Frequently asked Questions

(The answers to the question are based on the SEZ law currently being drafted. These may change slightly on finalization of the draft)

Special Economic Zone (SEZ) is a geographically deleneated selected area with high potential to be developed into an industrial zone. For all taxation purposes of trade operations, SEZ will be deemed as a territory. It is a separate custom territory administered under specific law. It is an area with liberal tax regime with exemption of varying degrees in income tax, excise duty, VAT and other taxes and duties. Investors have facilities of repatriation of investment, immigration, banking, export-import of raw material and finished products, foreign worker employment, liberal production oriented labor law, etc. All relevant services such as custom, banking, insurance, police, fire, medical, etc. are provided at the door.

In Nepal Special Economic Zone includes Export Processing Zone (EPZ), Special Trade Zone (STZ) and Tourist/Recreation Zone (TRZ).

Any foreign or Nepalese private/public/joint sector entrepreneurs can set up industry as joint venture or individually.

There is no limit on maximum amount. Minimum amount of investment depends upon types of industry as follows.

S. No.	Types of Industries	Minimum amount
1	Tourism/Recreation Industry	US $ 1,00,000
2	Export oriented Information Technology	US $ 1,00,000
3	Export oriented mining, agriculture and forest based industry	US $ 1,00,000
4	Export oriented other manufacturing industry	US $ 1,00,000
5	Development and Research	US $ 50,000
6	Skilled Manpower Production	US $ 25,000

SEZ can be setup by any foreign or national investors. They can invest in the construction of infrastructure or in industry within SEZ. Process of investment, condition, facilities etc are as determined by the council.

Any area within Nepal fulfilling the required conditions can be declared as SEZ by HMG on recommendation of the council of ministers. However, Board will make necessary survey prior to such implement recommendation.

HMG plays major role in establishment of SEZ, especially in construction of already declared SEZs. SEZ law envisages that later on the SEZ Board will develop and manage all SEZs. SEZ Board will be composed of experts from private and public sectors.

For setting up of enterprise in any SEZ project proposal have to be submitted to the SEZ Board in prescribed form.

Application to establish a unit has to be submitted to the Board on prescribed form. The Board will evaluate each proposal on preapproved basis. However the Board can negotiate on various aspects of the proposal. Approval license will be issued after signing the agreement.

1) Visa facility: The Board shall provide the visa facility to the foreign investors, laborers or staff and their families.

Foreign investor can repatriate his/her entire investment or interest or income from investment in the currency of original investment or in currency prescribed by the Board.

(1) The industry can employ the foreign laborer/staff, for not exceeding five years, if the required manpower for the industry is not available in the Kingdom of Nepal.

(2) The employment of foreign laborer/staff can be extended for next 5 years, if the required manpower cannot be available in the Kingdom of Nepal.

4) Can take the salary: The foreign employee working with the permission of the Board with a valid visa can take 75% of their salary in convertible currency at the current exchange rate on the recommendation of the Board.

5) Export-import facility: The following facilities shall be provided to the industries established in the Special Economic Zone:

b. Letter of endorsement and recommendation of import-export; certificate of origin and letter of clearance as necessary,

The industry can sell the stated quantity of its production in the Kingdom of Nepal. However, the industry must make the necessary payment as per existing laws of the custom duty, tax, charges, fees and other prescribed fees of Board while selling its product within Nepal.

7) Continuity in getting facility: No rectification in prevalent laws, rules and regulations shall be done which may result in the loss of facilities allocated to the industry established in the Special Economic Zone, according to the agreement made under the laws prevalent at that time.

8) Transferable: Ownership of a unit in SEZ can be transferred partially or completely to any other person with pre-approval of SEZ Board.

9) The entire function of the custom is performed at the entrance of the Special Economic Zone.

(1) Value Added Tax shall be exempted for the machinery, equipment, spare parts, primary and accessory raw materials, office materials, vehicles and other necessary materials imported by the industry established within SEZ.

(2) The business transaction held between the industries and entrepreneurs within the Special Economic Zone shall be exempted from Value Added Tax.

(3) Value Added Tax shall be exempted on goods and services purchased by the industries in the domestic market.

3. Exemption of excise duty: The excise duty shall be exempted on the goods produced by the industries established in Special Economic Zone.

4. Equal to export: The sale of goods or service of any industry or enterprise from the domestic tariff area of the Kingdom of Nepal, to an industry established within Special Economic Zone shall be treated as export.

(1) Custom duty is exempted on the goods imported with permission from the Board for the industry in Special Economic Zone, such as machinery, equipment, spare parts, primary and auxiliary raw materials, office auxiliary materials, vehicles etc, and other goods necessary for the establishment of industry.

