Contributed By Neupane Law Associates
Nepal’s legal system is a mixture of Hindu law, local customs and traditions, common law and civil law. In 1854, Prime Minister Jung Bahadur Rana promulgated the first written legal code in Nepal, the Muluki Ain (translated as 'General Code' or 'Country Code'). The Muluki Ain is one of the oldest civil codes in the world. Unlike other civil codes of the time, the Muluki Ain is not a recodification of Roman Law principles derived from the rediscovered Corpus Juris Civilis – rather, it is a codification of Hindu religious law and societal customs prevailing at the time.
The Muluki Ain was revised and re-enacted in 1962; it has thereafter been amended 26 times. The most important commercial law amendments were the introduction of the Contract Act in 1966, amendments by the Evidence Act in 1974 and the second Contract Act in 2000. The introduction of the Contract Acts made it such that commercial transactions in Nepal could function either through Chapter 17 – On General Transactions of the Muluki Ain through likhats (deeds), or through imported concepts of contracts enshrined in the Contract Act. Corporate and commercial laws are heavily influenced by common law jurisdictions such as England and India laws.
Foreign investment was formalised through the Foreign Investment and Technology Transfer Act 1992. Nepal became a member of the World Trade Organisation in 2004 and many laws – such as the Company Act 2006, the Insolvency Act 2006, the Competition and Market Protection Act 2006, and the Electronic Transactions Act 2008 – were subsequently introduced. Following the people’s movement in 2006, the Interim Constitution of Nepal was enacted in 2007. Following two rounds of constituent assembly elections, the Constitution of Nepal 2015 was enacted which has now established Nepal as a Federal Democratic Republic. The new Constitution ensures separation of power and the independence of the judiciary.
The new Muluki Civil Code 2017 and Muluki Penal Code 2017 has replaced the previous Muluki Ain from 17 August 2018. The Civil Code has embodied many legal provisions identical to those of the original Muluki Ain, such as family law, laws related to partition of property, laws related to trusts, etc. It also incorporated newer legal concepts with regard to the Nepalese legal system such as laws concerning personhood, inter-state adoption, torts, product liability and private international law. It also replaced the Contract Act 2000. Recently, the Foreign Investment and Technology Transfer Act 2019 and the Private Public Partnership and Investment Act 2019 have been enacted in a bid to facilitate and increase foreign investment. The Government is also working to reform laws relating to intellectual property, foreign exchange, and environment regulation.
Nepal has a three-tier judiciary with a Supreme Court, high courts and district courts. The Supreme Court of Nepal is the highest judicial body and the court of record. There are seven high courts, with one high court in each province, and 77 district courts.
A district court has jurisdiction to hear and settle all cases of first instance within its territory; appeals of the decisions made by quasi-judicial bodies and local level judicial committees. A high court has jurisdiction to hear appeals from a district court, including writ application for the enforcement of fundamental rights and legal dispute with a public interest. A high court exercises jurisdiction of first instance in issues relating to competition law, corporate and commercial matters. The Supreme Court has ordinary jurisdiction to hear appeals from lower courts, and extraordinary jurisdiction to hear disputes with public interest elements and writs where alternative remedies are not available.
Other courts are the Special Court for corruption and money laundering trials, the Debt Recovery Tribunal for recovery of debts of banks and financial institutions, the Revenue Tribunal for tax issues, and the Labour Court for employment law disputes. The Department of Industry, the Copyright Registrar’s Office, the Company’s Registrar’s Office and labour offices also exercise certain judicial powers. Additionally, judicial committees formed at the municipal and village level have concurrent jurisdiction to hear small claim disputes.
The Foreign Investment and Technology Transfer Act 2019, the Public Private Partnership and Investment Act 2019, the Company Act 2006, the Foreign Exchange (Regulation) Act 1962, and various other circulars, directives and policies regulate foreign investments. Specific sectoral laws and policies are also applicable for banking, insurance, telecommunications and aviation sectors.
Foreign investments require prior approval from the Department of Industry or the Investment Board, depending upon the size of the proposed investment. Investments under NPR6 billion (USD54 million) are approved by the Department of Industry, and investments above such amount are approved by the Investment Board. Second approval from Nepal Rastra Bank also needs to be obtained prior to investing the approved investment amount. The minimum foreign investment has been set at NPR50 million (USD450,000) per investor. Foreign investment in the banking sector is only approved by the Nepal Rastra Bank.
