Pa7175Z, Author at Leading Law Firm in Nepal | Law Firm in Kathmandu

The Department of Industry (DOI) published a notice on 12 December 2022 (2079/8/26 B.S.) in attention to companies/industries who have brought foreign investment into Nepal but have not succeeded in recording the same with the Nepal Rastra Bank, such companies have been given a 35 days period to record the details of such foreign investment with the Foreign Investment and Technology Transfer Section, DOI in the prescribed format. The DOI will assess the volume and nature of submissions and take it up to the Industry and Investment Promotion Board in the future to provide a solution that enables the companies with unrecorded foreign investment to sell shares, make reinvestment and repatriate earnings.

Link : https://doind.gov.np/detail/149

Disclaimer: This Pioneer Law Briefing may not necessarily deal with every important aspect of the subject matter. This Briefing is intended for general information only and not to be construed as legal or other advice.

New Legislation on Industrial Enterprises – Brief Highlights

January 31, 2017

Industrial Enterprises Act 2016 (2073 BS) (the “Act“) has been introduced with effect from November 22, 2016 repealing the Industrial Enterprises Act 1992 (2049 BS) (the “Previous Act”). However, certain provisions of the Act would be issued in the form of Regulation, which has not been formulated as of this date.

The Department of Industries (the “DOI”) continues to operate as primary implementing agency under the Act. The key provisions of the Act are set out below:

Industry Registration

The Act makes it mandatory for all the business activities falling under the definition of “industry’ to be registered as an industry.

Various registration requirements have frequently been cited as areas requiring reforms but the Act has missed this opportunity to re-evaluate the requirement of business registration. Further the Act does not have any new provisions which will assist reduction in cost of registration or doing business in Nepal.

Classification of Industry

The Act has given continuity to the general classification of industries on the basis of-(a) size of fixed asset investment, and (b) nature/sector of business. However, on the basis of size of fixed assets investment, the Act has newly added “micro industries” within the classification. Further, “Industries based on Information, Transmission and Communication Technology” has been added as a new classification on the basis of sector of business. The Act lists the industries falling within each classification and grants authority to the Industry and Investment Promotion Board to recommend to the Government of Nepal to alter the classification of industries.
The primary purpose of such classification appears to be the provision of fiscal and non-fiscal incentives on the basis of classification. However, such an approach is likely to create problem especially when a business in question does not fall under the category of “industries”. For example, previously the Government of Nepal has classified “investment business” as one of the categories of the industries and this category permitted foreign investment in Nepal. However, as the Act has not included such industry within the list, the DOI might take the view that foreign investment is not allowed in investment business; unless the same is notified by the Government of Nepal through Nepal Gazette.

Approval and Compliance Requirement

Multiple approval requirements have been imposed under the Act. For example, approval requirements are applicable for-(a) extension of the time period for bringing the industry into operation, (b) transfer of location of the industry, (c) liquidation of industry. Further, approval from Industry and Investment Promotion Board is also required for the registration of industry in which foreign investment approval has been granted by such Board. These approval requirements appear to be applicable to all kinds of industries irrespective of investment or sector of operation such as micro industries.
The Act has also provided for ongoing reporting and filing requirements. For example, each industry is required to notify certain details to the authorities upon bringing industry into operation and within 6 months from the date of expiry of the fiscal year. A notification is also required to be given to the authorities when the industries stop their operation. These requirements are sure to add cost of registration of business and satisfying ongoing compliance.

Environmental Compliances

Pursuant to the Act, industries should commence activity related to establishment and operation of industries only after completion of applicable environment studies. This provision provides for much needed clarity as there were certain practical difficulties where environmental clearance required prior to registration of the industry.

Corporate Social Responsibility

The Act makes it mandatory to allocate at least 1% of the annual profit (there is no clarity on whether it is to be calculated on pre-tax profit or post tax profit) to be utilized towards corporate social responsibility (the “CSR Requirement”).
The CSR Requirement is applicable to all (i) medium industries; i.e. industries having investment in fixed assets exceeding NPR 100,000,000 but less than NPR 250,000,000; and large industries; having investment in fixed assets exceeding of NPR 250,000,000) and (ii) cottage industries and small industries having annual turnover more than NPR 150,000,000.
The fund created for CSR is to be utilized on the basis of annual plans and programs but in the sectors that are prescribed under the Act, however, such sectors are yet to be specified by the Act. The progress report of the utilization of the fund collected for CSR is required to be submitted to the relevant government authorities registered within three months from expiry of the financial year.

No Work No Pay and Restriction on Strikes

The Act has addressed the long standing demand of the industries seeking “No Work No Pay” provision and will most likely be helpful in addressing illegal strikes. The Act further restricts employees to carry out any strike which may affect the operation of an industry and its production.
The Labor laws provides right to strike without limitation (after completing notification and voting procedures) and is yet to be seen if the provision will assist in enhancing work environment, specially in manufacturing sectors.

Contract Manufacturing

The Act clarifies that that the goods can be produced on the basis of the contract manufacturing arrangement entered between the producers of the goods. The concept also extends to supply of services.
This provision provides much needed regulatory clarity as the contract for manufacturing was undertaken on the basis of approval from the DOI on a case to case basis. The Act does not mandate prior approval of the DOI to enter into a contract manufacturing arrangement.
The Act also prescribes the provision where the contract manufactures can be provided exemption and benefit for providing of goods or services as per prescribed criteria to the export industries or export processing units. The Government is yet to issue notification related to such benefits and exemptions.

Incentives and Facilities to Industries

The Act has provided various fiscal incentives to industries, most of which were repealed after the introduced of the Income Tax Act 2002 (the “Income Tax Act”). The Income Tax Act was introduced with the concept that all tax related incentives will be covered by the Income Tax Act and Finance Act which is enacted every year. Generally, matters related to income tax, value added tax (VAT) and custom duty are governed by Fiscal Act.
In marked departure with this principle, the Act has introduced additional fiscal incentives. The manufacturing and export oriented industries enjoy most of the fiscal incentives. For example, the manufacturing industries (which excludes tobacco, alcoholic beverages, etc.) are entitled to 20% discount on the applicable tax rate (currently 20%) making the effective tax rate 16%. The export income from export of goods are entitled to 25% discount making the effective tax rate from export income 15%. The exhaustive description of benefits is provide in Annex-I.
The Act provides statutory protection of changes in law in relation to benefits and exemption provided under the Act and other applicable laws. The stabilization provision states that no provisions shall be made to limit the benefits and exemptions prescribed under the Act and other applicable laws. This provision is introduced against the background that, stabilization provision was set-up mostly for infrastructure projects under the applicable laws but now all industries registered under the Act will be eligible to enjoy the benefits.

