Private Mergers and Acquisitions in Nepal: Overview | Practical Law

Private Mergers and Acquisitions in Nepal: Overview | Practical Law

A Q&A guide to private mergers and acquisitions law in Nepal.

Private Mergers and Acquisitions in Nepal: Overview

Practical Law Country Q&A w-018-6792 (Approx. 19 pages)

Private Mergers and Acquisitions in Nepal: Overview

by Anjan Neupane, Neupane Law Associates
Law stated as at 01 May 2022Nepal
A Q&A guide to private mergers and acquisitions law in Nepal.
The Q&A gives a high-level overview of key issues including corporate entities and acquisition methods, preliminary agreements, main documents, warranties and indemnities, acquisition financing, signing and closing, tax, employees, pensions, competition and environmental issues.

Market Overview

1. What are the current major trends in the private M&A market?
While private M&A transactions have been generally on the rise in Nepal, there is very little reliable data available on M&A activity. The Office of the Company Registrar approved 170 and 52 merger transactions in fiscal years 2019/20 and 2020/21, respectively. There were 7,672 recorded share sale transactions relating to private companies in fiscal year 2019/20 and 11,773 in 2020/21. There is no data available on sectors and types of transaction.
A recent trend in the domestic M&A market is the establishment of professional investment funds. There are currently over a dozen investors identifying themselves as undertaking venture capital or private equity investments. The Specialised Investment Funds Regulation enacted in 2019 sets out requirements applicable to the operation of specialised investment funds, which include private equity funds, venture capital funds, and hedge funds. Some investors are in the process of obtaining a licence to operate funds from the Securities and Exchange Board of Nepal.
Debt-financed M&A transactions are rare in Nepal. However, there are precedents of Nepalese banks providing acquisition finance to buyers to purchase companies with strong and stable revenues.

Structuring an Acquisition

Current Structures

2. What are the current trends in structuring private M&A transactions?
Share sales are more common than asset sales in the Nepalese market. Cash deals are typical. Shares and loan stocks are not commonly used. While share swap transactions are on the rise, the majority of transactions are share sale deals paid in cash on closing.
The price is usually fixed during negotiations between the buyer and the seller. Deferred consideration and price adjustment mechanisms are rare in Nepal, although these mechanisms have been used in the hydropower sector. Transactions in the power sector sometimes use deferred consideration by reference to certain milestones (such as signing of the power purchase agreement, financial close, and grant of licences).
Transactions involving foreign investors must be supported by valuation reports prepared by registered accountants (rule 10, Foreign Investment and Technology Transfer Regulations 2021).

Terms and Documentation

3. What are the current trends in the terms and documentation of private M&A transactions?
Most transactions use minimal documentation consisting of a share purchase agreement, a share sale deed, and corporate resolutions. It is increasingly common for the parties to enter an escrow agreement in transactions involving foreign investors, due to potential regulatory delays to obtain repatriation approval.
Sellers usually provide warranties. Indemnification caps are commonly set at 100% of the purchase price. Insurance companies in Nepal do not provide rep and warranty insurance.

Conduct of Transactions

4. What are the current trends in how private M&A transactions are conducted?
The due diligence process varies depending on the type of buyer and specific transaction. Foreign investors and private equity funds place a lot of importance on legal, accounting, and tax due diligence, while Nepalese trade buyers have a more relaxed attitude and tend to focus on the business of the target company.
Auction sales are very rare in Nepal and most transactions are privately negotiated.

Corporate Entities

5. What are the main corporate entities commonly involved in private acquisitions?
The private limited company is the most common corporate entity involved in private acquisitions in Nepal. A private limited company has a capital divided into shares and shareholders have limited liability. Private limited companies can only invest 60% of their paid-up capital and free reserves, or 100% of free reserves, in other companies, except for companies whose primary objective is to make investments.
Individual investors, foreign companies, and public limited companies are also frequently involved in private acquisitions.

Ways to Acquire a Private Company

6. What are the main ways to acquire a private company? Which methods are most commonly used and in what circumstances?
Typical acquisitions involving private companies in Nepal are structured as follows:
  • Share purchase. The most common type of structure is a share purchase for cash consideration. Using shares of public companies as consideration is not common.
  • Asset purchase. Asset purchases are common in acquisitions of distressed companies or industrial units in asset-heavy industries where licences to operate can be easily obtained. An asset purchase involving land or physical assets can be easier to finance.
  • Merger. This is a less common structure for acquisitions. A merger can be used if some of the target's shareholders do not agree to sell their shares (a special resolution approved by at least 75% of the target's shareholders is usually required to approve a merger). It also allows a cash exit for shareholders of the merging entity.