Foreign companies also have the option to set up liaison offices or branch offices in Nepal. Setting up of a branch office and a liaison office is regulated by the Company Act 2006. The liaison office of a foreign company may be registered at the Office of the Company Registrar without prior approval, other than in regulated sectors. Liaison offices are allowed to set up offices and hire employees, but they are not allowed to sell goods or provide services. Liaison offices may be useful for multinational companies co-ordinating with a distributor or clients. It is mandatory for foreign companies to set up a branch office if they are undertaking transactions or business regularly for a period of 30 days or more from a location within Nepal. The setting up of branch offices requires service agreements with authorised entities in Nepal or approval from a government authority.
Foreign investment is permissible through various modes such as investment in shares, purchase of shares or assets of an existing company, and investment by issue of securities in foreign stock markets. Investment is permitted on a fully owned or joint venture basis, depending on sector-specific rules. Although joint venture is not mandatory in most sectors, it is also common to have a local partner. Foreign investment in venture capital funds or funds that invest in secondary stock markets is proposed to be allowed upon further notification by the government.
Technology transfers and leases by foreign entities are also regulated by the investment law and require regulatory approvals. Technology transfers include licensing of foreign intellectual property, franchising, technical expertise, a user's licence, management, advisory and marketing services. Such arrangements are common in hospitality, restaurants and manufacturing sectors. Leases by foreign persons of airlines, ships, machinery and equipments, and technology transfers are also classified as investments. The lessees, licencees and franchisees will only be allowed to make payments of lease, licence fees and royalties if the respective transactions have been approved.
Foreign investment is permitted in manufacturing, energy, banking, insurance, mining, construction, infrastructure, tourism, information technology, and other service sectors classified as industries by the Industrial Enterprises Act 2017. Foreign equity investment is restricted in agriculture, cottage and small industries, personal service businesses, arms and ammunition, buying and selling of land and houses, retail, foreign exchange and remittance services, local catering, local trekking, travel agency, trekking and mountaineering, rural tourism, mass media (including films in national languages) and professional consulting services such as management, accounting, engineering, legal services, and also in language, music, and computer training. Restrictions on these sectors do not fully comply with the WTO commitments of Nepal.
Foreign equity investment in some sectors is limited to a certain percentage. A foreign investor can make a maximum equity investment of 51% in consulting services (except for those completely restricted), of 49% in domestic airlines, of 80% in international airlines, of 95% in aviation schools, of 95% in aircraft repair and maintenance institutions, of 80% in telecommunication services, and of between 20% (minimum) and 80% (maximum) in banks and financial institutions.
The Foreign Investment and Technology Transfer Act 2019 requires investment approval to be given within seven days of application with a full set of documents. However, it takes over one month to obtain the initial approval in practice. The review procedure for foreign investment is documentary only. The prevailing laws do not set out criteria required for approval. The authorities issuing approval verify if the investment has been made in the permitted sector and that the documents submitted are in compliance with applicable law and follow prescribed formats.
The procedures that investors need to follow to obtain foreign investment approval, incorporate a company and undertake other formalities are set out below.
The investor or the target company has to submit an application to the approving authority along with a project report, credibility certificate from a foreign bank, investor’s profile, corporate and identification documents, time schedule for investment, corporate decisions, power of attorney and other documents. Agreements relevant to the investment – such as joint venture agreement, share purchase agreement, share subscription agreement, licence agreement and others – should also be filed.
A company with a foreign person or entity as shareholder(s) can only be incorporated after obtaining investment approval. The copy of the approval needs to be submitted at the Office of the Company Registrar together with the application, memorandum, articles, and other documents. The name of the company should be reserved and approved prior to the application.
Tax, Local Authority and Industry Registration
A newly incorporated company is also required to register itself at a local tax office and local authority. A lease agreement between the company and lessor of the property where the address of the company is located and identification documents of the lessor should be submitted; withholding taxes applicable on rent should be paid prior to the registration. The company should register itself at the Department of Industry following tax registration.
Second Investment Approval
The investment approval from Nepal Rastra Bank (the central bank of Nepal) is also required prior to making the investment. An application should be submitted by the company incorporated by the investor along with a time schedule for investment, a commitment letter to not repatriate the investment for one year, the identity of beneficiaries and details of source of investment.
It generally takes three to six months to complete all initial procedures required for setting up of a new company owned by foreign investors.
