Labour Act, 1992 (2049)

Labor Act 1992 (2049) replaced the Nepal Factory and Factory workers Act, 1959. The Act emphasizes on job security, rights of remuneration after work, prohibition of child labour, freedom of unite under the trade union, minimum wages, health, safety and welfares, code of conduct, workers' participation in management and dispute settlement. Major Highlights on Labour Act, 2049:

•     The rights, interests, facilities and safety of workers and employees working in enterprises of various sectors shall be protected.

•     Non-Nepalese citizens shall not be permitted to be engaged at work in any of the posts until and unless the Nepalese manpower available inside the country.

•     Change in the ownership of the Enterprise shall not be affected on the terms and conditions of service of the workers and employees.

•     No worker or employee shall be deployed in work for more than eight hours per day or forty eight hours per week and they shall be provided one day as weekly holiday for every week.

•     No agreement may be entered into between the manager and workers or employees in a way to make the minimum remuneration, dearness allowances and facilities lesser than those fixed by GON.

•     The person or institution, who engages the workers and employees of outside the Enterprises at work, must pay the remuneration for the day engaged at work in accordance with the agreement if such agreement in writing has been concluded between the two parties and within seven days if there is no such agreement.

•     No child shall be engaged in work in any Enterprise.

•     Minors and females may be engaged in the works normally from 6 am to 6 pm except in the prescribed conditions.

•     By making an appropriate arrangement with mutual consent between the proprietor and the worker of employee, the females may also be engaged in the works similar to the males.

•     The Manager may transfer a worker or employee to any branch or unit of the Enterprise without causing any difference in the nature or standard of work. .

•     Where any worker or employee is engaged to work for more than eight hours in a day or forty eight hours in a week, he shall be paid overtime wages at the rate of one and one-half time of his ordinary rate of wages.

•     One welfare Officer shall have to be appointed in Enterprise where 250 or more workers of employees are engaged and one additional Assistant Welfare Officer shall have to be appointed where there are more than 1000 workers or employee.

•     The service of any permanent worker or employee may not be terminated without following the procedures prescribed by this Labour Act or the Regulations or Bylaws made under this Act.

•     The permanent worker of employee shall have to be paid with at least twenty five percent of his remuneration as retaining allowance for the period of closure of a seasonal Enterprise during off-season.

•     Proper safety provision should be made in working place to prevent from the probable accidents, harm and injury to the employees.

•     Where fifty or more female workers and employees are engaged in the work, the Proprietor of the Enterprise shall have to make provisions of a healthy room for the use of children of such female workers and employees.

•     The Enterprise shall have to establish a Welfare Fund, as prescribed for the welfare and benefit of the workers or employees.

•     In case any worker or employee of the Enterprise is physically wounded or seriously hurt or dies in course of his work, the compensation shall be paid to him or to his family, as prescribed.

•     The Proprietor shall have to constitute a Labour Relation Committee in each Enterprise in order to create amicable atmosphere between the workers or employees and the management and to develop healthy labour or industrial relation on the basis of mutual participation and coordination.

Income Tax Act, 2058 (2002)

First Income Tax Act ( related to business, Profit and Remuneration) enacted in 1959,  second was enacted in 1962 which  was replaced by Income Tax Act, 1974, (amended for eight times and existed for a period of 28 years). All the income tax related provisions made under other special enactment have been repealed and the existing Income Tax Act, 2058 became effective since Chaitra 19, 2058 (01, April 2002). Act governs all income tax matters and is applicable throughout the Nepal. It is also applicable to residents residing wherever outside Nepal.

