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On 28 January 2025, the Ministry of Communication and Information Technology registered the ‘Bill related to Operation, Use, and Regulation of Social Media in Nepal, 2025’ (the “Bill”) at the Upper House of the Federal Parliament (National Assembly). The Bill aims to regulate the use of social platforms and impose accountability primarily on individual users and the platform operators.

As per the Ministry’s Concept Paper, the Bill is an outcome of the necessity to regulate social media platforms for their dignified, safe, and orderly use. It cites that the constitutional basis of the Bill lies in safeguarding the right to communication and digital privacy while safeguarding freedom of speech. While the ‘Directive on the Use of Social Networks 2023’ is already in force, the Paper underscores the policy issues in the Bill and argues for changes in the Bill for a more balanced and comprehensive regulatory framework.

The Bill contains provisions on licensing of the social network platforms, content takedown mandates and criminal liability for non-compliance, among others. However, it lacks important aspects of social media regulation such as, child safety provisions (age verification/age rating of content), platform security standards, data privacy/cybersecurity requirements, reporting obligations in case of cybercrime/data-breach. While the Government advocates that the Bill is essential for online safety of the public, the Bill in its existing form, leans more towards excessive content regulation and government control.

In this analysis, we have identified key issues in the Bill that require revision to achieve effective social media regulation which retains our fundamental right to speech at its heart and balances the public interest of a dignified society.

DEFINITIONS

Definition of Social Network Platforms

Section 2(d) of the Bill defines “social network platforms” as app, website, blog, AI tools, or publicly available platform of similar nature created in cyberspace though the medium of electronic technology that allows internet users to exchange ideas and information or to engage in social interaction between individual-individual, individual and groups or institutions, and groups or institutions.

Precise clarification of the scope of this definition is essential, not only for electronic platforms to understand if they need to comply, but more importantly, for the Government to ensure effective implementation and enforcement of the Bill. In its current form, the definition suggests that online presence of a national daily will fall under this definition if it permits comments and interaction among readers which currently is the case for most of the national dailies. However, this is already regulated under the Print and Publication Act, 2048 and Online Media Operation Directives, 2073. E-commerce platforms, which are ordinarily not regarded as forum for exchange of ideas, but the possibility for user interaction via commenting/posting product reviews could bring them under this definition. Likewise, social media platforms as a catch-all category may also cover over-the-top (OTT) services—which are already regulated by the National Broadcasting Act, 2049 and the National Broadcasting Rules, 2052.This overlap raises concerns about multiple regulations and registration requirements.

International institutions listed below provide effective guidelines for defining social media platforms:

The UNESCO Guidelines for the Governance of Digital Platforms, 2023 provides that when defining digital platforms that should be in the scope of statutory regulation, the regulatory authorities should identify those platforms that have relevant presence, size, and market share in the jurisdiction, and functionality and features. This is reiterated in the UNESCO Guidelines for Regulating Digital Platforms, 2023 which recommends that the regulatory system should define which digital platform services are in scope, and identify the platforms by their size, reach, services they provide, features, and if they are centrally managed or distributed platforms.
As per the ADB Sustainable Development Working Paper Series on Enhancing Policy and Regulatory Approaches to Strengthen Digital, Platform, and Data Economies, 2023 an approach which describes the key characteristics of digital platforms rather than setting out concise definitions is a good practice to adopt, especially when digital platforms are becoming complex, multipurpose systems. This approach reduces the risk of ignoring the interconnected, cross-cutting and evolving nature of digital platforms, and potentially outdating the definition from the outset [for e.g., a hybrid platform that combines elements of social media, e-commerce, and online gaming.] Regulators will have to scramble to update the regulation to include this new type of platform, potentially leaving it unregulated in the meantime.

The current approach to content regulation may have unintended gaps. For a speech to constitute hate speech under the Bill, it must: (a) meet the criteria for hate speech, and (b) be made on a “Social Network Platform”. This approach leaves room for individuals to circumvent regulations by creating independent websites that are not classified as social network platforms.

A more effective and practical approach could be to segregate content regulation from the regulation/registration of a Social Network Platform. It is important to distinguish between: (a) registration requirements, and (b) content regulation. For instance, hate speech is a criminal offense regardless of whether the platform involved is subject to a registration requirement. The current draft, by linking these elements too closely, may unintentionally restrict or create regulatory loopholes. A more modern approach is needed to ensure comprehensive and enforceable content regulation. This approach will provide a more flexible regulatory tool by allowing registration requirement linked with the number of subscribers. Other content related crime can still be a crime irrespective of nature of electronic form it has been expressed.

Recommendations

The definition should clarify which social media platform services are in scope, identify the platforms by their size, reach, features, and the services they provide. Further, the Bill needs to distinguish between (a) registration requirements and (b) content regulation to ensure that the registration requirement shall trigger to a specific size or feature platforms however, the content regulation shall be applicable to all the platforms irrespective of its registration. Similar approach has been adopted by the EU in the Digital Services Act which defines large online platforms based on active user.
The inclusion of “AI tools” within the definition of “Platform” is broad and covers all AI platforms beyond the scope of this Bill. Instead, regulation of “AI tools used by the social network platforms” would be more relevant. This inclusion of “AI tools” within the definition will trigger compliance requirements under the Bill for all AI services which do not characteristically operate as social network platforms. Further, it will be vacant just to add AI tools within the definition of Platform and mandate its registration without considering any other provisions for its regulation . Considering the definition, all AI tools shall be subject to such definition irrespective of its nature. It is also to be considered that jurisdictions like EU has developed separate AI laws to regulate AI. Therefore, considering AI within the Bill is not a good approach given its different nature.
The scope of this definition seems to cover any and all kinds of digital intermediaries or content such as online games, or news and journalistic content, news aggregation etc. To address this, the Bill may clarify what kind of intermediaries will/will not be treated as Social Network Platforms. This clarification is important for online businesses that allow registered users to comment or be part of community forums, as well as for service providers who facilitate interaction amongst registered users as one facet of a diverse service offering.
The similar approach was considered in the EU Digital Service Act, where the Act does not automatically categorize all interactive online services as social networks rather it distinguishes between different types of online services based on their primary function. For instance, comments section in an online newspaper is considered ancillary to its main service (publishing news under the editorial responsibility of the publisher) and is therefore not classified as an online platform. In contrast, a social network that stores and disseminates user comments is classified as an online platform service, as user interaction is a core feature rather than a minor aspect of the service. Similarly, cloud computing and web-hosting services are not considered online platforms if public dissemination of information is only a minor or secondary function.

Definition of Hate Speech

The definition of “hate speech” under Section 16(1)(a) of the Bill encompasses activities related to posting, sharing, commenting, live streaming, reposting, tagging, hash-tagging, or mentioning any content or doing any other activity of similar nature on a social network to incite violence or hatred against an individual, group, or community, or disrupt social harmony. The Bill imposes a fine of up to NPR 5,00,000 for making hate speech.

The following list contains international principles and jurisprudences that should be reflected in the domestic laws on incitement to hatred:

The Johannesburg Principles of National Security, Freedom of Expression and Access to Information recognizes criticism of (i) government policy or the government itself, (ii) the nation, or its symbol, public officials etc. as protected expressions, and it should not be subject to punishment unless the criticism or insult was intended and likely to incite imminent violence.
The Rabat Plan of Action outlines a six-part threshold (“Rabat Test”) for defining hate speech that incites to discrimination, hostility or violence. This includes the assessment of context, speaker’s position/status in the society, intent, content and form (e.g., provocative and direct), extent of the speech act (public, magnitude and size of audience), reasonable probability of incitement.
Likewise, state should ensure that the three-part test under the ICCPR – legality, proportionality and necessity – for restrictions to freedom of expression also applies to cases of incitement to hatred.
The approach recommended by UN Strategy and Plan of Action on Hate Speech may further be adopted to make a distinction on the expression to ensure only rigorous criminal expression (like hate speech inciting violence) are criminally punished and civil suit or administrative penalties are levied for speech that may not be criminal but are socially inappropriate (for example -harming a person’s reputation, misleading advertisements).
The Camden Principles on Freedom of Expression and Equality requires that restrictions on free speech in the law (relating to hate speech) are clearly and narrowly defined and respond to a pressing social need; are the least intrusive measure available; are not overly broad, so that they do not restrict speech in a wide or untargeted way; and are proportionate so that the benefit to the protected interest outweighs the harm to freedom of expression, including with respect to the sanctions they authorize.
In the landmark judgement of Shreya Singhal vs Union of India (2015), the Indian Supreme Court has interpreted that mere discussion or even advocacy of a particular cause howsoever unpopular is at the heart of freedom of expression. It is only when such discussion or advocacy reaches the level of incitement that law may be made curtailing the speech or expression that leads or causes public disorder.

Including activities such as “posting, sharing, commenting, live streaming, reposting” as hate speech could criminalize a wide range of online interactions even those that may not directly intended to incite violence or hatred. For instance, as per the Bill, the simple act of tagging or mentioning someone in a discussion deemed controversial, even without endorsing the content, could be interpreted as hate speech. This not only creates a chilling effect on free speech but risks imposing sanctions against legitimate speech including journalistic reporting or satire.

International principles recommend formulation of a narrow definition of hate speech, as broad definitions leave room for arbitrary application of the law. The definition under the Bill is excessively broad and the provision does not factor in any kind of threshold applicable for a speech to constitute as hate speech. This will create unpredictability in the enforcement of the law and can lead to abuse, as regulatory authorities may have significant discretion in deciding what constitutes hate speech. The Bill gives exclusive power to the governmental authority to punish any individual who unknowingly share or engage with content deemed as hate speech.

It is also to be noted that the act of inciting violence or hatred against an individual, group, or community, or disrupt social harmony has already been captured in existing laws of Nepal (Section 47 of the Electronic Transaction Act (2008), Section 49, 65 of the National Penal Code 2017) which impose imprisonment and/or fine for violation of the same. Overlapping provisions on the same offence may lead to legal uncertainty and inconsistent application of the law.

Further reference can be made to Section 66A of the Information Technology Act 2000 of India (one of the references undertaken by Nepalese Government to draft the Bill) which was considered unconstitutional due to its vague and open-ended definition which made it arbitrary. Despite being declared unconstitutional, there has not been any amendments made to Section 66A however, the takeaway from the decision is that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public (A test also laid down in the case of Chintaman Rao vs. State of Madhya Pradesh).

Recommendations

The “posting, sharing, commenting, live streaming, reposting, tagging, hash-tagging, or mentioning any content or doing any other activity of similar nature” aspect of the definition should be removed to mitigate legislative ambiguity and arbitrary enforcement.
It’s important to note that hate speech can only be directed at individuals or groups of individuals. It does not include criticism of government policy or the government itself.
The definition should be narrowed to maintain alignment with international law. Further, the mere act of sharing/commenting/mentioning or doing any other activity of similar nature on a social network without the intent to incite violence should not be an offences especially in a country like Nepal, that has a low digital literacy rate (31%) with a lot of users who often engage with content without fully understanding its implications.
The Bill should not rely on government authority’s decision to impose sanctions on a person for making hate speech and should ensure the right to a fair and public hearing by a competent, independent and impartial tribunal or a judicial body. The right of correction and right of reply should be ensured during the enforcement of the provision.
While legislating it should also be kept in mind that criminal proceedings have been initiated and fine has been imposed on a “stand-up comedian” for making jokes, which is unlikely to be considered so in other jurisdictions that adhere to freedom of expression. It adds another responsibility on our lawmakers to ensure that there is no risk of misuse and provide for clear guidance and strict standards on which hate speech will be evaluated.
In addition to the above, government should build the capacity to train and sensitize security forces, law enforcement agents and those involved in the administration of justice on issues concerning the prohibition of incitement to hatred.

Likewise, Misuse of Social Network under the Bill includes any act of posting, sharing, commenting, live streaming, reposting, tagging, using hashtags, mentioning, or any other similar activity on social media that is against this Act or prevailing laws. The definition of “misuse of social network” should be removed as this becomes redundant when the Bill already provides the list of restricted activities and applicable punishment/remedy mechanisms. The Bill also should focus on preventing harm through clear content moderation rules, risk assessment and enforcement mechanisms rather arbitrarily restricting lawful online behavior.

CONTENT TAKEDOWN

Section 13 of the Bill allows the Department to order the removal of unlawful content from social media platforms. The Bill provides power to the Department to issue necessary orders to the concerned licensed institutions or the point of contacts based in Nepal, to remove the content temporarily or permanently or in partial or fully. The Department on its own or upon examining the complaints received on the content being against the Bill or prevailing laws of Nepal, can issue such orders. The concerned institutions or point of contact must immediately remove such content upon receiving of such order. If the platform fails to comply, it faces a fine of five lakhs to fifteen lakhs rupees and may need to compensate the victim. A rapid response team, under Section 36, can also take immediate action to remove or block access to content to protect the victim’s rights. The Bill further provides for the requirement to provide user details to investigate crime as per the Bill to the concerned authorities, when requested.