The consequence of investing without approval is unclear as it is not specified in law. In practice, shareholding of the foreign investor in a company will not be recognised without foreign approval. Investors are not likely to be granted foreign exchange approvals to repatriate investment made without approvals.
Approving authorities impose various conditions that foreign investments have to comply with. Investors must invest a minimum amount equivalent to NPR50 million. The investment amount must be brought within the approved investment schedule through a proper banking channel. The conditions also specify that any other permits, such as environmental clearances and specific sectoral licences, must be obtained prior to starting business. The investment will have to be recorded at the Nepal Rastra Bank once it is invested. Investors are also to sign a commitment letter not to repatriate the investment amount for one year from the date of investment.
The approving authority may refuse to provide foreign investment approval and provide written notice of refusal within seven days after examination of submitted documents. Upon such refusal, the investor has the right to appeal to the Ministry of Industry, Commerce and Supplies where the Ministry provides its decision within 30 days. Further, the investors will also have the right to file for review of a decision of the Ministry at the Supreme Court of Nepal under its special writ jurisdiction.
Corporate vehicles available for foreign investment under Nepalese law are limited to private and public limited companies. Foreign investors are not allowed to invest in private firms and partnerships. Liaison and branch offices are also available for foreign companies. Limited liability partnership is yet to be introduced in Nepal. Further details on corporate vehicles are set out below.
Private Limited Company
A private limited company with limited liability is the most popular corporate vehicle in Nepal. It provides shareholders with the benefit of limited liability and flexibility with corporate governance matters. Incorporation of a private limited company requires at least one shareholder. It can have a maximum of 101 shareholders. The law does not require capital for a private limited company to have a minimum capital. The private limited company with multiple shareholders is required to have a memorandum of association and articles of association. Articles of association are optional for single shareholder companies. A shareholders' agreement is also recognised as a constitutional document.
Public Limited Company
Establishing a public limited company requires a minimum of seven shareholders; there are no limits as to maximum shareholders. The minimum paid capital for a public limited company is NPR10 million (USD90,000). Certain companies undertaking the business of banking, financial transactions, insurance, stock exchange, pension funds, mutual funds and telecommunication services are mandatorily required to register as public limited companies.
Branch Office of a Foreign Company
A foreign company can also register its branch to undertake income-producing activities in Nepal. Establishment of branch offices requires recommendation from a relevant government agency or for agreements to be entered into with authorised entities. Foreign companies undertaking business or transactions from an office or location within Nepal regularly for a period of over 30 days are required to register a branch in Nepal. Such branch of a foreign company may only undertake transactions that it is allowed to carry out in its home country.
Liaison Office of a Foreign Company
A liaison office (also called a representative office) can be established by foreign companies to undertake liaison activities in Nepal. It is not allowed to undertake income-producing activities. Approval from regulatory authorities are not required prior to registration, other than for regulated sectors such as banks. The liaison office can contact and correspond on behalf of a foreign company, help clients during import or use of products and services of a foreign company without taking any remuneration and co-ordinate with the appointed agents or distributors of foreign company. Once registered, liaison offices are not subject to renewals and can operate until deregistered. Further, the liaison office of a foreign company can be converted into branch office.
The private limited company, public limited company, branch and liaison office of a foreign company should be registered in the Office of the Company Registrar. The application has to be submitted online, but physical presence and paperwork are also required. It generally takes ten to 15 days to complete the process of company incorporation. Further details of the process are set out below.
Reservation of Company Name
The person(s) intending to incorporate the company should reserve a company name through the website of the Office of the Company Registrar. The user needs to register first and create a username and password.
Execution and Upload of Documents
After the approval of a proposed name, the scanned copy of application, executed memorandum of association, articles of association, identity documents of shareholders, approvals obtained, and other documents obtained should be uploaded in the e-services portal and also physically submitted.
The Office of the Company Registrar will register the company and provide a registration certificate, certified memorandum and articles of association if it finds that the documents submitted are in order.
Private companies are subject to various initial, ongoing and special reporting and compliance obligations, as set out below.
Newly incorporated companies are required to undertake various filings within three months of its incorporation. The company should disclose and report the address of the company, appoint directors, an auditor and company secretary, submit disclosures by directors and allot shares.
Companies are required to submit minutes of the annual general meeting, the auditor appointment for the next fiscal year, audited financial statements, details of shareholding, and inventory of shares, debentures and loans annually within six months of the end of the financial year.
