Frequently Asked Questions

To register a company in Nepal, you must first reserve a company name with the Office of the Company Registrar (OCR). After name approval, prepare the Memorandum of Association and Articles of Association, then submit the registration application with required documents including citizenship copies of all shareholders and directors. Once OCR approves, you receive the company registration certificate. After that, register for PAN with the Inland Revenue Department (IRD) and apply for VAT if your annual turnover exceeds NPR 50 lakhs. The entire process typically takes 7 to 14 business days with proper documentation.

For a private limited company in Nepal, there is no mandatory minimum paid-up capital requirement under the Companies Act 2063. However, in practice, most companies register with a minimum of NPR 100,000 in authorized capital. For certain regulated sectors such as banking, insurance, and hydropower, sector-specific regulators impose their own minimum capital requirements which can be significantly higher.

A private limited company is a separate legal entity from its owners, meaning shareholders have limited liability and are only responsible for the company's debts up to their share capital. A sole proprietorship has no legal separation between the owner and the business, meaning the owner bears unlimited personal liability for all business debts. Private limited companies require OCR registration while sole proprietorships register with the local Ward office or Department of Commerce.

With complete and accurate documentation, company registration at the OCR typically takes 3 to 7 working days. PAN registration at IRD takes an additional 1 to 3 working days. VAT registration takes another 3 to 7 working days. In total, a fully registered and tax-compliant company can be operational within 7 to 14 working days. Delays are common when documents are incomplete or when name reservations lapse.

Yes, foreign nationals can register a company in Nepal, but foreign investment requires prior approval from the Department of Industry (DOI) or the Investment Board of Nepal (IBN) depending on the investment amount. Foreign investment is governed by the Foreign Investment and Technology Transfer Act (FITTA) 2019. Certain sectors are restricted or prohibited for foreign investment as listed in the negative list. Minimum foreign investment threshold for most sectors is USD 50,000.

PAN stands for Permanent Account Number. It is a unique tax identification number issued by the Inland Revenue Department (IRD) of Nepal. Every individual earning taxable income, every business entity, and every organization conducting financial transactions must obtain a PAN. PAN is required for opening bank accounts, signing contracts above NPR 5,000, property transactions, vehicle registration, and filing any tax returns with IRD.

In Nepal, the corporate income tax rate for most private limited companies is 25%. Certain sectors attract different rates: banks and financial institutions pay 30%, insurance companies pay 25%, special industries and manufacturing companies pay 20%, and companies listed on the Nepal Stock Exchange (NEPSE) pay a reduced rate of 20%. Startups in certain sectors may qualify for tax holidays for the first few years of operation.

For businesses in Nepal, the annual income tax return must be filed within 3 months after the end of the fiscal year. Nepal's fiscal year ends on Ashad end (mid-July). This means the tax return deadline is typically Ashwin end (mid-October). Advance tax payments are required quarterly throughout the year. Late filing attracts a penalty of 0.1% per day on the outstanding tax amount plus interest charges.

Failure to file tax returns in Nepal results in penalties, interest charges, and potential legal action by IRD. IRD can issue best judgment assessments, estimating your income and imposing tax accordingly, which is almost always unfavorable to the taxpayer. Repeated non-compliance can result in business closure notices, freezing of bank accounts, and in serious cases, criminal prosecution under the Income Tax Act 2058.

Tax avoidance is the legal use of tax laws to reduce your tax liability, such as claiming allowable deductions, using tax exemptions, and structuring your business in a tax-efficient manner. Tax evasion is the illegal concealment of income or falsification of records to reduce tax, which is a criminal offense under Nepal's Income Tax Act 2058 and can result in fines and imprisonment. Growfin helps businesses with legal tax planning to minimize their tax burden within the law.

Any business with an annual taxable turnover exceeding NPR 50 lakhs (NPR 5 million) must mandatorily register for VAT with IRD Nepal. Businesses below this threshold can voluntarily register for VAT. Certain businesses such as importers, manufacturers, and service providers in specified sectors must register regardless of turnover. VAT registration is done at the local IRD office and typically takes 3 to 7 working days.

The standard VAT rate in Nepal is 13%, which applies to most goods and services. Some goods and services are VAT exempt, including basic agricultural products, health services, educational services, and financial services. Some goods attract zero-rated VAT (0%), primarily exports. Businesses must charge 13% VAT on their taxable sales, collect it from customers, and remit it to IRD after deducting input VAT paid on their purchases.

VAT registered businesses in Nepal must file VAT returns either monthly or trimesterly (every 4 months) depending on their registration type. Monthly filers must submit returns by the 25th of the following month. Trimesterly filers submit 3 times per year. The filing is done online through the IRD e-filing portal. Late filing attracts a penalty of NPR 1,000 per day plus interest on unpaid VAT.