Share Purchases and Asset Purchases

7. What are the main advantages and disadvantages of a share purchase (compared to an asset purchase)?

Share Purchases: Advantages/Asset Purchases: Disadvantages

A share purchase generally has the following advantages when compared to an asset purchase:
  • Government licences do not have to be reobtained.
  • It is easier to implement, as each asset does not have to be sold separately.
  • Novation with third parties that is typically done in an asset purchase is not required in a share purchase.
  • Lower tax is payable on gains for resident natural persons (10%), compared to corporate taxes on an asset sale (25%) and other taxes at shareholder level.
  • It is more simple and common than an asset acquisition.
  • Value added tax applicable in asset sales is not applicable in a share sale.

Share Purchases: Disadvantages/Asset Purchases: Advantages

An asset purchase can provide the following advantages when compared to a share purchase:
  • It can provide a tax deduction due to depreciation of assets, and for sellers who have incurred losses.
  • It can be implemented even if the seller's shareholders do not agree by special resolution to approve the sale.
  • Cherry picking of assets and liabilities can protect the buyer from unwanted liabilities.
  • The buyer may be able to finance the purchase easily if it involves assets such as land, buildings, large machinery, and equipment.
  • It does not trigger complex change in control taxes and a requirement to revalue the company's assets.

Transfer of Assets/Liabilities

Generally, assets or liabilities are not automatically transferred in a share sale and can be excluded from the purchase.
There is no provision on employees being automatically transferred on the sale of assets. Employees will continue to be employed by the entity that employed them unless they consent to the termination (see Question 37 and Question 38).
The transfer of liabilities in an asset sale depends on the structure of the asset sale. Tax liabilities and encumbrances directly related to the asset are transferred.

Complexity of the Transaction

Share purchase transactions are generally less complex than asset purchase transactions for a business sale. A share purchase usually only involves intra-company consents and filing with the Office of the Company Registrar. Regulatory approvals are only required if the transaction involves a foreign investor or is in a licensed sector (for example, power, recruitment agencies, or telecommunications).
Asset transfers may be more complex, as separate formalities may be required for the transfer of real assets, business licenses and registrations, employees, and third-party contracts. The transfer of a company's substantial business must also be approved by special resolution passed at a general meeting.

Tax Considerations

From a tax perspective, a seller will usually prefer a share sale as it will only be liable for advanced income tax on capital gains. However, there are tax implications if there is a change of 50% or more in the ownership of the company within a three-year period. In this case, the company must be treated as disposing of all its assets and liabilities.
A seller may prefer an asset sale if it can set-off losses carried forward from previous financial years.
The tax advantages of an asset sale for the buyer include:
  • Tax deductions for depreciation of assets.
  • Possibility to set-off value added tax paid on the purchase of assets.
  • Non-applicability of the tax implications of a change of control (see above).


8. Are sales of companies by auction common? Briefly outline the typical procedure and any regulations that apply.
Sales of companies by auction are not common in Nepal. Most sales are done through private negotiations. There are no procedures and regulations governing sales of companies by auction.

Foreign Ownership Restrictions

9. Are there any restrictions on acquisitions by foreign buyers?
Foreign ownership in a local company is subject to approval under the Foreign Investment and Technology Transfer Act 2019 (which replaced the Foreign Investment and Technology Transfer Act 1992). Depending on the size and nature of the investment, approval is required from the Department of Industry or the Investment Board of Nepal.
100% foreign ownership is allowed in the manufacturing, information technology, tourism, energy, infrastructure, construction, and services sectors. Foreign ownership is restricted to 80% in the telecom and aviation sectors by sectoral policies and legislation, and to 51% in consulting services.
Foreign investment is not allowed in the following sectors:
  • Retail business.
  • Buying and selling land and houses (other than construction businesses).
  • Household industries.
  • Mass communication.
  • Travel agency.
  • Trekking agency.
  • Rural tourism.
  • Agriculture.
  • Atomic energy.
  • Radioactive materials.
  • Arms and ammunition industries.
  • Management consulting.
  • Accounting.
  • Legal consulting.
  • Engineering.
  • Certain training activities such as language, music, and computer training.
The current minimum investment threshold for a foreign investor is NPR50 million.
After approval from the Department of Industry or the Investment Board, a second approval from Nepal Rastra Bank (the Central Bank of Nepal) is required to transfer a foreign investment amount into Nepal (such as the purchase price when acquiring a Nepalese company or assets). Separate approvals from the Department of Industry and Nepal Rastra Bank must be obtained to repatriate sale proceeds if the seller is a foreign party. There are no country-specific thresholds for making foreign investment. Investors from most countries are allowed to invest and own shares in companies in Nepal.