Companies are also required to make filings and compliance for certain changes to the company. The company is required to report the amendment of memorandum and articles, increase in capital, change of name, change of registered address within 30 days of the passing of the relevant resolutions. Companies have to record the change of director or secretary within 15 days and are required to file for approval for merger within 30 days and for voluntarily liquidation within seven days of resolution being passed.
Management of a company in Nepal is headed by the board of directors. A private limited company cannot have more than 11 directors and every public company should have a board of directors consisting of minimum of three and a maximum of 11 directors. The shareholders of a company elect the board of directors. In addition to a board of directors, the management structure can also consist of managing director, audit committee and company secretary if they cross the relevant paid-up capital threshold.
The rules governing the liability of directors and officers are the Company Act, memorandum and articles of association of the company, consensus agreement and the individual by-laws of the company. The directors and officers have a duty to act in good faith for the best interest and benefit of the company, comply with the memorandum and articles of association, and disclose any personal interest towards the company.
The concept of 'piercing the corporate veil' is provided by law. Directors and officers may be made personally liable if they breach their duties or commit any offences set out in the Company Act, namely:
Such offences (and others) are punishable offences. Further, directors can also be made liable for criminal offences of the corporate entity.
The Labour Act 2017 (Labour Act), the Contribution Based Social Security Act 2017 (Social Security Act), the Right to Employment Act 2019 (Right to Employment Act), the Labour Regulation 2018 (Labour Regulation) and the Bonus Act 1974 (Bonus Act) are key labour legislations applicable in Nepal. In addition, the by-laws formulated by employers, employment agreements, collective agreements with collective bargaining committees or trade unions are recognised as sources of law.
The Labour Act constitutes minimum standards in matters relating to employer-employee relationship and is applicable to all enterprises registered in Nepal including branch office and liaison offices of foreign companies. The Labour Act is not applicable to Nepal's army, police, civil service, and other services established under special laws or special economic zones. Key provision of the Act relate to working hours, minimum wage, leave, termination, employment benefits, health and safety, insurance, insurance and other social security benefits of the employees.
The Social Security Act requires the employer to deposit the employment benefits, including provident fund and gratuity, to the Social Security Fund within 15 days of the end of each month. The employer is required to deduct 11% of the basic remuneration of the employee with 20% contribution from the employer and a deposit total of 31% of basic remuneration to the social security fund which will provide certain benefits to the employees upon retirement.
An obligation to undertake an employment agreement with employees is imposed on the employers except for casual employees. However, the labour office and the courts can also recognise an employment relationship even when an employment agreement has not been undertaken between the parties.
It has been specified in the Labour Regulation that the employment agreement should contain terms relating to type and nature of employment, the position of the employee, description of work, date, time and place of the employment agreement and other benefits, terms and conditions of employment. The duration of employment should also be specified in the employment agreement.
Types of Employment
The Labour Act has classified employment as regular, term, task, casual, and part-time. Regular employees are defined as those other than with a fixed-term, task or casual employment. Fixed-term employees hired for a particular task or for a certain time are classified as term employees or task employees. Employees hired for less than seven days in a month are classed as casual employees. Employees hired for 35 hours a week or less are classed as part-time.
The law does not differentiate between the wages and benefits offered based on the type of employee. Previous law did not require certain benefits (such as provident funds and gratuities) to be paid to temporary or contract employees, but this distinction has now been removed.
Security of employment until retirement is not provided to term, task or casual employees, and their employment will end after the relevant task is accomplished or term has ended. However, term or task employees may also be reclassified to regular employees if the nature of the work is of a permanent nature irrespective of the provision in the employment agreement
An employer cannot engage the employees in work for more than eight hours a day and 48 hours a week, pursuant to the Labour Act. Additionally, employees cannot be engaged in overtime for more than four hours a day and 24 hours a week; employees cannot be forced to work overtime. Employees engaged to work overtime are entitled to additional remuneration at the rate of 1.5 times the basic remuneration. A 30-minute rest period must be provided after five hours of continuous work.
Nepal does not recognise ‘employment at-will’ – an employer may only terminate the employee after fulfilling legal procedures. Section 139 of the Labour Act provides that employment cannot be terminated except in accordance with the provisions of the Act, regulation or the by-laws. Further details on termination and retrenchment are set out below.
Employment will terminate if an employee resigns, or in the case of term or task employment, the task is complete or the term ends. Employment will also terminate upon commencement of liquidation. Employment will be terminated at the retirement age of 58 years.
