About Nepal » Business » Doing Business in Nepal

Overview

A. Starting Business
Foreigners can be engaged in business only as limited liability companies. Apart from getting a registration from the company registrar office, all the companies, national or foreign, have to be registered with a competent authority to engage in business activities in Nepal.

The registration of company is governed by Company Act, 1997. An application with the Memorandum and the Articles of Association of the company along with the application fee must be submitted to the office of the Company Registrar. The registrar makes necessary inquiries, registers the company and issues a certificate of incorporation within 15 days. The registrar has the authority to reject the application if the proposed name of the company is already registered or the proposed name is against the public morals, or the objectives of the company are contradictory to existing laws or the conditions required to incorporate the company under the Act are not fulfilled. In this case, the registrar gives due notice with the reasons for rejection to the applicant. The registration of entities with respect to trade in services is governed by sectoral laws like Nepal Agency Act, 1958, Financial Institutions Act 2004 etc. The registration fees of different kinds of legal entities are nominal and generally do not relate to value or volume of business.


B. Investment and repatriation
In the investment front, the major objective of national economic policy is to promote and encourage a transparent and fair business environment for both domestic and foreign investors and to increase the role of private sector in Nepal's development processes. For this purpose, a liberal industrial policy was adopted in1992 consisting of the Industrial Enterprises Act, 1992, the Foreign Investment and Technology Transfer Act 1992 and One Window Policy of 1992. A person desiring to avail the foreign investment or technology transfer is required to make an application to the Department of Industries. It grants permission directly in a case of industry with fixed assets up to 1 billion Rupees within 30 days from the date of application. In case of an industry with fixed assets of more than 1 billion Rupees the approval of Industrial promotion board is required. Foreign investment is open in almost every sector of economic activities allowing of up 100 percent equity in industries except in certain restricted sectors. The Foreign Investment and Technology Transfer Act guarantees full repatriation of the amount received from the sale of equity, profits or dividend and interest on foreign loans, and the repatriation of the amount received under an agreement for the transfer of technology. Further, the recently enacted law on Build, Own, Operate and Transfer Infrastructure has opened new avenues for investment of private sector even in big projects like road construction and like that.


C. WTO and Free Trade Agreements
While doing business in Nepal it should be noted that Nepal has recently become a full-fledged member of the World Trade Organisation (WTO). After adoption of the accession package by the fifth Ministerial Conference of WTO last September, Nepal became full-fledged member of WTO on 23 April 2004. Similarly Nepal is now a member of two regional trading arrangements; South Asian Free Trade Agreement (SAFTA) and BIMST-EC. The signing of SAFTA framework treaty in 6 January 2004 and BIMST-EC free trade area on 8 February 8, 2004 has been a landmark in the economic history of Nepal as these would help to integrate the Nepalese trade and economy at the regional and trans-regional level.

Nepal is currently an observer to the Bangkok Agreement, which includes; India, Sri Lanka, Bangladesh, Lao PDR, South Korea and People's Republic of China. Currently, more than 1500 products have been bought under the preferential trading arrangement These Free Trade Agreements (FTAs) are supposed to enter into progressive stages of economic integration.


How to register a company in Nepal

A. Incorporating a company in Nepal.
In Nepal, an industry may be organised and registered as a sole proprietorship partnership or a private limited company or a public limited company. However, Foreign Investment and Technology Transfer Act (FITTA) 1992 allows foreigners to enter into business as either a private limited company or a public limited company. The incorporation or registration of a company is done by company registrar's office (CRO).

The companies are incorporated and registered under the provisions of the Company Act, 1997 as amended from time to time. The Company Act, 1997 has a provision for two types of companies, namely, public and privates.

"Private Company" means a company which

1. Limits the number of its members(shareholders) from 1 to 50 excluding persons who are in the employment of the company.
2. Prohibits any invitation to the public to subscribe for shares or debentures of the company.

"Public Company" means a company which,

1. Should have at least 7 members (shareholders) and there is no maximum limit.
2. Offers shares and debentures to the public through prospectus which complies with the requirements of the Companies Act 1997 and Securities Act.

A company can form another company after fulfilling the requirements of companies Act. 1997.
The private and public companies are prohibited to organise proprietorship or partnership firms.
The face value of share should be NRs. 100 per share for both the private and public companies.