The Special features of the Act
- The Act has broadened the tax base. Tax rates are spelled out in the Act itself and the tax rates and concessions are harmonized on equity grounds.
- A full-fledged self-assessment system is implemented and the presumptive taxation and current year taxation system are strengthened.
- The scope of discretionary interpretation of the tax administration is drastically reduced ensuring simplicity, uniformity and the transparency. The Act has also defined the power and authority and a capital-labor mix activities that generate income from employment, investment and business respectively. The Act makes broad classification of income encompassing almost all income-earning activities. They are :
A. Employment (an individual`s remuneration income from an employment for an income year)
B. Investment (profits and gains of a person from conducting an investment for an income year)
C. Business (profits and gains of a person from conducting a business for an income year)
D. Income and gains are ascertained only after deducting the corresponding expenses. The income from each business and investment needs to be calculated separately.
3. Taxing Subjects
- The taxpayers on whom income tax is imposed are persons. A person can be a natural person, who is an individual or a couple but includes also a proprietorship, or it can be an artificial person, i.e. an entity. An entity means a partnership, trust, company, and foreign permanent establishment or government body.
- The Act distinguishes between resident and non-resident persons. A resident person is an individual whose normal place of residence is in Nepal and who is present at any time of the year, or who is present in Nepal for 183 days or more, or who is an employee of Government of Nepal posted abroad at any time during the year.
- A trust is a resident person if it is established in Nepal, or has a resident person as a trustee, or is controlled by a resident person. A Company residing in Nepal and if it is incorporated under the laws of Nepal or has its effective management in Nepal. Partnerships are always resident persons. Permanent establishments are places where a person carries on a business and are subject to tax if they belong to a non-resident person and are situated in Nepal.

4. Income Year
- For every person the tax is imposed and calculated for an income year. The income year corresponds with Governments Fiscal Year, i.e. the period from the start of Shrawan of a year to the end of Ashad of the following year (mid-July to mid-July).

5. Assessable Income
- The assessable income of a person for an income-year from any employment, business, or investment is :
A. in the case of a resident person, the person`s income from the employment, business, or investment of the year irrespective of the location of the source of the income and
B. in the case of a non-resident person, the person`s income from the employment, business, or investment of the year but only to the extent the income has a source in Nepal.

- The assessable income does not include any income exempt under sections 11 or 64 of the Act (such as income from non-business agriculture and agriculture business conducted in the land of the type that is mentioned in clauses (d) and (e) of section 12 of the Land Act, 2021; income of cooperative society from business mainly based on agriculture and forest products and cooperative saving and credit scheme based on rural community; and income of approved retirement fund)

6. Taxable Income
- The taxable income of a person for an income-year is equal to the amount as calculated by subtracting reduction, if any, claimed for the year under section 12 (gifts to an exempt organizations) or 63 ( retirement contribution to an approved retirement fund) from the total of the person`s assessable income for the year from each of the following income heads :
Business
Employment and
Investment of the tax administration.
- The Act has separated administrative and judicial responsibilities by distinguishing civil liabilities of the taxpayers from criminal liabilities.
- The appeal system is further streamlined by making it mandatory for the taxpayers to file an objection with the Inland Revenue Department for administrative review before appealing to the Revenue Tribunal.

2. Income Heads
- The Act imposes tax on those activities contributing toward the creation of wealth. Wealth is created with the help of labor, capital

·         7. Tax Rates
-The taxable income of a resident individual for an income-year 2067/68 will be taxed at the following rates:
Individual - Rs.160,000 & Couple Rs. 2,00,000 @ 1% tax
Additional Rs. 100,0000 @ 15% tax

Additional  25,00,000 @25%  tax

Above Additional 25,00,000 @  40%  tax

- Any individual or couple having pension income can enjoy 25 percent of the normal exemption limit as an additional basic exemption.
- Any individual working in prescribed remote area is entitled to deduct prescribed amount as remote area allowance from taxable income.
- Any individual is entitled to deduct the following amount from taxable amount, if he is having investment insurance policy :
"Rs. 20,000 amount or the actual premium paid, which ever is less."
- For the purposes of the Act, net gains from the disposal of non-business chargeable assets will be taxed at the rate of 10 percent.
- The presumptive tax for individuals conducting small businesses (who have a turnover of Rs.2 million or an income of Rs.200, 000) in the Metropolitan or Sub-Metropolitans, Municipalities and anywhere else in Nepal amounts to Rs 5,000 Rs. 2,500 and Rs.1,500 respectively.
- The taxable income of a non-resident individual is taxed at the rate of 25 percent.
- The taxable income of an entity will be taxed at the rate of 25 percent unless prescribed otherwise.