Preliminary Agreements

10. What preliminary agreements are commonly made between the buyer and the seller before negotiating or executing the primary acquisition documents?

Letters of Intent

Documents such as letters of intent, heads of terms or, more commonly, a memorandum of understanding, are concluded between the buyer and the seller before finalising the definitive agreements. The parties usually agree on the price, structure, procedure for due diligence, and other key terms of the transaction.
The key parts of the agreement such as the sale and price, closing date, and obligations are not usually legally binding. Terms such as due diligence, exclusivity, and confidentiality are expressly made binding and enforceable.

Exclusivity Agreements

Exclusivity clauses are usually incorporated into the preliminary agreement. Enforceability and remedies for breach can be claimed in court. Contractual remedies of damages, injunctive relief, or specific performance are available.

Non-Disclosure Agreements

Non-disclosure clauses are usually incorporated into the preliminary agreement. The parties must keep secret and confidential all confidential information disclosed or obtained during discussions and negotiations, or in correspondence relating to the performance and execution of the definitive agreement.
Contractual remedies of damages, injunctive relief, or specific performance are available.

Due Diligence

11. How is due diligence typically carried out and what main areas does it usually cover?
Due diligence typically covers matters such as:
  • Share capital and corporate structure.
  • Accounts.
  • Financial arrangements.
  • Key contracts.
  • Tax.
  • Employment.
  • Real estate and assets.
  • Insurance.
  • Intellectual property.
  • Environment.
  • Litigation.
Generally, the seller provides warranties and a disclosure letter that qualifies these warranties.
Due diligence is usually based on a review of documents. The parties first identify and share the relevant documents. Documents are then examined to identify compliance issues. The review leads to conclusions on the compliance status of the target, a categorisation of risks (if any), and mitigation measures. Mitigation measures often form part of the conditions to completion.

Consents and Approvals

12. Briefly outline the main consents and approvals typically required for an acquisition.

Corporate Approvals

The Company Act 2006 provides that a company's articles of association can specify transfer restrictions and procedures. The model articles of association for a private limited company with two or more shareholders specify that shares can only be transferred with the approval of the board of directors, and a first right of refusal must be provided to other existing shareholders before transferring them to third parties.

Shareholder Approval

The model articles of association for a private limited company with two or more shareholders specify that shares can only be transferred with the approval of the board of directors, and a first right of refusal must be provided to other existing shareholders before transferring them to third parties. Additionally, shareholders' agreements sometimes include drag-along and tag-along rights. The shareholders' first right of refusal does not generally apply to an issue of shares as consideration for an acquisition.
Sale of a company's substantial assets and mergers require a special resolution passed at a general meeting.
Board approval and valuation reports are required to grant shares as consideration for the acquisition. Shareholder approval is not required to grant shares in consideration for assets, unless otherwise provided in the articles of association or this requires a capital increase. An increase of a company's share capital requires an ordinary resolution passed at a general meeting. Increasing a company's authorised share capital requires a special resolution.

Contractual Consents

The consent of creditors or counterparties is required to transfer their right to payments or to assign rights and obligations to the buyer in an asset sale, unless the underlying contract provides otherwise.

Regulatory Approval

Sector-specific regulatory approvals may be required depending on the sector in which the company operates. For example, the sale of shares representing more than 5% of the authorised share capital of a company with a telecommunication licence requires prior approval of the Nepal Telecommunications Authority. Additionally, a change in ownership or investment structure of a company holding an electricity generation licence requires approval of the Nepal Energy Regulatory Commission.
Approval of the Department of Industry is required for acquisitions involving companies with foreign shareholding (see also Question 9).