B. Procedures for incorporating a company in Nepal.
After the approval of foreign investment from the DOI, as mentioned above, the investors should submit following document to the CRO.

1. Copy of the permission issued by DOI
2. Copy of citizenship certificate of Nepalese promoters
3. Copy of passport of the foreign promoter(s)
4. If the foreign party is a company, copy of minute of the Board of Directors
5. Two copies of company's proposed articles and Memorandum of Association in Nepali.
6. This document should be accompanied by registration fee.

The Memorandum of articles of Association must be presented as per the outline established by the Nepal Company Act 1997.

Memorandum of Association should include:

1. Full name of the company.
2. Address of the head office of the company.
3. Objectives of the company (based on information contained in the DOI permission and the project report submitted to DOI).
4. Work to be done to fulfil the objective of the company.
5. Total share capital, number of shares with different features and its face value.
6. Limited liability (the liability of the shareholder is limited to the value of the shares; they have subscribed or agreed to subscribe).
7. Authorised capital of the company and number of different types of shares.
8. Initial issued capital of the company.
9. Special provisions if any, regarding sale and transfer of shares.
10. Special provisions, if any.
11. Promoter's commitments.
12. The memorandum should mention the full names and address of the persons who have undertaken to purchase shares. It should indicate the number of shares, which each of them has undertaken to purchase and should be signed by each of them. It should also indicate the number of shares, which each of them has agreed to contribute immediately.
13. The signatures of each promoter, signing the memorandum should be attested by at least one witness. No person, who is connected with the company to which the memorandum refers, can be a witness.

Articles of Association should include:

1. Particulars mentioned in Memorandum of Association.
2. Formation of Board of Directors, their remuneration and tenure and working procedures.
3. Number of shares required to be contributed to be a Director.
4. Timing of shareholders Meeting
5. Process of convening shareholder's meeting.
6. Special rights of the preferential shareholders and limitations.
7. Rights and duties of the managing director.
8. Share capital (i. Authorised Capital, ii. issued capital).
9. Share certificate.
10. Records and accounts in Nepalese language are authoritative however; accounts in other languages can also be maintained. Statements of accounts of the public company has to be prepared at least 30 days prior to the general meeting and for private companies, statements of accounts should be prepared within 60 days of the end of the financial year. It should mention:
    1. Balance sheet at the end of the last financial year.
    2. Profit and loss account of the financial year.
    3. Description of capital flow of the financial year.
11. Audit - the company is authorised to appoint an auditor who holds a certificate issued by the Auditor General's Office.
    
    Before sale of shares to the public, a public company must publish a prospectus with the approval of CRO. The prospectus should contain the following particulars.
    1. Objectives of the company and particulars mentioned in Articles and Memorandum of Association.
    2. Shares, which promoter directors have undertaken to purchase, their remuneration and allowances.
    3. Minimum shares to be contributed by the directors, their remunerations and allowances.
    4. Other particulars as mentioned in the Company Act.
    5. Registration of Industry
    
    After incorporation of the company; one has to apply for registration of industry at DOI, filling a prescribed form.
    
    A copy of permission to establish the industry issued by DOI.
    
    A copy each of the certificate of incorporation, and memorandum & articles of associations of the company.
    
    After the industry is required to be registered with the DOI within 35 days from the date of issuance of the license/permission.

D. Income Tax Registration
The Industry has to be registered with the District office of the Inland Revenue Department before operation of the industry. Income tax registration is essential for buying land, building and clearance of goods at custom office. Therefore, it is recommended that the industries are registered with inland revenue office immediately after incorporation of the company. For this, the company has to apply with an application form along with the following documents.

1. Copy of the certification of incorporation.
2. Copy of the memorandum and articles of incorporation.
3. Copy of the industry Registration Certificate.

This registration has to be renewed ever year within three months of the end of the fiscal year. No fees are required for renewal of this registration.

The company has to submit the balance sheet and profit and loss statement at the end of each fiscal year for assessment of income tax.


E. VAT Registration
Industries producing excisable goods or goods liable to acquire VAT registration with the Inland revenue Office. For this, the company has to apply along with the following documents.

1. Copy of Industry Registration Certificate & License.
2. Copy of Income Tax Registration.
3. Copy of the Certificate of Company incorporation.