The employer may dismiss an employee from the employment for (i) unsatisfactory performance during the probation period of six months, (ii) underperforming in three or more consecutive performance evaluation, or (iii) being unable to work due to physical or mental illness.
An employee may be dismissed for gross misconduct or for a third instance of ordinary misconduct within a period of three years. Punishing or dismissing an employee for misconduct requires specific procedures to be followed and for the employee to be provided with an opportunity to be heard.
Employees may be retrenched (ie, made redundant) if an employer is facing financial hardship, or there is a problem of overstaffing after the merger or partial or total closure of the enterprise.
The employer should notify the Labour and Employment Office about the grounds of retrenchment before 30 days. The Labour Act also requires the employer to notify and consult with the Trade Union or Labour Relations Committee of the enterprise regarding possible alternatives, grounds of retrenchment and conditions for the selection of workers for retrenchment.
The employer should pay a lump of one month's basic salary for each year of service as the compensation to the retrenched employee. If the employee has worked for less than one year, the compensation should be paid on a proportional basis.
If the employer resumes operation of the enterprise within two years of retrenchment and needs to hire new employees, it should give preference to the retrenched employees.
The Labour Act requires the formation of a health and safety committee, a labour relations committee and a collective bargaining committee if the relevant threshold on the number of employees are met. They do not have any role in day-to day-management of the enterprise and the employer need not consult or inform such committees in its decision making. Details of the committees and their roles are set out below.
Health and Safety Committee
An employer employing 20 or more employees in the enterprise should form a health and safety committee comprising of representatives of employees. The function of the committee is to provide advice to the employer on issues relating to the safety and health arrangements of the employees, and review the health and safety policy of the employer.
Labour Relations Committee
An employer employing ten or more employees in the enterprise should form a labour relations committee comprising representatives of the employees. The function of the committee is hold consultation for the improvement of the working environment of the enterprise and facilitate settlement of any employee grievances.
Collective Bargaining Committee
The Labour Act requires formation of a collective bargaining committee in an enterprise employing ten or more employees. A collective bargaining committee can submit collective claims or demands in writing to the employer on issues relating to the interest of the employees. It can also enter into collective agreement or file suit in matters relating to employment. The committee should comprise of representatives appointed for negotiation on behalf of the elected trade union or representatives nominated through mutual agreement of all the unions in the enterprise or representatives supported with the signatures of more than 60% of the employees working in the enterprise.
The income of an employee is subject to tax withholding by the employer in accordance with tax brackets provided by the Finance Act of each fiscal year. The employer is required to withhold tax on a monthly basis in proportion to the taxable income of the employee and deposit at the relevant tax office.
Tax applicable on employment income starts from 1% for income up to NPR400,000 to 36% for taxable income exceeding NPR2 million. The applicable tax rates on the income of an individual employee and married couple prescribed for the fiscal year 2019-20 are set out below:
Social security tax of 1% of the employee’s wages should be deposited in a separate revenue account. This 1% income tax is not levied for individuals who make a contribution to the Social Security Fund or are entitled to pensions.
Companies doing business in Nepal are required to pay taxes such as corporate income tax, value added tax, customs duty, capital gains tax, excise duty, withholding taxes (dividend, repatriation of dividend, rental tax) and local business tax.
Corporate Income Tax
The general corporate income tax rate is 25%. It is imposed on the taxable income of a company in an income year. A corporate tax rate of 30% is applicable for entities engaged in banking, insurance, telecommunication, money transfer, capital market management, securities and commodity agent business, thecommodity futures market, tobacco, alcohol and petroleum business. A 20% corporate tax rate is applicable for the transactions of co-operatives (other than tax-exempt transactions) registered under the Cooperative Act 2017.
Value Added Tax (VAT)
VAT is levied at a single rate of 13%. VAT is not levied on export of goods and services which are zero rated. Goods such as basic agricultural products, medicine, education services, air transport, and certain financial services are exempt from VAT.
Custom Duty is governed by the Customs Act 2007 and is levied on all import and export of goods and services as per the rate specific to each item (as prescribed in tariff as per the Harmonised System Code).
Excise duty is applicable for the manufacture, import, sale or storage of products subject to excise duty. The goods subject to excise duty and the respective rates are determined as per the Excise Duty Act 2002.