Content takedown has been a debatable issue as it has a direct link with the freedom of speech and restrictions of such needs to follow due process. Due process refers to fair, transparent, and just legal procedures that ensure individuals or entities are not deprived of their rights arbitrarily. In the context of content takedown, it means that any removal of speech should adhere to legal standards, provide opportunities for appeal, and be subject to judicial or independent oversight. The similar principle of due process has been provided by various international documents, i.e.:

The Johannesburg Principles of National Security, Freedom of Expression and Access to Information provides that there should be full and effective judicial scrutiny of the validity of the restriction on expression by an independent court or tribunal.
Manila Principles on Intermediary Liability provides that Content must not be required to be restricted without an order by judicial authority and further provides that such request for restriction of content must be clear, be unambiguous, and follow the due process.
Under international human rights standards, legitimate restrictions on freedom of expression should conform to the strict threshold of the Three-Part Test under Article 19(3) of the ICCPR.Under the test, decision about legality of a specific piece of content should follow due process and be open to review by a judicial body, following the three-part test on legitimate restrictions to freedom of expression wherein the restriction should have: (i) a basis in law, (ii) have a legitimate aim, and (iii) be necessary and proportional.
The Digital Service Act issued by the European Union has adopted the transparency principle on social media, which requires social media platforms to be transparent in content moderation. The act requires platforms to have mandatory procedures in place for removing illegal content, inform user when account gets restricted and further should provide right to appeal such decisions.

The Bill does not meet the standard of (a) judicial review and (b) takedowns request should be necessary and proportional. The Bill lacks a judicial review mechanism and grants authority to the Department to issue takedown notice of any such content which they deem unlawful. Neither the Bill provides for the appeal mechanism to the social media platforms nor to the user to challenge decision of the Department. Section 13 of the Bill provides power to the Department to issue necessary orders to the concerned licensed institutions or the point of contacts based in Nepal, to remove the content temporarily or permanently or in partial or fully. The Department on its own or upon examining the complaints received on the content being against the Bill or prevailing laws of Nepal, can issue such orders. To vest all power within the executive is against the notion of separation of power. Determining any content as unlawful need to undergo rational test as also advocated by ICCPR, which hence is required to be accessed by the judicial review.

The Bill also lacks provisions in relation to transparency and accountability of the government and social media platforms. As provided by the Manila Principles on Intermediary Liability, any notice for take down of the content must be clear and unambiguous, the content takedown request to be issued by the Department must amongst others, disclose (i) the legal basis on which the take down request was issued, (ii) the law which was violated (iii) timeline for removal of content and right to appeal such notice etc. Furthermore, it is highly recommended that the Bill incorporate principles similar to those in the EU’s Digital Services Act, which mandate transparency in content moderation. These include mandatory procedures for removing illegal content, notifying users when their accounts are restricted, and providing them with the right to appeal such decisions.

Due to lack of due process, it is likely that there may be arbitrary power grantedto the government leading to controversies. Therefore, complying with the international principles, the due process and transparency must be abided to ensure legitimate restrictions to freedom of expression.

Recommendations

The Bill should focus on the systems and processes used by platforms, rather than allowing discretion to the Department to judge the appropriateness or legality of unitary pieces of content. The Bill should also mandate the platforms to develop risk mitigation mechanisms to prevent the spread of illegal content. Like Digital Service Act, requires platforms to conduct system risk assessments to detect and reduce potential harm through moderation tools, user report systems and transparency requirement.
The decision on limitations or take down of specific types of content should be allowed to be reviewed by an independent judicial system/court, following a due process of law and in compliance with the three-part test. This test should be specifically provided in the law.
The Bill should require platforms to be transparent in their content moderation including but not limited to requiring platforms to disclose their moderation policies and its implemented, notify user for their content being restricted, right to appeal for such decision amongst others.
The Bill should explicitly require the authority to conduct a thorough internal assessment before issuing a takedown notice, ensuring:
(a) Legality and Justification – Aligning with the Manila Principles on Intermediary Liability to confirm that the content violates applicable laws.
(b) Impact on Freedom of Expression – Assessing proportionality in line with the UN Special Rapporteur on Freedom of Expression to prevent undue restrictions.
(c) Transparency and Accountability – Following the EU Digital Services Act by notifying users and providing appeal mechanisms.
(d) Necessity and Proportionality – Ensuring compliance with Article 19 of the ICCPR, requiring restrictions to be lawful, necessary, and proportionate.

LICENSING

Traditionally, business registration requirements are based on where businesses physically operate, i.e., where goods are sold or where services are provided. With the digital economy, for digital platforms and service providers, registration models are shifting instead to where consumers reside. This requirement is costly and burdensome for service providers, which is made even harder by complex business registration processes. The difficulty increases as digital platforms and service providers span multiple sectors.

The Bill mandates obtaining license by the social media platforms for providing its services in Nepal and further requires that such license be renewed every two years, with the government holding exclusive authority over the process. The Bill further grants the Department the exclusive authority to decline license renewal at its discretion. An appeal against such a decision may be made to the Ministry, whose decision shall be final. This concentration of power grants the government substantial control over social media regulation, without checks and balances, as the licensing system is managed solely by the government rather than an independent regulator. The Bill also fails to provide for any pre-defined and limited ground for de-registration. Licensing in itself brings any institutions within the larger control of the government and further providing renewal requirement without predefined ground allow arbitrary power to the government to reject renewal of the platforms. Further, no judicial oversight/review mechanism to such arbitrary power is a bigger threat to social media and freedom of expression.

It is essential for the government to clearly justify the rationale behind requiring social media platforms to obtain a license to operate in Nepal. Nepal has already implemented a digital service tax for foreign service providers earning revenue from Nepali users, ensuring compliance with tax obligations. If the government’s objective is to hold social media companies accountable and improve access, this can be done without a strict licensing requirement. Instead, platforms could be required to appoint points of contact or legal representatives who are easily accessible through digital means, even if not based in Nepal.

Another significant issue with the Bill is the requirement for all foreign social media platforms used in Nepal to obtain a license and establish a point of contact, even if they have just one user in Nepal. This provision seems impractical, imposing strict obligations on platforms regardless of their size or engagement.

To provide with some of reference on how licenses requirement is dealt internationally:

The EU Digital Service Act does not mandate a licensing requirement for providers that do not have an establishment in the EU but offer services, but requires they have a point of contact, and where necessary a legal representative, allowing for communication with member states authorities.
Singapore can be seen as one of the examples of jurisdictions where the has no requirements for registration of foreign service providers, applications, pre-approvals, or local presence. It has developed a Content Code for OTT, video on demand, and niche services for content providers to comply with and reserves the right of authority to reach out to providers regarding the code.
A similar licensing requirement recently adopted by Malaysia has been criticized for providing government with largely unrestricted power to control the operation and use of nearly all media in Malaysia.

Recommendations

Remove the additional licensing requirement only for the purpose of content regulation (for example to collect tax on the revenue earned from Nepal, the social media platforms having certain revenue threshold are already required to get registered as per Digital Service Tax). A dedicated point of contact readily accessible to regulators at all times shall fulfill the intent of the government and further will not create additional burden to the foreign social media.
As provided by the UNESCO Guideline the definition should clarify which social media platform services are in scope, identify the platforms by their size, reach, features, and the services they provide. Further, the Bill needs to distinguish between (a) registration requirements and (b) content regulation to ensure that the registration requirement shall trigger to a specific size or feature platforms however, the content regulation shall be applicable to all the platforms irrespective of its registration. Similar approach has been adopted by the EU in the Digital Services Act which defines large online platforms based on active user.

ESTABLISHING POINT OF CONTACT

The Bill mandates establishing a point of contact within Nepal by foreign social media platforms having its user in Nepal. The Bill provides flexibility that such point of contact can be any entity or organization established in Nepal and the foreign social media platforms need not necessarily establish their separate contact office in Nepal. However, it is Prima facia in this global age that local presence requirements should not be necessary for legitimate market participation. Such a requirement increases business costs and regulatory hurdles, and disincentivizes investment by digital platforms.

Regulators can retain oversight and authority without requiring businesses to establish permanent presence in the country. This should be done by creating clear and open communication channels with the service providers. The providers should appoint point(s) of contact or legal representative(s) who need not be based in-country, but with the aid of technological advancements, are immediately available if the need arises.

Singapore can be seen as one of the examples where there is requirement for registration of foreign service providers, applications, pre-approvals, or local presence. It has developed a Content Code for OTT, video on demand, and niche services for content providers to comply with and reserves the right of authority to reach out to providers regarding the code.

Recommendation

Flexibility to appoint point(s) of contact or legal representative(s) who need not be based in-country, but with the aid of technological advancements, are immediately available if the need arises. Over time, clear and transparent communication will build trust between service providers and regulators

OFFENCES RELATED TO THE USE OF SOCIAL MEDIA

It is to be understood that social media is merely a platform for humans. Harmful acts on social media can be seen in two ways: as entirely new offences or as existing crimes committed in a digital space. Usually, it’s the latter case where the acts are already prohibited by the existing laws but committed in new forum (in this social media). The issue lies in the behaviour, not the platform. Crimes like harassment, defamation, incitement, threatening are all crimes and have been for a long time.

S.N.	Crime	Punishment as per existing laws
S.N.	Crime	Laws	Punishment
1.	Prohibition of undermining sovereignty, integrity or national unity	Section 49 (4) of National Penal Code 2017	Imprisonment- Up to 5 years and, Fines- up to NPR 50,000
2.	Prohibition of Committing Libel	Section 306 of National Penal Code 2017	Imprisonment- Up to 2 years or, Fines- up to NPR 20,000 or, Both
2.	Prohibition of Committing Libel	Section 47 of Electronic Transaction Act 2008	Imprisonment- Up to 5 years or, Fines- up to NPR 1,00,000 or, Both
3.	Prohibition of breaching privacy through electronic means	Section 298 of National Penal Code 2017	Imprisonment- Up to 2 years or, Fines- up to NPR 20,000 or, Both
		Section 45 of Electronic Transaction Act 2008	Imprisonment- Up to 3 years or, Fines- up to NPR 2,00,000 or, Both
		Section 29 (1) (o) of The Individual Privacy Act 2018	Imprisonment- Up to 3 years or, Fines- up to NPR 30,000 or, Both
4.	Prohibition of Extortion	Section 253 of National Penal Code 2017	Imprisonment- 3 to 7 years or, Fines- up to NPR 70,000 or, Both
5.	Prohibition of producing or selling obscene materials	Section 121 of National Penal Code 2017	Imprisonment- Up to 1 year or, Fines- up to NPR 10,000 or, Both
5.	Prohibition of producing or selling obscene materials	Section 47 of Electronic Transaction Act 2008	Imprisonment- Up to 5 years or, Fines- up to NPR 1,00,000 or, Both
6.	Writing letters with dishonest intention of causing annoyance	Section 300 of National Penal Code 2017	Imprisonment- Up to 1 year or, Fines- up to NPR 10,000 or, Both

The table illustrates that existing laws already cover the crimes further penalized by the Bill. While adjustments to current laws or addressing certain gaps may be necessary, there is no compelling justification for introducing a separate set of offences solely for acts committed on social media or digital platforms. Crimes should be addressed based on their nature rather than the medium through which they are committed.

RESTRICTIONS ON ANNONIMITY

Section 27 of the Bill prohibits operation of any social media pages, groups or profiles under a name other than the user’s legal name. Such action may lead to imprisonment and fines. While the intent may be to discourage dissemination of unlawful content or criminal activities from such accounts, the outright banning of pseudonymous accounts is not a preferrable solution. The outright ban on the pseudonymous accounts is against the principles laid down by UN Special Rapporteur on Freedom of Expression, which advocates that the anonymity is pre-requisite for democratic participation. Many users rely on pseudonyms to discuss sensitive topics such as political dissent, LGBTQ+ rights, and whistleblowing. It is needless to say the importance of anonymity, especially for activist, journalist and marginalized communities etc. to express and enhance information and ideas. The similar anonymity still exists in in real life case, where individuals can send anonymous letter or make anonymous calls in several instances including reporting of crime to some authorities (Like corruption, sexual harassment).

Further, the Bill mandates social media platforms to identify users prior to allowing them to use the platforms. This is one of the mechanisms used to verify age of the user in order to ensure that the platforms (mostly with adult contents) are not accessible to children. For instance, the Online Safety Act of UK requires platform (specially dealing with pornography and certain other types of harmful content) to introduce age assurances to ensure that the children are not normally able to encounter it. While the mandate to disclose the identity in our Bill may be considered valid, it is also proportionate to allow people thereafter to use websites using pseudonyms or anonymously. However, the platforms must ensure the privacy and security of the data. Likewise, the Section 12(J) of the Bill requires providing of user details to the concerned authorities for the investigation of crime as per the Bill, however, fails to provide for the requirement of judicial order prior to requesting such user details.

The EU Digital Service Act can be taken as reference where the law does not impose, the Digital Service Act does not impose an obligation for users to use real names. It focuses more on platform responsibility for content moderation rather than mandating the identification of each user. Platforms can still allow pseudonymity or anonymous participation while ensuring the removal of harmful content. Furthermore, it is important to note that in the digital age, the identity of a user is often linked to their IP address, and any action performed by that address can be traceable, enabling platforms and authorities to trace activities, when necessary, without compromising the user’s anonymity by requiring real names.

Recommendation:

The provision to restrict anonymity should be removed and emphasis on platform-based accountability (as also adapted by EU Digital Service Act), where platforms are obliged to take responsibility for the content and services they offer and rather relying on government-mandated identity disclosure.