Offences and Sanctions

The Act has defined various non-compliances as offences and has also imposed sanctions. Offences that include; (a) operation of industry without registration, (b) failure to meet the reporting/filing requirement as set out under the Act, (c) misuse of facilities and incentives as made available under the Act, (d) non-fulfillment of the CSR Requirement, etc.
The sanctions under the Act include, (a) closure of industry, and (b) fine on the basis of types of industry. For example, a large scale industry is liable to fine ranging from NPR 100,000 to NPR 300,000 for operating without registration. Similarly, an industry is liable to fine amounting to 0.75% of the annual transactions for non-compliance with CSR requirement.
The sanctions are levied either on, (a) industry, or (b) responsible officer of the industry. The time limitation for filling an appeal against the imposition of sanctions is thirty-five (35) days. Such appeal can be filed at the concerned High Court.

Annex I

Fiscal Concessions for Different Industries

A. Income Tax Concessions
Industry	Concessions
Manufacturing Industries	20% exemption on the rate of tax imposed on the income earned from such industries.
Industries investing in construction of roads, bridge, tunnel, Ropeway, Railway, Tram, Trolleybus, Airport, Industrial Structure and Infrastructural Complex and bringing such constructions into operation	40% exemption on the rate of tax imposed on the income earned from operation of such infrastructures.
Manufacturing industries except those producing fruits based cider, brandy or wine established in Under Developed, Undeveloped and Less Developed Region	90%, 80% and 70% exemption on rate of the income tax for up to 10 years from the date of commencement of commercial production or transaction
Manufacturing industries producing fruit based cider, brandy or wine established in any Under Developed Region	40% exemption on the income tax for up to 10 years from the date of commencement of business
Manufacturing Industries set up with the investment of at least 1 billion rupees and providing direct employment to more than 500 individuals throughout the year	100% income tax exemption for first five years from the date of commencement of business. 50% exemption on the income tax for next 3 years. Industries already in operation are entitled to the above stated exemption in case such industries enhance their installed capacity by at least 25%, increase investment to 1 billion and provide direct employment to 500 individuals throughout the year.
Individuals or entities obtaining approval to commercially generate transmit or distribute Hydroelectricity by mid-April 2024 A.D. (Chaitra 2080 B.S.)	100% income tax exemption for first 10 years 50% income tax exemption for next 5 years. Such exemption is entitled to Solar, Wind and Bio Mass energy as well. In case of industries that have already begun commercial production at the time of commencement of this Act, the exemptions applicable at the time of receiving approval would be applicable.
Industries conducting research and excavation of natural gas and fuel commercially, if commence the commercial transaction by mid April 2019 A.D. (Chaitra 2075 B.S.)	100% Income tax exemption for first 7 years from the date of commencement of transaction; 50% exemption on the income tax for next 3 years..
Industries relating to Tourism Sector established with the investment of above 2 billion rupees	100% Income tax exemption for the first 5 years from the date of commencement of commercial transaction 50% exemption on rate of Income Tax for next 3 years Such Industries already in operation are entitled to the above stated exemption in case such industries enhance their installed capacity by 25%, increase investment to 2 billion.
Tourism Industry including hotel, resort etc. established outside the metropolitan or sub-metropolitan area with the investment of more than 50 million	100% Income tax exemption for the first 5 years from the date of commencement of commercial transaction 50% exemption on rate of Income Tax for next 3 years
Industries related to software development, data processing, cyber café and digital mapping established inside technology park, bio-tech park and information technology park specified by Nepal Government by publishing notice in Nepal Gazette.	50% exemption on tax imposed on income of such industries
Manufacturing Industries and Information and Communication Technology Industries employing 300 or more Nepalese throughout the years	15% exemption on tax imposed on income of such industries on that year (Additional 15% exemption on income tax on that year in case the industry has 50% of its employees from among Women, Scheduled Caste and Disabled person)
Manufacturing Industries and Information and Communication Technology Industries employing 1200 or more Nepalese throughout the year	25% exemption on tax imposed on income of such industries on that year (Additional 15% exemption on income tax on that year in case the industry has 50% of its employees from among Women, Scheduled Caste and Disabled person)
Manufacturing Industries exporting goods or commodities produced	25% exemption on the rate of tax imposed on the income earned.
All industries	Expenses made by industries for long term welfare and benefit of employees or workers such as housing, life insurance, health facility, education and training, child care, sports etc. can be deducted for purpose of income tax. Expenses made for equipment & technology used to reduce or control the pollution or re-processing or reuse of wastages can be deducted up to 50% of the adjusted taxable income of the same fiscal year. In case the expenses cannot be deducted in full the remaining amount is allowed to capitalize the depreciation on which may be claimed in the subsequent fiscal year. Expenses incurred for the machine or equipment used for reducing power consumption can be deducted for the purpose income tax. The costs incurred for increasing entrepreneurship, research and development and creation of new technology for enhancing the productivity of the industry can be deducted while calculating taxable income for an income year from business provided that such deduction does not exceed 50% of the adjusted taxable income from all business of the industry. In case the expenses cannot be deducted in full the remaining amount is allowed to capitalize the depreciation on which may be claimed in the subsequent fiscal year.
	Costs incurred in market promotion, survey and advertisement relating to the business can be deducted for the purpose of income tax. Costs incurred for the security of the physical assets as prescribed and actual premium paid for insurance can be deducted for the purpose of income tax. Costs incurred for the protection of industrial property in Nepal which is registered in Nepal can be deducted for the purpose of income tax. 25% exemption on the rate of income tax on royalty received from export of Intellectual Property created and registered in Nepal. 50% exemption on the rate of income tax on income earned from transfer or sale of intellectual property created by the industry. Government of Nepal may reimburse the registration fee paid to register the intellectual property in foreign country for its protection in the manner as prescribed by Nepal Government. Gifts or donations given to tax exempted organization can be deducted up to Rs. 100,000 or 5% of adjusted taxable income of the industry, whichever is less The Government of Nepal may also provide other exemptions by publishing a notice in Nepal Gazette.
Industries established inside Industrial Estate	Local Taxes including Unified Property Tax is not levied

Note:

i. Industries based on tobacco, liquor and kachha or kattha are not entitled to any of the exemptions or facilities listed above. However, such industries may deduct actual expenses incurred in business promotion activities including long-term welfare and benefit of employees or workers, in reducing or controlling pollution, re-processing of waste materials, in technologies and devices used reducing environment effects, in machine or equipment used for reducing power consumption, research and development expenses.

ii. In case an industry qualifies for more than one exemption in respect to similar income from among those listed above, the industry is only entitled to one exemption. Such industry is entitled to select the applicable exemption.

