Legal Requirements for Foreign Businesses Operating in Nepal

Overview

Foreign businesses operating in Nepal must navigate a layered compliance environment covering company law, tax, labor, and sector-specific regulation. After incorporation, companies must register for a Permanent Account Number (PAN) and, if annual turnover exceeds NPR 5 million, for Value Added Tax (VAT) at 13 percent. Corporate income tax is levied at a standard rate of 25 percent, with concessional rates of 20 percent for manufacturing and further reductions for eligible priority sectors. Employers must contribute to the Social Security Fund for all Nepali employees at rates specified under the Labour Act 2074. Annual financial statements must be audited by a registered Nepali chartered accountant and submitted to the tax authority within three months of fiscal year end. Nepal's fiscal year runs from mid-July to mid-July (Shrawan to Ashadh in the Nepali calendar).

FAQ

Q: Are foreign businesses required to file tax returns in Nepal even if they make no profit?

Yes. Registered companies in Nepal must file income tax returns regardless of profitability. Nil returns must be submitted by the statutory deadline, typically four months after the fiscal year ends. Failure to file attracts penalties and interest charges.

Q: What sector-specific licenses might a foreign business need beyond standard registration?

Sectors including finance, insurance, healthcare, media, education, and telecommunications require additional licensing from sector-specific regulators (Nepal Rastra Bank, Insurance Board, Ministry of Health, etc.). These licenses must be obtained before commencing operations and are separate from company registration with the OCR.