ADDITIONAL ISSUES TO BE INCLUDED IN THE BILL

Provisions in relation to Child Protection

Children can be one of the vulnerable groups in internet crime and further it has rigorous effect to children. The Bill needs to ensure safe internet use to efficiently combat violations of children right online. Different international institutions like Organisation for Economic Co-operation and Development (OECD), UNICEF, International Telecommunication Union has issued numerous guidelines for policy makers to implement policies and strategies that will protect children in cyberspace and promote their safer access to all the extraordinary opportunities online resources can provide.

Recommendations

To sum of all the recommendations made by such reports, the Bill amongst other needs to have at least provision for:

The online platforms should develop mechanisms to assess the reliability of age verification tools based on content and the child’s age. \
The online platform should create online tools for easy reporting of online violence and providing help and support.
A dedicated point of contact for communication and take down of abusive content within 2 hours of a judicial removal order is predetermined.
Rating of the content and only display the appropriate content to ensure children are safe online.
Develop parental control/access tool.

Data Privacy

The Bill lacks strict provision on data privacy and security. There have been past instances of data breaches in Nepal, but no significant investigations were conducted, nor were there any substantial legal discussions or developments to address the issue. This highlights a critical gap in the country’s approach to data security.

Various international guidelines are in existence which provides for fundamental principles to be adopted by any jurisdiction to ensure that data privacy laws are consistent and compatible across borders, facilitating the flow of information and commerce between countries. Documents like Universal Declaration of Human Rights 1948, OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, 1980, Convention 108 + (Convention for the Protection of Individuals about the Processing of Personal Data), Fair Information Practice Principles, 1973 lays down principles for data privacy which deals with principle of security, integrity, access, accountability amongst others which are to be undertaken as baseline of developing laws and policies by any nations.

The Bill needs to establish clear guidelines for data collection, storage, transfer and usage while ensuring accountability for breaches. It should also outline penalties for violations, require organizations to implement strong security measures, and grant individuals’ greater control over their personal data. Without proper legal frameworks, the risk of data misuse, identity theft, and cyber threats will continue to rise. Developing a well-defined data protection law will enhance privacy, boost public trust in digital platforms, and align Nepal with global standards on data security.

Recommendations

Minimum security standard to be maintained by the platforms
Make arrangement for the audit of the security system
Reporting of the breaches to the authorities
Creation of a separate data protection authority which shall oversee the data privacy issues
Mechanism for cross border transfer of data including security of data
Right of the data subject (right to rectify, right to erasure etc)

Conclusion

The government should move beyond traditional regulatory approaches (such as licensing or outright shutdowns for non-compliance) and adhere to standards of international law. Such shutdowns not only restrict global access to information but also impact fundamental rights, including those related to work, health, and education, while imposing significant economic costs and hindering development. There exists an opportunity for the regulators to dive deeper into meaningful areas of intervention such as market interventions (taxes, competition, e-commerce) or design regulations (product features/product safety), rather than direct speech/content regulation. It is high time that these opportunities are realized and effectively implemented.

To address the significant gaps in Nepal’s digital legal regime, we recommend bridging these gaps through the formation of new laws or amendments to existing ones. To highlight some; (i) Nepal will require a comprehensive law regulating digital privacy, which can be achieved through amendments in the existing Privacy Act 2018 (2075) (ii), the duplication of laws like requirement of licensing of social media in Cybersecurity and IT Bill 2024 must be removed and further Cybersecurity and IT Bill 2024 be developed as a comprehensive cybersecurity laws for the cross-border cooperation against technology-facilitated crimes. Further, the government must also ensure that cybersecurity bill also aligns with international standards like the Budapest Convention to ensure effective cross-border cooperation. As cybersecurity bill will be the comprehensive law for regulating the techno crime, the existing Electronic Transaction Act 2008 (2063) shall be replaced (to remove the duplicity of law) where the provisions relating digital signature may be incorporated in the E-commerce Bill.

Lastly, in shaping our digital regulation, we must not formulate digital laws in isolation from international principles, nor should we repeat past actions of arbitrarily banning and unbanning apps without valid legal grounds. A well-structured legal framework should be rooted in due process, transparency, and judicial oversight ensuring that regulatory actions are clearly justified, proportionate and legally sound by adhering to the global best practices.

The E-commerce Act, 2025 (hereinafter referred to as the “Act”) has been enacted by the Government of Nepal on March 16, 2025. The Act will enter into force thirty-one (31) days after the date of enactment.

This marks a significant step for Nepal’s e-commerce sector, which had long operated in a largely unregulated environment in a state of regulatory uncertainty. This Act aims to establish a structured legal framework for the governance of online businesses, ensuring consumer protection, fair trade practices, and compliance requirements for e-commerce entities. The following analysis provides an overview of the key provisions of the E-commerce Act 2025 and highlights compliance obligations, and regulatory risks relevant to e-commerce businesses operating within Nepal.

To whom will the E-commerce Act apply?

The Act will apply to any person within Nepal or residing anywhere outside Nepal offering goods and services in Nepal through e-commerce. “E-commerce” has been defined by the Act as the process of buying and selling of goods and services through electronic platforms. However, it is to be noted that using an electronic platform to provide information or promote goods and services will not be considered e-commerce.

The Act defines “Electronic Platform” as a system created for the purpose of transacting goods or services by collecting, transmitting, or storing information through means such as websites, applications, software, the Internet, intranets, and social media marketplaces, using computers, mobile phones, or similar electronic devices.

This definition is not clear on whether the use of simple electronic means (emails or messages) to facilitate a transaction from being categorized as e-commerce. The definition’s emphasis on a “system created for the purpose of transacting” implies that digitally enabled services without a dedicated platform created for the same, might fall outside the intended scope of e-commerce. Although not explicitly stated, it seems to imply that a specific, purpose-built platform is a necessary condition, except in the case of micro- or cottage entrepreneurs.

It also raises another question of whether the Act warrants compliance obligations from other digital intermediaries that are already regulated by specific laws (such as, payment service providers) or when a brick-and-mortar business goes online (commonly known as a brick-and-click model). Implementation of the Act should exclude businesses that are inherently linked to a different regulated service (e.g., payment processing) from the scope of e-commerce, to avoid duplicative or conflicting compliance requirements.

Other Key Definitions

“Goods” include substance produced from a single good, or a combination of goods, to be consumed or used by a consumer in a way that does not cause harm, damage, or any kind of negative effect on health, and also includes raw materials, colors, fragrances, or chemicals used in the manufacture of such goods.

“Service” includes electricity, drinking water, telephone, information technology, health, education and consultation, transportation, tourism, entertainment, conveyance, sewerage, banking, insurance, or other services of similar nature, and that term also includes legal, auditing, medical, or engineering services.

Parties involved in E-commerce Transactions

The Act has categorized various parties involved in an e-commerce transaction, to outline each of their duties. It includes consumer, buyer, seller, intermediary business, business, and list-based e-commerce business.

Establishment of Electronic Platform

The Act requires E-commerce businesses, with the exception to micro-entrepreneurs and similar cottage entrepreneurs, to establish their own electronic platform, and clearly disclose business details (such as, name, address, contact details, and registration/regulatory approval-related information of the business, PAN/VAT number, grievance mechanism etc.) on the platform in order to enable buyers to make informed decision.

Term	Definition
Consumer	A person who consumes or uses any goods or services under this Act.
Buyer	Any person who purchases any goods or services under this Act, and that term also includes their representative.
Seller	Any person, firm, company or institution that makes goods or services available for sale to an intermediary business under this Act, and that term also includes businesses engaged in list-based e-commerce.
Intermediary Business	Any person, firm, company, or institution that facilitates the sale of a seller’s goods or services to a buyer through an electronic platform.
Business	An intermediary business or a business engaged in list-based e-commerce.
List-based E-commerce Business	A domestic or foreign person, firm, company, or institution that prepares a list of goods or services under its ownership and directly sells the goods or services from that list to consumers via an electronic platform.

As the Act does not define these entrepreneurs, reference may be taken from the existing Industrial Enterprises Act, 2020 (“IEA”). A micro-industry is an industry where the entrepreneur themselves is involved in the operation & management, having fixed capital of two (2) million rupees, maximum of nine (9) workers, annual transaction of less than ten (10) million rupees, using energy capacity of up to twenty (50) KW etc. among others. Likewise, a cottage industry is based on traditional/local skills and technology, labor-oriented, using energy capacity of up to fifty (50) KW etc. as listed in the IEA.

The Act requires any change in the business details to be updated on the platform within forty-eight (48) hours of making such changes. Failure to comply with this requirement shall result in a fine of NPR 20,000 to NPR 1,00,000.

Listing Requirement

The business shall be required to list its e-commerce platform in the portal created by the Department of Commerce, Supplies and Consumer Protection (hereinafter referred to as the “Department”). An application should be submitted by the business at the Department, along with documents and business details prescribed under Section 5 of the Act to list itself on the portal. E-commerce businesses that are already operating in Nepal prior to the enactment of this Act are required to comply with this requirement within three (3) months from the date of commencement of this Act. It is not clear whether small businesses (accounts) operating via social media platforms will also be subject to this requirement. Failure to comply with this requirement shall result in a fine of NPR 20,000 to NPR 1,00,000.

Validity of Electronic Contracts

The Act recognizes the validity of electronic contracts between buyer and business or seller and business. Apart from the requirements mandated by prevailing laws, such contracts should stipulate necessary notice, terms and provisions relating to the delivery, cancellation, return, exchange, warranty and guarantee, refund etc. of the goods or services to the buyer. This recognition of the formation of contract through electronic medium has broadened the legal validity of digital signature beyond the Electronic Transactions Act, 2063 which only recognizes the validity a digital signature certified by an authority recognized by Office of Controller of Certification. This provision will contribute effectively to foster greater trust and efficiency in online transactions and electronic contracts. For instance, “click-wrap” agreements which requires users to actively click “I agree” to terms, has now been formally deemed binding and enforceable subject to proper notice and consent under this Act.

Key Details to be displayed on E-commerce Platforms

Details relating to the goods or services prescribed under Section 6 of the Act are required to be displayed on the e-commerce platform. Any change in the business details should be updated on the platform within forty-eight (48) hours of making such changes. These details include:

Failure to comply with this requirement shall result in a fine of NPR 20,000 to NPR 1,00,000.

The requirement to display product manufacturing and expiry dates on an e-commerce platform is impractical and, in many cases, operationally impossible. The Consumer Protection Act, 2075 (“CPA”) requires mentioning the date of manufacture and expiry on the label of a consumer good. The Standard Weight and Measurement (Sealed Package) Regulations, 2077 also mandates such labelling requirement. Making an additional platform-level requirement seems redundant and unnecessarily burdensome as the existing laws already require clear labelling of such information on product packaging.

Return of goods or services

If any goods or services purchased by the buyer do not conform to the details provided by the business, the buyer may return such goods or services to the business without using or damaging them. Returned goods or services must be taken by the business and the buyer must be fully reimbursed (including the tax amount paid by the buyer) without any terms or conditions, unless an exchange is agreed upon by the buyer.

The CPA provides a list of circumstances in which goods once sold may not be returned or exchanged. Broadly, it covers alteration of quality/quantity, expiry of use deadline, perishable, or used goods, broken seal. The Act should offer more clarity on return eligibility and exclusions. Exclusions should primarily be based on practical considerations and aim to address situations where returns would be unfeasible (tailored suits etc.), could compromise hygiene or safety once unsealed (undergarments, cosmetics etc.), or would undermine the intrinsic nature of the product or service (date specific items such as concert tickets, services that have begun with the consumer’s consent etc.).

Privacy of Personal Information

The business must ensure privacy of personal data or personally identifiable information related to the e-commerce, and such data or information shall be transferred or used only in accordance with the law, with exceptions for transaction-related data transfers. The business should allow users to enter or modify their personal details, as well as disable the source of their identification.

Adherence to IT Standards

The Act also requires compliance with the standards for improving and upgrading the Platforms, if such measures has been prescribed by the relevant authority of the Government regulating information and technology.

Duties of the Parties involved in E-commerce

Some of the primary duties of the parties involved in e-commerce are as follows:

Duties of the Buyer

Duties relating to Delivery

Grievance Redressal Mechanism

Intermediary Business	List-based E-commerce Business	Seller	Punishment for non-compliance
To present details related to the goods and services on the platform in a clear and accessible manner for the buyer and only trade such products on the platform; To maintain secure records of transactions of purchased and sold goods or services for a period required by the applicable tax laws; To enter into agreement with the seller prior to placing their goods or services for sale on the platform.	To present details related to the goods and services on the platform in a clear and accessible manner for the buyer; To display information and details required by prevailing laws on their platform; To maintain secure records of transactions of purchased and sold goods or services for a period required by the applicable tax laws; To deliver sold goods or services without delay, except in cases of force majeure;	To enter into a written or electronic contract with an intermediary business before making goods or services available on the intermediary business’s platform for sale; To provide the intermediary business with, business registration, documents, details, complaint handling mechanism, details regarding goods or services exchange, return, or refund, PAN/VAT details etc., in written or electronic form; To provide the intermediary business with the details according to Section 6 regarding each good or service sold through the electronic platform; To deliver sold goods or services without delay, except in cases of force majeure.	Fine of NPR 20,000 to NPR 1,00,000.
To adhere to the terms of guarantee or warranties (if any) for the stated period; To not discriminate between sellers of goods or services of same category, or give preference to any specific seller for the sale, and to clearly disclose information to the user regarding any special facilities granted to a seller of similar goods or services; To put return, exchange, or refund measures in place for goods or services that do not meet the details specified in the contract.	To not review, evaluate, or provide feedback on the quality and features of goods or services placed for sale on the platform by impersonating oneself or any other person as a fake consumer; To not present misleading advertisements about the goods or services; To adhere to the terms of guarantee or warranties (if any) for the stated period; To put return, exchange, or refund measures in place for defective products, or goods or services that do not meet the details specified in the display, or if there’s a delay in delivery; To bear liabilities in case the authenticity of any sold goods or services are questioned.	To not engage in any kind of unfair trade practices when providing goods or services to an intermediary business for sale through an electronic platform or in any other situation. To not review, evaluate, or provide feedback on the quality of goods or services provided by the seller themselves to the intermediary business for sale by impersonating themselves or any other person as a fake consumer, and To put return, exchange, or refund measures in place for goods or services made available for sale by a seller through an intermediary business, that are defective products, or goods or services that do not meet the details specified in the display, or if there’s a delay in delivery;	Fine of NPR 50,000 to NPR 5,00,000 or imprisonment for a term of six (6) months to three (3) years or both. [Note: These offences shall be considered as state-party offences, where the Government of Nepal will act as the plaintiff.]