B. VAT Exemptions
Industry	Benifits
All Industries	VAT imposed on production is reimbursed if such goods are exported, based on the quantity of export.

C . Customs duty Exemption
Industry	Benifits
Industries not having Bonded Warehouse or Passbook facility	The Government of Nepal may refund the amount of Duty Draw Back in export of goods after determining the aggregate of costs incurred in import (Samadar) as prescribed in Nepal Gazette.
Industries not having Bonded Warehouse approval exporting goods through existing Banking Channel or Letter of Credit or selling such goods in domestic market in convertible currency	Raw materials or auxiliary raw materials as well as packaging materials that are not produced in Nepal can be imported by furnishing the required guarantees under prescribed conditions and procedures. However, in case of packaging materials not produced in Nepal, a recommendation is required from IRD to enjoy stated benefit. The Custom Duty levied in the import of such raw materials, auxiliary raw materials and packaging materials required for production shall be one level below the existing Custom Duty rate in import of finished goods using such materials.
Laboratories for Quality Assurance	Custom Duty is levied in the minimum rate for the import of machinery and scientific devices that re being imported to ensure quality as well as such machinery and equipment imported by industries for research and development.
All Industries	Custom duty is levied in the minimum rate on import of machinery, transformers, generators having a capacity of 10 Kilowatt and other industrial devices imported by an industry for commercial purpose.

D . Customs duty Exemption

Notwithstanding anything mentioned in existing acts, no fees or charges is levied on registration of micro industry pursuant to this Act.

Micro Industries already under operation at the time of commencement of this Act are entitled to 100% income tax exemption for at least 5 years from the date of commencement of this Act.

Micro Industries registered and operating pursuant to this Act are entitled to 100% income tax exemption for at least 5 years from the date of commencement of commercial transaction.

E . Additional benefits for Female Entrepreneurs : Industries registered under the ownership of Female Entrepreneurs only are entitled to following additional benefits and concessions:

35% exemption in existing Industry Registration Fees

20% exemption in existing rate of registration of Industrial property used inside the industries

Female entrepreneur shall be prioritized while allocating the areas inside Industrial Estate

In case such industries require loan for exporting produced goods, export loan will be provided to the industry depending upon the financial status of the transaction of the industry.

F. Other Exemptions and facilities

Industries based on forest products can be given possessory right pursuant to existing laws over forest in any region through lease or other promissory guarantee under prescribed conditions.

No fees or royalty pursuant to the existing laws shall be applicable in electricity produced by industry for its own consumption.

Such industry willing to sell surplus electricity to any other industry, may sell so pursuant to existing laws in the rate agreed upon by both parties.

Government of Nepal may provide additional exemptions and facilities to export based industries and prescribed industries established inside Special Economic Zone or inside Government or Private Industrial Estate by publishing notice in Nepal Gazette.

Government of Nepal may provide additional exemptions and facilities by publishing a notice in Nepal Gazette to National Priority Industries or industry making optimum use of domestic raw materials, labor or skill or industries established by inventing new technology or goods inside Nepal upon recommendation of Industries and Investment Promotion Board.

Government of Nepal may provide exemptions in Demand Charge added in Electricity cost under prescribed conditions and procedures.

Government of Nepal may provide aid assistance as seed capital to cooperatives, micro industry, small and cottage industries to establish industries inside Under Developed Region under prescribed conditions.

Industries operating under Foreign Investment may be given approval to import goods produced by the head office located in foreign countries for production, market development and promotion of new goods for a prescribed period under prescribed terms and conditions.

Social Welfare Council (the “Council”) is the main regulatory body responsible for regulating INGOs in Nepal. The Council was established under the Social Welfare Act 1992 (the “Act”); Social Welfare Rules 1992 (the “Rules”) is the subsidiary legislation to the Act. Besides the Act and the Rules, the Council adopts various guidelines to regulate INGOs effectively. These guidelines are updated periodically. At present, the Guidelines for General Agreement, Service and Facilitation, Guidelines for Project Appraisal, Guideline for NGO Approval, Guidelines for NGO Affiliation, Guidelines for Monitoring and Evaluation, and Guidelines for Project Advisory Committees, are the key guidelines regulating the establishment and activities of INGOs in Nepal. The INGOs are required to take approval as well enter into agreements with the Council to carry out their functions.

Is it mandatory to obtain approval from the Council?

Yes, it is mandatory for INGOs desirous of conducting developmental, social or welfare activities in Nepal to obtain approval from the Council.

What are the approval requirements?

Following are the requirements to be met by the INGO to obtain the approval:

An application shall be submitted to the Council for approval.
INGO is required to enter into General Agreement and the Project Agreement with the Council to conduct developmental, social and welfare projects.

Is it also mandatory to obtain approval for providing financial assistance only?

INGO is not required to obtain the approval to provide financial assistance. However, the receiving NGO must obtain the approval from the Council in order to receive such assistance.

What is the General Agreement?

The General Agreement is a bilateral agreement which generally serves as a main agreement forming the basis for the presence and operation of the INGO in Nepal and outlines the areas in which the INGO can support in Nepal, minimum amount it has to fund annually in Nepal, provisions for establishing its office in Nepal and filing and reporting requirement, etc. The most recent template of the General Agreement at be found at [insert link].

What is the procedure (and the documents required) to enter into the General Agreement?

An application, along with the following documents, is required:

Certificate of Registration in the home country,
By-laws (Approved Constitutions )
If by-laws do not explain the objective clearly, authentic document stating its objectives is required,
Financial Commitment (minimum USD 2,00,000 per annum),
Concept paper / project proposal, and
Draft General Agreement (in the prescribed format)
Letter of Authorization to deal the business of agreement,
A Copy of Citizenship, Passport with valid Visa and Bio-data of the person who will be acting as Country Director of INGOs.
Covering Letter,
Reliable Funding Sources (the reliable funding source should substantiate the funding source of minimum of USD 2,00,000)

If the charter documents of the INGO are not in English, English notarized translated versions notarization are required.

What is the term of General Agreement?

The General Agreement is entered only for a certain period of year (minimum 3 years and maximum 5 years) and is subject to the renewal requirement thereafter.

Can the General Agreement be terminated before the expiry date? If yes, how?

Yes, the General Agreement can be terminated. The agreement can be terminated by the either party by giving a six months advance notice.

What are the procedures to renew the General Agreement?

In order to renew the General Agreement for a next term, following information/documents shall be provided:

Evaluation Report,
General Agreement Draft,
Audit Report,
Commitment to Implement the Suggestion Prescribed by the Final Evaluation Report and
Annual Financial Commitment Letter

Is it mandatory for an INGO to open an office in Nepal?