(2) Any sort of tax, charge, fee and custom duty is exempted for the business transaction held between the industries and entrepreneurs within the Special Economic Zone and domestic market.

All sorts of local government tax are exempted on the goods required for the establishment of industry in Special Economic Zone such as machinery, equipment, parts, primary and intermediately raw materials, office materials, vehicles etc.

7. Other services and facilities to be provided to the industry established in the Special Economic Zone shall be as determined by the Board.

One hundred percent discount in income tax will be provided on the income tax to be paid according to the prevalent law from the date of business transaction or commencement of manufacturing operational.

Industry	Amount of investment (in US $ 100,000)	Discount period (Year)
Tourism/Recreation Industry	1-3	5
	3-5	10
	>5	15
Export oriented information technology	1-5	5
	5-10	10
	10-20	15
	>20	20
Export oriented mining, agriculture and forest based industry	1-5	5
	5-10	10
	10-20	15
	20-40	20
	>40	25
Export oriented other manufacturing industry	1-5	5
	5-10	10
	10-20	15
	20-40	20
	>40	25
Development and Research	0.5-1	10
	1-5	15
	>5	20
Skilled man-power production	0.25-1	5
	1-5	10
	>5	15

(1) The industry established in the SEZ situated in Mid-Western and Far- Western development region is entitled to receive additional 5 years income tax holidays the stated period.

(2) Every industry is entitled to receive 25% discount in the current rate of income tax after the completion of the duration of the discount.

(3) The investor, who had made investment in the form of loan or the creditor in Special Economic Zone shall be exempt from income tax on the interest earning.

(4) The income tax shall be exempted on the dividend distributed to the shareholders of the industry.

(5) The income tax shall be exempted, for first three years, on the salary of the foreign laborers and staff.

(6) The income tax shall be exempted on the income earned by the foreign investors through technology transfer, management service charge and royalty.

Development and Research Industry refers to fundamental research or development in the field of science and technology for the production of raw materials, process and technology. It does not refer to testing of the standard of any material, technology processor regarding the humanities and social management, data collection, market study and promotions etc.

Yes, an industry in SEZ can sale a specific quantity of its product inside Nepal after paying custom duty, tax, charges and other fees as per existing rules and regulations.

17. What are the conditions on sale of goods or services from DTA to an enterprise with SEZ?

Any industries in SEZ can buy goods and services from Domestic Tariff Area (DTA). All goods and services sold by industries and entrepreneurs from DTA to an enterprise within SEZ will be treated as export from the country.

2. All industries or enterprises established in SEZ (except Development and Research, Skilled man power production and Tourism/Recreation industries) must export a fixed percentage of their production.

3. All enterprises must abide by the laws, rules, regulations, and directions made by HMG or the Board for the smooth operation of SEZ.

4. Enterprises are liable to be fined, if laws, rules, regulations and directions are violated.

The industries inside SEZ are allowed to hire laborer/staff directly or through other institution by signing agreement. The industry has to follow terms and conditions, facilities and salary determined by the Board. Salary will exceed those granted under prevalent labor laws. The Board will issue directives to solve internal disputes.

Functioning of the units in any SEZ will be monitored by the office of that particular SEZ. This office has right to recommend, issue license to establish industry, grant permission to import machinery, equipment, raw materials etc. and issue all permits for export-import and provide necessary facilities.

Government will not play a direct role in day-to-day management of SEZ, which will be managed by a committee of experts from private sector. However, the government can issue directives for the facilitation of smooth functioning of SEZ.

You will get a package of highly simplified, hassle free industrial environment with various fiscal and non-fiscal incentives. Among others they include:

a. One window policy resulting in hassle free dynamic administration with necessary Board on matters relating to investment, processing application, issuance of export-import licenses.

c. Liberal tax regime with 100% discount on income tax for a period depending on type of industry, exemption of income tax on income earned from investment of loan, royalty, technology transfer, management services.

Licenses for import of machinery, equipment, spare parts, vehicles, raw materials, packing materials etc will be issued by the office of SEZ. However, such licenses will be granted only on the basis of approved proposal of the industry.

24. What are the provisions relating to External Commercial Borrowing (ECB) in SEZ?

Food products, Tobacco and Beverages, Herbal products, Leather products, Garments, Hand-made paper products, Handicrafts, Metal products, Sportswear, Jewellery, Garments, Plastic products, Hosiery products, Assembled electrical/electronics products, Electrical/electronics parts and components, IT products.