-  Gain from Lump sum retirement payment made by an approved retirement fund or GON is taxed at the rate of 5 percent as a final withholding tax. Gain is calculated by deducting 50 percent of the payment or Rs. 500,000 whichever is higher from the total lump sum payment.

- The taxable income derived by an individual from special industry or export business will be taxed at the rate of 20 percent.

- The taxable Income derived by an entity engaged in an industrial enterprise or export business or derived from operating any road, bridge, tunnel, ropeway, or flying bridge. Construction business or any trolley bus or tram manufacturing business is taxed at the rate of 20 percent.

- The taxable income of an entity engaged in power generation, transmission, or distribution is taxed at the rate of 20 percent.
- The taxable income of an estate of a deceased resident individual or trust of an incapacitated resident individual will be taxed at the normal tax rate as though the estate or trust was a resident individual.
- The repatriated income of a foreign permanent establishment of a non-resident person situated in Nepal will be taxed at the rate of 10 percent.
- The taxable income of a non-resident person deriving income from providing shipping, air transport or telecommunication services in Nepal will be taxed at the rate of 5 percent.
- The taxable income of an entity wholly engaged in the projects conducted by any entity so as to build public infrastructure, own operate and transfer it to the HMG/N in power generation, transmission, or distribution for an income-year shall be taxed at the rate of 20 percent.

8. Business Exemptions, Exempt Amounts and Other Concessions
- The following amounts are exempt from tax :
A. Amounts derived by a person entitled to privileges under a bilateral or a multilateral treaty concluded between Government and a foreign country or an international organization;
B. Amounts derived by an individual from employment in the public service of the government of a foreign country, provided that, the individual is a resident person solely by reason of performing the employment or is a non-resident person; and the amounts are payable from the public funds of the country;
C. Amounts derived from public fund of the foreign country by an individual who is not a citizen of Nepal or by a member of the immediate family of the individual.
D. Amounts derived by an individual who is not a citizen of Nepal from employment by Government on terms of a tax exemption;
E. Allowances paid by Government to widows, elder citizens, or disabled individuals;
F. Amounts derived by way of gift, bequest, inheritance, or scholarship, except as required to be included in calculating income under this Act;
G. Amounts derived by an exempt organization by way of gift; or other contributions that directly relate to the organization's function, whether or not the contribution is made in return for consideration provided by the organization, and
H. Pension received by a Nepali citizen retired from the army or police service of a foreign country provided the amounts are payable from the public fund of that country.
- An agricultural income derived from sources in Nepal during an income-year by a person, other than the income from an agriculture business derived by a registered firm, or company, or partnership, or a corporate body, or through the land above the land holding ceiling as prescribed in the Land Act, 2021, is exempt from income tax.
- Incomes derived by cooperative societies, registered under Cooperative Act, 2048 (1991), from business mainly based on agriculture and forest products such as sericulture and silk production, horticulture and fruit processing, animal husbandry, diary industries, poultry farming, fishery, tea gardening and processing, coffee farming and processing, horticulture and herb processing, vegetable seeds farming, bee-keeping, honey production, rubber farming, floriculture and production and forestry related business such as lease-hold forestry, agro-forestry, cold storage established for the storage of vegetables and business of agricultural seeds, insecticide, fertilizer and agricultural tools (other than machine operated)and rural community based saving & credit cooperatives are exempt from tax. Dividends distributed by such societies are also exempt from tax.

9. Deductions
- Basically, all actual costs to the extent incurred in generating income from the business or investment are deducted while calculating a person`s income. This generalization, however, are taken into consideration in conjunction with the special provisions made in the Act. For example, interests paid by exempt controlled entity to the parent in the course of conducting a business or investment, are deductable with some limitations. Other costs such as cost of trading stock, repair and improvement cost of owned and used depreciable asset, pollution control, research and development are also deductable with some limitations.