Yes. It is mandatory to open an office in Nepal.

What will be the legal status of the local office?

The local office established under the General Agreement will not have independent legal status or corporate personality separate from the INGO incorporated and existing under the laws of foreign jurisdiction. It will also not have authority to implement any project in Nepal directly without the involvement of local NGOs. The local office of the INGO will also have to be registered with the tax authority of Nepal and obtain permanent account number.

What is Project Agreement?

Project Agreement is a tripartite agreement between the INGO, NGO (as the local partner), and the Council which outlines the areas of activities in which the INGO will assist the local NGOs, annual funding the INGO shall make in implementing the projects, the areas within Nepal where the projects will be implemented, role and responsibilities of each party to the Project Agreement.

What will happen when there are multiple local partners?

In such case, the Project Agreement will be concluded between the INGO and the Council.

Is it possible to carry out the project without a local partner?

No. INGO cannot implement its projects directly in Nepal without the involvement of local entities as partner organizations.

When shall the the Project Agreement be entered into?

The Project Agreement shall be entered into within three (3) months from the date of the signing of the General Agreement.

What is the term of Project Agreement?

The term of the Project Agreement will be linked to the duration of the project to be implemented under the Project Agreement.

What are the consequences of failing to enter into the Project Agreement?

Failure to enter into the Project Agreement even after the considered period of three months, provided by the Council after initially failing to enter into the same within the initial period of three months, will cause the invalidation of the General Agreement and may also lead to the cancellation of the work permit and visa of the INGOs representatives.

How many Project Agreements can be concluded under one General Agreement?

More than one Project Agreement can be concluded under one General Agreement. The number is not fixed.

What are the filing and reporting compliances to be met by the INGO?

The INGO is required to:

submit audit report, to the Council within the period of six months after the completion of fiscal year along with the detailed description of their work and activities;
report its activities once in every six months; and
submit an annual report citing administrative and program costs

What are the consequences for non-compliance of the General and Project Agreements?

The non-compliance of the General and Project Agreements may result in the following consequences:

Blacklisting
USD 1,000 will be levied on the INGO desirous of entering into the project agreement after initially failing to do so within the prescribed time.
USD 2,000 will be levied on the INGO desirous of entering into the General/Project Agreements after initially failing to perform the agreements.

Is there any requirement on the allocation of the budget?

Yes. The budget shall be allocated in such a way that the administrative cost does not exceed twenty (20) percent of the budget.

Is it mandatory to open a bank account in a commercial bank in Nepal?

Yes. It is mandatory to have a bank account in one of the commercial banks of Nepal. Also, the INGO will have to deposit the amount of the Financial Commitment as committed under the General Agreement for the implementation of the project.

Section 12 of the Foreign Exchange (Regulation) Act 1962 (2019) (the “FERA 1962“) empowers Nepal Rastra Bank (the “Central Bank“) to issue the directives, bylaws or notices to implement the provisions of the said Act. In exercise of the said power and for the purpose of Section 10A, Section 10 B, and Section 10C of the FERA 1962, the Central Bank has issued following circulars in relation to foreign loans (collectively the “NRB Circulars”):

Under the NRB Circulars the Central Bank has imposed various terms and conditions on foreign loans. Discussed below are the key provisions of the NRB Circulars:

1. The NRB Circulars require the borrower to first attempt to avail of the loan from commercial banks and financial institutions in Nepal. Only in the event the borrower fails to obtain the amount of funds it requires at a competitive rate of interest locally, the borrower can obtain loan from foreign lenders.

2. Foreign Loan by Nepalese Citizens:

2.1. A Nepalese citizen can obtain foreign loan for business purpose from his/her relatives residing outside Nepal, non-resident Nepalese or foreign entities, with the approval of the Central Bank.

2.2. Following conditions are applicable to obtaining of foreign loan by Nepalese citizens:

(a) Amount of foreign loan shall not exceed USD 200,000;

(b) Loan shall be interest free;

(d) The individual borrower shall submit details of the business and purpose for which he/she is proposing to obtain the loan; and

(e) The loan shall be remitted through proper banking channels.

3. Foreign Loan by Nepalese Firms / Companies / Industries / Entities:

Priority of Eligible Lenders

A. Foreign Banks and Financial Institutions

In the event the Nepalese borrower cannot obtain loan locally, the borrower is first required to attempt to avail of foreign loan from foreign banks and financial institutions.

B. Authorized Finance Companies / Financial Institutions:

Only in the event it becomes difficult to obtain foreign loan from foreign banks and financial institutions, the borrower can obtain loan from any finance company or financial institution which has been authorized to provide loan as per the approval obtained by such finance company or financial institution from their respective government, central bank or any other regulatory authority.

C. Foreign Companies / Entities:

In the event the borrower is unable to obtain loan from the entities under paragraphs 3.1(A) and 3.1(B) above, the borrower can obtain foreign loan from a foreign company or other entities. In respect of loan from foreign companies / entities- (i) the financial details of the lending entity certified by its auditor (or audited accounts), (ii) source of funds for the loan, and (iii) schedule for the transfer of loan amount by the lender, and repayment of the same by the borrower, are required to be provided to the Central Bank.

3.2 Loan from Individual Foreign Shareholders:

3.2.1 Pursuant to the NRB Circular dated November 04, 2015, Nepalese firms, companies, industries, and such other entities are permitted to obtain loan from its individual foreign shareholders in the event such entities are unable to obtain the required loan amount from local commercial banks and financial institutions at competitive rate of interest.

3.2.2 From the wordings used in the NRB Circular dated November 04, 2015, the said NRB Circular (a) is applicable to the lending made by an existing foreign individual (natural person) shareholder to the borrower company, and (b) is not applicable to the lending made by an existing institutional shareholder to the borrower company. Any lending made by a foreign institutional shareholder to the borrower company as a shareholder should be subject to the regulations discussed in paragraph 3.1 above.

3.2.3 The amount of loan from foreign individual shareholder should be such that the debt to equity ratio of the foreign individual shareholder in the borrower entity does not exceed 60:40. As an example, in the event the amount of equity investment of such shareholder in the borrower entity is USD 4 million, the amount of loan he/she can provide to the borrower entity would be capped at USD 6 million.

4. Multilateral or Regional Financial Institutions:

Notwithstanding the provisions contained above, foreign loans can be availed from multilateral or regional financial institutions such as the World Bank, IFC, ADB, in accordance with the decision of the Central Bank. In case of borrowing from such institutions, the requirement to obtain such loan locally (or the requirement under Paragraph 3.1 above) shall not be applicable.