The Act mandates businesses to provide accessible avenues for consumers to lodge complaints regarding purchased goods or services, including electronic, written, and in-person options. Upon receipt of a complaint, businesses are required to register it and provide immediate acknowledgment to the buyer or consumer. Investigation should be conducted on the issue and a decision should be provided to the consumer/buyer within fifteen (15) days. Businesses shall also be required to develop and implement an online grievance redressal mechanism.

In addition to the aforementioned provisions of the Act, consumer protection rules prescribed by the existing CPA shall also apply to e-commerce sales, primarily those relating to product quality, labels, return policy, pricing, inspections, dispute resolution, and protection of consumer rights and interests.

The Data Centre and Cloud Services (Operation and Management) Directive 2081 (the “Directive’’) is issued by the Government of Nepal, Ministry of Communication and Information Technology, under Section 79 of the Electronic Transactions Act, 2063. The Directive was issued on 10 February 2025.

1. Listing with the Department of Information and Technology (the “Department”)

1. Overview

Over the past decade, the Nepalese government has shown consistent support for Startups through its annual budgets and plans, leading to a significant expansion in the sector. However, despite these efforts, Nepal has yet to fully establish an environment conducive to nurturing innovative minds that can elevate the country’s economy.

The Global Innovation Index (GII), published by the World Intellectual Property Organization (WIPO), reveals the most innovative economies in the world, ranking the innovation performance of around 132 economies while highlighting innovation strengths and weaknesses. In 2023, the GII, ranked Nepal 106th out of 132 economies for innovation inputs and 103rd for innovation outputs, placing the country overall between 103rd and 110th. These rankings indicate that, despite the Nepal government’s efforts to foster innovation, inefficiencies in implementation are hindering the growth of the startup ecosystem in Nepal.

Globally, countries like Switzerland, Sweden, and the United States, consistently rank at the top of the Global Innovation Index (GII) due to their strong ecosystems that support research and development, robust educational institutions, and effective intellectual property laws. In the Asia-Pacific region, countries like Singapore and South Korea have created highly conducive environments for startups through government support, access to funding, and a focus on technology and innovation. To align with these trends and improve its ranking, Nepal should enhance its policies and infrastructure for startups, including clearer definitions, simplified funding procedures, and effective policy implementation. This will help create a more vibrant and competitive entrepreneurial landscape. Nevertheless, the Budget 2081/82 (2024/25) seems promising and supportive to build the Startup ecosystem strong.

2. Initiatives Undertaken By The Government Of Nepal

2.1 Financing Initiatives of the Startups

2.1.1 The Government of Nepal first envisioned the creation of a Fund to support Startups with concessional loan facilities, as part of its 15th five-year plan, covering fiscal years 2076/77 to 2080/81) (2019/2020 to 2023/2024). The initiative aimed to bolster entreprenuerial ventures across the country by providing financial support tailored to the unique needs of startups. This ambitious plan was set into motion in the fiscal year 2076/77 (2019/20), with an annual budget allocation of One Billion Nepalese Rupees dedicated to providing concessional loans based on the merits of startup projects. Recognizing the critical role of early-stage funding, the government maintained its commitment in subsequent budgets, earmarking Fifty Crore Nepalese Rupees as seed capital sepcifically for startups.

2.1.2 In addition, the government announced the establishment of a ‘Challenge fund’ worth One Billion Nepalese Rupees, a commendable initiative by the government aimed at providing financial support to the innovative projects. This fund seeks to provide financial support to innovative projects, to address significant gap in the financial ecosystem: the lack of collateral- free loan options for new businesses from traditional banks and financial institutions.

2.1.3 Further efforts were made to secure capital through venture capital funds and the establishment of business incubation centers across all provinces. Notably, in the fiscal year 2079/80 (2022/23), the government announced the establishment of the Kathmandu Incubation Centre and introduced incentives for Private Equity and Venture Capital (PEVC) to encourage investment in startups, aiming to build a robust entrepreneurial ecosystem. To support these initiatives, the government allocated a total of One Billion Nepalese Rupees for startups in the same fiscal year.

2.1.4 The loan facility was officially launched on Jestha 25, 2081 (June 7, 2024) by the Industrial Enterprise Development Institute (IEDI), an autonomous government entity. This followed an earlier notice on Magh 15, 2080 (January 29, 2024), which invited applications for the concessional loan and received 1,158 submissions. A total of 394 enterprises met the required criteria and were invited by IEDI to pitch their proposals. Subsequently, on Jestha 25, 2081 (June 7, 2024), a notice was issued listing the shortlisted candidates. After the pitch a total of 183 enterprises were ultimately selected, and the loans were disbursed accordingly. More recently, on Bhadra 11, 2081 (August 27, 2024), IEDI issued another notice inviting interested startups to submit their project proposals, for second round of loan disbursement, marking the next phase in the government’s efforts to support innovative startups that face challenges in accessing traditional funding.

2.2 One Window Policy

Another critical aspect for startups is the administrative process of setting up a company. To address this, the government announced several key measures in the fiscal year 2078/79 (2021/22) budget speech to facilitate startups. Some key announcements included the introduction of a ‘One-Window Policy’ to streamline the registration and renewal process for startups, policy-level facilitation for foreign direct investment.

2.3 Definition of Startup

2.3.1 The Startup Enterprise Loan Scheme Procedure, 2079 (2022), approved on February 22, 2023 (10 Falgun 2079 B.S.), for the first time defines a startup as “any enterprise or business driven by novel innovation and creative ideas, managed by an entrepreneurial group, focused on the development, production, operation, and distribution of goods, services, or processes with high potential for scale up.” The same definition is reiterated in the Startup Enterprise Loan Scheme Procedure, 2080 and 2081. However, Startup Enterprise Loan Scheme Procedure, 2081 (2024) provides additional definition of startup businesses as enterprise with the use of information technology and creative ideas. However, this broad definition lacks specificity, particularly regarding terms like “novel innovation” and “creative ideas.”

2.3.2 The Startup Enterprise Loan Scheme Procedure, 2081 (2024) excludes following entities from the definition ofstartup enterprises for loan disbursement purposes:

2.3.3 Further, the Startup Enterprise Loan Scheme Procedure, 2081 (2024) set forths minimum standards that a startup business must meet to qualify for loan,

2.3.4 The recent amendment in Industrial Enterprises Act, 2076 (2020) (“IEA”), dated 28 April 2024 (16 Baisakh 2081 B.S.), finally recognizes startups and has established a clear guidelines for their registration, operation, and promotion. The IEA outlines specific criteria for ventures to qualify as startups:

2.4 Startup Policy 2080 (2023)

2.4.1 The Startup Policy 2080 (“Policy”) aims to create a supportive environment for startups by providing a clear legal framework for their establishment, growth, and sustainability. With a focus on enhancing production and creating employment opportunities through entrepreneurial development, the Policy aims to propel Nepal’s economy forward. The core focus of Policy are as follows;

2.4.2 A part of its strategic approach, the policy proposes the establishment of Nepal Startup Council, chaired by the Ministry of Industry, Commerce and Supplies, and formation of Startup Board led by CEO of Industrial Enterprise Development Institute. These institutions will play a key role in driving the growth of the startup ecosystem in Nepal.

2.4.3 The Policy envisages following criteria to qualify as a startup enterprise,

2.4.4 The Startup Policy 2080 marks a significant milestone in fostering a conducive environment for startups, offering a robust framework that encourages innovation, investment, and collaboration. By addressing key areas such as financial access, entrepreneurial development, and sustainable growth, the policy aims to transform Nepal’s startup ecosystem into a vibrant and competitive landscape. With this initiative, Nepal is positioning itself as a hub for innovative businesses, empowering entrepreneurs to drive economic growth and create meaningful employment opportunities. In line with this vision, the Budget 2081/82 (2023/24) has introduced several measures aimed at further strengthening the startup ecosystem.

3. Startup Related Matters Proposed By The Budget 2081/2082

3.1 For the fiscal year 2081/82 (2024/2025), the government has allocated Nepalese Rupees One billion towards a Startup Fund and announced plans to establish incubation centers in each province to support startups. The budget encourages local banks and financial institutions to extend loans to startups based on project collateral. To promoter women entrepreneurship, the government has made provisions for the development of exhibition halls in Chobar, Kathmandu through public-private partnerships, alongside the promotion of a trade portal for branding women-made products, and establishment of a souvenir house for their sale.

3.2 Additionally, the Finance Act, 2081 (2024) has amended Section 57 of the Income Tax Act, 2058 (2002) to exempt startups from the change in control provision when new shareholders or partners are added without altering the existing shareholding structure or capital.
While the government has undertaken notable initiatives to support startups, further efforts are required to streamline laws and regulations, facilitating the entry, operation, and exit of startups from the market.

4. Way Forward

To cultivate a dynamic startup ecosystem, in Nepal, it is essential to address and streamline all stages of the business lifecycle – from transformation of innovative ideas to market entry, operation, and eventual exit. Enhancing the ecosystem requires simplifying the business establishment process, facilitating clear pathways for funding and investment, providing strong legal protections for intellectual property, and creating flexible and efficient exit strategies. By addressing following key issues will foster a more conducive environment for startups to thrive and drive innovation.

i. Streamline Startup Definition: Before the enactment of the Startup Enterprise Loan Scheme Procedure, 2079/80, (2022/23) Startup Policy, and the latest amendment on Industrial Enterprises Act, there was no exclusive legal definition or criteria for understanding the startup business in Nepal. While the current legal framework provides basic criteria, it remains insufficient to distinguish truly innovative or creative or scalable startup ventures. This ambiguity makes it difficult to assess which businesses qualify as startups. Clearer parameters are necessary to avoid confusion and ensure accurate identification and support for genuine startups.

ii. Registration Fee Waiver: Currently, companies in Nepal must pay company registration fees at the office of Company Registrar based on their authorized capital. For instance, a company with capital of One Crore Nepalese Rupees shall have to pay Sixteen Thousand Nepalese Rupees as company registration fee. The Government of Nepal temporarily waived these fees for fiscal year 2080/81 (2023/2024), providing financial relief to investors. However, this waiver was not extended in the fiscal year 2081/82 (2024/2025). Reintroducing the registration fee waiver for startups would provide vital support and help foster the growth of Nepal’s startup ecosystem.

iii. Tax Holidays for Startups: The Finance Act, 2080 (2023) introduced first five years tax holidays for startup with annual turnover up to ten million Nepalese Rupees, focusing on innovation and technology. However, the Inland Revenue Department (IRD) has yet to define the criteria for availing this benefit. It is crucial to establish clear and flexible criteria for startups to avail themselves of this tax exemption. An important issue addressed by the Budget Speech, followed by an amendment proposed in Finance bill 2081 (2024), pertains to the ‘Change in Control’. For more information on this please click on:

iv. Foreign Investment Threshold: The existing foreign investment laws require revision to better accommodate investments in startups, including those from Non-Resident Nepalese (NRNs). Amendments should allow foreign investments in startups without any thresholds and introduce an automatic approval process, regardless of the sector. Currently, the minimum foreign investment threshold is two crore Nepalese Rupees, except in the Information Technology (IT) sector, where this requirement has been lifted. Extending this exemption to startups would help bridge funding gaps and foster growth in the startup ecosystem.

v. Flexibility in the Compliance Requirement: As per Social Security Act 2017 (2074), all business enterprises, irrespective of the headcount of employees, must register with Social Security Fund (SSF), except independent consultants. The obligation to enlist itself and its employee lies on employer. Therefore, in the event of default, the employer will be held liable. In this context, SSF may require such employer to

vi. Exit from the Startup: To support the growth and sustainability of startups, it is essential to introduce flexible exit strategies. Current regulations often make it challenging for startups to close or transfer ownership smoothly. Simplified exit procedures, such as fast-track liquidation, simplified mergers, or acquisitions, would allow founders to pivot or wind down their businesses without excessive legal or financial burdens. Introducing these measures would promote innovation by reducing the risks associated with startup failure.

In 2023, global FDI flows saw a decline in accordance with OECD and UNCTAD. Despite the downturn, Asia continued to do better to attract investment with East and Southeast Asia taking the lead. Nepal approved NPR 7.22 billion (approx. USD 54.04 million) in FDI for the fiscal year 2022/23. Service (41.1%) and tourism (41.1 %) attracted the most FDI, followed by manufacturing (8.89 %), IT (4.9 %), and infrastructure (3.06 %).

