Dolma Impact Fund Says Tax Waiver Upholds Nepal’s Commitment to Global Investors

The Dolma Impact Fund has rejected media claims that the government’s decision to grant it tax exemption is controversial, emphasising that it operates as a fully regulated and transparent investment vehicle under international oversight.

A report by Kantipur Daily on Wednesday, November 5, described the interim government — formed with a mandate to hold elections within six months — as having made a “controversial decision” to grant the fund a tax exemption. The report alleged that Dolma had channelled investments from third countries into Nepal via a “shell company” registered in Mauritius, a jurisdiction often cited as a tax haven.

The report noted that the government had relied on the Double Taxation Avoidance Agreement (DTAA) signed with Mauritius in 1999 to justify the capital gains tax exemption. Dolma has invested in over a dozen Nepali companies, including WorldLink, Sastodeal, Foodmandu, Upaya City Cargo, Century Masala, and several hydropower projects.

Notably, the government terminated the DTAA with Mauritius on October 29. Kantipur quoted Minister Rameshwor Khanal as saying, “Although the treaty with Mauritius has been terminated, the existing provision will remain in effect for six months. What happens after that will depend on the new arrangement.”

Khanal added, “New investors will not be eligible for tax exemption. Dolma will receive the exemption on its previous investments. Although we have notified the termination of the treaty now, it will remain valid for the next six months.”

Kantipur also reported that tax officials were hesitant to grant the waiver, arguing that over 99 percent of Dolma’s investments did not originate from Mauritius but from third countries routed through the Mauritius-based firm. 

The report claimed that under the DTAA, a company must have at least 50 percent investment from Mauritius to claim tax benefits, while Dolma reportedly has only 0.75 percent Mauritian investment, with the remainder sourced from other countries.

In response, Dolma issued a statement on Thursday, November 6, describing itself as not a shell company with unknown investors but a fund that combines the financial discipline of private investment with the developmental mission and international standards of Development Finance Institutions (DFIs).

“Since Dolma has mobilized capital for impact investment from investors across multiple jurisdictions, it established a fully regulated and certified private equity fund in Mauritius whose activities are also regulated by FCA regulator in the UK,” read the statement.

Describing Mauritius as “a globally recognised hub for fund structuring, offering a flexible legal and administrative framework and robust governance standards,” Dolma emphasised that it had undergone “exhaustive transparency and anti-money laundering procedures” under Mauritian and international regulations.

“Mauritius has entered into a wide network of Double Taxation Avoidance Agreements and Bilateral Investment Promotion and Protection Agreements with many developing countries, ensuring tax neutrality and investor protection,” Dolma added. “These treaties, coupled with modern corporate and regulatory laws, make Mauritius a preferred jurisdiction for funds pooling investments from diverse global investors.”

Dolma said the DTAA between Nepal and Mauritius “provides clear allocation of income on the basis of residency and source.” Gains from the sale of shares are taxable only in the resident country, not the source country. “Given that Dolma is a resident of Mauritius, tax on the sale of shares cannot be levied in Nepal,” the statement read.

The DTAA, it added further, “does not provide other eligibility criteria for the purpose of claiming treaty benefits like some of the treaties signed by Nepal recently.”

Though the report said that Dolma lobbied successive governments to exempt 25 percent capital gains tax under Nepal’s Income Tax Act, 2002, it noted, in the statement, that Section 73 of the Income Tax Act, which limits treaty benefits, does not apply to the DTAA as the agreement predated the law. “In addition, Section 9 of the Treaty Act 1990 clearly provides that treaty provisions supersede domestic law in case of inconsistency,” Dolma said.

The tax treatment of Dolma’s investments has reportedly been under discussion between the Inland Revenue Department and the Ministry of Finance for some time, with previous governments avoiding decisions amid concerns over potential loopholes.

Dolma said it was established to pioneer large-scale international investment in Nepal “to create prosperity and jobs amid underemployment and mass emigration.” It described itself as “the first foreign fund dedicated solely to Nepal,” with nearly all its investors being government-backed Development Finance Institutions.

“Our investors include funds from the governments of the UK (BII), the US (DFC), Japan (JICA), the Netherlands (FMO and DGGF), Finland (Finnfund), Austria (Development Bank of Austria), Sweden (Swedfund), and the World Bank through IFC,” the statement said. The fund claims to have created over 12,000 jobs in Nepal, primarily for youth, through its portfolio companies.

Dolma expressed gratitude to the government for “correctly applying the provisions of the DTAA and the Treaty Act,” adding: “We hope this correct application of law sends a positive signal to the international investment community, many of whom are watching Dolma’s experience to make investment decisions in Nepal. We exist to showcase Nepal as a success story, not only through the companies we invest in but by demonstrating that Nepal honours international law and norms.”