Country report Nepal

Economic overview

Nepal is among the least developed countries on the planet, with a fourth of its populace beneath the poverty line. Dependent on settlements (30% of GDP) and agriculture, political vulnerability and an intense business condition keep Nepal from developing in different divisions. Regardless, development over the most recent three years transcended long haul midpoints in the midst of more prominent political dependability, improved power gracefully and reproduction action. 

The economy expanded by 7.1% in 2019, up from 6.7% every year sooner, however the development rate is relied upon to direct around 5-6% in the medium term because of more slow financial movement in India. 

As per the update IMF gauges from fourteenth April 2020, because of the flare-up of the COVID-19, GDP development is required to back off to 2.5% in 2020 and get to 5% in 2021, subject to the post-pandemic worldwide monetary recuperation. 

Nepal’s public debt has ascended in the previous years, hitting 32.6% of GDP in 2019, against 30.2% in 2018. This pattern is required to proceed, with obligation to-GDP gauge to arrive at 36.2% by 2021. Regardless, the open spending plan stayed in excess – at 15.4% of the all out in the main portion of the 2019-20 money related year – because of lower execution of capital financial plan (World Bank). This was in spite of a 3.7% increase in spending during the period in view of moves to subnational governments, higher wages and social security payments. Inflation was anticipated to have ascended to 4.6% in 2019, from 4.1% every year sooner, basically on account of higher food costs and expanded import obligations on certain agrarian and mechanical imports.

Main sectors of industry

Main sectors: tourism, carpets, textiles; small rice, jute, sugar, and oilseed mills; cigarettes, cement and brick production.

Nepal has gained starting ground in creating other fare arranged administrations areas, especially the product and IT administrations division. Different divisions for centered help and advancement incorporate the instruction, human services, and the budgetary administrations parts (despite the fact that not secured in this). 

Trade ICT-related administrations is an ongoing marvels prodded by the most recent advancements in correspondence innovation. PC, data, interchanges and other business administrations are rising as powerful areas all inclusive, especially in South Asia. 

Agriculture represented 27% of GDP in 2017 and utilized 69% of the populace in 2017. Primary items included heartbeats, rice, corn, wheat, sugarcane, jute, root yields, milk, and water wild ox meat. 

Industry represented 13.5% of GDP in 2017 and utilized 12% of the populace in 2015. Creation included rugs; materials; processing of little rice, jute, sugar, and oilseed; cigarettes; and creation of blocks and concrete. 

Services represented the remaining  51.5% of GDP in 2017 and utilized 19% of the populace in 2015. The travel industry is a central point in this sector.

Taxes for businesses in Nepal

After the Covid -19 situation, the government has announced the budget for 2021, with significant tax exemptions from 25% to 75% for micro and small industries, including agriculture and tourism.

Reductions in customs duty on the import of machinery and raw materials for macro and small enterprises, and enterprises related to livestock, agriculture and masks have also been announced recently, together with the removal of the excise duty on some products.

Some increases in excise duty for imported furniture will be applied, as a consequence on the attempt to protect the domestic furniture business. Customs duty on petroleum products and gold will also increase.

Tax at the rate of 25% of the net profit is applicable for companies in Nepal and the VAT is set at 13%.  Resident companies are subject to tax on their worldwide income. Non-residents companies pay tax on their net income acquired or earned in Nepal or income received from Nepal. Tax is levied on the net income after making deductions for some expenses and allowances. Dual residence is not recognized for the purposes of Nepalese tax. 

Distribution of profits by a firm to its partners is taxed as dividend at 5% (final withholding tax) and they are not taxed on the share they receive from the firm. 

The general rate for withholding tax of 15% applies to: commissions or sales bonuses, interest, payments for natural resources, rent, retirement payments (non- contributory), royalties, and service fees. 

Investing in Nepal

The new Foreign Investment and Technology Transfer Act 2019 is expected to attract more foreign investment in Nepal through simplified procedures.

A foreign investor can repatriate capital and dividends earned from its operations in Nepal (net of taxes) with a bank transfer in the currency in which the investments were made, after obtaining approval from NRB. 

An entity with approved foreign investment can acquire land for setting up an industry, or alternatively lease land for this purpose.

FDI in the service sector are: transport, stockpiling and correspondence, money related intermediation, instruction, inns and cafés. Interestingly, unfamiliar interest in modern parts is principally centered around hydropower, concrete, paints, drinks and prepares. 

FDI in agriculture is principally directed into espresso estates and spice preparing firms. In excess of three dozen nations are putting resources into Nepal, and conspicuous among them are India and China.