Advance Tax on Capital Gains
Unlisted companies whose shares are being sold or stock brokers trading shares of listed companies are required to pay advance tax on the net capital gains for the sale of shares and assets. The applicable advance tax rates for gains on sale of shares are
Further, change of control taxes are also applicable if the control of an entity changes by 51% over a period of three years.
An entity is required to withhold taxes on various payments. Rent is required to be withheld at the rate of 10%, dividend at 5%, service payments to non-resident entities and entities with VAT registration at 15%, payments to service providers having VAT registration at 1.5%. Interest paid to resident banks and financial institutions are exempt from withholding, however, withholding is applicable at 15% for interest payments to non-resident banks and financial institutions.
Local Business Tax
Companies are subject to an annual local level business tax which depends on the nature of business. The annual business tax is determined by the Fiscal Act of the local level (ie, metropolitan city, municipality, rural municipality) where the business is situated.
Various other taxes such as health risk tax, education service tax, telecommunication service duty, phone ownership duty, infrastructure development tax, road construction duty, road repair and maintenance duty, pollution control tax, casino royalty and others are also applicable on specific goods and services.
Various tax incentives and rebates are offered to promote agriculture, manufacturing, infrastructure and export business. The Income Tax Act provides 100% exemption from income tax in agriculture business.
The Income Tax Act provides tax exemption ranging from 10% to 30% on the applicable rate to special industries or production-oriented industries except tobacco and alcohol industries ('special industries') and information technology industries based on employment provided. Tax exemption ranging from 70% to 90% on the applicable rate are provided to special industries and information technology industries established in underdeveloped areas for the first ten years of establishment; 100% tax exemption is provided to the special industries based on the investment amount from the first five years of the commencement of the business and 50% for the next three years.
A 20% tax exemption is available for companies operating trolley or tram bus, construction and operation of ropeway, cable car, tunnel or sky bridge; there is a 40% tax exemption for construction and operation of airports; a 52% tax exemption is available for construction and operation of roads, bridges or tunnels. Hydropower companies are provided with 100% income tax exemption for the first ten years of commercial operation and 50% income tax exemption for the subsequent five years if the commercial operation commences before mid-April 2024.
Industries established in the Special Economic Zone (SEZ) are provided with 100% tax exemption for income and dividend during the first five to ten years of establishment, depending on the location of the industry, with 50% exemption in subsequent years. Further, 100% tax exemption in dividend is provided to such industries for the first ten years and 50% exemption in the subsequent three years.
In addition to the above, export income of manufacturing industries ais provided with additional exemption of 25% on the rate derived after providing normal exemption.
Tax consolidation among group companies is not available. Each company is treated as a separate entity for tax purposes.
Thin capitalisation rules are not applicable in Nepal. Thin capitalisation is mitigated through 15% withholding taxes applicable on interest payments to all entities other than licensed resident banks and financial institutions. Deduction of interest is only allowed if the borrowed amount is used in the same fiscal year for business purposes or used to acquire assets to be used in the same fiscal year.
Transfer pricing rules are applicable but seldom used in practice. Tax authority may make notice to recharacterise or allocate the amounts to be included or deducted while computing the income between related parties as per arm’s length. Income may be re-characterised as per type and expense, amount or payment or may allocate cost between the associated persons on a comparative business turnover basis if such costs, including main office expenses incurred by a person, yields benefit to its associated persons.
The general anti-avoidance rule is set out in Section 35 of the Income Tax Act. The tax authority may recharacterise any arrangement or any part thereof made as part of tax avoidance scheme or disregard any arrangement or part that does not show any substantial effect or recharacterise any arrangement or part that does not show substantial element.
Tax evasion is considered a criminal act and is prosecuted. A person who does not pay tax without any reasonable ground is punishable with a fine of NPR5,000 to NPR30,000 or imprisonment of one to three months (or both). Submission of false or misleading statement at the IRD is punishable with a fine of NPR40,000 to NPR160,000 or imprisonment for a term of six months to two years (or both). Any obstruction or undue influence in tax administration is punishable with a fine of NPR5,000 to NPR20,000 or imprisonment for a term of one to three months (or both).
The Competition Promotion and Market Protection Act 2007 restricts anti-competitive practices and prohibits mergers or amalgamation with intent to maintain monopoly and carry out restrictive trade practices. Although this law has been in force for a number of years, the Competition Commission has not yet been formed. The Act also does not impose any requirements to notify or secure prior approval for any mergers or acquisitions.