5. Regulation of Interest Rate

5.1 The rate of interest on all foreign loans shall be consistent with the rate of interest prevalent in the international market.

5.2 As discussed above, the rate of interest on loans availed by individual Nepalese borrowers shall be nil.

5.3 The rate of interest on loans availed by Nepalese firms, companies, industries, and such other entities in accordance with Paragraph 3.1 above shall not exceed the prevalent 1 year LIBOR rate + 5.5% per annum.

5.4 The rate of interest on loans availed by Nepalese firms, companies, industries, and such other entities from its foreign individual shareholders (in accordance with Paragraph 3.2 above) shall not exceed the prevalent 1 year LIBOR rate + 2% per annum.

5.5 No specific restrictions have been imposed on the rate of interest on loan from multilateral or regional financial institutions (as discussed in Paragraph 4 above), and the same shall be in accordance with the decision of the Central Bank.

6. Repatriation Conditions

6.1 Some of the documents that need to be submitted for repatriation of loan principal and interest include- (a) document certifying that the borrower has not been blacklisted by the Credit Information Bureau of Nepal, and (2) self-declaration by the borrower that there are no matured loans payable to banks or financial institutions in Nepal.

6.2 From the above conditions it appears that in the event the borrower (a) is blacklisted, or (b) has failed to repay any loan from the banks or financial institutions in Nepal, then repayment of loan or interest cannot be made to foreign lenders.

The Government of Nepal has recently amended the minimum wage under Labor Act, 1992 (2048) (“Labor Act“) by publishing a notices in Nepal Gazette Part 5, Volume 63, Number 43, dated February 01, 2016 (2072-10-18) (“Gazette Notice“).

Separate minimum wage has been fixed for the workers / employees working in tea estate (“Tea Estate Minimum Wage“) and the workers / employees working in enterprises other than tea estate (“Other Enterprises Minimum Wage “).

The minimum wage is applicable to all workers / employees irrespective of status of the employment or the length of service. Section 21(4) of the Labor Act prohibits an employer from entering into an agreement with its employee for paying salary / wage and benefits that are less than what is prescribed by the Government of Nepal. Therefore, the prescribed minimum wage is mandatory.

A. Tea Estate Minimum Wages:

Different rates of minimum wage / salary have been prescribed for the period (1) commencing on the date of publication of the Gazette Notification (i.e. February 01, 2016) and ending on July 15, 2016 (2073-03-31) (“Current Fiscal Year“), and (2) commencing on July 16, 2016 (2073-04-01) and ending on July 15, 2017 (2074-03-31) (“Post Fiscal Year“).

1. Minimum salary / wage prescribed for the Current Fiscal Year

S.N	Nature of Payment	Minimum Monthly Salary/Wage	Remarks
1	Minimum Salary	Rs. 6,375/-
2	Daily Wages	Rs. 228/- per day
3	Daily Allowances for the workers working at Tea Refinery and Tea Factories and Sardar, Naike and Gatekeeper working in the Tea Estate	Rs 30 per day	Such allowances are not applicable to workers who are paid monthly salary.

2. Minimum salary / wage prescribed for Post Fiscal Year

S.N	Nature of Payment	Minimum Monthly Salary/Wage	Remarks
1	Monthly Salary	Rs. 7,075/-
2	Daily Wages	Rs. 253/- per day
3	Daily Allowances for the workers working at Tea Refinery and Tea Factories and Sardar, Naike and Gatekeeper working in the Tea Estate	Rs 30 per day	Such allowances are not applicable to workers who are paid monthly salary.

B. Other Enterprise Minimum Wage:

1. Minimum Wage

S.N	Nature of Payment	Minimum Monthly Salary/Wage	Dearness Allowances per Month	Total
1	Monthly Salary	Rs. 6,205/-	Rs. 3,495/-	Rs. 9,700/-
2	Daily Wages	Rs. 395/-	–	Rs. 395/-

2.Effective Date

The Other Enterprise Minimum Wage is effective from the date of publication of the Gazette Notice (February 01, 2016).

Section 9C of the Foreign Exchange (Regulation) Act, 1962 (the “FERA”) specifically requires a person / entity residing in Nepal to comply with the provisions specified by Nepal Rastra Bank (the “Central Bank”) for any indirect or direct: (i) payment to a person residing outside Nepal, (ii) creation of any payment obligation to a person residing outside Nepal, or (iii) payment to any person on the instruction or on behalf of a person residing outside Nepal.

By way of a background, for payments made outside Nepal, the Central Bank has generally been authorizing Class “A” and Class “B” licensed banks and financial institutions to approve repatriation of such payments upon the submission of certain documents; this limit was increased to USD 10,000 from USD 6,000 vide Circular No. 578 dated August 08, 2012[1]. Such facilities are generally applicable to all payments made outside Nepal (including payment of royalties, services fees, etc.) but cannot be used to make capital account transactions (such as payments for acquisition of shares of a foreign entity).

For repatriation of an amount above USD 10,000, there was uncertainty as to whether prior approval of the Central Bank was required to be obtained for entering into any agreement, pursuant to which repatriation of more than USD 10,000 would have to be made. The general practice though was to obtain approval of the Central Bank at the time of repatriation of payments, and not at the time of entering into the agreement pursuant to which such payments are made. It may be relevant to note that pursuant to Circular No. 620 dated August 04, 2014[2], such limit for payment of service fees for- (A) lease / right to use of satellite service by telecom operators from foreign service providers and, (B) maintenance service from foreign service providers by airline operators, was capped at USD 100,000.

Revised Norms for Reparation of Payments for Services

The Central Bank came out with Circular 645 dated August 22, 2015 (the “Circular”[3]) pursuant to which the Central Bank has sought to clarify the norms for repatriation of payments for services obtained by Nepalese resident entity / person from foreign service providers. The Circular sets out the different procedure required to be followed for the repatriation of service fees based on certain monetary threshold applicable to the transaction. The procedure set out in the Circular is provided in the table below:

S.N	Monetary Threshold	Authorizing Entity	Documents to be Submitted
1	Up to USD 10,000	Class “A” and “B” Banks and Financial Instructions	Documents as required by Class “A” and “B” licensed Banks and Financial Institutions, including relevant invoices, documents evidencing deposit of the withholding of tax (where applicable).
2	USD 10,000 and above (where the relevant regulatory authority can be identified)	Central Bank	In addition to the documents under (1) above: (A) Registration certificate of the remitting entity; (B) Tax clearance certificate; (C) Latest audit report; (D) Agreement with the service provider; (E) Copy of minutes of the meeting of the board of directors (such other corporate decision) of the remitting entity containing (a) details of the services provided by the foreign entity under the service agreement and agreeing to obtain foreign exchange for the payment of the same, and (b) decision to take responsibility in case of misuse of foreign exchange; (F) Documents evidencing fulfillment of the services under the service agreement; (G) Bank statement and documents from the employer / service recipient evidencing payment, where payments have been received from the employer / service recipient[4]; (H) Recommendation of the relevant regulatory authority.
3	USD 10,000 – USD 50,000(where the relevant regulatory authority cannot be identified)	Central bank	All of the documents under (2) above except (H).In case the remitting entity is a company / industry, the Office of the Companies Registrar (“OCR”) or the Department of Industries (“DOI”) will need to inform the Central Bank regarding whether or not it will be able to provide recommendation for the transaction.
4	Above USD 50,000 (where the relevant regulatory authority cannot be identified)	Central Bank (Prior approval required)	All of the documents under (2) above except (F) – (H).