Output VAT is the 13% VAT you charge and collect from your customers on your sales. Input VAT is the 13% VAT you pay to your suppliers on your purchases. When filing your VAT return, you subtract your input VAT from your output VAT. If output VAT exceeds input VAT, you pay the difference to IRD. If input VAT exceeds output VAT, you have a VAT credit which can be carried forward or refunded.

Yes, VAT registered businesses can reclaim input VAT paid on business-related purchases and expenses. To reclaim input VAT, you must hold valid VAT invoices from VAT-registered suppliers. VAT cannot be reclaimed on personal expenses, entertainment expenses above certain limits, or purchases related to exempt activities. Proper bookkeeping and maintaining valid tax invoices is essential for input VAT claims.

TDS stands for Tax Deducted at Source. It is a system where the payer deducts tax at the time of making certain payments and deposits it directly with IRD on behalf of the recipient. In Nepal, TDS applies to salary payments, contractor payments, rent payments, interest, dividends, and royalties. The deducted TDS is credited against the recipient's final tax liability. TDS must be deposited with IRD by the 25th of the month following the deduction.

TDS on salaries in Nepal is deducted based on the individual income tax slabs, not a flat rate. The employer calculates the employee's estimated annual tax liability based on their salary and deducts it proportionally each month. The first NPR 500,000 (NPR 550,000 for married individuals) is subject to 1% tax. Amounts above the exemption threshold are taxed progressively at 10%, 20%, 30%, and 36% depending on the income level.

In Nepal, employers must contribute to either the Provident Fund (PF) or Social Security Fund (SSF). Under SSF, the employer contributes 20% of basic salary and the employee contributes 11% of basic salary. These contributions reduce the employee's taxable income. The net salary is calculated as: Gross Salary minus Employee SSF contribution (11%) minus income tax (calculated on SSF-adjusted income). Employers must also file monthly SSF contribution reports.

Failure to deduct TDS in Nepal makes the payer liable for the full TDS amount plus interest at 15% per annum plus a penalty of 50% to 100% of the undeducted TDS amount. IRD conducts regular audits and cross-checks payments reported by recipients against TDS deposited by payers. Non-compliance can result in disallowance of the expense for income tax purposes, meaning you pay both the TDS penalty and lose the tax deduction.

While there is no specific law in Nepal mandating salary slips, it is considered best practice and strongly recommended. Salary slips serve as proof of TDS deduction, help employees file their personal tax returns, and protect employers during labor disputes and IRD audits. A proper salary slip should show gross salary, all allowances, SSF or PF deductions, income tax deduction, and net pay. Growfin provides standardized payroll processing with compliant salary documentation.

An annual statutory audit is mandatory for all companies registered under the Companies Act 2063 in Nepal. The audit must be conducted by a licensed auditor registered with the Institute of Chartered Accountants of Nepal (ICAN). The audited financial statements must be submitted to OCR within 6 months of the fiscal year end. Failure to submit audited accounts results in penalties and can lead to company deregistration. NGOs and INGOs also have mandatory audit requirements under SWC regulations.

An external audit is conducted by an independent licensed auditor to verify that your financial statements are accurate and comply with Nepal Accounting Standards. It is mandatory for companies and primarily serves shareholders, regulators, and banks. An internal audit is conducted to evaluate the effectiveness of your internal controls, risk management, and operational processes. It is an internal management tool that helps identify fraud, inefficiencies, and compliance gaps before they become serious problems.

Nepal's Income Tax Act 2058 requires businesses to maintain all financial records for a minimum of 5 years. This includes sales invoices, purchase invoices, bank statements, payroll records, contracts, VAT returns, TDS certificates, and annual financial statements. IRD can conduct tax assessments going back up to 4 years for regular assessments and up to 7 years in cases of suspected fraud. Digital records are acceptable provided they are complete and retrievable.

IRD conducts tax audits through a risk-based selection process. When your business is selected, IRD issues a tax audit notice specifying the tax year and information required. You must provide all requested documents within the specified timeframe. IRD officers review your books, cross-check with third-party data, and may interview management. After the audit, IRD issues an assessment order. If you disagree, you can file an objection with the Revenue Tribunal within 30 days.

Late filing of the annual income tax return in Nepal attracts a penalty of 0.1% per day on the tax amount due, with a minimum penalty of NPR 1,000. Additionally, interest is charged at 15% per annum on the outstanding tax balance. For VAT returns, late filing attracts NPR 1,000 per day. For annual audit submission to OCR, late filing attracts NPR 10,000 plus NPR 1,000 per day. These penalties accumulate quickly, making timely compliance far more cost-effective than late filing.