- Depreciation allowances are granted for depreciable assets, which are categorized in 5 classes. The classes are based upon the average useful life of the assets belonging to one class. The assets of each class are placed in a pool and a depreciation rate applies to each pool.
- Allowable limit for repair and improvement cost of owned and used depreciable asset is raised to 7% of depreciation bases.
- No deductions are granted for the expenses that are of a domestic personal nature, income tax, government penalties costs in deriving exempt amounts or final withholding payment, dividends distributed by an entity, costs of a capital nature and cash payment above Rs. 50,000 under prescribed conditions.

10. Set off, Carry forward and Carry back of Losses
- Losses are in principle deductable but are treated differently depending on whether they result from conducting a business or an investment and whether they are of domestic or foreign nature. Losses from a domestic business can be offset

can be offset only against foreign income. Foreign business losses can be offset against foreign business income or investment. Losses from foreign investment can only be offset against foreign investment income.
- Unrelieved business losses of previous 4 years are allowed to carry forward.
- In case of electricity projects involving in building power station, generating and transmitting electricity and the projects conducted by any entity so as to build public infrastructure, own, operate and transfer to the Government, any unrelieved loss of the previous seven years are allowed to carry forward.
- If a person incurs a loss for an income-year from any banking and general insurance business, the person may carry back the loss and deduct it in calculating the income from the business for any of the five preceding income-years.
- Special provisions exist in the Act on how to deal with losses incurred in conducting a business of global long-term contract.

11. Tax Accounting and Timing
- For tax purposes, an individual is required to maintain his accounts on a cash basis in calculating the individual`s income from an employment or investment and a company is required to maintain its accounts on an accrual basis within the basic framework of generally accepted accounting principle.

- Bad debts are allowed to be written off if a debt claim of a bank or financial institution has become bad debt as determined in accordance with the prescribed standards.
- Inclusions and deductions under a long-term contract are calculated according to the percentage of the contract completed during the year.

12. Quantification, Allocation and Characterization of Amounts
- Cash payments are quantified as equivalent to the amount of transferred money or the market value of the asset. In case of a kind payment, it is equivalent to the value of the benefit of the payment. Compensations, including payments under insurance for income and losses are to be included in the calculation of income from employment, business or investment.

13. Capital Gain Tax
- The Act has introduced capital gain tax. However, the Act does not cover all such gains i.e. only those gains, which are received from the disposal of business assets or liabilities and those from the disposal of non-business assets of an investment of a person, which are regarded as chargeable and will be taxed accordingly.

14. Special provisions for Individuals
- A resident natural person and a resident spouse of the person may, by notice in writing, elect to be treated as a single individual for a particular income-year.

15. Special provisions for Entity
- An entity is liable to tax separately from its beneficiary who is defined as any person having an interest in an entity. Unless stated otherwise in the Act, transactions between an entity and its managers and beneficiaries are recognized.

16. Returns of Income and Assessments
- In general, every taxpayer should file a signed return of income not later than 3 months afteragainst all types and sources of income, whereas losses from a domestic investment can be offset only against any type of investment income. Foreign losses

Revenue Tribunal or of a court, the Department may amend an assessment within 4 years in order to adjust the assessed person's liability to tax in such manner as, according to the Department's best judgment, is consistent with the intention of the Act. An assessment may be amended at any time in cases of fraud.
- Where the department makes a jeopardy or amended assessment, it will serve a written notice on the taxpayer.

17. Administrative Review and Appeal
- A taxpayer who is aggrieved by a review able decision may file an objection within 30 days after the decision is made. In doing so, such Taxpayer has to deposit 50% of due amount. The Department may extend this period for another 30 days upon request. The Department may stay or amend or do necessary corrections with regard to these review able decisions. If the Department fails to serve a taxpayer with a notice of an objection decision, within 90 days, the taxpayer may elect to treat the Department as having refused his objection and appeal to the Revenue Tribunal.

