch office of a foreign company must also prepare annual financial statements to reflect transactions undertaken Nepal and submit these documents to the OCR. The branch office must also submit a copy of the annual financial statement, audit report and report of board of directors prepared for every financial year pursuant to the law of the country where its registered office is situated, no later than three months after they have been finally prepared.

Trading disclosure

10. What are the statutory trading disclosure and publication requirements for private companies?
Private companies must include Private Limited (Pvt. Ltd.) after its name. Every company must place a signboard containing its name and address in Nepali language outside its registered office.
11. How do companies execute contracts or deeds?
Contracts or deeds must be signed by a person duly authorised to sign on behalf of the company. To obtain regulatory approvals from the Department of Industries and Nepal Rastra Bank, all the parties must sign on the same document (counterparts are not permitted). The parties must initial on every page of the contract or deed (including any schedules and annexures) and insert their full signature on the signature page. In addition, parties that use seals or stamps must affix this on every page of the contract or deed (including the schedules, annexures and the signature page).
Every document must be witnessed by at least one witness for each party. Contracts in Nepal are not subject to stamp duty or other taxes.


12. Are there any restrictions on the minimum and maximum number of members?
The minimum number of members for a private company is one and the maximum number is 50. A single member can form a private company in Nepal. A single member company is not required to call for general meeting or board meeting and can conduct activities through the single member's written decision.

Minimum capital requirements

13. Is there a minimum investment amount or minimum share capital requirement for company formation?
A minimum paid up capital of NPR10 million is required for the formation of a public company. There is no minimum share capital requirement for private companies. However, the minimum foreign investment requirement is NPR5 million.
14. Are there restrictions on the transfer of shares in private companies?
The promoters of a private company that has taken loan from any other company cannot transfer, or create security interest over, the shares of the company issued in their name until both:
  • The first annual general meeting of the company.
  • Any call on the shares have been fully paid.
There are no other statutory restrictions on the transfer of shares in a private company. However, the shares of a private company cannot be transferred to any person other than the existing shareholders of the company without complying with any provisions contained in the memorandum of association, articles of association or the consensus agreement entered between the shareholders of the company.

Shareholders and voting rights

15. What protections are there for minority shareholders under local law? Can additional protections be given?
The Companies Act 2006 provides the following protection for minority shareholders:
  • Shareholders representing 10% of any particular class of shares can file a petition with the court to invalidate decisions on any alteration on their rights.
  • Shareholders representing 10% of the paid-up share capital of the company, or shareholders representing at least 25% of the total number of shareholders of the company, can require the company to call an extra-ordinary general meeting of the company.
  • Any shareholder can file a complaint in the court if the business of the company is or is likely to be prejudicial to their rights and interest.
Additional protection can be given to minority shareholders in the articles of association and shareholders agreement. For instance, the shareholders can agree to provide veto rights to certain shareholder(s) on specific matters.
16. Are there any statutory restrictions on quorum or voting requirements at shareholder meetings? Do quorum or voting rights need to be proportionate to shareholdings?
The quorum requirement at shareholder meetings for a private company is contained in its articles of association.
Shareholders are entitled to voting rights at the rate of one vote for each share held. However, this can be varied by an agreement between the shareholders, provided that it is not prejudicial to the interests of the company and other minority shareholders.
17. Are specific voting majorities required by law for any corporate actions (for example, increasing share capital, changing the company's constitution, appointing and removing directors, and so on)?
Special resolutions (that is, at least 75% of the votes) are required for certain corporate actions such as amending the memorandum of association or articles of association of a company, altering the share capital of the company and voluntary liquidation.
Corporate actions such as appointment of directors and distribution of dividends require an ordinary resolution of the shareholders (that is, at least 50% of the votes).
18. Can voting majorities required by law be disapplied to protect a minority shareholder (for example, through class rights or weighted voting)?
Voting majorities required by law cannot be disapplied for protection of minority shareholders. See Question 15 for rights that may be conferred to minority shareholders for protection of their rights.

Sectoral restrictions

19. What are the conditions or restrictions on establishing a business in specific industry sectors? Are there industry sectors in which it is not permitted to establish a business?
See .