F. Registration of trademarks
The Industries using Trademark on their products can register their Trademarks with DOI as per Patent, Design & Trademark Act, 1965. For this, the company has to apply in a prescribed form.The application form should include:

1. Copy each of the Industry Registration-Certificate & Certificate of Incorporation.
2. Copies of the word, symbol or both to be used in the form of trademark (i.e., representation sheet.).
3. The name of the products/services in which the Trademark is to be used.
4. The statement of claim regarding the originally of the trademark.
5. In case of registration of Trademark of foreign origin, a copy of home registration with application form, deed of assignment & 4 copies of representation sheet should be included.

For the registration of Trademark, applicants should pay NRs. 2,000 (NRs 500 as application fee and NRs. 1,500 as registration fee). The Trademark registration is valid for a period of seven years and can be renewed for additional period of seven years upon the payment of renewal fee of NRs. 200/- however; foreign owners should pay double the above amount.

Patents and Designs can also be registered in the DOI as per Patent Design and Trademark Act, 1965. 3. Foreign Investment in Nepal 1. Forms of Foreign Investment According to foreign investment and technology transfer Act, 1992, foreign investors are allowed to participate in an industry in the following forms: a. Investment in share (Equity) b. Reinvestment of earnings derived from the clause (a) above c. Investment made in the form of loan or loan facilities 1.2 Forms of Technology Transfer "Technology transfer" means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters: a. Use of any technological right, specialisation, formula, process, patent or technical know-how of foreign origin. b. Use of any trademark of foreign ownership. c. Acquiring any foreign technical consultancy, management and marketing service. 1.3 Procedural Arrangement for obtaining the permission 1.3.1 Foreign Investment in a New Industry Foreign investors desiring to invest in Nepal whether as a wholly foreign owned enterprises or in a joint venture with Nepalese promoters are required to apply to the DOI on a prescribed application form, along with following documents: A. Project Report 1 Copies B. Joint Venture Agreement 2 Copies C. Citizenship certificate of local party or certificate of incorporation and company profile, if participant is a company 1 copy D. Copy of passport of foreign party/or certificate of incorporation, if participants is a company 1 copy E. Bio-data/Company profile of the foreign party 1 copy F. Financial Credited of the Foreign investor provided by a bank 1 copy G. Authority letter (s) from the companies concerned After the approval of foreign investment, up to a maximum amount (depending upon the fixed assets) NRs. 20,000.00 has to be deposited in Nepal Rastra Bank in deposit account of HMG. The amount shall be refunded to the promoters once the project comes in operation. a. Project Report The project report should include: a. Executive Summary of the project b. Project background, objectives and introduction of promoters c. Technical Aspects Climate has been made conductive by introducing the following policy measures and procedural simplifications: a. Hundred percent ownership made possible - Foreign investors are permitted to own up to 100 percent equity share in small, medium and large-scale industries. b. Areas open for foreign investment - Foreign investment is allowed in all areas except as mentioned below. Industries not open for foreign investment 1. Cottage industries 2. Business Services such as hair cutting, beauty parlour, tailoring, driving training, etc. 3. Industries related to arms and ammunition 4. Gunpowder and explosives 5. Industries related to Radio-Active Materials 6. Real Estate Business (excluding construction industries) 7. Film making in national languages 8. Security printing 9. Bank notes and coins 10. Retail trade 11. Travel agency 12. Trekking agency 13. Water rafting 14. Pony trekking 15. Horse riding 16. Cigarette, Bidi, Alcohol (excluding those exporting more than 90% of their products) 17. Internal courier service 18. Atomic energy 19. Tourist lodging 20. Poultry 21. Fisheries 22. Bee keeping 23. Consultancy services such as management, accounting, engineering, and legal services. Technology Transfer-Technology transfer is allowed even in cottage industries. 4. Export and import 4.1 Main features of the Export policy His Majesty's Government has adopted following policy measures to promote the export of industrial products from the country: a. Licenses aren't required for the export of products other than banned items (such as articles of archaeological and religious importance, conserved wildlife and related articles, drugs as defined in single convention on narcotics, 1961), articles related to explosive materials, and material required for the production of arms & ammunition, industrial raw materials (such as raw leather, raw wool, all type of imported raw materials, parts, capital goods) and other goods (such as log & timber), or quantitatively restricted items as notified by His Majesty's Government in the Nepal Gazette from time to time. In Addition to above, all type of goods imported from the countries other