Main Documents

13. What are the main documents in an acquisition and who generally prepares the first draft?
The following are the main documents required for an acquisition:
  • Share purchase agreement.
  • Escrow agreement.
  • Disclosure letter.
  • Side agreements.
  • Corporate resolutions.
  • Share sale deed.
The buyer's counsel usually prepares first drafts of the documents, other than the disclosure letter.
Documents used in asset purchase transactions are generally the same, except that an asset purchase agreement is entered into. If applicable, the seller will execute asset sale deeds at completion, or a land transfer deed at the Land Revenue Office.

Acquisition Agreements

14. What are the main substantive clauses in an acquisition agreement?
The main substantive clauses in an acquisition agreement include:
  • Operative clause providing for the sale and transfer of shares or assets.
  • Pricing and tax.
  • Representations and warranties.
  • Closing procedures.
  • Conditions precedent.
  • Termination provisions.
  • Non-competition clause.
  • Confidentiality clause.
  • Governing law.
  • Jurisdiction and dispute resolution.
  • Other boilerplate clauses such as notices, assignment, entire agreement, and third-party rights.
Key clauses in an asset purchase agreement are generally the same. The agreement must identify the precise nature of all assets to be transferred, allocate a different price for each asset, and specify the methods through which the transfer of assets will take place.

Warranties and Indemnities

15. Are seller warranties/indemnities typically included in acquisition agreements and what main areas do they cover?
Typically, a share purchase or asset purchase agreement includes warranties, unless a transaction is concluded on an "as is" basis, usually when the seller has agreed to a substantial price discount.
The main areas covered by warranties/indemnities are ownership of the shares or assets, authority to sell, and matters relating to the operation of the target company, such as:
  • Accounts and financial statements.
  • Assets of the company.
  • Tax compliance.
  • Liabilities.
  • Intellectual property.
  • Employment matters.
  • Environmental matters.
  • Insurance.
  • Contractual relations.
  • Litigation.
Warranties are narrower and more asset-specific in an asset purchase agreement. They usually focus on ownership, authority to sell, and any liabilities specifically connected to the assets being sold.
16. What are the main limitations on warranties?

Limitations on Warranties

The main limitations on warranties include:
  • Maximum and minimum amount of damages payable. Usually, the minimum is set at about 10% of the purchase price and the maximum is the purchase price.
  • Notice requirements and time limits to bring claims. Usually, time limits are fixed at one to four years, depending on the nature of the transaction.
  • Matters disclosed in a disclosure letter, provided in the due diligence report or the agreement.

Qualifying Warranties by Disclosure

Warranties are usually qualified by disclosure made by the seller to the buyer. A separate disclosure letter is delivered on the signing date.
17. What are the remedies for breach of a warranty? What are the time limits for bringing claims under warranties?


Remedies for breach of warranties are usually specified in the agreement. Termination is usually available if the breach is discovered before closing. After closing, the buyer can claim damages or compensation for breach, or apply to void the transaction if the breach of warranty is fraudulent.

Time Limits for Claims Under Warranties

Unless specified in the agreement, the time limit for bringing claims under warranties is two years from the date the buyer discovers or is reasonably expected to discover the breach.

Signing and Closing

Conditions Precedent

18. What common conditions precedent are typically included in a private acquisition agreement?
Conditions precedent usually depend on the outcome of due diligence and negotiations between the parties. Common conditions precedent in a share purchase agreement are as follows:
  • Fulfillment of procedures to enable the sale of the shares, such as board approval and right of first refusal procedures.
  • If the transaction involves foreign parties, obtaining necessary approvals from the Department of Industry and Nepal Rastra Bank for foreign investment and repatriation of the sale price.
  • Settlement of any identified litigation and disputes before the closing date.
  • Renewal of licences and approvals.
  • Payment of related party receivables and liabilities.
It is also common for parties to include a clause imposing an obligation to use reasonable efforts to fulfill the conditions precedent. Generally, the buyer reserves the right to terminate the agreement if the conditions are not satisfied within a certain time.

Main Steps at Signing and Closing

19. What are the main steps at signing and closing in a private share sale and asset sale? What main documents are commonly produced and executed?


The following documents are typically produced and executed at signing:
  • Share purchase agreement or asset purchase agreement.
  • Relevant corporate resolutions approving the transfer of shares or assets.
  • Disclosure letter.
  • Power of attorney for executing the documents.


