Some Legal and Accounting Answers that help you while starting & running

your business in Nepal

Q. Would it be better to register my own business myself or would it be better to outsource it
through legal firms?
A. If you have the time and the willingness to register it yourself, it is much better and would be
cheaper for you. But, if you are not completely sure of the process and the problem you may
face, it is better to take advice from legal firms.

Q. Which type of company needs a PAN number?

A. All the companies are required to have a PAN number by law.

Q. What would be the process for a Nepalese citizen who has taken a foreign resident permit and
gave up Nepalese citizenship to invest in Nepal?
A. In the current scenario when the NRN act is not implemented, a person with no citizenship of
Nepal is considered a foreigner and would be treated as a foreigner in every aspect. There is an
act known as Foreign Investment and Technology transfer act 1992 which has defined the
industries in which a foreigner can invest. So, a foreigner can only invest in the positive list of
industries and will not be allowed to invest in the negative list of industries.

What are the legal restrictions (or what does the corporate law say) in starting e- business in
Nepal?
A. According to the law, if you start any kind of business, you need to register the business in the
first place. Since you will be operating in Nepal, employing Nepalese citizens and using
Nepalese banking, you will have to comply by the laws of Nepal for e-business or any other kind
of business.

Q. If I work with an international company and they pay me with my income tax deducted, will I
have to pay income tax in Nepal too?
A. In this case, the Dual Tax Avoidance Agreement (DTAA) would come into force according to
which you can claim the tax paid in the foreign country here in Nepal. So, you have to pay the
income tax but the tax paid in the foreign country would be returned by your claim with
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necessary documents. But, Nepal should have the DTAA (agreement) with the certain country .If
there is no such agreement you have to pay income tax in Nepal too.

Q. Should a foreigner working in Nepal be taxed if the tax is already cut in some other country?
A. According to the law of Nepal, anyone who has lived in Nepal for more than 183 days is
considered a resident and has to pay the tax. Hence it becomes compulsory for the foreign
national to pay tax in Nepal too.

Q. How long does it take to open a NRN or foreign Nepalese venture? What is the minimum
capital? How can dividends be repatriated?
A. The act for this issue has been made but not implemented yet. Till now the NRNs doing
business in Nepal are doing it as a citizen of Nepal. The minimum capital for a foreigner is US
$20,000 each.
Q. What does the law say about partnership business? How long do the members have to
remain partners?
A. It depends on the contract between the partners. If the partners are separating willingly, they
have the right to do so. However, they do need to inform the registrars office.

Q. Is there a cyber law in Nepal?

A. There is a separate act for the cyber law in Nepal. Recently the government has promulgated
the Electronic Transaction Act which is related to all the electronic transaction happening in
Nepal.

Q. Do we need to register if there is no transaction through websites?

A. If there is no transaction in the website you dont need to register. But, the e- commerce law
has defined the services and products of websites and if you come under the law, you need to
have registered.

Q. If someone wants to export any product by selling it online, is the law similar?

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A. To promote export, the government has put a 0% tax on export. So if you are gaining profit
from export, you need not pay any VAT to the government and the tax rates are also different.

Q. What is the legal way of importing livestock from India?

A. In order to bring livestock to Nepal from India, the quarantine test in the custom needs to be
done according to the quarantine act of Nepal. Secondly, the import tax needs to be paid
according to the law. But, recently due to shortage of milk in India, there is a ban in importing
livestock from India.

Q. Is it possible to register international brand like McDonalds in Nepal? If it is possible, what

is the renewal period?
A. In the current context, it is possible to register international brands in Nepal. But, since Nepal
is a member of WTO and international trade agreement trade and tariff would be applicable from
2014, the government will have the right to amend the law and remove your name from the
brand. Even if you go to the court there is a high chance that you will lose the case.

Q. You have done Chartered accounting (CA) from both India and UK. What is the reason
behind that? Why has the ICAN stopped the use of registered auditor?
A. It was just a coincidence that I studied in the UK. I filled up a form and gave the exam and
surprisingly I got selected. But, it did not add much value to my education. The registered
auditor was only commerce graduate and was not expert in Accounting like the CAs. Hence,
with the implementation of a new act regulating the Accounting profession, registered auditors
are not in the criteria which only the CAs can fulfill.

Q. What type of companies can a registered auditor certify?

A. A company having an annual turnover of upto 40 crore rupees can be certified by a registered
auditor.

Q. How long does it take to open a NRN or foreign Nepalese venture? What is the minimum
capital? How can dividends be repatriated?