Foreign investment restrictions

20. Are there any restrictions on foreign shareholders?
The laws of Nepal generally do not discriminate between foreign shareholders and domestic shareholders. All the shareholders are treated equally without any restrictions.
However, foreign investment is prohibited in the following business activities (Foreign Investment and Technology Transfer Act 1992):
  • Arms and ammunition industry.
  • Real estate business (excluding construction industry).
  • Retail business.
  • Security printing.
  • Atomic energy.
In addition, there are certain sectors where foreign investment is restricted to as certain percentage (see Question 6).
21. Are there any exchange control or currency regulations?
The foreign exchange transactions in Nepal are regulated by the Foreign Exchange Regulation Act 1962 (FERA). This Act restricts foreign exchange transactions that do not have prior approval from the Nepal Rastra Bank (NRB).
In addition, a person residing in Nepal must obtain approval from the NRB for any indirect or direct (section 9C, FERA):
  • Payments to a person residing outside Nepal.
  • Payment obligations to a person residing outside Nepal.
  • Payments to any person on the instruction or on behalf of a person residing outside Nepal.
22. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?
Nepalese laws do not permit foreign ownership of real estate without approval from the Government of Nepal. This includes creation of security interest over real estate in favour of foreigners. Real estate is also one of the sectors in which any foreign shareholding is not permitted.
However, there are no restrictions on the occupation of real estate by foreigners.


23. Are there any general restrictions or requirements on the appointment of directors?
Unless otherwise specified by the articles of association, a person proposed to be appointed as a director of a company (other than independent directors and directors nominated by institutional shareholders) must hold at least 100 shares in the company.
In addition, a person is disqualified from being appointed as a director if (Companies Act 2006):
  • He is under 21 years old, in case of a public company.
  • He is mentally unstable.
  • He was declared insolvent within the last five years.
  • He was convicted of corruption or an offence involving moral turpitude. However, in case of a private company, this conviction must have occurred within the last three years.
  • Convicted of theft, fraud, forgery, embezzlement or misuse of funds or goods within the last three years.
  • He has any kind of personal interest in the business of the company, including if he has entered into any contract or transaction with the company.
  • He is already a director, substantial shareholder, employee, auditor or advisor of another company with similar objective. This does not apply to private companies.
  • He is a shareholder of the company who has failed to pay any amount due and payable by him to the company.
  • He has been sentenced for violation of the Companies Act 2006 and a period of six months or one year (depending upon the nature of violation) has not elapsed since the date of sentence.
  • He is a director of a company, which has not submitted returns and reports to the Office of Company Registration continuously for three consecutive fiscal years.
  • He is a director of another listed company and receives remuneration or facilities other than sitting fees (paid for attending meetings) from such company.

Board composition

24. What are the legal requirements for the composition of a company's board of directors?


Companies in Nepal have a unitary board structure. The board of directors can form sub-committee(s) to discharge of any specific business.

Number of directors or members

A public company's board must consist of a minimum of three and maximum of 11 directors. If the number of directors is less than seven, at least one independent director must be appointed. If the number of directors is more than seven, at least two independent directors must be appointment. The number of directors for a private company is provided for in its articles of association.
A corporate/institutional shareholder can appoint a director in proportion to the shares held by it. The corporate shareholder can also appoint an alternate director to attend the meeting on behalf of their director.
The maximum limit on number of members in a public company has not been specified by law, however, the minimum is seven. A private company can be formed by a single person and the maximum limit on the number of members is 50 (excluding employee shareholders).

Employees' representation

Employees do not have a statutory right to board representation.

Reregistering as a public company

25. What are the requirements for a business to reregister as a public company?


The maximum number of members in a public company has not been specified by law. The minimum number of members is seven.

Share capital

A minimum paid up capital of NPR10 million is required for the formation of a public company. Unless a public company is listed on the stock exchange, there are no requirements for the minimum number of shares to be held by the public. However, in the event a public company proposes to issue its shares to more than 50 persons, then it must comply with certain public issue requirements, including the publication of a prospectus.