The documents typically produced and executed at closing are as follows:
  • Share sale deed or asset sale deed.
  • Tax invoices for assets sold.
  • Closing board resolutions.
  • Resolution of the general meeting of shareholders.
  • Resignation letters of directors.
  • Resignation letter of the target's auditor.
  • Appointment letters and declaration of new directors and auditor.
  • Third party consents.
  • Original corporate documents of the target company.
  • Ownership documents of assets.
  • Books and registers of the target company.
  • Approvals issued by authorities, if applicable.

Execution of Documents

20. How are documents executed by companies in your jurisdiction? Are there specific formalities to execute certain types of documents?
Different types of documents are subject to different legal formalities. The main different formalities are as follows.
Nepalese law requires documents to be initialled at the top and bottom of each page (other than the top of the first page) and signed on the signature page. Companies must also affix their stamp next to the signatures.
Powers of attorney, deeds of sale, loan deeds, security documents, and guarantees must have the thumbprints of the executors (if individuals) or the company stamp.
Each agreement or deed must be witnessed by two witnesses. The location and date of execution must be specified. Although not required by law, it is also common for deeds to be printed on traditional Nepali rice paper.
There are no additional formalities under Nepalese law for the execution of documents by foreign companies.
Proof of authorisation to sign is required at signing/closing.
21. Are digital signatures binding and enforceable as evidence of execution?
Digital signatures provided by an entity licensed in Nepal are enforceable under the Electronic Transactions Act 2007. In practice, digital signatures are rarely used in acquisitions in Nepal.

Transferring Title to Shares

22. What formalities are required to transfer title to shares in a private company?
The formalities required to transfer title to shares in a private limited company are as follows:
  • The seller requests approval to sell the shares from the target's board.
  • The board completes the first right of refusal process and allows transfer.
  • The deed of sale is executed by the seller and share certificates are delivered.
  • The buyer pays the purchase price and advance income tax is paid at the Inland Revenue Department.
  • The application for registration as a shareholder, deed of sale, tax payment receipt, and directors' appointment and resignation letters are provided to the board.
  • The board resolves to revise the shareholders' register and directors' register, and applies to record the new shareholders' register and directors' register at the Company Registrar Office.
  • The Company Registrar Office records the purchase and certifies the shareholders' and directors' registers.

Seller's Title and Liability

23. Are there any terms implied by law as to the seller's title to the shares in a share sale? Is any specific wording necessary and do buyers normally impose a higher standard than is implied by law?
The law implies that the seller has good title to the shares and power and authority to sell the shares (section 535, Civil Code). Buyers normally impose a higher standard than implied by law. It is standard for the seller to warrant in the purchase agreement that:
  • It is the legal and beneficial owner of the shares.
  • It has the power and authority to sell the shares.
  • It has or will obtain necessary governmental approvals for the sale of the shares.
  • The shares will be free of all security interests and encumbrances.
Inclusion of any other terms depends on negotiation between the parties.
24. Can a seller and its advisers be liable for pre-contractual misrepresentation, misleading statements or similar matters?


Contracts concluded on the basis of misleading statements are voidable and can be declared void if the conduct of the seller constitutes fraud or deceit. However, this can be difficult to prove in practice in transactions between sophisticated parties.
A contract is deemed to be made through fraud or deceit (jalsaji) when a party:
  • Makes the other party believe that a particular matter is true, despite knowing that it is false.
  • Fails to disclose or suppresses material information.
  • Indulges in a fraudulent act punishable by law.
  • Submits false particulars on any matter without a reasonable basis.
Damages can also be claimed for fraudulent misrepresentation.


Advisers of the seller involved in pre-contractual misrepresentation, misleading statements, or non-disclosure of material information can also be liable for fraudulent misrepresentation.

Governing Law and Arbitration

25. Can a share purchase agreement provide for a foreign governing law? Is an arbitration provision usually included in private M&A documents?

Choice of Law

The Civil Code allows the parties to choose the governing law of the agreement. However, it is not common for Nepalese parties to select a foreign governing law. If the governing law is not specified, the laws of Nepal apply to agreements to purchase shares of companies incorporated in Nepal or to purchase assets located in Nepal.
In transactions involving foreign parties, the Foreign Investment and Technology Transfer Act 2019 now allows parties to enter into dispute settlement agreements. This means that the share purchase agreement can be governed by foreign law and any dispute under the agreement can be submitted to the foreign courts or arbitration. Previously, under the Foreign Investment and Technology Transfer Act 1992, this was restricted to transactions involving target companies whose industry registration certificate specified fixed capital assets above NPR500 million.
Nepalese contract law does not apply if a share purchase agreement provides for a foreign governing law. Nepalese law automatically applies to the following matters regardless of a choice of law:
  • Foreign investment and foreign exchange approvals.
  • Employment and competition law.
  • Procedures for the transfer of shares under the Company Act 2006.
  • Any criminal law or quasi-criminal law issues connected to the agreement.