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A. The act for this issue has been made but not implemented yet. Till now the NRNs doing
business in Nepal are doing it as a citizen of Nepal. The minimum capital for a foreigner is US
$20,000 each. In the case of NRN, the minimum capital is not clear yet. If the money has come
through a banking channel, it can be repatriated with the approval from the central bank.

Q. Is there an existing rule of patient capital? Is there any tax implication?

A. If you are here as a NGO or INGO, the Social Welfare Council doesnt allow you to enter into
a profit making business. But if you are not under the SWC banner but you are a not-for-profit
company, you can increase your capital through investment by the law. Dividend sharing is not
allowed in a not-for-profit company.

Q. If there were disputes in a company, would you suggest an entrepreneur to go to court? Is the
legal system entrepreneur friendly?
A. The suggestion would be to analyze the cost in the first place. If going to court would be more
expensive than settling outside, it is better to settle outside the court.

Q. Do we need to cut the purchase tax on Agricultural and educational products?

A. There is no law that says tax should be cut in purchases. For service, it is necessary but for
goods, tax need not be paid.

Q. Why are there very few students who practice law after graduating?
A. It is mostly because of the lack of patience among the students. The students start going to
other jobs without trying much in law field. So it would depend on the students more than
anything else.

Q. What does the law/act say if a foreign national want to provide a grant to a Nepalese
Company?
A. If it is a grant, it has to go through the Social Welfare Council and the grant cant be made to a
company - it has to be a not-for-profit company.

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Q. What would be the tax provisions for donated goods from other countries?
A. If the goods are for distribution for social cause, you need to apply for tax exemption and the
Finance Ministry will look upon the goods and decide if the tax exemption is to be granted. For
e.g., there is a tax exemption for education materials.

These advices were given by a professional Chartered Accountant Jagadish Bhattarai and
Lawyer Prabin Kharel. Their background is below. They are Entrepreneurs for Nepal members
and have agreed to help members as much as they can. Feel free to approach them nicely on our
behalf :)

Jagadish Bhattarai
Jagadish Bhattarai is a Chartered Accountant by profession. He studied finance and accounting in
India as well as the UK. After his studies, he stayed in the UK for some years. But the thought of
coming back and working in Nepal was always strong. As he was contemplating over his next
move, he got a call from a Nepali bank offering him a job. With his mothers encouragement, he
joined in the bank. The pay, benefit and future was good and the management was treating him
very well. But when he had to wake up and go the bank every day, he felt like quitting the job.
After 5 months, he finally made a decision to quit. According to Mr. Bhattarai, he made the
decision to quit because he felt that the job wasnt for him. So he started his own account
consulting firm with a partner. However, finding the clients was not easy. The first two years, he
and his partner did not do anything much in the firm. They made about 10% money of what he
used to make in his previous job. On the third year, they started hiring other people. The market
started to recognize them and gave them work. Currently the firm is employing 25 people
including CAs, non-CAs and interns. Mr. Bhattarai says that his company has a target to give
employment to at least 50 people. They provide services like auditing, accounting and advisory.
Their firm has clients who pay a small sum of money and the ones who pay large sum of money
but they treat their clients equally in all the cases. They help in registration, accounting services,
tax issues, business advices, legal advices and many other services. They also provide services to
international business wanting to set up businesses in Nepal.

Prabin Kharel
Prabin Kharel is a lawyer by profession and specializes in corporate law. He studied law in both
India and Nepal. He has been involved in corporate law for the last 10 years. He knows and
understands other laws too but he is most comfortable with corporate law. According to Mr.
Kharel, people get scared when they hear about legal obligations in Nepal. They do have a
tendency to avoid registration and other legal process. It is mostly because of the confusion about
the government department for registration and other processes. Recently he worked with
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Biruwa, a company that provides services for start up businesses, helping them register their
company and few other ventures. Since people are not familiar with the law, which is often
complicated, his law firm helps people understand law in an easier way and help them in the
legal process. The process doesnt complete with registration and hence his firm helps companies
to fulfill their legal compliance throughout. The process of renewing the license and other factors
are generally forgotten by the companies and his firm also reminds the companies regarding
those issues. Mr. Kharel says that people are slowly but gradually understanding the importance
of legal firms and hence his firm is being recognized in the market.

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