18. Offences
- Offences are dealt with in the Act in a sense of criminal offences of taxpayers as well as tax administrators. They lead to punishment in the form of fines and imprisonment on conviction. The offences attracting both a fine and the imprisonment include failures to comply with the Act, failures to pay tax, maintaining documentation or filing income returns and statements of estimated tax, making false or misleading statements, impeding or coercing the tax administration, offences by the authorized and unauthorized persons, offences of aiding or abetting, etc. In case if the Tax return file is not submitted within the period prescribed by the act, the late fee will be charged at the rate of 0.1% per year of the turnover.

19. The Super Act
- The Act is made super in regard to all income tax matters. No other Acts except this Act shall be made capable to make changes, amendment and other tax related provisions other than the provisions relating to imposition, assessment, reduction, increment, exemption, or remission of tax to be made by amending this Act itself by annual Finance Acts.

 the end of each income year.
- Unless explicitly requested by the Department, no returns are required from taxpayers who have no tax payable for the year or are resident individuals who have income exclusively from an employment having a source in Nepal, who have only one resident employer at a time during the year and who do not claim a deduction of their taxable income by gifts to exempt organizations.
- Unless an assessment has been amended or reduced by order of the

Value Added Tax, 1997 ( 2054)

Nepal's Government introduced VAT system in 1997, (2054) from November 16, 1997. Although the VAT Act was passed in 1995 and the VAT regulation was approved in 1996. The VAT Act replaced the existing Sales Tax, the Contract Tax, the Hotel Tax and the

Entertainment Tax. It was designed to collect the same revenue as the four taxes it replaced. As designed  law, the VAT is a tax on many goods and services consumed in Nepal.  It was a new tax system for Nepal. It was justified in the light of government fiscal imbalances and need for extra revenue mobilization through an efficient tax system. At that time it was hoped that the introduction of new system would, however, make local business more competitive and remove the tax from exports. After implementation of VAT, it slightly changed the price of some goods and services.

The objective in enforcing VAT Act by the Government is to increase revenue mobilization by making effective the process of collecting revenues required for the economic development of the country. It is expedient to impose a value added tax on all transactions including the sale, distribution, delivery, import, export of goods or services and to collect revenues effectively by regulating the process of collection.

Coverage of VAT

The coverage of VAT in Nepal is based on transfer, sales, supply, import and export of goods and services except some special provisions. It is levied on the value added at each stage of the production or distribution. Every persons or firms or companies that are involved in such transaction liable to pay and collect tax. The actual coverage is structured by standard rates. The list of tax exempted and zero rated goods and services are mentioned in the Schedule one and two, respectively, in the Act. 

Taxable Goods and Services (Section-7 Schedule-1)

Nepal's VAT system is based on excluded concept. It has given the tax exemptions for certain goods and services and these are listed in Schedule one of VAT Act, 1995. All the goods and services other than the listed in schedule one are taxable. For these goods and services, in Nepal two types of tax rates are applicable. One is standard rate and other is zero rate. If any body like to know that a certain good or service is taxable or not he/she should check the Schedule-1; if such goods or services are mentioned in Schedule -1, that is not taxable and if that is not mentioned in such schedule, goods and services are taxable.

Standard Rated Areas

Nepal has adopted "inclusive basket system" for tax-exempted goods and services (Section 7, Schedule-1), which makes broad-based tax coverage. It has mentioned the list of zero rated goods, services and activities (Schedule-2). For all goods and services that do not fall under these two annexes standard rate is applicable. For this purpose the rate of tax is 13 percent. Under this system all transactions regarding transfer, sales, supply, import and export of goods and services, where value add exists are taxable, except some special provisions. Thus, except this provision all value added economic transactions are taxable and tax is collected at the rate of 13 percent. This is called standard rate area.   

Zero Rated Areas (Section-7 Schedule-2)

Under the VAT system some goods and services are, may be, taxed at zero-rate. Exporters are allowed to claim input tax credits for VAT paid or payable on purchases of goods and services relating to their commercial activities. Exports taxed at zero percent (0%) include exports of both goods and services.