than India are also prohibited to be exported to India. b. Container service has been introduced and bonded warehouse system & duty drawback scheme is allowed. Under the duty drawback scheme, import duty paid on the import of raw materials and intermediate goods required for the production of exportable products are fully refunded after export taking into consideration of the actual use. c. Exports zero rated in VAT d. There is no quantitative restriction on products taken by returning tourists 4.2 Export Procedures Only registered firms/companies can participate in export trade. Every export consignment can be exported through Tribhuvan International Airport, foreign post office, and the border customs offices. All consignments accompanied by following documents should be delivered to the custom for inspection and clearance. In case of export through air 1. Customs Declaration Form (Nikasi pragyapan patra -yellow form). 2. Copy of export license, if applicable. 3. Commercial invoice. 4. Certificate of Origin/GSP certificate. 5. Copy of letter of credit or advance payment statement from bank. 6. Foreign Exchange Declaration Form (FEDF). 7. Packing list. 8. Photocopy of income tax registration certificate. 9. Airway Bill. 10. Authorisation letter. By Surface Freight In addition to those specified under Air Freight and except No. 9, the following documents are required: 1. Transport Manifesto, one copy per truck 2. Customs Transit Declaration (CTD) 3. Transit Declaration Invoice (TDI) (For sample goods in transit, via India/Bangladesh, to a third country destination) By Parcel post 1. Customs Declaration Form 2. Certificate of Origin or/GSP certificate, if applicable 3. Authorisation letter to customs Department 4. Documents are required as for Air Freight 5. Parcels should not exceed 10 kg for Air Mail and 20 kg for surface mail. In addition to the documents listed above, special documents are required for some specific export goods such as ready-made garments exports to USA, Visa stamp from National productivity and Economic Development Centre is essential. 4.3 Other incentives in Export Trade. 1. Custom duty on inputs and VAT paid are refunded to the industries manufacturing and exporting manufactured goods. 2. Nepal Rastra Bank provides foreign exchange facilities to exporters for attending the trade fairs and exhibitions, trade mission, and for advertising about the Nepalese exportable goods abroad. 3. Services of export promoting organisations like TPC is also available for the exporters. 4.4 Import policies and Arrangements Imports of all products other than banned or quantitatively restricted items such as (a) products injurious to health (drugs like opium & marphia, liquors contening more than 60% alcohol, (b) arms & ammunition, and explosive materials (such as items required for production of explosive materials, guns & bullets of the gun), (c) communication equipment, (d) valuable metals and jewelleries, and (e) beef and beef products, are allowed to be imported without license. Commercial Banks make the foreign exchange available at the rate fixed by the market mechanism for the payment of all imported goods including industrial raw material, spare parts and services and for payments of foreign loans and interests of the non-government sector. 4.5 Preferential Export of products to India For the preferential entry into India the industrial products must comply with conditions mentioned in the treaty of Trade between HMG Nepal and the Government of India. As per the prevailing treaty, Nepali manufactured goods can enter into India without paying custom duty. Only the taxes, that are applicable to the local products in India, are applicable for those industrial products too. Once the industry comes in operation, it should apply at the Federation of Nepalese Chambers of Commerce & Industry (FNCCI) or its local body to get Certificate of Origin, which certificate that the industrial product is manufactured in Nepal The products are considered manufactured in Nepal. if the processing involves the change in the 4 digit HS Code and the value of third country raw material inputs is less than 70 percent of the ex-factory price of the exportable product. Expect the following industrial products, all the industrial products manufactured in Nepal are exportable into India under the said treaty. a) Alcoholic liquors/beverages and their concentrates except industrial spirits and beers b) Perfumes and cosmetics with non-Nepalese/non-Indian brand names c) Cigarettes and tobacco d) Industrial products which involve only assembly of parts/repacking operation e) Industrial products of third country origin (PDS) 5. INVESTMENT Foreign investor may bring their part of the equity capital either in the form of convertible foreign currency acceptable to the Nepal Rastra Bank, the central Bank through proper banking channel or in the form of plant machinery and equipment required for the approved industry. For the investment in the form of plant and machinery, prior approval of DOI must be taken. However, Indian nationals can bring investment in Indian Currency through proper banking channel as well. If the foreign investment is in the form of loan to any existing industrial firm or company, it is necessary that an agreement is entered into by the investing foreign party and the