The recent past years have seen efforts made by the Government of Nepal (GON) to improve the foreign investment climate of Nepal. Some of the key reforms are (i) implementation of Automatic Route for making foreign investment, (ii) reduction of minimum FDI threshold from NPR 50 million to NPR 20 million, (iii) removal of minimum FDI threshold for ICT sector (applicable only for FDI made via Automatic Route), and (iv) complete waiver of fees for company registration and capital increment for Fiscal Year 2080/81. Most of the aforementioned reforms were enacted by the GON after they were proposed in the previous fiscal years’ federal budget.

Similarly, a set of investment and industry related laws have been amended this year to make the investment atmosphere more conducive. The “Bill to Amend Some Nepal Acts Related to Investment Facilitation” (the “Amendments”) came into effect on 8 July 2024. The Amendments brought in the following key important changes:

Foreign Investment and Technology Transfer Act 2019 (2075) (“FITTA”)

Industrial Enterprises Act 2020 (2076) (“IEA”)

Special Economic Zone Act, 2018 (2073) (“SEZA”)

Investment related Changes Proposed by the Budget:

The Government of Nepal presented its annual budget for the fiscal year 2024/25 on 28 May 2024. The Budget has allocated a total of Rs. 73.50 billion to the Ministry of Communication and Information Technology. Key highlights of the budget for the ICT sector are:

(A) Information Technology Decade

The decade of 2081-91 BS has been declared as the ‘Decade of Information Technology’ by the government, aiming to export IT services worth NPR 3 trillion and generate 1.5 million direct and indirect employment opportunities in the IT sector. The plan includes developing Nepal as a hub of information technology.

To facilitate this, IT parks will be operated with high-speed internet, electricity, and security infrastructures using available government and private buildings in the Kathmandu Valley and Butwal, offering cost-free places for workstation operations. Additionally, a multi-story structure will be developed to operate an IT hub in Charkhal, Dillibazzar, Kathmandu, through a public-private partnership. The government has allocated NPR 170 million to establish a Knowledge Park at Khumaltar, Lalitpur. There will also be upgrades to government data centers, regulation of private ones, and efforts to ensure the secure and reliable storage and use of electronic data.

Our Observations

A report by IIDS states that, Nepal’s total IT service export had already reached USD 515 million in 2022, with a growth of 64.2% over a year. It contributed 1.4% to the GDP and 5.5% to the foreign exchange reserves. In 2022 alone, a total of 14,728 IT freelancers in software development and technology and 51,781 IT-enabled Services freelancers engaged in IT services export. The goal of generating NPR 3 trillion in revenue and creating 1.5 million jobs, while ambitious, is not unattainable. To achieve these targets, Nepal must focus on implementing necessary policy reforms.

(a) Product Oriented Sector: Nepal should evolve from exporting IT services developing and exporting IT products to foster intellectual property (IP) development, generate high- skilled jobs, and reduce the sector’s reliance on labor arbitrage. It requires a focus on strengthening innovation and entrepreneurship to support startups and provide them access to resources and funding.

(b) Employee Stock Ownership Plan (ESOP): Given the world-wide prevalence of ESOPs in the IT sector, formulation of clear legislative guidelines will enable Nepalese companies to effectively hire and retain the talent needed for its growth as well as to enhance employee and company performance.

(c) Intellectual Property: To foster growth in the IT sector, government should prioritize updating the existing intellectual property laws. The current legislation, which broadly covers protection for “computer programs,” is inadequate for the rapidly evolving digital landscape. Revising these laws to provide specific protections for emerging technologies such as Artificial Intelligence (AI), advanced robotics, Internet of Things (IoT) etc. is crucial. This revision should clearly define IP rights for software, source code, platforms, and licensing models, among others. Formulating a robust IP protection regime can stimulate innovation, attract investment, and position Nepal’s IT sector for global competitiveness.

(d) Flexible Investment Laws: Government is providing flexibility by permitting establishment of branch offices of Nepalese IT companies in foreign countries to facilitate the export of IT-related services. This reform should escalate further and allow the IT sector to also invest outside of Nepal to help them (i)expand their businesses outside of Nepal, (ii) access foreign capital and human resources, and (iii) allow them to be part of growing startup ecosystem of mature foreign markets. Likewise, telecommunication service laws need to be updated to reflect (i) the shift from voice to data-centric telecommunication service delivery models, (ii) challenges in digital content regulation to balance freedom of expression with prevention of hate crimes (iii) the need for appropriate regulatory approach to the AI revolution that is right around the corner.

(B) Digital Nepal Framework

The IT sector is set to become a catalyst for national economic growth. Government has allocated NPR 590 million to facilitate amendments, implementation, and oversight of the Digital Nepal Framework 2019 (DFN). To further support the IT industry, there will be a rebate on dividend tax if profits are capitalized. Youth studying IT at the undergraduate or graduate level will benefit from internship opportunities in IT industries. Broadband internet access will be provided to all ward offices, community schools, and health institutions to reduce the digital divide in underserved sections, regions, women, and communities. Additionally, digital banking, roaming banking, and mobile banking services will be intensively used to offer banking services in remote and rural areas. E-assessment and “faceless” audits will be implemented to ensure a fair, transparent, and modern tax audit and investigation process. Public bodies will prioritize the use of domestically developed software, and e-governance will be promoted to enhance the efficiency of public services.

Our Observations

As per the National Population and Housing Census Report 2021, internet access in Nepal at the household level varies significantly by geography: 43% in hilly regions, 35% in the Terai region, and a mere 17.4% in the mountainous areas. Nepal’s general literacy rate is 76.3%, financial literacy is 57.9%, and digital literacy is around 31%, according to a 2022 survey by the Nepal Rastra Bank (NRB). Digital divide caused by lack of access to affordable internet and digital literacy remain prevalent in many parts of Nepal. Likewise, Government’s initiatives such as digital signatures, Nagarik App, National ID card, and digitalization of government services, have not quite lived up to their promise.

Recommendations

a. Meaningful Connectivity: Government should focus on ensuring meaningful connectivity through strategic implementation of the Rural Telecommunication Development Fund (RTDF) to improve broadband internet access, adoption, and affordability. Mitigating prohibitive costs, lack of access to device, and insufficient awareness or skills could assist in achieving such goals. The budget has imposed a 5% excise duty on laptop making it an even more costly purchase for customers. Institutions such as the Federation of Computer Association Nepal (CAN Federation) have also requested the government to revisit this decision for the benefit of the ICT sector.

b. Public-private partnerships: Nepal’s private sector has been at the forefront of digital transformation. Government should leverage the private sector’s expertise through public-private partnerships and craft policies that foster a supportive environment for stakeholders to actively contribute to DFN initiatives.

c. E-governance: There has been a long-standing demand for digitized government services in Nepal, and the government has started working on the blueprint for E- governance. Key aspects to ensure successful E-governance include data unification and sharing between government entities, preventing data duplication, ensuring data security, establishing robust infrastructure, and developing capable human resources.

The government aims to achieve policy stability and ensure high-speed, reliable internet access, data security, and intellectual property protection. To facilitate the adoption of emerging technologies, a comprehensive legal framework will be formulated. Additionally, there will be a focus on the development, promotion, and regulation of artificial intelligence to drive innovation and growth in the tech sector.

Our Observations

Nepal was ranked in the 94 th position in the Global Cybersecurity Index 2020 (ITU). Further, Nepal ranks 150 th in the AI Readiness Index. The current regulatory framework for data protection in Nepal is outdated and insufficient to adequately ensure security of personal and sensitive information. Additionally, the IT Bill mandating strict data localization requirements to specific sectors without addressing the gap in data security further risks discouraging international companies from operating in Nepal.

Recommendations

a. Reframing Data Privacy Laws: To achieve the aim to develop Nepal as a ‘Digital Hub’, domestic regulatory frameworks should be aligned with international principles of data protection (such as the GDPR) especially in the context of regulation in relation to cross- border transfer of data, establishing separate regulatory authority for data protection, cybersecurity, and international cooperation etc.

b. Lawful Interception: The interception mechanism in the IT Bill should explicitly define the specific body authorized to permit interception (a judicial authority), the purposes for which it may be authorized, and the procedures to be followed, in order to ensure clarity.

c. Regulating AI: While the government aims to regulate AI and data privacy, a question remains, how prepared is the government to implement AI to develop public digital infrastructure? Nepal’s 150 th ranking among 193 countries in the AI Readiness Index underscores this concern. To address this, the focus should be on three major pillars, (i) Government (strategic vision to develop and govern AI with strong internal digital capacity to support adaptability in the face of new technologies), (ii) Technology Sector (high innovation capacity, environment that fosters entrepreneurship and ensures substantial R&D funding), and (iii) Data & Infrastructure (high-quality data availability and the necessary infrastructure to support and deliver AI tools to citizens).

(D) Digital Platforms and E-commerce

The government plans to systematize the ethical use of social media, including the regulation of advertisements on digital platforms. In addition, there will be a restructuring of postal services to develop them into an e-commerce hub, enhancing their role in the digital economy.

Our Observations

Nepal’s ‘partly free’ status in Freedom House’s ‘Freedom in the World’ report (57 out of 100) highlights concerns over political rights and civil liberties. The 2023 TikTok ban, widely seen as infringing on freedom of expression, risks deterring establishment of international platforms in Nepal, and prompting use of unauthorized VPNs, further posing security and data risks. Nepal currently regulates social networks through the Directive for Regulating the Use of Social Network, 2023 (the “Social Media Directive”), and oversees OTT platforms with the 11th amendment to the National Broadcasting Rules, 1995 (the “OTT amendments”). Despite Government’s intent to regulate digital platforms, weak implementation persists.

Recommendations

a. Stakeholder discussion and international practices: It is vital for the government to collaborate and consult with industry stakeholders prior to enforcing stringent regulatory measures like the current Social Media Directive and OTT amendments. Creating a conducive business environment while implementing regulatory standards is of utmost importance to support the growth of the sector.

b. Revisit E-Commerce Bill: Restructuring the postal service can address delivery issues, but revisiting the existing E-Commerce Bill, 2080 is also necessary. Nepal needs business-friendly laws that support SMEs and MSMEs, particularly those using social media to run e-commerce businesses. The focus should be on fostering consumer trust and encouraging growth in e-commerce. For example, the E-Commerce Bill needs to reflect the following key provisions:

1. Digital Permanent Establishment

Amendment

The Finance Act, 2024 (2081) has amended the Income Tax Act, 2002 (2058) (“ITA”), introducing a new type of permanent establishment (“PE”). As per the amendment, a foreign entity will be considered to have a PE in Nepal if it (a) has a significant digital presence in Nepal, or (b) conducts transactions in Nepal involving data or services for at least 90 days within the last 12 months while keeping a server outside of Nepal (“Digital PE”). This has already come into effect a of 16 July 2024.

What’s New and Who is Covered?

The concept of Digital PE is generally a new one, and Nepal is one of the few jurisdictions that have adopted it. It appears that the provision of taxing foreign digital service providers has been implemented in only 18 countries. This concept is a departure from the traditional view that a physical presence is mandatory to deem a foreign entity has a PE.

The scope of Digital PE remains unclear. The key phrases are “significant digital presence” and “transaction of data or services”. The tax authorities have not yet formulated any guidelines on what constitutes a “significant digital presence” or a “transaction of data or services.” In India, for instance, a non-resident entity is deemed to have a PE if it meets certain economic thresholds, such as payments exceeding annual NPR 32 million for data and software downloads, or engaging with at least 300,000 users. Similar to the digital service tax (“DST”) (discussed below), which was implemented without necessary groundwork, the Digital PE concept may also suffer from low compliance unless the Inland Revenue Department (“IRD”) provides necessary guidance.

Will Digital Service Tax Still Be Applicable?

Nepal has already implemented DST for non-resident digital service providers, effective from 17 July 2022. Digital service providers offering services to customers in Nepal and generating annual turnover exceeding NPR 2 million [revised to NPR 3 million by the new Finance Act, 2024 (2081)] must pay a 2% DST on their annual turnover. There is also an obligation to pay 13% VAT on the income earned from Nepal.

The issue now with the introduction of Digital PE is whether the DST should be discontinued. If not, there is a possibility that foreign digital service providers may be taxed twice for the same income and required to comply with both the DST law and ITA. The provision on DST states that the income taxed under DST law will not attract tax under the ITA. This should then at least mean that all foreign service providers who fall under Digital PE will not have to make separate tax payments under DST. The practical approach (even without amending any legal provisions) may be:

(a) service providers who fall under Digital PE (based on turnover/subscriber number criteria, which we recommend IRD should provide guidance) will only comply under ITA, and

(b) those who fall outside the scope of Digital PE will continue to comply with DST (provided the criteria of DST are fulfilled).

In India, there are clear provisions in the relevant laws which provide specific clarity on the similar issue that the same income is taxed only under one scope, i.e., either as PE or as equalization levy. Generally, but more particularly in tax legislation, the best way to ensure compliance is to provide greater clarity.

Compliance

As Digital PE falls under the ITA, entities must comply with its provisions, including obtaining a PAN Certificate, filing estimated returns, annual returns, and making tax payments in three installments. However, foreign entities might struggle to comply with these provisions without a bank account and physical presence in Nepal, challenging the digital nature of Digital PE. The IRD will need to treat Digital PE differently from traditional PE. Traditional PE requires a physical presence in Nepal, such as a workforce or agents. In contrast, Digital PE aims to encompass non-residents who have no physical presence in Nepal but engage digitally with the market.

