Nepal Property Investment Guide Hospitality Edition 2014
NEPAL Property Tenure/Ownership There are four types of landholdings in Nepal: Private ownership Private ownership is also known as raikar land, and is the principal form of landholding. It is similar to a freehold system. A land ownership certificate is issued to the individual or company who owns the land. All other previous forms of feudal and nonfeudal landholdings (e.g., jamindari, birta and kipat ) have been converted into private ownership title. Trust land ownership Trust land ownership, also known as guthi land, is a land held under a trust that is endowed by any philanthropist through relinquishment of his or her title to immovable property fund to a trust for the operation of any social or religious cause. Depending on the type of trust (private, government and special), there may be restrictions on transfers and use. Tiller tenancy Tiller tenancy land belongs to the private owner, but the tenant and his/her family acquire the right to cultivate and use the land ( moiani hak ). The tiller tenant ( moi ) must pay a fee to the owner of the property. This system is in the process of being abolished. New tiller tenancy titles cannot be obtained, and the existing tiller tenant may obtain ownership of half of the land from the owner. Government and public land Government land includes roads, paths, railways and land with government houses, temples, monasteries, buildings or offices. Government land also includes forests, shrub lands, jungles, rivers, streams and marshlands not belonging to anyone, as well as lakes and ponds and their banks, canals and channels, waste and uncultivated lands, lands located on sharp hill sides and paths and sand vacated by river, which are owned by the Nepal government or declared as public lands, and published in the Nepal Rajpatra. Major Property Legislation Country Code 1963 Land Survey and Measurement Act 1963 Act Concerning Land 1964 Guthi Corporation Act 1976 Land Acquisition Act 1977 Land Revenue Act 1978 Restrictions On Ownership Of Land Land Ceiling System Any person or his/her family (spouse and children under 16 years) may not own more than the following areas of land: Terai region 6.7 ha Kathmandu Valley 1.21 ha All hilly areas, except Kathmandu Valley 3.5 ha The land ceiling system does not apply to companies and corporations. Foreign Land Ownership Restrictions Foreigners cannot own or acquire land in Nepal unless they are non-resident Nepalese holding an identification card. Companies wholly or partly owned by foreign investors may only acquire land for their business purposes (e.g., to establish a factory or a hotel or to provide residence to their workers). No specific permission is needed from the government to do so, provided that purchasing land is listed in the project report submitted when obtaining the foreign investment approval. Operational Requirements For Foreign Corporations Foreign Company Foreign companies can either establish a: branch or liaison office under the Companies Act 2006; or subsidiary under the Foreign Investment and Technology Transfer Act 1992. Establishing a subsidiary is more common than registering a branch office. Branch or Liaison Office A foreign company may register a branch or liaison office in Nepal with the Office of the Companies Registrar under Section 154 of the Companies Act. Prior permission from an appropriate government authority or a contract signed with an authorized agency is required for the establishment of such offices. Branch offices are not allowed to purchase real estate. Company Incorporated in Nepal Foreigners are allowed to establish either a private limited company or a public limited company after obtaining an approval from the Department of Industries under the Foreign Investment and Technology Transfer Act 1992. After obtaining the appropriate approvals, the investor must: incorporate the company at the Office of the Companies Registrar; apply for tax registration at the local tax office; 2
apply for the appropriate industry registration at the Department of Industries; and obtain permission from the central bank of Nepal. Foreign companies are allowed to own a 100% stake in most permitted business activities or industries. A foreign company may also register as a joint venture with a foreign or Nepalese partner. Foreign Investment Regulation The Foreign Investment and Technology Transfer Act 1992 allows share/equity investment for foreign investors in certain industries, as listed in the Industrial Enterprises Act 1992 and except for restricted businesses. Investors may invest in manufacturing, energy, agricultural, mining, tourism and construction industries. Investment in traditional small industries; weapon industries; and fish, chicken and bee farming is restricted. Investment in retail is only