The Circular provides that, where a firm / company / organization has already availed of consultancy or other services form a foreign service provider prior to issuance of the Circular, and such entity has not obtained the recommendation of the relevant regulatory authority (or the relevant regulatory authority cannot be identified), then such entity is required to obtain the approval of the Central Bank for the repatriation of payments for such services, within 6 months from the date of the Circular.

While the purpose of the Circular appears to be to provide clarity to Nepalese companies for repatriation of service fees to foreign / multinational service providers, there are number of issues it raises. The same have been outlined below:

In case of repatriation of amount in excess of USD 10,000, would the recommendation of the relevant regulatory authority be required prior to entering into the service agreement, or at the time of repatriation of the payments under such service agreement?

The Circular clearly provides that prior approval of the Central Bank will be required for entering into service agreement pursuant to which service fees of more than USD 50,000 is proposed to be paid to the foreign service provider, in the event the relevant regulatory authority cannot be identified. Further, the Circular appears to also suggest that the requirement to obtain information from the DOI / OCR (on whether or not they can provide recommendation), where the service fees for the services is more than USD 10,000 but less than USD 50,000, and the relevant regulatory authority cannot be identified, is also not a prior requirement and is only applicable at the time of repatriation of the service fees.

However, where the service fees to be paid under a service contract is above USD 10,000 and where the relevant regulatory authority can be identified, it is not clear whether the recommendation from the relevant regulatory authority is required to be obtained prior to the entering of the service contract, or only at the time of repatriation of payments. What adds to the confusion is the fact that the Circular states that the recommendation of the relevant regulatory authority will be required in the event “a firm / company / organization registered in Nepal is required to (i) enter into an agreement with a foreign service provider pursuant to which an obligation to make payment of more than USD 10,000 arises, or (ii) is required to make payment of such amount to a foreign service provider”.

In case of the relevant regulatory authority cannot be identified, whether the OCR / DOI will provide information on whether or not it can provide its recommendation?

While in case of certain entities it may be apparent as to who the relevant regulatory authority is (for instance in case of hydropower company, the relevant regulatory authority is Department of Electricity Development with the specific authority to provide recommendation as contemplated by the Circular), in case of other entities (IT companies, as an example), it may not be possible to identify the relevant regulatory authority. In such cases, the Circular requires the OCR or the DOI to provide information to the Central Bank on whether or not they can provide recommendation which is not very practical as they do not have the authority to provide such recommendation. In absence of such authority, it may be challenging to even obtain a written statement of their inability to provide such recommendation.

What constitutes documents evidencing fulfillment of the services under the service agreement?

As discussed in the table above, the Nepalese service recipient company is required to submit documents evidencing fulfillment of services under the service agreement to the authorized banks and financial institution for the repatriation of service fees. It is however not clear what would constitute fulfillment of services under the service agreement. Whether a written statement of the service recipient would suffice, or the actual documents submitted by the service provider in connection with rendering of the services (such as project report, etc.) which may contain confidential or commercially sensitive information, would also have to be submitted. Further, since the requirement is to submit documents evidencing fulfillment of services, it is not clear how payment of advance or payment in installments over the course of the term of the service agreement, would be dealt with.

[1] http://www.nrb.org.np/fxm/circulars/List_of_Circular–578.pdf

[2] http://www.nrb.org.np/fxm/circulars/List_of_Circular–620.pdf

[3] http://www.nrb.org.np/fxm/circulars/List_of_Circular–645.pdf

[4] This requirement under the Circular is not clear.

Inland Revenue Department (the “Department”) has issued the “Procedure related to Computerized Invoicing 2072 (2015)”(the “Procedures”). The Procedures have become effective from 15 May 2015. Any billing software to be used by the tax payer in Nepal (the “Billing Software”) is subject to-(i) prior-certification from the Department (the “Certification Requirement”), and (ii) specific approval from the concerned Tax Office for the use (the “Use Approval”). While the obligation of the Certification Requirement is on the part of the developer of the Billing Software, obligation to obtain the Use Approvalis on the user of such Billing Software. If such requirements are not satisfied, electronic/computerized invoice will not be valid. August 14, 2015 is the timeline within which the existing user of the Billing Software is required to obtain approval from the concerned Tax Office.

What are the obligations of the developer of the Billing Software?

Following are the key obligations applicable to the developer of the billing software:

Secure the certification of the Billing Software from the Department.The Certification Requirement is a one-time process and does not require any further approval unless some changes are brought in the software.
Obtain approval from the Department for the sale the software.
Provide the information of the purchaser of the Billing Software along with the income statementof every fiscal yearand make such information readily available when asked by the Department and concerned tax offices.

What are the obligations of the user of the Billing Software?

Following are the key obligations applicable to the user of the Billing Software:

Obtainprior approval from the concerned tax office for the use ofthe Billing Software.In case of the approval obtained for the Billing Software prior to the commencement of the Procedures, the Use Approval will need to be re-secured by 14 August, 2015.
Issue electronic/computerized invoice only and not to issue invoice by any other means.

Is any specific approval from the Department required for sale of the certified Billing Software?

Yes. Pursuant to the Procedures, any person who desires to sell the Billing Software is required to submit an application for the approval from the Department (the “Sale Approval”). The information and documents required to be furnished for the Sale Approval are as follows:

General Information of the Seller
Information of the Contact Person of the Seller
Information of the Developer
Information about the Server
Number of Terminals/Computer/Teller
Documents:

Copy of PAN Registration
Copy of Certificate of Incorporation of the Company or Firm
Copy of Certificate of Software Certification

Is there minimum standard prescribed for certification of the Billing Software?