DTAA

The government may wish to consider incorporating Digital PE in relation to future Double Taxation Avoidance Agreement (“DTAA”) negotiations. It is unlikely that Digital PE will be applicable in relation to the 11 DTAAs Nepal currently has in place.

2. Change in Control

Existing Provision

Section 57 of the ITA is triggered if a transaction results in a change of 50% or more in a company’s shareholding within three years. According to Section 57(1) of the ITA, after such a change, the entity is deemed to have disposed of its property and liabilities and must pay tax on any gain. Apart from taxation, when Section 57 is triggered, there are other implications such as restrictions on carrying forward the losses.

Amendment

The amendment exempts capital increases by adding new shareholders or partners without altering the number of shares or capital of existing shareholders or partners. This exemption is applicable only to the start-up, venture capital and private equity fund (“Exempted Entities”). This change should help Exempted Entities raise capital from new investors without affecting existing shareholders’s stakes. This has already come into effect as of 16 July 2024.

Objective of Provision Like Section 57

The primary objective of provisions like Section 57 is to prevent tax abuse, specifically to stop companies from merging or acquiring another company solely to benefit from their losses, a practice known as trafficking in tax attributes. The goal of the change in control provision is as an anti-avoidance measure rather than a taxation tool.

Nepal’s Practice

In Nepal, Section 57 functions more as a taxing provision rather than an anti-abuse law. Until the Finance Act, 2024 (2081), there were no exceptions to Section 57. As currently worded, Section 57′ s risk of applicability is in wide areas even when such transactions are (a) not for trafficking of tax attributes, (b) not done for efficiency purposes, for example, group restructuring, or (c) changes happening by operation of law like insolvency or death in a family member. The changes will definitely help in situations of fundraising and should address some of the current issues. This change, however, has its own limitations on fundraising as well. The key requirement for the applicability of the amendment is that the existing shareholders should hold the same number of shares and the same capital. The reality of fundraising may be different: a company having shareholders A and B may want to raise funds from C in such a way that new funding will be contributed by C along with A but not B. This capital injection will not fall under the new exemption and therefore the exception lacks the real understanding of similar provisions of change in control in other jurisdictions.

We need to learn from other jurisdictions. There are various ways to design it. Given that there already is capital gain tax on sellers under Section 95A, a good approach would have been to provide an exception to Section 57 on a “business continuity test”, i.e., if the entity continues to conduct the same business for a period of 24 months, then there will be no implication of Section 57. This is only fair. If we want to design Section 57 for the collection of offshore share transfers, then in the case of offshore transfers, Section 57 can be used for the collection of taxes but without affecting an entity’s ability to carry forward losses.

As stated above, introducing a business continuity test would help distinguish legitimate transactions from abusive schemes. Many countries, including Tanzania, Saudi Arabia, Canada, New Zealand, Singapore, Germany, and Australia, offer exceptions such as the business continuity test allowing provisions like Section 57 to apply only if the entity fails this test.

Interpretational Issue of the Amendment

3. Tax Immunity

Exemption in Past

Historically, some Finance Acts have provided exemptions from paying interest, fees, and taxes if the tax under certain sections had not been paid. Some Finance Acts in the past have provided exemptions on interest and fees to businesses or professionals in certain sectors who had not paid taxes or fees.

Current Exemption

This year’s Finance Act, 2024 (2081) offers exemptions to (a) individuals not previously in the tax bracket and (b) taxpayers who failed to submit returns. If an individual, who previously earned taxable income but did not pay taxes, pays tax for fiscal years 2078/79 and 2079/80, they are exempted from interest, fees, and charges for the said fiscal years. They are also exempted from the tax, interest, fees, and charges for fiscal years before 2078/79. Similarly, taxpayers who failed to submit returns can pay the due tax by March 13, 2025, along with 25% of the interest, to be exempted from remaining fees and interest. This has already come into effect as of 28 May 2024.

The tax immunity provisions would have been more welcomed if they were designed for past Section 57 non-compliances as well. When Section 57 is triggered, a company should prepare separate accounts for periods before and after the ownership change and file two separate returns. Entities that failed to file two returns but filed a single return should technically benefit from the above exemptions. This is because they failed to file two returns as required by the law. If assessed by the tax authorities, they would be fined for non-compliance. However, the tax authorities’ view seems to be that the exemption doesn’t apply to such entities, interpreting that such entities did file returns for the entire fiscal year, even though they did not segregate the fiscal year and make two filings as required by the law.

Recommendation

The government and tax authorities must consider who should benefit from such exemptions: (a) regular taxpayers who missed filing under Section 57 due to interpretational issues, (b) those who never filed returns, or (c) both. Providing exemptions to taxpayers who never paid taxes but not to taxpayers who underwent a change in control but failed to file returns due to various reasons might be unfair.

4. Rent Tax

Issue with Rent Tax

There’s an ongoing issue about where rent tax should be deposited: local authorities or the federal tax office. The federal office argues that rent tax from entities should be paid to it, while rent from natural persons should go to local authorities. Local authorities, like Kathmandu and Biratnagar Metropolitan Cities, claim all rent tax should be paid to them, regardless of the lessor’s nature.

Reason for the Issue

The issue arises from the Constitution of Nepal, 2015 (2072), which grants the federal government the power to collect corporate income tax and local authorities the power to collect house rent tax. The Intergovernmental Finance Management Act, 2076 (2074) supports these provisions. The federal tax authority argues rent from entities falls under corporate income tax, while local authorities argue all rent tax falls under their jurisdiction.

Recommendation of HLTR Committee

A recent High-Level Tax Reform Committee report recommended amending the law to require all house rent tax to be paid to the federal level, regardless of the lessor’s nature. The new budget for fiscal year 2024/25 (2081/82) supports implementing this report and removing overlapping powers and jurisdictions of federal, provincial, and local levels.

Additional Issue and Recommendation

Taxpayers likely don’t care which authority they pay rent tax to; the importance is how much of the tax they need to pay. The current dispute risks double taxation, as paying rent tax only to one authority could result in penalties from the other. If taxpayers pay the tax only to the federal level and not to the local level, they are not registered for local business tax by the local authorities, and when they eventually register, they will owe local business tax plus interest, as well as the rent tax plus interest to local authorities. Conversely, if they pay only to the local level and not to the federal level, they still owe rent tax plus fines and interest to the federal authorities. Therefore, if policymakers intend to implement the new budget provisions, they also need to address past non-compliance due to the dispute between federal and local tax authorities.

5. Tax Assessment

Practice in Nepal

Nepal’s income tax and VAT systems operate on a self-assessment basis, where taxpayers determine and pay their own taxes. The tax office can reassess and demand unpaid taxes if not correctly paid. In practice, there are many instances where the tax office makes incorrect assessments, even when tax provisions are clear. Challenging such assessments requires depositing 25% of the disputed tax with the IRD, and another 25% to contest in the Revenue Tribunal, deterring many taxpayers from pursuing justice.

Budget Policy

The new budget for fiscal year 2024/25 (2081/82) acknowledges taxpayer complaints and proposes addressing tax assessment issues. Given the technical nature of tax law, thorough training for tax officers is essential. Implementing a program to ensure tax officers can accurately handle complex assessments is recommended. Adopting practices from other countries where courts favor taxpayers when tax laws are unclear would enhance fairness and trust in the system.

6. VAT on Essential Consumable Items

The Finance Act, 2023 (2080) amended the VAT Act 1996 (2052), imposing a 13% VAT on potatoes, onions, and apples. This decision faced public criticism. The Finance Act, 2024 (2081) removed the VAT on these items. This is one of many instances where the government has imposed and then removed tax on items without any detailed study and clear rationale behind the tax rates. [Note: This has already come into effect as of 28 May 2024.]

7. Other Key Changes

(a) Tax on Interest: The Finance Act, 2024 (2081), has reduced the withholding rate on interest payments by local banks and financial institutions to foreign banks or financial institutions from 10% to 5%. This will certainly assist local banks in raising funds that can be used in the infrastructure sector. The next phase of infrastructure development may mean that international bond markets may have to be accessed. As a next reform, tax exemption (for qualifying thematic bonds like green bonds) or a reduced tax rate similar to 5% can be considered.

(b) VAT Threshold: The threshold for VAT registration has been increased from NPR 2 million to NPR 3 million in annual turnover for businesses dealing in services or both goods and services.

(c) DST Threshold: The threshold for PAN registration by foreign digital service providers has been increased from NPR 2 million to NPR 3 million in annual turnover.

The Finance Minister of the Government of Nepal has presented the budget for the upcoming Fiscal Year 2024/25 which has allocated a total budget of NPR 57.50 billion (Nepalese Rupees Fifty Billion Seven Hundred and Sixty Million Only) for the energy sector. The following represents some of the key highlights and critics from the recent budget in the energy sector.

Development of Hydropower Projects

The budget has prioritized starting the construction of Dudhkoshi (670 MW), Nalsingal (417 MW), Naumure (280 MW), Ghunsa (77.5 MW), Simbhuwa (70.3 MW) hydropower projects to meet the electricity demand during the dry season.

In addition to identifying the list of hydropower projects to be developed, the Government has also focused on identifying the source of investment to finance some hydropower projects. Amongst the identified projects, Naumure (280 MW), Ghunsa (77.5 MW), Simbhuwa (70.3 MW) hydropower has been planned to be constructed by utilizing investment from individuals pursuing foreign employment.

The budget has continued to prioritize projects from the previous fiscal years including the development of Upper Arun (163 MW), Tamakoshi fifth (100 MW), Chainpure-Seti (210 MW) hydropower project under the “Public Hydroelectricity Program”. The construction of Nalsingal (417 MW), Naumure (280 MW), Ghunsa (77.5 MW), Simbhuwa (70.3 MW) and Modi A (42 MW) hydropower projects are additional projects proposed in the current budget. The proposed budget has significantly continued with the projects which were supposed to start construction from the previous fiscal year. In the current pace of execution of projects, the likelihood of achieving 11,759 MW by F.Y. 2085/86 as stated in the 16 th Plan does not seem achievable.

One of the key highlights of the budget is to commence the engineering design of Karnali – Chisapani Hydropower Project (10,800 MW). The execution of the proposed Karnali-Chisapani Hydropower Project would align to the 16 th plan which prioritizes the construction of the reservoir-based and multipurpose electricity generation projects to meet the generation target. However, similar to other electricity projects, the likelihood of executing the project is also doubtful.

For context, the feasibility study of the last project was already conducted in 1989 and it has already been nearly four decades that the progress remains stationary. Since then, the Government has decided to conduct a fresh study of the project on several occasions and still no such progress has been made towards its execution. To achieve long-term electricity generation target of 40,000 MW by F.Y. 2100 (2101 B.S.), Government must avoid such delays in developing large multipurpose and reservoir hydropower projects like Karnali-Chisapani Hydropower Project.

Transmission Line

The development of transmission lines has also been a key focus with major projects including Hetauda-Dalkebar-Inaruwa; Khimti-Bahrabise-Lapshiphedi; Karnali Corridor; New Butwal – Gorakhpur; Inaruwa-Purniya; Dododhara-Bareli and Rasuwa-Kerung transmission line networks. The Government has set an ambitious target to nearly double the transmission line network by 2085/86 B.S. increasing it from the current status of 5,792 circuit kilometers to 9,356 circuit kilometers. The 16 th plan of the National Planning Commission also emphasizes the development of transmission lines to meet the requirements of internal consumption and the export of electricity, aiming to increase the current electricity consumption from 380 kWh to 700 kWh by 2085/86.

One way the Government proposed meeting this ambitious target is by facilitating private sector participation in the development of transmission and distribution lines. This also aligns with the recent reforms proposed in the Electricity Bill, which aims to facilitate private sector’s involvement in the development of transmission lines.

Net Zero by 2045

The Budget has introduced programs to replace fossil fuels with renewable energy aiming to reach zero carbon emissions by 2045. For this purpose, specific focus has been given to the development of solar energy projects for electricity generation of 100 MW and research and development of green hydrogen. Recently, the Government has tried to develop the energy sector with mixed sources of energy, which over the last decade has mostly been limited to hydroelectricity. This proposed initiative of focusing on solar energy is a welcoming step towards an inclusive mix of energy sources in Nepal which thereby can decrease the over-dependency of the country on hydroelectricity. Furthermore, the shift to solar energy should be continued as a start for identifying additional sources of other renewable energy such as wind power, geothermal, green hydrogen. This would potentially pave the way for an effective strategy to reach the target of net zero by 2045.

As of June 11, 2024, Nepal’s installed solar energy capacity stands at 68.38 MW and has issued survey licenses totaling a combined capacity of 662 MW for 33 projects, according to the latest data from the Department of Electricity Development. Significant developments in the sector include the recent tender issued by Nepal Electricity Authority for the development of 800 MW of solar energy, reflecting encouraging progress.

Way Forward

Overall, the current budget for the energy sector largely continues to mirror the previous budget. Some of the notable efforts in the budget are increasing the sources of financing and initiating steps towards increasing energy mix through solar projects.

