Accounting in Nepal for Foreign Ventures: GAAP, Audits & Reporting Requirements

As Nepal continues to open its economy to global investors, foreign company registration in Nepal is gaining momentum across industries like hydropower, IT, tourism, and manufacturing. But while entry procedures have been streamlined through the Foreign Investment and Technology Transfer Act (FITTA) 2019, many foreign ventures overlook a critical success factor: accounting compliance.

Accounting and reporting obligations in Nepal differ from those in many Western jurisdictions. Nepal follows its own version of Generally Accepted Accounting Principles—Nepal Financial Reporting Standards (NFRS)—adapted from IFRS. The country also enforces statutory audits, periodic financial disclosures, and tax filings with strict deadlines. Understanding these requirements is vital for foreign businesses to maintain compliance, avoid penalties, and build operational credibility.

This article offers a comprehensive, SEO-optimized guide for foreign investors on Nepal’s accounting standards, audit laws, and reporting requirements.

Overview of Nepal’s Accounting Framework (NFRS)

Nepal follows Nepal Financial Reporting Standards (NFRS)—a localized version of the International Financial Reporting Standards (IFRS)—issued by the Institute of Chartered Accountants of Nepal (ICAN).

Introduced in 2014, NFRS has been mandatory for public interest entities and large enterprises. NFRS adoption was phased across sectors, but is now widely applicable for:

• Listed companies

• Banks and insurance companies

• State-owned enterprises (SOEs)

• Foreign joint ventures

• Large-scale manufacturing and service businesses

Key features of NFRS include:

• Accrual-based accounting (not cash-based)

• Detailed recognition rules for revenue, leases, and financial instruments

• Requirement for consolidated financial statements (if applicable)

• Fair value accounting in some asset categories

Foreign investors establishing operations in Nepal must ensure their local accounting complies with NFRS, even if they report under IFRS or GAAP internationally.

Does Nepal Accept IFRS?

Nepal does not directly adopt IFRS but uses NFRS, which is 90–95% aligned with IFRS. ICAN periodically updates NFRS to stay current with international standards.

Foreign companies that prepare group-level financials under IFRS or US GAAP must convert those to NFRS-compliant financials for local filing. This is especially relevant during:

• Annual audit and tax submissions

• Dividend declarations

• Capital repatriation

• Transfer pricing documentation

In some instances, companies are allowed to prepare dual reports (e.g., one for HQ using IFRS, one for Nepal using NFRS), but NFRS compliance is non-negotiable for all statutory submissions.

Financial Reporting & Statutory Requirements for Foreign Companies

Once a foreign company is registered in Nepal—either as a private limited company, a public limited company, or a branch office—it must comply with financial reporting laws under the Companies Act 2006, the Income Tax Act 2058, and related regulations.

Key Reporting Obligations:

Nepal’s fiscal year runs from mid-July to mid-July. For example, FY 2080/81 began in mid-July 2023 and ends in mid-July 2024.

Audit Requirements: Who Needs an Audit?

The Companies Act makes annual audits mandatory for nearly all companies, including foreign-invested firms. The threshold for audit exemption is minimal, meaning most businesses must appoint a qualified Chartered Accountant (CA) licensed by ICAN.

Audit Requirement Overview:

Auditors must be independent and rotate periodically. The audit report is submitted to both the Company Registrar and the Tax Office.

Required Financial Statements

Under NFRS and company law, the following financial statements are required:

1. Statement of Financial Position (Balance Sheet)

2. Statement of Profit or Loss and Other Comprehensive Income

3. Statement of Changes in Equity

4. Cash Flow Statement

5. Notes to Accounts including accounting policies

6. Auditor’s Report (signed and sealed)

7. Tax Adjustments Schedule (per IRD rules)

Companies operating in sectors like banking, insurance, and public utilities may have industry-specific reporting formats mandated by regulators like NRB or NEPSE.

