Operating business in Nepal

Legal

Starting up business in Nepal may be an easy process as there is no any restricting for foreign investors to invest in Nepal except for areas of negative listings. Foreign investment in Nepal are regulated and administered by the Foreign Investment and Technology Act (FITTA), 1992 and Industrial Enterprise Act (IEA) in 1992. According to fitta 1992, “Foreign investor” means any foreign individual, firm, company or corporate body involved in foreign investment or transfer technologies, including foreign governments or international agencies. The Department of Industries (DOI) is the only agency for the administration and implementation of Foreign Investment and Technology Transfer Act in Nepal (Nepal Corporate Catalyst 2014, cited 10.23.2016.)

Nepal’s foreign investment act allows 100% foreign investment except in few sensitive sectors. Decision for foreign investment will be made within 30 days ( see here ) form the date of application. Visa arrangements are simple for foreign investors, for eg, foreign investors and his / her authorized representative and their dependents will be granted a business visa for five years and if the investment is equivalent or more than US $ one hundred thousands at one time, residential visa will be granted. For expatriate personnel working in the industries, a non-tourist visa will be granted for a duration period of one year (the Department of Industry, cited 10.23.2016.)

Government of Nepal and the government of the Republic of Finland signed an agreement on the promotion and protection of the investment is the 3 rd of February 2009. The agreement helps promote the investment in the both of the countries, maintaining a business environment and ensuring safety of investment made by the investors of both parties agreed (WIPO 2009, cited 10.23.2016.)

Dispute settlement, if arise between investors and contracting parties should be amicably settled and if not settled in writing within 3 months for which it was raised, investor can choose the way for settling the dispute as follows;

  • The competent courts or arbitral or administrative bodies of the contracting party in whose territory the investment is made; or
  • Arbitration by the International Centre for Settlement of Investment Disputes (ICSID); or
  • Arbitration by the additional facility of the centre, if the centre is not available; or
  • An ad hoc arbitration tribunal to be established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL)

(WIPO 2009, cited 23.10.2016.)

Taxation policy

Income tax on dividends earned out of investment in any industry is at 5% and export earnings are taxed at 40% of the income tax imposed on other industries. However, the tax amount shall not exceed 0.5% of the total export amount (the Ministry of Industry in 2012, cited 23.10.2016.) Government of Nepal has also declared to give full tax exemption of income tax for the first ten years and 50 % in exemption income tax for the next five years to the licensed person or entity commencing commercial production, transmission or distribution of hydroelectricity within March 2024. The exemption is also provided to electricity production through solar, wind or bio fuel energy (Crowe Horwath in 2015 , cited 10.23.2016).

In short:

  • Foreign investment in Nepal are regulated and administered by the Foreign Investment and Technology Act (FITTA), 1992 and Industrial Enterprise Act (IEA) in 1992.
  • Nepal’s foreign investment act allows 100% foreign investment except in few sensitive sectors.
  • Government of Nepal and the government of the Republic of Finland signed an agreement on the promotion and protection of the investment is the 3 rd of February 2009.
  • Government of Nepal has also declared to give full tax exemption of income tax for the first ten years and 50 % in exemption income tax for the next five years to the licensed person or entity commencing commercial production, transmission or distribution of hydroelectricity within March 2024.

 

Cultural

Culture in general

Nepal is not big in terms of its geographical size; however in terms of culture, Nepal is multi-diverse. According to the National Census 2011, 123 different languages are spoken in Nepal as mother tongue (Wikipedia, 2016, cited 10.23.2016). Nepali language is widely spoken and also considered as official language, though Nepal’s constitution accepts all language as official language. English language is spoken widely in urban areas and also considered as official language.

“Namaste” (/ nɑːməsteɪ /, nah-məs-tay) (press one’s palm together in front of the chest and say) is general way of saying “hello!” In Nepal, however men in urban areas have adopted the custom of shaking hand. Physical contact between the sexes in public places is considered inappropriate, though men may be openly affectionate with men and women with women as it is a sign of a good friendship (Advameg, cited 10.23.2016.) Kissing, hugging in public places is not acceptable for Nepalese people.

“Atithi Devo Bhava” which means “The Guest is Equivalent to God” therefore hospitality is essential part of culture. Guests are always offered food and are not permitted to help with food preparation. Using your right hand for eating is considered more polite and do not share food from same plate because if the food touches lips or water vessels, it is called “Jutho” meaning polluted for others.

Hindu temples and Buddhist stupas are common sites in Nepal. In some Hindu temples, foreigners are not allowed to enter. It is advisable to ask before taking pictures of the temple or of any heritage sites. Shoes are not allowed inside a typical Nepalese home.

In Nepalese culture, value of time is not so important. Being late in any occasions is a common thing, in other words: time moves slowly in Nepalese culture. “Nepali time” is an idiom usually referred to being late. In such cases showing anger will only increase delay.

Business culture

Formal business attire for men are a business suit and tie or the Nepali dress code “Kurta Surwal” with Nepali hat and for ladies either business suit or a saree. Usually meetings start late, even the formal ones. Everyone greets each other by saying “namaste” when they meet. A cup of tea is served before the meeting begins and it is absolutely normal people talking about a personal relationship in that time. Nepalese management follows a top-down approach in decision-making process (AlloExpat, cited 10.23.2016).