Nepalese industry stating the terms and condition including the amortisation schedule and interest. Approval of the agreement must be obtained from DOI before transferring the amount. Such loan amount must be brought through the proper banking channel. If any industry wishes to obtain foreign loan in the form of machinery and equipment or if the industry wishes to obtain plant machinery in deferred credit, an agreement to that effect must be entered into, stating the price of the plant machinery, interest rate, mode of payment along with details of the plant machinery, interest rate, mode of payment along with the details of the plant machinery, Due approval from the DOI must be obtained. The supplier must guarantee as to the price of the machinery as competitive and it must be supported by the invoice of the manufacturer. If no letter of credit is opened, approval of the DOI must be obtained prior to the shipment for custom clearance. 6. Repatriation As per the foreign investment and Technology Transfer Act, 1992, a foreign investor making investment in foreign currency shall be entitled to repatriate the following amounts outside the kingdom of Nepal. a. The amount received by the sale of the share of foreign investment as a whole or any part thereof, b. The amount received as profit or dividend from foreign investment, c. The amount received as the payment of principal and interest on any foreign loan. d. The foreign investor or a foreign technology supplier is also entitled to repatriate the amount received under the agreement for the technology transfer in such currency as set forth in the concerned agreement as approved by the DOI. Foreign national, working in any industry with prior approval of the Department of Labour and who is from a country where convertible foreign currency is in circulation, may repatriate his salaries, allowances, emoluments etc in convertible foreign currency In an amount not exceeding seventy five prevent of such salaries, allowances and emoluments. To obtain the repatriation facility, the foreign investor or the technology supplier or the foreign expatriate or the concerned company must obtain recommendation from the DOI. 6.1 Repatriation of Sales of Shares For the reiteration of the sale of shares of the foreign investor, must apply to the Department of Industry for recommendation to the central bank with the following documents. a. Proof of investment made and number of shares owned, (the proof of investment could be a certificate from the commercial bank trough which the investment was brought into Nepal.) b. Letter from the company stating the completion of the transfer of the related shares duly certified by the company Registrar's office or such other body). c. Prior approval of DOI, if the share was transferred to any foreign national, d. Custom declaration form and the approval letter if the investment was made in the form of plant, machinery and equipment. e. Copy of the board of director's resolution. 6.2. Repatriation of Dividend Any foreign investor, wishing to repatriate his/her dividend from his/her investment as per the FITTA 1992 has to obtain a recommendation from the DOI. The foreign investor or the company has to apply to the DOI with the following documents: a. Documentary proof of investment made which is issued by the commercial bank. Custom declaration certificate of the import of plant machinery and equipment if the investment by the foreign investor has been made in the form of capital equipment, b. Auditor's report including balance sheet and profit and loss account, c. Proof of dividend declaration. 6.3 Repatriation of Loan and Interest The industrial unit with foreign loan has to obtain the recommendation of the DOI for sending out the principal and interest on the foreign loan obtained with the approval of DOI. It has to submit the following documents: a. Certificate from the commercial bank regarding the transfer of the loan amount into Nepal, b. Custom declaration certificate and invoice of the plant machinery if the loan was obtained in the form of machinery, c. Date of approval of the loan agreement. Note: Income tax on interest on foreign loan should be deduced at source as per prevailing law and deposited at the tax office. 6.4 Repatriation of Technology Transfer Fees The industrial unit with approved technology transfer agreement, trademark license agreement, management agreement, and technical assistance agreement can apply to the DOI for the transfer of fees as per the agreement. The company has to submit the calculation of the amount due to the foreign technology supplier certified by the auditor along with certificate of payment of income tax on Royalty, fee at rate of 15%. 6.5 Repatriation of the Salaries and allowance of the Expatriates Foreign professionals and managers working in the enterprises with foreign investment can repatriate upto 75% of their salaries and allowances paid to them in Nepal. For the Repatriation pf salaries, allowances and emoluments received by the expatriate, the industry has to apply to the DOI for recommendation along with the following documents: a. Work permit issued by the Department of Labour, b. Document showing the amount of salary and allowance received during the period for which the repatriation is sought.

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