Participation of private sector in the energy sector (both generation, and transmission) is crucial to harness maximum potential in this sector. To effectively implement the proposed engagement of the private sector in developing transmission lines and electricity generation projects, the government should facilitate various financial instruments being used by institutional investors in the global markets. Policy reforms should be designed to address key bankability risks (like termination payment) to increase sources of financing. This will support the key strategies of the 16th Plan to promote domestic, foreign, and bilateral investment in the development of National Pride Projects and development of transmission line projects by mobilizing innovative financial instruments.

Globally, institutional investors have been using different forms of financing models such as blended finance, thematic bonds, green bonds, and mezzanine instruments to balance higher bankability risks with potential upside. The Government should promptly coordinate with NRB and other regulatory authorities to enable investment from such innovative financial instruments. This will be a welcoming shift to the institutional investors who under the current regulation have been limited to finance projects only by way of a typical financing modality (i.e., either in the form of loan or equity). Increased stakeholder discussions including potential financiers are necessary to understand key bankability risks in Nepal.

There has been a provision in the budget to facilitate green bonds and other innovative financial instruments. However, this may not benefit institutional investors without legal reforms in the foreign investment and NRB Bylaws.

Similarly, the recent 16 th plan has proposed facilitating electricity trade by adopting an action plan and incorporating legal provisions enabling participation from the private sector in trading of electricity as one of the major strategies for energy sector.

For a better alignment of the budget for the development of the energy sector, going forward, the Government should shift from its current attitude of continuing the same budget and same strategies from the previous fiscal years with few adjustments. The Government needs to adopt a more comprehensive and reformative strategy to meet the expected policy targets in the energy sector.

On that note, revising the proposed Electricity Bill, which is currently tabled been in the House of Representative, is crucial. The following reforms can play a pivotal role:

With a decade-long history, the private equity and venture capital (PE/VC) industry in Nepal has made significant strides, marked by the recent establishment of 8 SEBONLicensed specialized investment funds (“SIFs”) supported by local investors. With NPR 45 billion expected to be added by the SIFs alone, the total fund size of Nepali and Nepal focused PE/VCs is estimated to be more than NPR 65 billion. While this growth has been significant in providing alternative capital to Nepali businesses it has also highlighted numerous regulatory challenges that need to be addressed to further develop the PE industry. The PE community currently awaits regulatory reforms to ease fund-raising, fund operation and exit.

On 28 May 2023, the Honorable Finance Minister, Mr. Barsa Man Pun, presented the budget for the fiscal year 2024- 2025 (2081-82 BS). The government has set a budget ceiling of NPR 1.8 trillion, reflecting a significant commitment to economic growth and development. The budget speech emphasized the need to encourage investments, particularly in the private sector, to boost the economy as one of its five priority areas. Among the many reforms awaited by the PE industry, the budget speech covered only two issues, namely fund-raising and changein-control taxation.

Fund Raising for SIFs

Eligible Investors: The SIF Regulation 2019 outlined a broad definition of ‘eligible’ investors to encourage investment in SIFs. This investor category included banks, financial institutions, insurance companies, employee provident funds, citizen investment funds, foreign individuals and entities, non-resident Nepalis, among others. Despite this inclusive approach, only a few of these investor categories have invested in SIFs. The primary reason is that the SIF Regulation alone could not modify the investment mandates and procedures for these eligible investors, necessitating amendments to the laws governing each of these investor types. This gap was closed for insurance and reinsurance companies when their relevant investment guidelines were amended in 21 December 2023 to permit investment in SIFs.

In an effort to encourage investment into PE/VCs, including SIFsthe Budget Speech, in paragraph 90, mentions that arrangements will be made for various contractual funds to invest in security units of PE/VC. While ‘contractual fund’ is not a term referred in any legislation, we understand the reference may be in relation to contractual savings institutions like employee provident funds, citizen investment funds, insurance companies etc.

To fully realize the intention outlined in the Budget Speech, cohesive and supportive amendments to the investment mandates of each contractual savings institution will be necessary.

Foreign Investors: PE/VCs have not been able to raise funds from outside Nepal due to the lack of legislative clarity regarding foreign investment in SIFs. The Foreign Investment and Technology Transfer Act 2019 (FITTA) is the primary legislation regulating foreign investment in Nepal. FITTA deals with investment in “shares” in ‘companies’. The SIF Regulation has envisioned SIFs as unincorporated schemes similar to mutual funds, which do not have a legal vehicle. Since SIFs are neither companies nor industries, they remain outside the scope of FITTA. Given investments “units” does not currently fall within the scope of FITTA, a better approach may be to allow foreign investors to invest in the units with SEBON’s approval and repatriation facility to be provided with approval of the Central Bank. This approach will provide much needed clarity and instill confidence in this growing sector

Taxation Issues for PE/VCs

Another key issue addressed by the Budget Speech, followed by an amendment proposed in the Finance Bill 2024, pertains to the ‘Change in Control’ tax under Section 57 of the Income Tax Act 2002. The Change in Control tax was levied on any company whose ownership had undergone change of 50% or more within a period of three years. Upon such a change in control, the company was regarded as having disposed of its assets and liabilities, which were evaluated at market price. The company was then required to pay a tax of 25% on any gain arising from this deemed disposal of assets and liabilities. Additionally, the company would be barred from carrying forward any losses recorded in its books. This provision under the Income Tax Act has posed a significant challenge for the PE/VC ecosystem, as companies receiving funding from PE/VC often raise multiple rounds of funding, experiencing several entries and exits from various investors. This exposed such companies to additional tax liabilities and hindered their ability to adjust losses (losses being very common feature in most of startups) due to changes in ownership structure—a natural consequence of fundraising. The Budget Speech and the Finance Bill 2024 have proposed an amendment to the problematic Section 57. The amendment stipulates that the Change in Control tax will not apply when a company issues new shares to increase capital by adding new shareholders without altering the number of shares or capital of existing shareholders. This amendment has been positively received by the PE/VC ecosystem, as it would reduce the tax burden associated with a company’s fundraising activities.

While the reform in the Change in Control tax will be a significant relief to the PE/VC ecosystem, this currently only address the entry issues (as entry is commonly done by issuance of new shares) and does not deal with the exit specially non IPO exit like sponsors buyback, trade sale. The PE/VC sector still will benefit from further reforms on taxes and VAT:

Other Key Reform Agendas for Enhancing the PE/VC Industry in Nepal

In addition to the aforementioned tax issues, the following matters is in the list of top 3 reforms in our list to enhance the Nepali PE/VC industry:

In response to the escalating risks posed by social networks, particularly to susceptible demographics like children and vulnerable adults, the Government of Nepal (the “GoN”) has introduced the “Directive for Regulating the Use of Social Netwrok2023 (2080)” (hereinafter referred to as the “Directive”). The Directive not only aims to regulate the social network usage but also establish a robust mechanism which empowers affected individuals to report distressing online activities, ensuring the prompt removal of such harmful content from such platforms. The Directive has been issued by the GoN by virtue of the power provided under section 79 of the Electronic Transaction Act 2008 (2063).

As per the Directive, Social Networks refer to facilities provided by Social Network Platforms through electronic communication mediums like computers or the internet. This includes services that facilitate interactive communication among individuals, groups, or organizations. This also encompasses the facility to disseminate content created by users, including groups, blogs, apps and other networks.

Similarly, Social Network Platforms refers to a platform operated publicly based on the internet or information technology that enable individuals or organizations to exchange ideas or information and offer the capacity to disseminate content created by the users. This includes platforms such as Facebook, TikTok, Twitter, Viber, Pinterest, WhatsApp, Messenger, Instagram, YouTube, LinkedIn, WeChat, etc.

The Directive provides that whosoever wishes to operate a social network platform, must be listed in the Ministry of Communications and Information Technology (Ministry). Any social network entity operating prior to the commencement of this Directive must get listed in the Ministry within 3 months from the date of commencement of this directive. The listed social networks must update its information every three years.

Platforms dedicated exclusively to civic education and social empowerment are not subjected to such these listing requirements.

Under the Directive, users are forbidden from creating anonymized or disguised identities (Fake Ids) to produce, comment, or share content. Targeting individuals or groups based on gender, religion, age, social class, and more, through hate speech (defined as posts, shares, or comments whose content can lead to violence among individuals, groups, or communities, disrupt social harmony and result in other negative consequences. This includes any form of expression such as voices, words, pictures, and videos that can cause such outcome) or unauthorized publication of photographs or trolling/ publication of memes targeting such individual or groups are not allowed. The Directive also prohibits encouraging activities that are illegal, including but not limited to child labor and human trafficking.

Abusive language and hate speech whether in words, audiovisuals, or images, are strictly banned. Users cannot distort images of individuals using technologies like animation or montage, nor publish private photos or videos without requisite permission. The promotion of obscene content, whether in words, pictures, or videos, is also forbidden.

Additionally, the Directive safeguards children against material harm, including sexual exploitation and abuse. Spreading false or misleading information is not allowed, and neither is any form of cyberbullying. Users are discouraged from engaging in activities related to narcotics, terrorism, or any actions that violate individual privacy. Hacking, phishing, and impersonation using social networks are also prohibited, as is the publication of obscene content and the advertising or trading of items that are illegal. Lastly, replicating and sharing any activities that are prohibited by law are equally forbidden.

The Directive imposes further responsibilities for social network users providing that users shall not inspire or conspire to spread hate and malice on the basis of class, caste, religion and function in a way that adversely affects Nepal’s sovereignty, geographical integrity, national security, independence, self-respect, national interest and act in a way to affect good relations between different levels of Government. It further provides that a user cannot intentionally like, repost, broadcast, tag, mention, comment or subscribe to any of the aforementioned acts.

The Directive makes a distinction on social network platforms based on the number of users, classifying those with fewer than 100,000 users as “small” platforms and those with more than 100,000 users as “large\” platforms. This classification has significant implications, particularly for the larger platforms. Specifically, large-scale social network platforms are mandated to establish a residential “point of contact” official and officials inspection compliance of self-regulation.

Pursuant to this Act, all social network operators are required to establish a dedicated ‘point of contact’ within Nepal. This mandate is specifically aimed at facilitating the resolution of complaints and issues relating to the use and management of social network platforms.

The point of contact would, identify material communicated on social network that is contrary to the Directive, temporarily or permanently remove such content, and inform such activities to the ‘social network management unit’ and other concerned authorities and periodically publish information regarding responsible use of social network platforms.

Under the Directives, social network operators have various responsibilities. These include developing algorithms and other measures to prevent the publication and transmission of information, advertisements, and content that contravene prevailing laws. Operators are required to promptly, within a 24-hour window, identify and assess the legality of content that is subject to complaints, removing any material that is found to be in violation of the prescribed user conduct guidelines (see the above section on ‘Prohibited Activities’). Additionally, if found that content is being or is about to be posted that contradicts provisions of the Directive, under the instructions of the social network management committee or related body, operators must ensure its removal within a 24-hour timeframe.

Furthermore, social network operators are obliged to establish robust measures for the protection of individual privacy, explicitly prohibiting the unauthorized publication or sharing of personal data. They are also tasked with the development and dissemination of educational and informative content that caters to the safety and interests of social network users, as necessary. Maintaining a comprehensive record of all complaints received, along with the subsequent actions taken, forms a crucial part of these responsibilities.

Operators are also required to actively prevent the circulation of content on social network platforms that could potentially undermine national integrity and independence, among other sensitive matters. The management of social network usage should align with international principles and standards.

Lastly, it provides that any transactions through social network platforms must occur through a banking system.

The Social Network Management Unit is tasked under the Ministry of Communications and Information Technology to hear complaints and issues not addressed at the point of contact or by the social network operator itself. It is tasked with register complaints arising from social network use (for example by verifying screenshots of purported victim), to enhance capacity of the human resources employed in the social network management unit, organizing coordination meetings regarding the systematic use and regulation of social networks with the participation of related authorities. They are also tasked to send a written notice to the contact point of the social network platform to immediately remove any material published or disseminated contrary to these Directives.

The Directive does not explicitly state the consequences for users of social networks who do not comply with its regulations. It can be inferred that non-compliance could result consequences as per the Electronic Transaction Act 2063, as the Directive has been issued by virtue of the power provided under section 79.

Startup Enterprise Fund Procedure, 2079 (the “Act”) was approved on 10^th Falgun 2079. This Procedure tries to make the operations related to granting concessional loans simple, clear, comprehensive and effective to encourage entrepreneurs with the latest knowledge, thinking, skills and abilities to engage in start-up enterprises.

1. What is a startup enterprise according to the Government of Nepal (“GoN”)?

A startup enterprise refers to any enterprise or business operating with the use of novel innovation and creative idea by an entrepreneurial group for the development, production, operation, and distribution of any goods, services, or process, that have the potential for progress.

3. What are the criteria for startup enterprises/entrepreneurs to apply for this scheme?

Startup enterprises that fulfil the following criteria may apply for the Startup Enterprise Fund Scheme, 2079:

i. Registered and in operation, but for no more than 7 years before the publication of this notice,

ii. Fulfil at least 3 of the following criteria from (a) – (d), and 2 of the following criteria from (e) – (g).

(a) Paid-up Capital: Paid-up capital of no more than NPR 5 million (NPR 50 lakhs),

(b) Gross Income: Gross income of no more than NPR 5 million (NPR 50 lakhs),

(e) Use of Information Technology: Utilization of information technology and innovation for providing goods or services that have come into development for the purpose of resolving consumer issues,

(f) Allocation of Expenditure: At least 5% of total expenditure allocated for product development, market research and development,

(g) Intellectual Property Protection: Either registered intellectual property of goods/service as patent, or design, or software, or eligible to be registered as patent, or design, or software.