It is fairly common practice to include arbitration provisions in private M&A documents, particularly in transactions involving foreign investors. Arbitration clauses are enforceable in Nepal under the Arbitration Act 1999. To be enforceable, arbitration agreements must be in writing and the parties must have a defined legal relationship, contractual or otherwise. The Arbitration Act 1999 provides that when an agreement includes an arbitration clause, disputes connected to that agreement or to issues arising under that agreement must be resolved through arbitration.
The local courts respect the choice of jurisdiction in an arbitration clause and the Civil Code of Nepal recognises the parties' freedom to agree on dispute resolution methods. Nepal is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) (by accession on 4 March 1998).
While most local transactions are subject to the jurisdiction of the local courts, parties to high-value and complex transactions prefer to resolve their disputes by arbitration.

Consideration and Acquisition Financing

Forms of Consideration

26. What forms of consideration are commonly offered in a share sale?

Forms of Consideration

Cash is the most common form of consideration in transactions in Nepal. It is common for parties to pay 10% to 20% of the purchase price on signing of the definitive agreements and the remaining amount at closing.
Shares and promissory notes can be used as consideration, but this is not common in Nepal.

Factors in Choice of Consideration

Usually, parties prefer cash as consideration.
Promissory notes have been used as consideration in transactions involving related parties. In transactions involving foreign investors, cash investment certificates are issued by banks receiving the investment amount in the format prescribed by Nepal Rastra Bank.

Price Adjustments and Deferred Consideration

27. How is the price typically assessed and agreed? Is the price commonly adjusted?
The main methods used to value target companies/assets are the:
  • Income approach (that is, predicting and discounting future earnings).
  • Asset approach (that is, assessing the current market price of assets owned by the company).
  • Market approach (that is, comparing the selling price of similar assets).
There is no consistent valuation approach in the market and parties often use different methods depending on the type of transaction.
Fixed price consideration is typically agreed. Adjustment mechanisms and earn-outs are not common in the Nepalese market.
28. Do buyers typically pay the price in full on closing, or is deferred consideration common?
Buyers typically pay the price in full on closing. Deferred consideration is not common. Escrow arrangements are increasingly common in large transactions requiring advance payments and transactions involving foreign investors where there may be a delay between the closing date and approval for repatriation of the sale price.
29. If a buyer listed in your jurisdiction issues shares to raise cash to acquire a private company, how is the issue typically structured? What consents and regulatory approvals are required?

Typical Structures

It is not common for buyers to raise cash by an issue of shares to fund an acquisition. However, a listed public company can raise funds for an acquisition through a further public offering (FPO).

Consents and Approvals

The following consents and approvals are required to raise funds through an FPO:
  • Approval by special resolution of the general meeting of shareholders. The approval of at least 75% of the shareholders present at the meeting is required to pass the special resolution.
  • Approval of the share issue by the Securities Board of Nepal (SEBON), which regulates the issue, transfer, and sale of shares of listed companies.
Under the Securities Act 2007, a prospectus is required for an FPO. The prospectus must be approved by SEBON before publication and registered at the Office of Company Registrar.

Financial Assistance

30. Can a company give financial assistance to a potential buyer of shares in that company?


A company cannot provide any loan or financial assistance of any kind to any person for purchasing its own shares or those of its holding company or subsidiary company, or for gaining any entitlement to such shares (section 62, Company Act 2006).


There are no exemptions from the rule against financial assistance.


Transfer Tax

31. What transfer taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share Sale

Transfer taxes are not payable on the sale of shares.

Asset Sale

A land registration transfer fee of between 3.5% and 5% applies to sales of land and buildings. The tax rate is set by the local and state authorities and may differ depending on the location.
32. What are the main transfer tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate transfer tax liability?

Share Sale

Transfer taxes are not payable on a share sale.

Asset Sale

There are no exemptions and reliefs from land registration transfer fees.