26. What main taxes are businesses subject to in your jurisdiction?
The main taxes that businesses are subject to in Nepal are as follows:
  • Income tax, made up of:
    • normal corporate tax: at 25%. Certain sectors like hydropower are taxed at concessional rate of 20% and other sectors like banking are taxed at 30% (section 2(4), Schedule 1, Income Tax Act 2002 (ITA)));
    • dividend: at 5% (section 88 (2) (a), ITA); and
    • capital gains (for the gain from the disposition of the shares of non-listed company) are subject to withholding tax at 10% for a natural person and at 15% for others (section 95A, ITA). However, the entire capital gain is subject to tax at the normal corporate rate applicable to the particular entity/person.
  • Value Added Tax (VAT): at 13% on the goods and service subject to VAT (Value Added Tax Act 1996).
  • Withhold taxes: certain payments are subject to withholding including payment of royalties (15%) and rent (10%).
  • Custom duty applies at the rate as imposed by the Fiscal Act introduced each fiscal year based on the nature of the goods being imported.
Tax returns are filed under a self-assessment system and must be certified by the auditor and submitted along with the audited accounts within the stipulated time.
27. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

Tax resident

The following companies are considered to be resident in Nepal for tax purposes in any fiscal year:
  • Companies registered in Nepal (in which case the place of management will not be relevant).
  • Companies registered outside Nepal, if their place of effective management is deemed to be in Nepal in such fiscal year.
Resident businesses are taxed on their worldwide income. In addition, a foreign permanent establishment of a non-resident person situated in Nepal is also considered to be a resident of Nepal for tax purposes.
Section 2 (ay) of the ITA read with Sections 2 (ay) and 2 (aab) of the ITA defines ''foreign permanent establishment'' as a foreign company, trust, partnership that:
  • Undertakes business fully or partly from any places in Nepal through an agent, other than an independent agent.
  • Installs or uses its main machinery or equipment at any place in Nepal.
  • Provides technical, professional or consultancy services for a period or periods aggregating 90 days during a 12-month period, from one or more places within Nepal.
  • Engages in a construction, installation, establishment or supervision of a project for a period of 90 days or more from any place in Nepal.
A permanent establishment is subject to:
  • Corporate tax at 25%.
  • Tax on dividend (any income remitted to the head office) at 5%.

Non-tax resident

Non-resident businesses are taxed on income having source in Nepal.
28. What is the tax position when profits are remitted abroad?
Profits remitted to foreign entities are taxed in the following manner:
  • Dividends taxed at the rate of 5%.
  • Interest taxed at the rate of 15%.
  • Royalties taxed at the rate of 15%.
  • Repatriation of income by permanent establishment of foreign entities taxed at the rate of 5%.
  • Capital gains on disposal of shares will be subject to normal corporate tax rate (certain amount would be deducted as withholding tax which can be taken credit at the time of making final payment).
The dividend is considered as finally taxed after withholding at the rate of 5%. The payments made to non-residents after deducting the applicable taxes on royalties or interest are considered finally taxed and no additional tax is payable in Nepal.
If Nepal has entered into a Double Tax Avoidance Treaty (DTA) with another country, and a person's same income is taxable in both countries, the beneficial tax provisions (exemption or lower rate of tax) under the DTA would be applicable (section 73(1) , Income Tax Act).
However, the benefits under the DTA will not be applicable if (section 73(5), Income Tax Act) both:
  • The entity claiming the benefit is an entity that is considered a resident (for the purpose of the DTA) of the country with which the DTA has been entered into.
  • 50% or more of the vested ownership of the entity is owned by natural persons or entities (in which no natural person has an interest), which are not residents of Nepal and/or the country with the DTA.
Nepal has entered into DTAs with the following ten countries:
  • People Republic of China.
  • India.
  • Mauritius.
  • Sri Lanka.
  • Pakistan.
  • Republic of Korea.
  • Thailand.
  • Austria.
  • Norway.
  • Qatar.
29. What thin-capitalisation rules and transfer pricing rules apply?
Section 33 of the Income Tax Act 2002 deals with transfer pricing under the ''arm's length principal". The Inland Revenue Department (IRD) has the power to distribute, apportion or allocate amounts to be included or deducted in computing income between associated persons in order to assess the taxable income or tax liabilities.
The IRD can re-characterise any income, loss, amount, source or types of payment or apportion the expenses between the associated persons for this purpose if the transaction has not been carried out in accordance with the arm's length principal.
The IRD can also re-characterise certain transactions (such as transactions for use of property under a financial lease) to affect the deductibility of interest payments.