In short:

  • According to the National Census 2011, 123 different languages are spoken in Nepal as mother tongue
  • English language is spoken widely in urban areas and also considered as official language.
  • Kissing, hugging in public places is not acceptable for Nepalese people.
  • “The Guest is Equivalent to God” therefore hospitality is essential part of culture.
  • It is advisable to ask before taking pictures of the temple or of any heritage sites. Shoes are not allowed inside a typical Nepalese home.
  • Being late in any occasions is a common thing, in other words: time moves slowly in Nepalese culture.
  • Usually meetings start late, even the formal ones.
  • it is absolutely normal people talking about a personal relationship in that time. Nepalese management follows a top-down approach in decision-making process

 

Political

History of Nepal begins with the unification of the scattered small kingdom by one determined king from Shan dynasty in 1768. The first election was held in 1959 with the promulgation of the new constitution, but in 1962, King Mahendra suspended parliament and took all power in his hand. In 1990 King Birendra restored parliament, but soon in 1996 Maoists rebellious armed group was formed to overthrow the monarchy. Civil conflict lasted almost a decade taking more than 12,000 lives and displacing 100,000 people according to the UN report. In November 2006, civil conflict ended with signing of peace deal between the government and rebellious group. After the election of the Constitutional assembly’s Maoists emerged as the biggest parties in the parliament. Monarchy system was abolished and Nepal became republic in May 2008. Nepal got its new constitution in 2015 (Wikipedia. Cited 10.23.2016.) Political Influence Can Be Seen in every sector, even bureaucracy suffers from the direct and Indirect Influence of political involvement.

Nepal enjoys a multi-party coalition government and there has always been lack of political stability, Which is, realized as one major hindrance in the country’s development. The new constitution has been viewed with high hope among the general public for bringing stability in the government.

Internationally, Nepal maintains peaceful and harmonious relationship with other countries. Finland and Nepal has long and good relationship. Nepal represents in Finland through its embassy in Copenhagen, Denmark while Finland has embassy in Kathmandu. Finland Development Cooperation with Nepal focuses mainly in three Sectors; forestry, education and water, besides theses main sectors Finland promotes crosscutting themes such as good governance and human rights, gender equality and mitigation of climate change (Embassy of Finland, cited 23.10.2016 ).

Nepal’s improvement in the corruption level has been worse every year. Nepal was placed in 130 th among 167 countries according to the annual survey released by Transparency International in the year 2015 (01/27/2016 Ekantipur, cited 10.23.2016.)

In short:

  • In November 2006, civil conflict ended with signing of peace deal between the government and rebellious group.
  • Nepal got its new constitution in 2015. Political Influence Can Be Seen in every sector, even bureaucracy suffers from the direct and Indirect Influence of political involvement.
  • Finland and Nepal has long and good relationship.
  • Nepal was placed in 130 th among 167 countries according to the annual survey released by Transparency International in the year 2015

 

Economic

Nepal is among the poorest and most remote countries in the world. Agriculture is the mainstay of the economy and industrial activity Mainly involves in the processing of agricultural products, Including pulses, jute, sugarcane, tobacco and grain (CIA, cited 15.09.2016). Nepal has embarked on a number of reforms and investment on the end-of-decade long civil conflict in 2006. In the last decade, poverty rate in Nepal decreased from 80% to 57% Which is remarkable achievement in Nepalese economy (10/16 / 2015 Battista, cited 10.24.2016.) In April 2015 major earthquake hit Nepal, killing nearly 9,000 people and causing massive damage. The overall damage was estimated to be $ 10 billion almost half of its gross domestic product (GDP) (05/22/2015 Karnik, cited 10.24.2016). This has slowed down the economic progress, as GDP growth in FY2016 was only 0.8%. According to the Asian Development Bank (ADB) report, Nepal’s economy is expected to recover and grow by 4.8% in FY2017 (ADB, cited 10.24.2016). In the figure 5 the GDP growth of Nepal in 2014 was 5.7% which plunged down to 2.3% in 2015. One of the main reason for the decline was earthquake while another reason was unrest in the terai region bordering India that seriously disrupted trade and supply (ADB, cited 10.24.2016).

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The inflation rate in Nepal also climbed up due earthquake in 2015, although ADB projects claims it to climb down from 9.9% in 2016 to at 8.5% on at the in 2017 (ADB, cited 10.24.2016). Nepal’s economy is closely tied with its neighbor India which alone holds 67.1% of Nepalese import and export of 64.8%. (Nepalembassydanmark, cited 24.102016) Nepal’s trade with another neighboring country China is minimal due to gigantic Himalayas in the north.

Agriculture stays as the principal economic activity sharing 35.10% of the total GDP in 2013 while industry and service sector shared 15.71% and 49.19% respectively. Remittance inflows in the past few years have covered a major part of GDP. Nepal was third largest recipient of remittances in 2014, which amounted 29.2% of the GDP, and after the earthquake remittance inflows soared and had been one notice the source of income for earthquake-affected households (04/17/2016 Republica, cited 24 / 10/2016).

Nepal’s market size compared with its neighboring countries like India, China and Bangladesh is relatively small, it still provides market for 28.11 million people with a growing middle class population. A survey conducted by the Asian Development Bank in 2004-2010 shows that Nepal had middle class and higher-class population of 23.36% with the combined capacity of yearly expenditure USD 10.72 billion in purchase power parity terms (Hasan & Kim 2014, cited 10.24. 2016).

In short:

  • Agriculture is the mainstay of the economy and industrial activity Mainly involves in the processing of agricultural products, Including pulses, jute, sugarcane, tobacco and grain.
  • In April 2015 major earthquake hit Nepal, killing nearly 9,000 people and causing massive damage.
  • Nepal’s economy is expected to recover and grow by 4.8% in FY2017
  • Nepal’s economy is closely tied with its neighbor India which alone holds 67.1% of Nepalese import and export of 64.8%.
  • Remittance inflows in the past few years have covered a major part of GDP.
  • A survey conducted by the Asian Development Bank in 2004-2010 shows that Nepal had middle class and higher-class population of 23.36% with the combined capacity of yearly expenditure USD 10.72 billion in purchase power parity terms

 

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