Corporate Taxes

33. What corporate taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share Sale

Advance income tax on capital gains made on a share sale must be paid at the following rates:
  • Resident natural person: 10%.
  • Resident corporate body: 15%.
  • Non-residents: 25%.
Advance income tax paid by a resident natural person and non-resident is final. A resident corporate body is subject to further additional corporate income tax (10%), bringing the total payable rate up to the standard rate 25% for companies. It is possible to deduct other investment losses from the taxable base subject to additional income tax (10%).
The target company must collect and pay advance income tax out of the proceeds of the sale of its shares.

Asset Sale

A selling entity must pay tax at the standard corporate rate applicable to it (25% for most companies) on any gains made on a sale of assets.
A resident natural person must pay income tax at 10% on any gains made on a sale of assets.
Non-residents must pay income tax at 25% on any gains made on a sale of assets.
34. What are the main corporate tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate corporate tax liability?

Share Sale

The Income Tax Act 2002 allows the government to conclude international agreements with other countries to avoid double taxation. Nepal has concluded agreements with India, Norway, Thailand, Sri Lanka, Mauritius, Austria, Pakistan, China, South Korea, Qatar, and Bangladesh. Under these agreements, if a person's income is taxable in both countries, benefits such as exemptions or lower tax rates are available. Double tax relief is available for gains on a sale of shares.

Asset Sale

A loss from a disposal of business assets can be set off against a profit from a disposal of other business assets.
Double tax relief is available for gains on sales of movable property under double taxation agreements. However, it is rare for foreign companies to directly hold assets in Nepal.

Other Taxes

35. Are other taxes potentially payable on a share sale and an asset sale?
Share sales are exempt from value added tax (VAT).
The buyer must pay VAT at 13% on a purchase of goods or assets subject to VAT. Transfers of land and buildings are exempt from VAT, but VAT is payable on transfers of other assets such as plant, machinery, vehicles, and stock.
The target company may also be subject to additional corporate tax (at 25% for most companies) if there is a change of 50% or more in the ownership of the company within a three-year period (section 57, Income Tax Act). In this case, the company must be treated as disposing of all its assets and liabilities at market value and tax is imposed if the deemed disposal results in a gain.

Tax Group Consolidation

36. Is tax consolidation of corporate groups possible in your jurisdiction? Are companies in the same group able to surrender losses to each other for tax purposes?
Nepal does not allow tax consolidation or combined reporting of group companies for tax purposes. Surrendering losses between companies in the same group is also not allowed. Each company is treated as a taxable entity and has separate tax liability for its income and transactions.


Information and Consultation

37. Are there obligations to inform or consult employees or their representatives or obtain employee consent to a share sale or asset sale?

Asset Sale

There is no obligation to inform or consult employees, representatives, or trade unions in an asset sale. If employees are to be transferred to the buyer, an agreement relating to the transfer must be concluded and consent from the individual employees must be obtained. Typically, on the consent of the employees, employment contracts with the previous employer are transferred to the new employer. Alternatively, new employment contracts can be concluded with the new employer.

Share Sale

There is no obligation to inform, consult, or seek consent of employees, representatives, or trade unions in a share sale.

Transfer in a Business Sale and Other Protections

38. Are employees automatically transferred to the buyer in a business sale? What other protection do employees have against dismissal in the context of a share sale or asset sale?

Asset Sale

Employees cannot be dismissed solely because of a business/asset sale. However, if the business sale results in excess workers or closure of the business or part of it, employees can be dismissed under the retrenchment procedure set out in section 145 of the Labour Act 2017. Before retrenchment, the employer must pay severance payment to the retrenched employees.

Share Sale

The employment relationship between the target company and its employees is not affected by a share sale. Employees cannot be dismissed solely because of a change in ownership of the target employer.

Transfer on a Business Sale

Consent of individual employees is required for a transfer from the seller to the buyer. The seller and the buyer must enter into a separate agreement on the transfer of the employees. The terms of employment remain the same, and the social security fund, provident fund, and gratuity fund of the employees must be transferred as set out in section 109 of the Labour Act 2017.

Other Protections

Not applicable.


39. Do employees commonly participate in private pension schemes established by their employer? If an employee is transferred as part of a business acquisition, is the transferee obliged to honour existing pension rights or provide equivalent rights?

Private Pension Schemes

There are no private pension schemes in Nepal. Instead of private pensions, employers maintain a provident fund, a gratuity fund, and a social security fund for their employees. The government recently launched a contribution-based security fund in which all private sector employers and employees are required to participate. Amounts held in other funds must be transferred to the new social security fund by the employer.

