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The situation of foreign business in Nepal

November 11, 2021

In order to attract foreign entrepreneurs and foreign enterprises to work on the territory of the state, it is necessary to organize a favorable environment for this. It is no secret that international businessmen are attracted by simple laws and rules of business registration, low inflation and good investment climate of the country.

For a long time, the situation in Nepal has been extremely unstable. There have been “palace coups,” changes in legislation, people’s unrest and even civil wars. All of this, of course, had an impact on the state’s economy. How is international business in Nepal these days?

International Business and Nepal

Nepal is currently the leader in terms of economic development among the South Asian states. In order to maintain this status, the democratic Nepalese government encourages foreign investors to invest in the development of new businesses and organizations in the country.

To this end, even international Double Tax Avoidance Agreements (DTAA) have been signed between Nepal and

  • India,
  • China,
  • Bangladesh,
  • Pakistan,
  • Sri Lanka,
  • Qatar,
  • South Korea,
  • Mauritius,
  • Thailand and
  • Austria.

Thanks to these agreements, foreign investments get full protection of their interests in commerce.

Types of International Companies in Nepal

The most common are LLC and PLC. In the first case, the company refers to a small or medium-sized business, that is, it requires at least 1 director and 1 shareholder, who can belong to any nationality. The capital of an LLC must be at least $1.

A PLC, in turn, requires a minimum of 7 shareholders and 3 directors of any nationality. The capital in this case is valued at a minimum of 10 million Nepalese rupees ($84,000). An important condition is also that the Board of Directors must be re-elected every two months (or more often).

Algorithm of company registration in Nepal

It is worth making sure that your company name is unique beforehand. You can do this online at the Registrar of Companies website or by coming to the office of the institution. This will allow you to adjust the name if necessary and ensure that your company has a unique identity.

The name should be reserved at the same Registrar’s Office. After the request is processed, you will receive an email notification on the status of the application – accepted or rejected.

Next, you should register at the Registrar’s Office as well as at the Department of Industry. The following documents are attached to the application:

  • a completed form with a stamp;
  • Articles of Incorporation (two copies of the document);
  • Citizenship certificates of the founding shareholders (certified copies);
  • Agreement made between the founders (copy).

Pay special attention to the fact that the Agreement must be concluded before the creation of the company itself.

The next step is registration at the local office. It can be done only after receiving a certificate from the Registration Office. To do this, you must provide:

  • The certificate of registration obtained at the Bureau;
  • Memorandum of Association;
  • Articles of Association of the company (copy);
  • shareholders agreement (copy);
  • an application form with a seal;
  • lease agreement for the office premises;
  • information on the ownership of the founding shareholders.

In order for the procedure to be successful, you will have to pay a tax to register your business.

According to the Income Tax Act (2002), Section 78, each company is required to obtain its own identification number as a separate taxpayer. Therefore, you need to register with your local tax office as soon as possible.

Every employee is entitled to insurance. It is worth taking care of this by registering all your employees with the Nepal Social Insurance Fund.

Taxation of foreign businesses in Nepal

The interest rate for businesses is 15% of income. The employer is also required to contribute 10% of profits to the Social Security Fund each month. The VAT of international business is at the normal rate, estimated at 13%.

Corporate Income Taxes (CIT) are not equivalent in different sectors of the economy. For example, under normal conditions it is 25%, while there are exemptions for some sectors. For example, hydropower is taxed at only 20%, but there are exceptions. Banking is assessed at 30% CIT, which is the highest rate, but applies to an extremely small number of sectors.

Conclusion

Foreign business is a lucrative niche to invest in and profit from. The conditions in Nepal’s economy are fully conducive to starting a business on any scale, from a small business to a joint stock company.

As in any country, there are certain nuances in Nepal that must be taken into account before taking the decisive step. It is known that the laws of Nepal can be contradictory at times, which requires extra attention to the “paperwork”.

All this does not prevent the country’s economy to grow rapidly and every year to increase its income. To this day, Nepal is still living up to the expectations of investors and unlocking its potential.