Yes, the Procedures have specified the minimum standards of the Billing Software. The Department will grant the certification only if the Billing Software in question satisfies the following minimum standards:

The Software shall be based in Data Management System (DMS). Such DMS shall allow the processing of Query written in Structured Query Language.
Deletion of data/statistics once coded in the database should not be possible.
Provisions for the automatic recording of the works in Log Archive should be enabled. Log Archive shall be enabled to automatically record the works carried out in the database. Back up for the data encoded/entered in the database should have been provided in a way that such data could be recovered as and when necessary.
Information as to the time, date, effectiveness of the data entered/coded in every log of database and also the identification of the user should be readily available.
The database should be able to enter the invoice number on chronological order and also to generate a report so that the details of the invoices could be viewed or printed in table or materialized view as prescribe.
The software should allow one time printing (not more than one time) of the invoices issued in a period of one financial year on chronological order. In case, for any reason, the invoices need to be reprinted, reprinted documents must contain a visible mark ‘copy of original’. Such duplicate of the invoice should also clearly mention for how many times the original invoices has been printed. For e.g. if there are four ‘copy of original’ the ‘copy of original’ printed for the last time should indicate that the invoice has been printed 5 times.
The format of the invoices shall be the same as provided in Value Added Tax Act, 1996 and Value Added Tax Regulation, 1997.
If an invoices which has been already issued needs to be cancelled for any reason, arrangement for the cancellation by specifying the need could be provided. Software should allow the automatic update of such cancellation in the master book. The software should allow the user to view all the details as to the cancelled invoices and also for printing the same.
The software should allow the viewing and printing of the tax invoices, purchase ledger and sales ledge Front-End Application in a prescribed format.
Every user of the software should be a database user.
The software should allow the view and printing of audit trail report/ activity log of every user as and when necessary.
Deletion of the data entered/coded in the database should be restricted. If corrections need to be made in the data recorded in database such arrangement for the reflection of the correction should be in place.
Software should allow the export and download of the tables, excels, XML in database through Front End Application.
Software should allow the taxpayer to use and maintain the backup of database and log archive and recovery of the backups. The user manual of software should be in printed form and kept also kept in the form of ‘Help’ option in user interface.

What are the procedures to be followed for obtaining certification of the Billing Software?

The Department issues certification for the Billing Software on the basis of the application submitted by the developer of the Billing Software. In case where the software developer is foreign individual/entity, a local agent is required to be appointed to apply and obtain such certification on behalf of the foreign developer. The Billing Software developed prior to the commencement of the Procedures is required to have certification the certification by 14 August, 2015.

Following information and documents are required to be furnished to the Department along with the application:

1.General Information

Name of the Developer
Permanent Account Number (PAN)
Permanent and Temporary Address
Name of the CEO/ Managing Director
Email Address
Telephone Number
Mobile Number

2.Software Information

Application Name
Application Version
Application Brief
Application Front End Technology
Application Back End Technology
Documents Relating to Software

3. User Manual

Technique Used for the Modification of Data
Backup Recovery System
System Architecture Detail
Evidence that the Minimum Standards set in the Procedures are met.

4. Other Necessary Documents

A Copy of PAN Registration
A Copy of Certificate of Incorporation of the Company or Firm
A Copy of the Software in a CD or DVD
Twenty set of Examples of Invoices in XLS (Excel) format

What are the procedures to be followed for obtaining approval for the use of the Billing Software?

The concerned tax office grants approval for the use of the Billing Software on the basis of the application submitted by the user of the Billing Software. Approval for the use of the Billing Software can only be obtained if such Billing Software has received certification from the Department.

Following information and documents are required to be furnished to the concerned tax office along with the application:

Name of the Taxpayer
Permanent Account Number (PAN)
Temporary Address
Phone/Mobile Number; Email
Postal Address
Name and Version of the Software
Certification Number and Date
Information of the Contact Person of the Taxpayer
Information of the Software Developer
Information of the Software Distributor
Information of the Server (Name of the Server, Reason to have a Server and Place of Server)
Terminals/Computer/Number of Teller
A Copy of PAN Registration
A Copy of Certificate of Incorporation of the Company
A Copy of Certificate of Software Certification

What will be the consequences of non-compliance?

Any breach of the requirement under the Procedures may result in following legal sanctions:

Imposition of fine of NPR 1000 (USD 10 approximately) for each instance of non-compliance
Imposition of fine of NPR 500,000 (USD 5000 approximately) for the use of software which permit modification/deletion of the data and details of the issued invoices.

In addition to this, the tax authorities may not recognize the computerized invoices generated from the uncertified software. Non-recognition of the computerized invoices will subject the tax payer to substantial risks; for example, the tax authorities may disallow the claim of VAT credit based on such invoices.

If you require further information on the issues covered in this Briefing, please free to contact us:

Anup Raj Upreti

Managing Partner

anup@pioneerlaw.com

Narayan Chaulagain

Senior Associate

narayan@pioneerlaw.com

Nepal Rastra Bank, Central Bank of Nepal (NRB) has issued a notice in the national daily on November 12, 2014 regarding the valuation methodology of the sale proceeds of a non-listed company (the “NRB Notice”). The NRB Notice is applicable to the repatriation of the sale proceeds by the foreign investor.

NRB Notice provides that the share price of the non-listed company should be determined on the basis of the fair value amount of the assets and liabilities pursuant to the Nepal Financial Reporting Standard 3: Business Considerations.

The notice can be found in http://www.nrb.org.np/fxm/notices/investment_in_nepal.pdf. The notice is in Nepali language.

The Unofficial English translation of the said NRB Notice is as follows:

NEPAL RASTRA BANK

Foreign Exchange Management Department

Baluwatar, Kathmandu

NOTICE

This notice has been published for the information of all the concerned relating to repatriation of the proceeds arising out of sale of shares or investments of the unlisted companies where such investments have been made after receiving approval from the concerned body of the Government of Nepal and this Bank. It is hereby notified for the purpose of Sub-section (1), (2) and (3) of Section 10C of Foreign Exchange (Regulation) Act 1962 (2019) that this Bank will provide foreign exchange facility for the repatriation of such proceeds to the foreign investors as derived from the assets of the organization and based on the financial statements audited and certified by the recognized auditor as follows:

1. In the case of the the companies not listed with Nepal Securities Exchange Ltd., price of the shares based on the fair value amount of the assets and liabilities as per the balance sheet of the company calculated pursuant to the provisions of the Nepal Financial Reporting Standard 3: Business Consideration.

2. In case of a grant received from any government body, international organizations pursuant to the existing laws and if such amount is calculated within the capital reserve, letter issued by the competent authority certifying the completion of assigned tasks.

3. While requesting for the foreign exchange facility, submission of the letter issued by Inland Revenue Department certifying that the capital gain tax and other taxes as applicable under the existing laws have been deposited in addition to such other documents required to be submitted pursuant to the notice concerning the repatriation of the foreign investments issued by this Bank on January 22, 2013 (2069/10/09).