Pensions on a Business Transfer

If employees consent to transfer their employment from the seller to the buyer in an asset sale, the seller employer must also transfer the provident fund, gratuity fund, and social security fund to the new employer, or the new employer must provide equivalent rights.

Competition/Anti-Trust Issues

40. Outline the regulatory competition law framework that can apply to private acquisitions.
The Competition Promotion and Market Protection Act 2007 is the main legislation that governs anti-competitive activities in Nepal. Section 5 of the Act prohibits mergers or amalgamations intended to limit or control competition.

Triggering Events/Thresholds

An enterprise that produces or distributes any goods or services with the intent to maintain a monopoly or restrictive trade practices cannot:
  • Merge or amalgamate with another enterprise that produces or distributes similar or identical goods or services.
  • Purchase, either singly or jointly with a subsidiary enterprise, 50% or more of the shares of such an enterprise.
  • Take over the business of an enterprise described in the above bullet points.
Under the Company Act 2006, the Office of the Company Registrar must not approve a merger if it appears to create a monopoly or unfair trade restriction or to be contrary to the public interest.

Notification and Regulatory Authorities

There are no notification requirements.

Substantive Test

There is a presumption of intent to limit/control competition if the merger, amalgamation, share purchase, or takeover of persons or enterprises that produce or distribute similar goods or services results in a 40% market share of the total production or distribution in Nepal.


41. Who is liable for clean-up of contaminated land? In what circumstances can a buyer inherit and a seller retain liability in an asset sale and a share sale?
Under the Environment Protection Act 2019, the polluter (person or entity) is liable for causing pollution and environmental damage through its activities. A person or entity suffering any loss or damage due to any polluting activities can claim compensation from the polluter.
The buyer can inherit liability when purchasing the shares of a polluting company or polluting assets. The law does not specify the circumstances in which a buyer inherits environmental liability. However, in a share sale, the buyer will usually inherit the target's liabilities on transfer of the shares. In an asset sale, the buyer will only be liable for environmental damage caused by a purchased asset that occurred before the sale if the buyer specifically assumed liability.
It is not common to carry out environmental due diligence surveys and searches, except in sectors that involve environmental risks.
Compliance with environmental laws is often covered by the seller's representations and warranties.

Recent Developments and Reform Proposals

42. Have there been any significant recent or proposed legal developments affecting the market that could impact on transactions?
There have been significant regulatory changes due to the adoption of the:
  • Foreign Investment and Technology Transfer Act 2019 (see Question 9).
  • Foreign Investment and Technology Transfer Regulations 2021.
  • Foreign Investment and Foreign Loan Management Bye-Law 2021.
Lack of consultation, poor co-ordination, and poor drafting of regulations have resulted in a challenging regulatory framework for foreign investors. Foreign investors must obtain approval to sell shares and invest in Nepal, as well as two separate approvals from Nepal Rastra Bank and the Department of Industry to repatriate earnings from the sale of shares. This has increased risk for foreign investors who must transfer their shares before obtaining repatriation approval.
43. What will be the main factors affecting the market next year, and how do you expect the market to develop?
The market next year is likely to be affected by the impact of the COVID-19 pandemic on businesses, particularly in the tourism, hospitality, and transport sectors. While e-commerce and internet-based businesses will require more capital to grow, transactions in pandemic-affected businesses will be driven by the need to survive.

Contributor Profile

Anjan Neupane, Partner

Neupane Law Associates

T +977 1 410163
F +977 1 4101633
E [email protected]
Professional and academic qualifications. Advocate, Nepal Bar Council; LLB (Hons) First Class, University of Aberdeen, UK
Areas of practice. Corporate; M&A; banking; dispute resolution.
Recent transactions
  • Advising Telenor on the Nepalese law aspects of a potential merger of equals with Axiata Group.
  • Advising International Finance Corporation on an equity investment in Upper Trishuli-1 hydropower.
  • Advising Batas Group on the acquisition of Manipal College of Medical Science, Pokhara.
  • Advising Saisan Co. Ltd. on the acquisition of a majority stake in NL Gas to form Gas One Nepal.
  • Advising Reynolds Packaging in the sale of Closure System International Nepal to Pact Group.
  • Advising Daraz Group in the sale of Daraz Nepal to Alibaba Group.
Languages. English, Nepali
Professional associations/memberships. Nepal Bar Association; International Bar Association.