Grants and tax incentives

30. Are grants or tax incentives available for companies establishing a business in your jurisdiction?
The Fiscal Act, which is introduced each fiscal year, provides for tax exemptions and grants for certain types of businesses based on factors such as:
  • The sectors they operate in.
  • Their location.
  • The number of employees they employ.
For example, entities with an exploration licence that will commence commercial operation by 15 April 2019 are entitled to:
  • 100% income tax exemption for the first seven years of operation.
  • Income tax rebate of 50% for three years after the initial period.


31. What are the main laws regulating employment relationships?
Labour Act 1992 and Labour Rules 1993 are the main laws regulating employment relationships. The Bonus Act 1974 and the Bonus Rules regulate profit sharing, the Trade Union Act 1992 and the Trade Union Rules 1993 regulate the formation of trade unions.
Labour laws apply to all foreign and national employees and workers in Nepal. Foreign Employment Act 2007 and Foreign Employment Rules 2008 apply to Nepalese citizens working abroad. The labour laws generally apply to employers employing ten or more employees. Only limited provisions including minimum wages will apply to the employers employing less than ten employees.
32. What prior approvals (for example, work permits, visas, and/or residency permits) do foreign nationals require to work in your jurisdiction?
Foreign nationals must obtain a working visa from the Immigration Department after obtaining the approval from Department of Labour to work in Nepal. This is issued for a period not exceeding one year at a time and can be renewed for a further period if the approval is extended by the Department of Labour.

Proposals for reform

33. Are there any impending developments or proposals for reform?
The draft bill on Foreign Investment and Technology Transfer Act 2013 (2070) (Draft FITTA) was introduced in 2013. The Draft FITTA has proposed a number of changes to the current foreign investment laws. One of the proposed changes is raising the minimum amount of foreign investment in any industry from USD50,000 to USD200,000. Further, the Draft FITTA is also proposing to prohibit foreign investment in hydropower with installed capacity of less than 30 MW. The status of the draft bill is not publicly available. The labour laws are also undergoing reform and new bills have recently been registered with the Parliament.

The regulatory authorities

Office of Company Registrar, Ministry of Industry

Main activities. Responsible for registering companies, branch offices and liaison offices of foreign companies.

Department of Industry, Ministry of Industry

Main activities. Responsible for registering industries and for approving foreign investment (including technology transfer).

Inland Revenue Department, Ministry of Finance

Main activities. Responsible for the administration of taxes and enforcement of tax laws.

Department of Labour, Ministry of Labour and Employment

Main activities. Responsible for creating conductive working environments for employees and dealing with onshore labour disputes.

Online resources

Nepal Law Commission

Description. The Nepal Law Commission is a statutory body formed under the Nepal Law Commission Act 2007. It is responsible for drafting of new legislation and reviewing existing legislation. The website maintains official (Nepalese language) versions of all the prevailing laws and rules (although not always up to date). The website also maintains English translations of the laws and rules; however, the English translations are for guidance only and cannot be relied on.

Contributor profiles

Anup Raj Upreti, Managing Partner

Pioneer Law Associates

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T +977 1 4221340, +977 9801065418
E [email protected]
Professional qualifications. Advocate, Nepal Bar Council
Areas of practice. Telecommunication; taxation; energy; project finance.

Priyadarshani Sherchan, Senior Associate

Pioneer Law Associates

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T +977 1 4221340, +977 9802013684
E [email protected]
Professional qualifications. Advocate, Nepal Bar Council
Areas of practice. General corporate law; business restructuring; private equity.