Merger between two companies (but not an acquisition) has to be approved by the Office of the Company Registrar; the Office may reject a proposed merger if it will create a monopoly or will be anti-competitive.
The Competition Promotion and Market Protection Act 2007 prohibits merger or amalgamation through purchase of 50% shares or takeover of business of the enterprise producing similar goods and services with an intention to maintain monopoly or restrictive trade practices .
The merger or amalgamation resulting in production or distribution of more than 40% of the total production or distribution within Nepal is considered anti-competitive.
Merger control notification procedures are not applicable in Nepal.
The Competition Promotion and Market Protection Act 2007 prohibits an enterprise to enter into agreements individually or collectively with other enterprise which produces identical goods or services with an intention to limit or control competition. Agreements that limits or controls production, distribution or markets of goods or services or investment in technical development, limits or controls the overall quantity of the production or distribution of goods or services or reduces the retail consumption quantity or quality of such goods, restrains or restricts sale or distribution of goods or services in any particular place, restrains sale or distribution of goods or services of the enterprise producing or distributing identical goods or services, prevents the entry of goods or services in the market to promote the market of particular enterprise, allocation of market between the enterprises that produce or distribute goods or services, determines rotational basis or quota for the production or distribution of goods or services and provides for other anti-competitive agreements will be void and unenforceable. These anti-competitive practices are liable for prosecution and are punishable with a fine of NPR1,000 to NPR500,000 for first instance; in case of repetition such amount is doubled. Any person or enterprise suffering loss due to an anti-competitive act is entitled to compensation.
Abuse of dominant position by an enterprise in the market with an intent to control competition in the production and distribution of goods is prohibited. An enterprise is deemed to be in a dominant position if it holds either individually or jointly 40% or more of annual production or distribution of goods or services within Nepal, or it can either individually or jointly produce or distribute identical goods or services to affect the relevant market or to implement its decision independently.
An entity in a dominant position is deemed to abuse such position if it prevents any goods or services produced or imported by another person or enterprise that produces or distributes identical or similar goods or services from entering into the market of its goods or services, limits or controls the production or distribution of any goods or services which is likely to decrease the market supplies for any reasonable cause or limits or controls investment to be made for the development of technology related to the production or distribution of such goods or services, fixes different prices in purchase or sale of any goods or services in the market of the same geographical area or prescribes additional terms and conditions of sale or purchase of such goods or services without reasonable cause, sets the price of the goods or services produced by it in such a manner so as to prevent competition in the market, directly or indirectly, or undertakes other prohibited acts.
The case of abuse of dominant position is subject to prosecution and is punishable with fine up to NPR500,000.
The Patent, Design and Trademark Act of 1965 governs granting and enforcement of patent rights in Nepal. In addition, Nepal is a signatory of the Paris Convention on the Protection of Industrial Property and the Agreement on Trade Related Aspects of Intellectual Property Rights. The legislative framework of the Patent, Design and Trademark Act is very basic and outdated and it is expected that the government will table a replacement legislation in the Parliament soon.
Nepal follows a first-to-file system for patent rights protection. Patent means any useful invention invented through a new method or process of the construction and operation of any material or collection of materials or through any principle or formula. It provides sole right to the inventor to exclude others from making, using or selling a registered invention. The length of protection is seven years and is renewable twice with a total protection of a maximum 21 years.
The application should include the details of inventor and owner, subject matter, drawings and sketches, method of operation, principle or formula of the patent. The Department of Industry seeks the advice of experts and follows the principle of novelty, industrial applicability and inventive steps to examine the application. Further, it may ask the inventor to give a presentation regarding the use, method of operation and utilisation of the invention. Patent is registered within 12-18 months of filing of application.
If the first application or registration of patent is in other countries, a document of first application or a home registration certificate is required and such foreign applicant benefits from protection under the Paris Convention for the Protection of Industrial Property.
Enforcement of patent rights is weak. First instance authority to hear the patent infringement case is the Department of Industry and the infringer is fined up to NPR500,000 (USD5,000), depending upon the gravity of the offence, and the goods are confiscated. In case of dissatisfaction with the order made by the Department of Industry, an appeal in the high court can be filed. Compensation can also be claimed by the patent owner for the loss caused by infringement.
In Nepal, trade mark is protected on the basis of registration and not on the basis of its use, pursuant to a leading case of Repsona Publications v Madan Lamsal. Trade mark includes a word, symbol, or picture or a combination thereof legally registered by any firm, company or individual in its products or services to distinguish them from the product or services of others. Nepal follows the Nice Classification system under the Nice Agreement 1957.