4. Notwithstanding anything mentioned above, what are the conditions under which a startup enterprise will not be able to obtain the loan?

Following are the conditions under which a startup enterprise will not be able to obtain loan:

b. The enterprise has not utilized technology and innovation found in Nepal, and are simply importing goods and services from abroad,

d. The enterprise or entrepreneur behind the enterprise has been blacklisted in the Credit Information Bureau,

e. The enterprise has not obtained a Permanent Account Number (PAN) for taxation purposes,

f. The enterprise is classified as a medium-large holding company as per the Industry Enterprises Act (EIA), 2076, or

In addition to the obligations mentioned elsewhere in this procedure, the obligations of the entrepreneur who has received the loan pursuant to this procedure shall be as follows:

a. The loan amount should be used only for the purpose mentioned in the project,

b. To repay the installment amount along with the principal and interest of the loan as mentioned in the agreement,

c. Provide necessary information and data during the monitoring carried out by the committee and the bank,

d. Submit the progress report of the startup entrepreneurship to the committee secretariat and lending bank annually,

e. At the project site, a board with the words ‘Government of Nepal’s Subsidized Loan Facilities’ shall be put up for the general public to see,

According to this procedure, the bank that provides the concessional loan, may take payments of the following:

a. Upon providing the concessional loan based on the agreement between the entrepreneur and the bank, the administrative/service tax shall be a maximum of 0.1%

b. Entrepreneur shall be provided 0.5% of the installment amount out of the principal amount as a reward.

a. The entrepreneur who has acquired the concessional loan based on this procedure, shall clear off the principal amount and interest as according to the agreement of the payment. However, if one wishes to pay off the debt before the time period, such entrepreneur will be able to do so, and the excessive charge will no longer be required.

b. An entrepreneur who does not clear off the loan principal and interest, such entrepreneur will be according to the prevailing law, will be put under default and the remaining amount will be collected as a government loan.

The bank will keep a security on loan by keeping the approved project as collateral for providing the concessional loan, by securing the loan with the Deposit and Credit Guarantee Fund as per the prevailing law for providing the loan according to this procedure and depositing the required fee while securing the loan, or the Deposit and Credit Guarantee Fund must be requested to the NRB.

Following are the process of applying for fund scheme and particulars to pay attention to:

In order to carry-out the startup enterprise planning, select the environmental protection and investment protection plans, operate the enterprise in an organized manner, promote the startup enterprise, and support the startup enterprise in strategic, financial and technological matters, the startup enterprise Executive Committee shall consist of:

b. Deputy Secretary, (Ministry of Industry, Commerce and Supplies – Facilitation Branch) – Member

Meetings of the Executive Committee shall be held at the appointed time, date and place, as decided by the Coordinator. The meetings of the Executive Committee may invite representatives, experts, and investors from the industry and commerce sectors, as deemed necessary.

The additional duties, obligations, and authority of the startup enterprise Executive Committee shall be as follows:

a. Entrepreneurs who fulfil the criteria mentioned above must be called to present their ideas and apply for the startup loan application,

b. Prepare details of the proposed project that has applied for the startup loan grant,

c. Prepare the evaluation and selection of the proposed project, creating a list and loan limit to be submitted/recommended to NRB,

d. The project proposal that has been selected for recommendation shall be informed to the NRB,

e. For the purpose of securing the loan, to facilitate and coordinate, or cause to facilitate and coordinate with the concerned body,

f. To prepare and submit a comprehensive annual report outlining the achievement of the project and the work progress of the project approved for the loan disbursement,

g. To organize or cause to organize the investigation of the startup enterprise,

11. Who is the Executive Committee Secretariat and what role will they play?

The Executive Committee Secretariat shall remain at the DOI. The Ministry shall arrange the necessary personnel and budget for the operation of the Secretariat’s obligations. The Secretariat shall carry out the following duties:

a. Record, collect and process information in respect of the project proposal for the loan disbursement,

b. Carryout and prepare a comparison examining whether the received project proposal has fulfilled the criteria for application,

c. Evaluate, select and recommend the proposed project before the decision making committee,

d. The project proposal that has been selected and recommended by the Executive Committee shall be sent to the relevant bank with the related documents,

12. What evaluation and recommendation process will the proposed project be subject to?

a. The Executive Committee must, and be made to evaluate the project proposal submitted through electronic means (as required in the format detailed under Schedule 1).

b. This evaluation must be done by either the Executive Committee themselves, or through the formation of a sub-committee. Depending on the area of the proposed project, the loan concession request might be subject to multiple sub-committees.

c. Until formed, during the formation of such sub-committees, the proposed project’s sector expert, entrepreneurship expert, the bank assigned for the loan disbursement, and other the members representing the organization of private industry professionals may be invited.

d. In conducting an evaluation, the proposed project and the presentation according to the format listed in Schedule 1 must be submitted.

The evaluation must be conducted according to the following (as per the format listed in Schedule 2):

vii. Proposer’s educational qualification and experience in the relevant area,

ix. Predicted growth or decline of the good or services proposed by the project,

In conducting the evaluation of the proposed project, the proposer themselves may be present in person or virtually. The evaluation process of the project proposal will be as follows:

a. The report of the evaluated project, along with the received amount submitted to the subcommittee will be submitted by the subcommittee to the Executive Committee,

b. In accordance with the received report, the Executive Committee will then prepare an integrated assessment report, selecting the best project proposal to be recommended,

c. Although the requested loan concession amount shall be no more than NPR 25 million (NPR 25 lakhs), where it is found that the amount required for the operation of the proposed project is less than the amount requested for the loan concession, with base and reasoning, such will be mentioned, and the proposer will be subject to a loan lesser than the amount requested,

d. Within 30 days of the submission of the proposed project, the request will be evaluated, selected and recommended for the loan concession,

e. Details of the project will be published by the DOI on their website, along with the accepted budget, giving priority to the parameters,

f. The DOI must write to the NRB regarding the selected proposer who is to receive the loan concession, and inform the proposer of such as well,

g. Accordingly, the NRB must immediately inform the bank granting the loan concession of the recommendation, along with the explanation, in order to make the sum available,

h. The selected proposer must then contact the relevant bank regarding their selection for the loan concession, if not, the proposed project will automatically cancel,

i. Where the proposal has been cancelled, other chosen high scoring projects, according to the integrated assessment report will respectively be recommended.

14. What are the complaint arrangements available to each of the parties?

Following are the Procedure for complaint arrangement available to each of the parties:

a. According to this procedure, if there are any reasonably reasons for not disbursing the loan from the bank on the basis of the recommendation of the committee, the concerned bank should disclose the reason for the same and inform the concerned entrepreneur.

b. If the bank does not disburse the loan, such entrepreneur may file a written complaint to the committee.

c. If any complaint is received, the committee may give necessary directions to the bank to investigate and address such complaint within fifteen days from the date of receipt of the complaint.

The Companies Directives (Second Amendment), 2079 (2022) (the “Second Amendment”) has been issued by the Office of the Company Registrar (the “OCR”) to make necessary revisions in the prevalent Companies Directives, 2072 (2015) (the “Directives”). The Second Amendment was published on 22 August 2022 (2079/05/06) and was brought to effect since the date of its publication.

The primary objective of the Second Amendment is to facilitate and assist effective administration of Nepalese companies in compliance with the Companies Act, 2063 (2006) (the “Companies Act”).

Associations registered under Association Registration Act, 2034 (1977) such as NGOs were not allowed to own shares in companies as per the Directives. The Second Amendment now allows such NGOs to own shares of other companies.

Clause 10B of the Second Amendment has incorporated certain provisions in relation to the general meeting of a private company, which is generally conducted as per the AOA of the company.

If the concerned promoter shareholder does not correspond as requested in the notice, the other promoter shareholder must publish a public notice in a national daily newspaper requesting the promoter or its legal heir to contact the company within 35 days.

If any errors are found to have been made in the documents already submitted at OCR (such as annual compliance documents, share transfer documents), the Second Amendment allows the company to rectify such error for once. The board of directors will have to pass a resolution for such rectification and resubmission of documents.

The Second Amendment allows for cancellation of registration of a company which is not able to commence its business since its incorporation. The promoter shareholder(s) of such company holding at least 67% shares (instead of the previous requirement of 75%) of the company is eligible to apply for such deregistration. However, this provision is not applicable in case of companies which have already commenced operations but could not continue for any reason.

The Second Amendment however does not explicitly define the term commencement of business.

The Second Amendment requires approval from the board and the OCR for transfer of shares of public companies that have not issued shares to the public.

The Registrar of the OCR has the authority to adjudicate complaints made by the company, shareholders, directors or concerned stakeholders pursuant to the Companies Act. The decision so made by the Registrar may be challenged in the Patan High Court within 35 days.

The Second Amendment empowers the Registrar to order parties to settle disputes through mediation facilitated by the OCR. The OCR will appoint a sole mediator or mediators prescribed in its roster. A mediation room shall also be provided, and the cost of mediation shall be mutually determined by the parties and the mediator.

S.N	Industries
1.	Agriculture and poultry based,
2.	Forest based (herbs, and forestry products),
3.	Tourism promotion, entertainment and hospitality related,
4.	Science, technology, information, and communication technology based,
5.	Human health services related,
6.	Education and educational institutions related,
7.	Accessible and safe travel and transportation related,
8.	Infrastructure construction related,
9.	Automobile related,
10.	Dedicated to improving processes related to traditional technology, production methods and services,
11.	Mines and mining research and development related,
12.	Dedicated to aiding domestic and daily affairs, their ease, convenience and safety,
13.	Food production and processing based,
14.	Waste management and environment-related.

Steps	Process	Details
Step 1	The Executive Committee will inform the willing startup entrepreneurs who have applied for the scheme that they have 21 days in which they must propose their projects.	This will be done through publication in the national daily newspaper, and electric means.
Step 2	The eligible startup entrepreneurs may apply for this loan concession.	However, this application for the loan is only on the basis that the above mentioned criteria have been satisfied. Furthermore, such startup enterprises may only submit their project proposals for the loan once.
Step 3	Submission of the project proposal for the loan concession.	The project proposal may be submitted in electrical form, in the manner as attached in Schedule-1 of the Notice.
Step 4	Self- declaration of documents.	The project proposal shall contain all documents and descriptions as required, and the related entrepreneur shall self-declare that all such documents and descriptions contained in the proposal are accurate and correct.
Step 5	Punishment for falsified self-declaration.	If the self-declaration documents and descriptions are found to be false, the proposal will be cancelled, and as per the prevailing law, will be sent to the relevant institution for punishment. Such proposers will be barred from applying in the future.
Step 6	Certification of the proposal by the Secretariat.	After the submission, the Secretariat of the Executive Committee will certify the application.
Step 7	Submission to the Executive Committee.	The proposal will then be submitted to the Executive Committee within 7 days of the submission deadline, after the certification.

EXTRA-TERRITORIAL APPLICATION

DEFINITIONS

Definition of Social Network Platforms

Definition of Hate Speech

CONTENT TAKEDOWN

LICENSING

ESTABLISHING POINT OF CONTACT

OFFENCES RELATED TO THE USE OF SOCIAL MEDIA

RESTRICTIONS ON ANNONIMITY

ADDITIONAL ISSUES TO BE INCLUDED IN THE BILL

Provisions in relation to Child Protection

Data Privacy

Conclusion

To whom will the E-commerce Act apply?

Other Key Definitions

Parties involved in E-commerce Transactions

Establishment of Electronic Platform

Listing Requirement

Validity of Electronic Contracts

Key Details to be displayed on E-commerce Platforms

Return of goods or services

Privacy of Personal Information

Adherence to IT Standards

Duties of the Parties involved in E-commerce

Duties of the Buyer

Duties relating to Delivery

Grievance Redressal Mechanism

1. Overview

2. Initiatives Undertaken By The Government Of Nepal

2.1 Financing Initiatives of the Startups

2.2 One Window Policy

2.3 Definition of Startup

2.4 Startup Policy 2080 (2023)

3. Startup Related Matters Proposed By The Budget 2081/2082

4. Way Forward

Foreign Investment and Technology Transfer Act 2019 (2075) (“FITTA”)

Industrial Enterprises Act 2020 (2076) (“IEA”)

Special Economic Zone Act, 2018 (2073) (“SEZA”)

Investment related Changes Proposed by the Budget:

(A) Information Technology Decade

Our Observations

(B) Digital Nepal Framework

Our Observations

Recommendations

(C) Data Protection and Cybersecurity

Our Observations

Recommendations

(D) Digital Platforms and E-commerce

Our Observations

Recommendations

1. Digital Permanent Establishment

Amendment

What’s New and Who is Covered?

Will Digital Service Tax Still Be Applicable?

Compliance

DTAA

2. Change in Control

Existing Provision

Amendment

Objective of Provision Like Section 57

Nepal’s Practice

Interpretational Issue of the Amendment

3. Tax Immunity

Exemption in Past

Current Exemption

Recommendation

4. Rent Tax

Issue with Rent Tax

Reason for the Issue

Recommendation of HLTR Committee

Additional Issue and Recommendation

5. Tax Assessment

Practice in Nepal

Budget Policy

6. VAT on Essential Consumable Items

7. Other Key Changes

Development of Hydropower Projects

Transmission Line

Net Zero by 2045

Way Forward