Nepal has taken a step further in the area of making its judicial outreach to cross-broader issues by promulgating the Mutual Legal Assistance Act, 2014 (2070) (“MULA”). The MULA deals with the process and requirements of providing and obtaining legal assistance between Nepal and any other foreign country on certain legal matters. Section 5 of the MULA outlines the scope of legal assistance that the government of Nepal can seek from any foreign country or the foreign country can seek such assistance from the government of Nepal. Pursuant to the Section 5 of the MULA the Nepal government and the foreign country can request to each other inter alia for the legal assistance to (a) examine evidences, (b) serve notice, (c) carry out investigation, (d) attach the title of any property, (e) presenting a person, (f) enforcement of judgment.

Section 3 of MULA imposes bilateral treaty and reciprocity requirement for enforcement of judgment and providing of legal assistance. Section 3 provides a general rule that legal assistance can be provided to a foreign country on the basis of a bilateral treaty or on the basis of reciprocity commitment from the foreign country. Section 3, however, requires bilateral treaty as a condition for enforcement of foreign judgment in Nepal.

Section 4 of the MULA also excludes certain matters from the scope of mutual legal assistance. Pursuant to the Section 4 of the MULA (a) the civil case the total claim amount of which is below Rupees one hundred thousand, (b) the criminal offence the punishment for which is less than one year in terms of imprisonment or Rupees fifty thousand in terms of fine are not subject to the mutual legal assistance.

We are not aware of any treaty or bilateral arrangement entered by Nepal under MULA so far.

1. By using the power conferred by Section 58 of the Labor Act, 2017 (2074), the Ministry of Labor, Employment, and Social Security has published a notice in Nepal Gazette on October 05, 2018 (Asoj 19, 2075) providing the list of works subject to outsourcing.

2. The list of work for which the employees can be availed from outsourcing companies.

S. No.	Category of Services	List of Works
1.	Security Services	Security employees
2.	Facilitating Services	Employees required for management of all types of sanitation and waste management Gardner for management of garden including agricultural employees. Office assistant (for preparing tea and lunch or messenger service), Employees for canteen and catering.
3.	Business Support Services	Driver, conductor, Employees required for loading-unloading, transportation of goods and store management, Employees required for repair and maintenance and technical support and consultancy, Construction employees including plumber, electrician, builder, carpenter.
4.	Domestic Help Services	Domestic employees including house maid, care giver

3. Conditions to be complied with for engaging outsources employees:

3.1. The employer cannot avail employees from Outsourcing Companies for the main work specified while establishing business or the work directly related to the main work.

3.2. The Outsourcing Companies that are currently in operation should obtain license from the Department of Labor and Occupational Safety or related Office of Labor and Employment pursuant to Chapter 11 of Labor Act, 2017 (2074) and Chapter 6 of Labor Rules, 2018 (2075) within Poush 7, 2075 (December 22, 2018).

3.3. While inviting or submitting any proposal or bids or entering into agreement for availing employees through outsourcing agencies pursuant to Public Procurement Act, 2063 the employer cannot enter into an agreement with any organization that has not obtained a license for outsourcing under the Labor Act.

3.4. The following matters should be covered while inviting or submitting any proposal or bids or entering into agreement for availing employees through outsourcing agencies pursuant to Public Procurement Act, 2063: (i) minimum remuneration prescribed by Government of Nepal (ii) Provident Fund (iii) Gratuity (iv) Social Security Schemes or Medical and Accidental Insurance until the Social Security Scheme in place (v) Festival Allowance (vi) Home Leave and Sick Leave (vii) Overtime, Sick Leave, Maternity Leave, Maternity Care Leave, Mourning Leave (viii) Other liabilities as per the prevailing laws.

4. The employer is required to conduct labor audit and submit a report of the same to the Department of Labor and Occupational Safety or related Office of Labor and Employment at the end of the month of Poush every year.

5. Other provisions shall be as provided by Labor Act, 2017 (2074) and Labor Regulations, 2018 (2075) and other prevailing laws.

**DISCLAIMER: This document is prepared for general understanding and should not be taken for any legal purpose without consulting legal professionals. **

The copyright of the document is vested with PLA.

1. The Ministry of Labor, Employment, and Social Security (Ministry) has published a notice in Nepal Gazette on Nov.12, 2018 (2075-07-26) (“Gazette Notice“) under Section 19 of the Social Security Act, 2017 (2074) (Social Security Act).

2. Section 19 of the Social Security Act requires the Ministry to specify the employer operating industries, service, business or transaction of specified nature and sector to be enrolled with the Social Security Fund (“SSF“). The timeline should also be specified in such gazette notice as provided in Section 20 of the Social Security Act.

3. The Gazette Notice however, does not specify the sector or nature of industry, business, service or transaction subject to the enrollment with SSF. It seems that all the employers are required to be registered with the SSF as per the Gazette Notice (However, this will be reconfirmed under the Social Security Regulations, 2018 (2075) which has recently been approved by the Government of Nepal and yet to be made public).

4. The Gazette Notice has simply provided the timeline for the employer to be enrolled with SSF. The timeline varies depending upon the geographical location. Main obligations of employers under the Gazette Notice is (a) to be enrolled with SSF within the timeline specified below, and (b) enlist their employees within 3 months from the date of their enrollment with SSF.

Timeline for Employer to be Enrolled with SSF

S.N	Employers by Region (Location)	Timeline (within 3 months from the given date)
1	Employers and Outsourcing Companies within Kathmandu Valley	Nov 22, 2018 (Mangshir 6, 2075)
2	Employers of Province Number 3 (except Kathmandu Valley)	Dec 1, 2018 (Mangshir 15, 2075)
3	Employers of Province Number 1	Dec 16, 2018 (Poush 1, 2075)
4	Employers of Gandaki Province and Province Number 5	Dec 30, 2018 (Poush 15, 2075)
5	Employers of Karnali and Far western Province	Jan 29, 2019 (Magh 15, 2075)

5. SSF provides online system for submission of application for the enrollment.

**DISCLAIMER: This document is prepared for general understanding and should not be taken for any legal purpose without consulting legal professionals. ** The copyright of the document is vested with PLA.

The revised Minimum remuneration/wages of the employees prescribed by the Government is as below:

The Government of Nepal, Ministry of Labor, Employment and Social Security has revised the minimum remuneration/wages of the employees other than those working in the tea estate under Section 106 Sub Section 3 of the Labor Act, 2017 (2074) by publishing a Nepal Gazette on May 03, 2021 (2078-01-20)

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