Exempted Goods and Services

Under VAT system all goods and services are divided into two basic categories, taxable and tax-exempt. Goods and services are either

taxed at the standard rate of 13 percent or they are taxed at zero percent. Those taxed at the standard rate include all goods and services except those that are specified as taxed at zero percent or tax-exempted (Section5.3, Schedule 1).

In the following transactions, the purchaser does not pay VAT. The latest list of tax-exempt goods and services is given:

Group 1: Basic agricultural products:

Group 2. Goods related to basic needs:

Group 3 Live animals and animal products:

Group 4. Agriculture inputs:

Group 5 Medicines, medical treatment and medical services:

Group 6 Education:

Group 7 Books, Newspapers and  printing inputs:

Group 8 Cultural, artistic and skillful services:

Group 9 Public traveling services and transportation:

Group 10 Vocational and professional services:   

Group 11 Other Goods and services

1. Postal services (provided by Nepal Government):

2. Excise ticket

3. Financial and Life Insurance services,

4. Bank-currency note and cheque-book

5. Gold and Silver:

6. Electricity supply of 440 and 220 volt,

7. Raw wool,

8. Battery tempo, chassis of battery-tempo and battery of the same.

9. Bio-gas, solar power, and all machinery and accessories related to power generation from air power under the recommendation of Alternative Power Center.

10. Airplane, helicopter, fire-brigade, ambulance and human dead body carriers.

11.  Products of jutes.

12.     Industrial machines that can be import under five percent customs duty,

13.     Wool-carpet and dying, weaving, knitting and coloring of woolen-carpet and thread used for woolen carpet industry.

14.     Hundred- percent cotton made sadi, dhoti (male and female use), petani and gamchha certified by specified Association.

15.     Woolen thread used for hand knitting sweater inside the country (excluding artificial and acrylic yarn).

16.     Goods and kinds provided in grants under approval of Ministry of Finance for the use of natural divine or disaster.

17.     Luggage imported under personal luggage (jhiti- gunta and baggage) provision.

18.     The tax collected by textiles and matches (wood stick user) industry will be refunded to the producer as the process defined by government. The 25 percent of total tax collection by the producers of mustard oil, flour, perfumes, will be refunded to the producers.

Tax paid on the purchase of domestic raw materials, semi raw materials, and machinery used for textile industry and woolen

Industrial Enterprises Act, 1992 (IEA)

Objectives :

To development overall economic status of the country, to make arrangements for fostering industrial enterprises in a competitive manner through the increment in the productivity by making the environment of industrial investment more congenial, straightforward and encouraging the act is enacted in 2049.

Major provisions in the act

Constitution of Industrial Promotion Board:

a) The Minister or State Minister for Industries - Chairman

b) The Assistant Minister for Industries -  Member

c) Member (looking after industries), National Planning Commission - Member

d) The Governor, Nepal Rastra Bank - Member

e) The Secretary, Ministry of Industry - Member

f) The Secretary, Ministry of Finance - Member

g) The Secretary, Ministry of Commerce - Member

h) The Secretary, Ministry of Tourism - Member

i) The Director General, Department of Cottage and Small Industries - Member

j) Representative, Federation of Nepalese Chambers of Commerce and Industry - Member

k) Two persons, nominated by Nepal Government, either from among the industry, commerce and tourism sector organizations or from among the persons of high distinction in the same field. - Member

l) The Director General, Department of Industries - Member Secretary

 Functions, Duties and Powers of the Board:

a) To render necessary cooperation in formulating and implementing policies, laws and regulations pertaining to the industrialization of the country.

b) To give guidelines in attaining the objectives of liberal, open and competitive economic policies pursued by the country so as to make the industrial sector competitive.

c) To maintain coordination between the policy level and the implementation level of the industrial policy.

d) To cause to follow the ways and means for the prevention of the environmental pollution by putting more emphasis on the avoidance of effects on the environment and the public health.

e) To make recommendation to Nepal Government for the inclusion of any industry in the classification of industries.

f) To make recommendation to Nepal Government to introduce changes in the Areas mentioned in Annex – 3 by making evaluation thereof from time to time.

g) To give directives to the concerned body after making inquiries into the application submitted by any industry complaining that the industry has not received the facilities and concessions to be made available by the Committee.

h) Other functions, duties and powers of the Board shall be as prescribed.