allowed for companies already operating in more than two countries. Foreign investment in real estate is allowed for construction and operation of commercial, office and housing complex and construction and sale of residential housing, but is not allowed for projects that only buy, sell or rent land and houses without constructing them. Investors can also open an investment company that invests in other companies. The current minimum investment ceiling per investor has been fixed at NPR 5,000,000 (approximately USD 60,000). Investors are allowed to repatriate dividends, interest from loans, gains from sale of shares and any other gains from investment back to their home countries in convertible currency. Foreign Exchange Controls Foreign investors are allowed to invest either in: a convertible foreign currency using the banking system; or assets such as plant, machinery and equipment required for industry. Foreign investors can repatriate profits or gains earned by their companies through dividends or interest earned from any loans in foreign currency back to their home countries. Foreign investors can also repatriate the amount of technological fees, management fees, trademark royalty and other fees. Reparation of foreign currency requires permission from the Central Bank of Nepal. An entity that invests in Nepalese currency but does not earn foreign currency can receive or give payment in foreign currency. Land Registration Tax Land registration tax (similar to stamp duty) must be paid when selling/transferring land to a new owner. Property Type Land/house worth NPR 10,000 (USD 100) or less Property worth NPR 10,001 25,000 (USD 100 250) Property worth NPR 25,001 (USD 250) or more Flat 1% Municipal Areas Fees NPR 400 (USD 4.00) NPR 1,000 (USD 10.00) 4.5% 2% Note: Different rates apply to inherited property. Class A Type of House Raw bricks with mud mortar or made of wood (timber) Non-municipal Area Fees NPR 300 (USD 3.00) NPR 500 (USD 5.00) Taxes On Possession Of Real Estate Municipal House Tax An annual tax for the possession of houses in municipal areas must be paid to the municipal office at the following rates: (per sq ft) NPR 450 (USD 4.50) B Kiln bricks/stones with mud mortar NPR 525 (USD 5.20) C Kiln bricks/stones with cement mortar NPR 575 (USD 5.75) D RCC frame structure NPR 635 (USD 6.35) Property Tax Property tax is levied on the following rates in municipal areas: Property Valuation Up to NPR 1 million (USD 10,000) (per sq ft) none NPR 1 2 million (USD 10,000 20,000) NPR 300 (USD 3.00) NPR 2 3 million (USD 20,000 30,000) 0.05% NPR 3 5 million (USD 30,000 50,000) 0.25% NPR 5 10 million (USD 50,000 100,000) 0.50% Over NPR 10 million (USD 100,000) 1.50% Cultivable Land Tax There are four types of cultivable land in Nepal: abbal, doyam, sim and chahar. Depending upon the productivity of the land, land tax is levied at a range of NPR 1 65 (USD 0.01 0.65) per ropani and NPR 1 65 (USD 0.01 0.65) per kattha. Nepal Property Investment Guide 2014 3
NEPAL Corporate Taxation There is a 25% tax imposed on the taxable income of any corporate institution for any income year. However, the tax rates may vary according to the business of the corporation. Special income tax rates apply as follows: Type of Business Banks, financial institutions, general insurance, 30% petroleum, cigarette and beverage Entities engaged in manufacturing (except alcohol and 20% tobacco industries) Entities constructing and operating roads, bridges, 20% tunnels, ropeways, flying bridges, trolley buses and trams Entities engaged in building and operating public 20% infrastructure to be transferred to the government Entities engaged in power generation, transmission or 20% distribution All income earned from export of goods and services 20% Personal Taxation A resident natural person refers to a person who is present in Nepal for 183 days or more in 365 consecutive days. Tax is levied on the taxable income of any resident natural person on the basis of the following rate: Income NPR 200,000 (USD 2,000) or less 1% More than NPR 200,000 (USD 2,000) and less than NPR 300,000 (USD 3,000) More than NPR 300,000 (USD 3,000) More than NPR 2,500,000 (USD 25,000) 15% of the taxable income of more than NPR 100,000 (USD 1,000) 25% of the taxable income of more than NPR 300,000 (USD 3,000) Additional tax of 40% on the taxable amount calculated under the 25% rate on the taxable income of more than NPR 2,500,000 (USD 25,000) Tax can be deducted in the amount of 6% on payments to the provident fund or an approved retirement fund. If a natural person has a taxable income of NPR 2.5 million (USD 25,000) or above, an additional tax of 40% must to be paid for an income above NPR 2,500,000 (USD 25,000). Rates vary by a small degree for married couples. Withholding Tax on Dividends Resident entities must pay a 5% withholding