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The Office of the Company Registrar (OCR) has announced the establishment of a separate desk for providing registration services to companies with foreign investment. According to a notice published on 7^th March 2023 (2079/11/23 B.S.), the OCR aims to expedite the Foreign Direct Investment (FDI) process and bring positive reforms in foreign investment by offering consistent and prompt registration services to such companies. The OCR has outlined specific procedures that must be followed by companies with foreign investment, branch office and contact office of the foreign company to acquire the mentioned services. This service has been introduced by the OCR to expedite the subsequent process that follows the completion of the procedures outlined in the Foreign Investment and Technology Transfer Act, 2019 (2075) and Public Private Partnership and Investment Act, 2019 (2075).

The respective company must provide company details by selecting the FDI company (including branch or contact office) option in the menu according to the company’s online portal of OCR. A service has also been included where the desk shall create a separate list of applications and promptly work on the given list and notify.

The desk located on the first floor of OCR will also aid with the initial registration procedure of branch and contact/liaison office of the foreign company. However, Post-Registration Services will be provided in accordance with OCR’s standard procedure.

To expedite the registration process, the desk will approve the proposed requested name of the company by adopting the short route. Once the company submits its Memorandum of Association and Articles of Association, the desk will act as a facilitator in the registration process. Moreover, the OCR has stated that it will complete the company’s registration procedure with foreign investment, branch, and contact/liaison office within 10 working days.

This initiative has been launched to facilitate the FDI procedure. The OCR hopes that this new desk will provide a positive impact on the foreign investment sector in Nepal.

Link : 1678186664_270762843_document.pdf (ocr.gov.np)

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.

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

The foreign exchange facility of foreign expatriates working in Nepal (“Expatriates“) with various companies and organizations to repatriate their income is currently regulated by Directive No. 07/078 (“Repatriation Directive“) of Unified FOREX Directive, 2078. The Repatriation Directive has authorized the Commercial Banks, Development Banks of national level and money changer (“Banks and Money Changer”) for providing such exchange facilities subject to the conditions set out in the Repatriation Directive.

2.      The Banks and Money Changer can directly provide the exchange facility to Expatriates to repatriate their salary and benefits. The Expatriates can repatriate up to 75 % of their salary and benefits after tax to their own country. They can repatriate the entire amount of provident fund or retirement fund after tax. However, if the Expatriates wants to repatriate the amount borrowed from such funds during the term of his/her employment, then s/he can repatriate up to 75% of such amount borrowed.

3.       In accordance with the Repatriation Directive the Expatriates are allowed to repatriate up to USD 6,000 per month or USD 72,000 in a year. The restriction on amount does not apply to the Indian nationals. Specific approval of NRB is required for the Expatriates to repatriate the additional amount exceeding such ceiling.  

4.      The Repatriation Directive specifies the documents required for such exchange facilities. The document requirement list varies for Indian nationals and other foreign foreign nationals. The foreign nationals other than Indian nationals are required to submit: (a) application of the concerned employee, (b) recommendation letter of the employer firm or organization, (c) work permit issued by the Department of Labor, (d) contract/appointment letter and identity card of an employee, (e) receipt of payment of employment tax, (f) evidence regarding validity period of the visa.

5.      The Indian nationals can repatriate their income on the submission of the following documents (a) application from the Expatriates, (b) recommendation from the employer, (c) employment letter/contract/identity, and (d) receipt of the payment of employment tax.

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

The Government of Nepal (“GON”) has published gazette notification dated 4^th August 2022 (2079/4/19 B.S.) pursuant to Section 64 of the Industrial Enterprises Act (2020) (“IEA”) to ease the current difficulties on the industry operation timeline extension.

The notice provides that any industry which fails to apply for the extension of; (i) industry operation timeline, or (ii) commencement of commercial operation/transaction timeline, to make an application at the concerned industry registration body by depositing prescribed delay fees. Upon receiving an application for such extension, the industry registration body can provide extension of an industry operation timeline or commercial operation/transaction period based on the work progress as well as nature of industry.

The link of the Nepal Gazette has been given as follows:

http://rajpatra.dop.gov.np/welcome/book/?ref=25046

The notice has been published by Department of Industry (“DOI”) dated 2079/03/14 (28^th June 2022) for providing online services through the implementation of the Industry Management Information System (“IMIS”) commencing from 2079/03/15 (29^th June 2022). The notice provides that the DOI will provide online services relating to (a) Industry Registration, (b) Foreign Investment Approval, (c) Grant on Exports, (d) Visa Approval, (e) Recommendation for Repatriation, (f) Recommendation on Business Visa/ Work Visa and all other services of DOI.

In addition to that for the use of software the notice referred to the User Manual published on the website www.doind.gov.np. The notice provided following contact details of Help Desk for additional assistance; 01-5361112, 01-5359855.

The Office of Company Register (“OCR”) has published the notice on waiver of fines on renewal of private firm and update of company in reference to the decision made on 2079/02/25 pursuant to Section 24 of Fiscal Act, 2079. The major highlight of the notice is that any firm which has not renewed and any company which fails to submit its annual compliance related documents up to financial year 2076/077 can renew a firm and update a company by paying 5% out of the total occurred fine.

The final deadline to submit the documents for renewal of the firm and company update is end of Poush, 2079 (14^th January 2022). By the issuance of the notice, now the OCR can formally implement a waiver provision introduce by Section 24 of the Finance Act, 2022. Also, this notice waives 95% of the total fine due to historical non compliances of any private firm and a company.

“The Finance Act 2022 provides exemption on renewal fees of the private firm registered as per private Firm Registration Act 2014 and of a company registered as per Companies Act 2063. As per the Finance Act any firm which has not renewed up to financial year 2076/77 and any company which has not submitted its annual compliance related documents up to financial year 2076/77 are exempted from the payment of 95% fines of delay renewal of the firm or delay submission of the annual compliance related documents. This provision allows any firm to be renewed and any company to be updated by only paying 5% of total incurred fine. The deadline for the renewal of the firm and submission of annual compliance related documents will be end of Poush 2079 i.e. 14^th of January 2023″

The notice has been published by the Department of Industry (“DOI”), Ministry of Industries, Commerce and Supplies (“MOICS”) dated 2079/2/31 (14^th of June, 2022) regarding extension of commercial operation of industries in reference to 235^th meeting of Industrial and Investment Promotion Board (“IIPB”) held on 2079/2/23 (6^th of June 2022). The notice provides 6 months timeline from the date of issuance of the notice i.e. within 2079/8/30 (15^th of December, 2022) to file an application for industry operation extension at the DOI. As per the notice an application for extension of commercial operation of industries can be made by making payment of delay fees based on the nature and types of industries as provided below,

Micro Industries: NPR 5,000/- per year.
Cottage and Small Industries: NPR 15,000/- per year
Medium Industries: NPR 50,000/- per year
Bid Industries : NPR 100,000/- per year.

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).

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