Constitution of the One-Window Committee:

1) Nepal Government shall, for the purpose of making available the facilities and concessions to be enjoyed by any industry under this Act in time from a single place, constitute a One-Window Committee consisting of the following:

a) The Director-General, Department of Industries Coordinator

b) The Director-General, Department of Customs Members

c) The Director-General, Department of Excise Duty Member

d) The Director-General, Tax Department Member

e) The Director-General, Sales Tax Department Member

f) The Director-General, Department of Commerce Member

g) The Chief Controller, Nepal Rastra Bank Member

h) Representative, Federation of Nepalese Chambers of Commerce and Industry Member

i) One expert in the field of industry and commerce as designated by Government or one representative from the Federation Member

Function, Duties and Powers of the Committee:

a) To make necessary decisions for making available the facilities and concessions to be enjoyed by any industry under this Act.

b) To perform such functions as may be delegated by the Board under its functions, duties and powers.

b) To make recommendations as may be required for making time-bound provisions on making available infrastructural services such as electricity, water, means of telecommunications, land, road, and so on required for the industries.

c) Other functions, duties and powers of the Committee shall be as prescribed.

2) Any decision made by the Committee,

National Priority Industries

1. Agro and Forestry-based Industries.

2. Engineering Industry (Producing Agricultural and Industrial Machine).

3. Industry Manufacturing Fuel Saving or Pollution Control Devices.

4. Solid Waste Processing Industry.

5. Road, Bridge, Tunnel, Ropeway and Flying Bridge Constructing and Operating Industry, and Trolley Bus and Tram Manufacturing and Operating Industry.

6. Hospital and Nursing Home (Only outside the Kathmandu Valley).

7. Industries Producing Ayurvedic, Homeopathic and other Traditional Medicine, and Industries Producing Crutch, Seat Belt, Wheel Chair, Stretcher and Stick and so on to be used in aid of the disabled and orthopedic.

8. Cold Storage installed for the storage of Fruits and Vegetables.

Foreign Investment and Technology Transfer Act 1992 ( FITTA)

Foreign investment has been accorded very high priority for Industrial Development in Nepal. Government has pursued open and market oriented liberal policy for national economic development. In line with this policy, new Industrial Enterprises Act and the Foreign Investment and Technology Transfer Act have been promulgated in 1992. Various procedures have been streamlined and simplified to make them transparent and to improve the investment climate.
Foreign Investment and Technology Transfer Act 1992
Last date of Amendment in 2000 ( 2057)
Procedural Manual For Foreign Investment In Nepal 2005

Forms of Foreign Investment
According to FITTA, 1992, "Foreign Investment" means following investment made by a foreign investor in any industry:
a) Investment in share (Equity),
b) Reinvestment of the earnings derived from the clause (a) above,
c) Investment made in the form of loan or loan facilities.

Forms of Technology Transfer
Foreign Investor may also participate in the form of "Technology Transfer" to be made under an agreement between an industry and a foreign investor on the following matters: a) Use of any technological right, specialization, formula, process, patent or technical know-how of foreign origin, b) Use of any trademark of foreign ownership, and c) Acquiring any foreign technical consultancy, management and marketing service,
Industries not to be granted permission for Foreign Investment
1. Cottage Industries (the list of cottage industries is given in Annex-21).
2. Services (Business such as hair cutting, beauty parlour, tailoring, driving training, etc.)
3. Arms and Ammunition Industries
4. Gunpowder and Explosives

5. Industries related to Radio-Active Materials

6. Real Estate Business (excluding construction industries)

7. Film Industries (National Languages and other recognised languages of Nation)

8. Security Printing, 9. Bank notes and Coins, 10. Retail Business

11. Travel Agency, 12. Trekking Agency, 13. Water Rafting

14. Pony Trekking, 15. Horse Riding

16. Cigarette, Bidi, Alcohol (excluding more than 90% exportable)

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, Legal Services.