tax on dividends. A withholding tax of 5% is also levied on profits repatriated by a permanent establishment to its parent company. Capital Gains Tax For corporate entities and businesses, capital gains are treated as income and taxed at the same rate as income. For natural persons, the tax rates are as follows: 2.5% if the ownership of disposed non-business taxable property (land and building) is held for more than five years; 5% if the ownership of disposed non-business taxable property (land and building) is held for less than five years; and 5% on all gains in the stock market securities transactions. Value Added Tax ( VAT ) VAT is levied at a single rate of 13%. Leasing and buying/selling of real estate are VAT-exempt. VAT is not levied on goods and services exported, which are zero rated. Goods such as basic agricultural products, medicine, education services, air transport, financial and insurance services are also exempt. Tax Depreciation Asset depreciation rates are as follows: Class Assets Rate A Buildings, structures and similar works of a 5% permanent nature B Computers, data handling equipment, 25% fixtures, office furniture and office equipment C Automobiles, buses and minibuses 20% D E Construction and earth-moving equipment as well as any depreciable asset not included in another class, such as pollution control, research and development, as well as natural research exploration equipment Intangible assets other than depreciable assets included in Class D 15% Average rate according to the useful life Tax Treaties: Avoidance of Double Taxation Nepal has concluded Double Tax Avoidance Treaties with the following countries: India Qatar People s Republic of China Austria South Korea Mauritius Norway Pakistan Sri Lanka Thailand 4
Resident tax payers can claim foreign tax credit for the payment of tax paid abroad with respect to their taxable income in Nepal. Mutual Funds In 2010, the Securities and Exchange Board of Nepal ( SEBON ) approved regulations relating to mutual funds. According to the regulations, all schemes having an objective to invest directly or indirectly in permissible assets are governed by the provisions and guidelines under the SEBON Mutual Funds Regulations 2010. Foreigners are not allowed to invest in Nepalese mutual funds. Nepal Property Investment Guide 2014 5
NEPAL JLL 9 Raffles Place Republic Plaza Level 39 Singapore 048619 tel +65 6220 3888 www.jll.com.sg Neupane Law Associates 90 Devi Galli, New Plaza Road, Putalisadak, Kathmandu, Nepal tel +977 1 4011056 fax +977 1 4011220 info@neupanelegal.com www.neupanelegal.com 6
JLL offices Ashurst offices AUSTRALIA Adelaide tel +61 8 8233 8888 Brisbane tel +61 7 3231 1311 Canberra tel +61 2 6274 9888 Glen Waverley tel +61 3 9565 6666 Mascot tel +61 2 9693 9800 Melbourne tel +61 3 9672 6666 North Sydney tel +61 2 9936 5888 Parramatta tel +61 2 9806 2800 Perth tel +61 8 9322 5111 Sydney tel +61 2 9220 8500 GREATER CHINA Beijing tel +86 10 5922 1300 Chengdu tel +86 28 6680 5000 Chongqing tel +86 23 6370 8588 Guangzhou tel +86 20 2338 8088 Hong Kong tel +852 2846 5000 Macau tel +853 2871 8822 Qingdao tel +86 532 8579 5800 Shanghai tel +86 21 6393 3333 Shenyang tel +86 24 3109 1300 www.jll.com/asiapacific Shenzhen tel +86 755 2399 6138 Taiwan tel +886 2 8758 9898 Tianjin tel +86 22 8319 2233 Wuhan +86 27 5959 2100 Xi an +86 29 8932 9800 INDIA Ahmedabad tel +91 79 3955 5501 Bangalore tel +91 80 4118 2900 Chandigarh tel +91 172 3047 651 Chennai tel +91 44 4299 3000 Coimbatore tel +91 422 2544 433 Delhi tel +91 11 4331 7070 Gurgaon tel +91 124 460 5000 Hyderabad tel +91 40 4040 9100 Kochi tel +91 484 3018 652 Kolkata tel +91 33 2227 3294 Mumbai tel +91 22 6620 7575 Pune tel +91 20 4019 6100 Sri Lanka tel +94 117444 555 INDONESIA Bali tel +62 361 747 2882 Jakarta tel +62 21 2922 3888 Surabaya tel +62 31 546 3777 JAPAN Fukuoka tel +81 92 471 6831 Osaka tel +81 6 6282 3777 Tokyo tel +81 3 5501 9200 KOREA Seoul tel +82 2 3704 8888 NEW ZEALAND Auckland tel +64 9 366 1666 Christchurch tel +64 3 341 8210 Wellington tel +64 4 499 1666 PHILIPPINES Makati City tel +63 2 902 0888 SINGAPORE Singapore tel +65 6220 3888 THAILAND Bangkok tel +66 2 624 6400 Phuket tel +66 7 623 8299 Pattaya tel +66 3 825 2588 VIETNAM Hanoi tel +844 3944 0133 Ho Chi Minh City tel +848 3910 3968 AUSTRALIA Adelaide tel +61 8 8112 1000 Brisbane tel +61 7 3259 7000 Canberra tel +61 2 6234 4000 Melbourne tel +61 3 9679 3000 Perth tel +61 8 9366 8000 Sydney tel +61 2 9258 6000 GREATER CHINA Beijing tel +86 105 936 2800 Hong Kong tel +852 2846 8989 Shanghai tel +86 21 6263 1888 JAPAN Tokyo tel +81 3 5405 6200 PAPUA NEW GUINEA Port Moresby tel +675 309 2000 SINGAPORE Singapore tel +65 6221 2214 Associated Office INDONESIA Jakarta tel +62 21 2996 9200 www.ashurst.com Jones Lang LaSalle 2014 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.