The length of protection is seven years from the date of registration, which is renewable every seven years. The registered trade mark should be brought into use within one year from the date of registration; non-compliance may lead to termination of the trade mark.
Trade mark can be registered by filing an application at the Industrial Property Section of the Department of Industry, along with four specimens of the trade mark. In case of a foreign national, a foreign registration certificate is required. The Department carries out necessary investigation before approving the registration and if the trade mark is not against the public morality and does not undermine the national interest, or is not similar to other marks. Registration of a trade mark takes around 12 months of application if there is no opposition.
The first instance authority to hear a trade mark infringement case is the Department of Industry. An infringer is fined up to NPR100,000 (USD1,000) and the goods are confiscated. In case of dissatisfaction with the order made by the Department, an appeal in the high court can be filed. Compensation can also be claimed against the infringer for loss incurred by the trade mark owner.
Design can be in any form or shape of any material manufactured in any manner; it is protected only after its registration. Industrial design has a protection term of five years, renewable up to two times, making the total length of protection 15 years.
Design can be registered by filing an application at the Department of Industry along with a description, drawings and sketches of the design and four copies of its model. The Department carries out a formality examination to determine the procedural and formal requirements of the application and invites the applicant to make corrections if any documents are missing. Further, the Department examines the subject matter, novelty, originality, visual appeal (ie, aesthetic quality) and industrial applicability. If the design is not against the public morality and does not undermine the national interest, industrial design is duly registered in around 12 months.
The first instance authority to hear the industrial design infringement case is the Department of Industry. An infringer is fined up to NPR50,000 (USD500) and the related goods are confiscated. In case of dissatisfaction with the order made by the Department, an appeal in the high court can be filed. Compensation can be claimed by the design owner for any loss caused by the infringement.
Copyright protects original and intellectual work in the field of literature, art and science. Specifically, copyright protection includes books, pamphlets, articles, theses, drama, dramatic music, dumb show, musical notation, audio-visual works, architectural design, fine arts, painting, works of sculpture, works of woodcarving, lithography, and other work relating to architecture, photography, applied art, illustration, maps, plans, three-dimensional work relating to geography, and scientific article and work and computer programmes. Copyright is automatically protected upon creation; registration of copyrightable work is optional, but anyone wishing to register the work can do so at the Copyright Registrar’s Office.
The author of the copyrightable work has both economic and moral right and is protected throughout their life and until 50 years after their death. In case of joint works it is protected for 50 years from the death of the last surviving author. Works published anonymously or pseudonymously ares protected until 50 years from the date of first publication. The copyright of works relating to applied art and photographic work is protected for 25 years from the year of preparation of such work.
The infringement of copyright and import of unauthorised works is considered as a state case and the complaint can be filed with the Nepal Police. Nepal Copyright Registrar's Office is entitled to enforce copyright through a registrar and he/she hears general complaints related to copyright. The infringer is punished with a fine to a maximum of NPR100,000 (USD1,000) or with imprisonment for a term not exceeding six months (or both), with double the punishment for repetition, including the seizure of published material. Reasonable compensation for the loss is provided to the copyright owner. In case of dissatisfaction with an order made by the Registrar, an appeal in the High Court can be filed.
Software falls under computer programmes and computer programmes are protected by the Copyright Registrar’s Office under the Copyright Act 2002. Disclosure of business secrets is a punishable criminal offence subject to private prosecution under Section 294 of the Penal Code.
The Individual Privacy Act 2018 (Privacy Act) governs data protection in Nepal. In addition, the Penal Code and Electronic Transaction Act 2008 also regulates protection of data and private information. The Individual Privacy Act sets the laws regarding privacy over residence, property, documents, data, correspondence and other private information. It has also set laws regarding collection, storage, processing, transfer and use of data.
The Privacy Act does not specify the geographical scope of the data protection rules. However, data protection laws apply to all public and corporate entities which collect the data and private information of any individual. The Act restricts collection, storage, preservation, processing or publication of data without approval from an authorised person. However, data can be collected for the purpose of study and research with approval from the concerned individual. Data should not be used for a purpose other than which it was collected.
There is no special agency in charge of enforcing data protection rules under the prevailing law. Violation of any provision of the Privacy Act is considered as a criminal offence and may be subject to prosecution by the government or private prosecution.