Features

Technology Transfer - Technology transfer is possible even in areas where foreign investment is not allowed.

No Nationalization – IEA 1992 has guaranteed against nationalization of privately owned industries enterprises.

Decontrol of Prices - The government does not interfere in the fixation or control of prices of industrial products.

Simplification in import of machinery and raw materials - Industry can approach any commercial bank directly to open Letter of Credit for the import of machinery or raw materials needed for the industry. Recommendation or import license from either Department of Industries or Department of Commerce or Nepal Rastra Bank is not necessary.

Minimum approval procedures - Except industries that affect security and public health, other industrial activities do not require to obtain any license or permission for establishment and operation. They just need to be registered under the concerned Department.

The list of industries that required license are as follows:

• Industries producing explosives including Arms, Ammunition and

Gunpowder Security Printing, Bank Notes and mint industries.

• Cigarettes, Bidi, Cigar, Chewing tobacco, khani (chewing tobacco)

industries and industries producing goods of a similar nature utilizing

tobacco as the basic raw materials and alcohol or beer producing

industries.

Time bound decision process - Time bound decision process has been ensured for cases with complete documents. Decisions with regards to industrial license, registration and duty drawbacks are now to be made within 30, 21 and 60 days from the date of application, respectively.

Transparency and clarity of facilities available - The facilities and incentives available to various categories of industries have been clearly slept out in the Act itself to avoid any ambiguity.

Repatriation of profits, dividend, technical and managerial fees, and certain portion of salaries of foreign experts have been guaranteed. The corporate income tax for manufacturing units is fixed at 20% and is one of the lowest in the region.

Non-tourist visa for carrying out studies for investment and

business/residential visa for foreign investors have been provisioned and the procedures have been further simplified.

At international level, Nepal has taken numerous steps to promote foreign investment in the country. Some of the key institutional arrangements that have been achieved so far are listed as under:

• Nepal is a member of the World Intellectual Property Organisation (WIPO) and the Multilateral Investment Guarantee Agency (MIGA).

• Nepal has entered into Bilateral Investment Treaties (BITs) with countries such as France, Germany, Mauritius, and United Kingdom.

• Nepal has also entered into Double Taxation Treaties (DTTs) with 9

countries, namely, India, Norway, China, Pakistan, Sri Lanka, Austria,

Thailand, Mauritius, and Republic of South Korea.

• To ensure access to the vast potential market, Nepal is the member of

WTO, SAFTA, and BIM-STEC.

• Nepal is also a signatory to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States and a

member of the International Centre for the Settlement of Investment

Disputes (ICSID), associated with the World Bank.

Formation of Company:

Foreign Investment and Technology Transfer Act (FITTA) 1992 allows foreigners to form either a private limited company or a public limited company. The incorporation/registration of the company is done by Company Registrar's Office (CRO) The companies are incorporated and registered under the provisions of the Company Act, 2006 (2063)  has provision for two types of companies, namely, Public and Privates.

Explanation:

Foreign Investment and Technology Transfer Act – 1992 & Industrial Enterprises Act -1992 are the two most important acts for the promotion of industries in Nepal. These two acts are highly encouraging acts for attracting FDI or Joint venture investments in Nepal.

Foreign  investors  are  equally  treated  as  local  investors  and  the  same  act  prevail regarding incentives and facilities to foreign investors. Any foreign national are granted 6 months non-tourist visa if he or she want to conduct some survey, study or research with the  objective of making investment in Nepal. After that if he or she invest or establish an industry, then the investor along with his dependant family is granted with business visa until their investments are retained. Similarly if a foreign investor at a time makes an investment of US $ one hundred thousand is granted a residential visa to him and his dependant family. All these are highly encouraging statements. However in actual practice, the investors have to face various problems from time to time. This is  mainly due to fact that DOI is only an recommending body whereas granting of visa is the authority of the Immigration Department.