Use of XBRL and Digital Recordkeeping

Nepal is moving toward digital reporting standards but is not yet using full XBRL (eXtensible Business Reporting Language) as seen in developed countries. However:

• Digital filing portals exist for company registration (OCR), tax returns (IRD), and VAT submissions.

• Financial statements must be uploaded digitally in PDF and XML format for some regulators.

• Larger companies and listed entities are expected to move to standardized digital submission of reports in the coming years.

Record retention rules require companies to store original books of account for 6 years and digitally for at least 3 years, as per the Income Tax Act.

Role of ICAN and the Auditor General

Institute of Chartered Accountants of Nepal (ICAN)

ICAN is Nepal’s statutory accounting body responsible for:

• Issuing and updating NFRS

• Licensing Chartered Accountants (CAs)

• Regulating audit practices and ethics

• Publishing technical guidance for auditors and preparers

Foreign companies must hire auditors registered with ICAN, and should confirm their validity via ICAN’s official registry.

Office of the Auditor General (OAG)

While the OAG primarily audits government entities, it sets precedent in public sector financial accountability. Some foreign companies operating via public-private partnerships (PPPs) or joint ventures with SOEs may be subject to audit review or oversight from the OAG, especially in hydropower, infrastructure, or telecom projects.

Common Penalties for Non-Compliance

Failing to comply with accounting and audit obligations in Nepal can result in both financial penalties and operational disruptions.

These penalties are enforced by the Company Registrar, Inland Revenue Department, and in severe cases, the Revenue Investigation Department.

Tax Filing and Accounting for Foreign Branches

If a foreign company registers a branch office in Nepal, it must:

• Maintain Nepali books of account

• Prepare and submit annual audited accounts

• File corporate income tax returns

• Deduct and deposit withholding taxes (TDS)

Branches are treated as permanent establishments and taxed at 25% on Nepal-source profits. Transfer pricing provisions may apply, especially if the branch engages in intra-group transactions.

Foreign companies must ensure they have local accounting staff or partners familiar with Nepalese tax law to avoid compliance risks.

Key Accounting Considerations for Foreign Investors

1. Currency of Accounts
   Books must be maintained in Nepali Rupees (NPR). However, foreign currency reporting can be done for HQ purposes.

2. Nepali Language Compliance
   Financial statements must be submitted in Nepali language if requested by authorities.

3. Transfer Pricing Documentation
   Intra-group transactions between a foreign company and its Nepali subsidiary must comply with arm’s length principle and maintain contemporaneous documentation.

4. Technology Transfer Agreements
   Royalty or technical service fees paid abroad must be supported by approved technology transfer agreements, and may be subject to withholding tax (generally 15%).

5. Workforce Accounting
   Payroll, provident fund, gratuity, and social security must be reported and reconciled monthly. Non-compliance here can block company audits and tax clearance.

Practical Steps to Stay Compliant

• Engage a licensed CA firm: Ensure your accounting is set up and reviewed by a chartered accountant familiar with NFRS and tax laws.

• Automate with Nepali software: Local accounting software like Swastik, BizHub, or Tally (localized for Nepal) helps meet IRD and VAT standards.

• Establish internal controls: Especially for foreign-owned companies, building internal controls and periodic reconciliations is essential to satisfy auditors.

• Plan early for audit: Don’t wait until year-end. Pre-audit checks, compliance updates, and tax provisioning should begin quarterly.

• Maintain dual books if needed: For foreign HQs using IFRS or US GAAP, maintain both NFRS books (for Nepal) and consolidated books (for reporting abroad).

Conclusion: Accounting Compliance Is Critical for Foreign Companies in Nepal

As foreign investment grows in Nepal, the accounting landscape is evolving to ensure transparency and regulatory alignment. Foreign companies registering in Nepal must align their operations with NFRS, undergo annual audits, and adhere to strict tax and compliance deadlines.

By understanding the local accounting framework—spanning GAAP standards, audit rules, financial disclosures, and tax reporting—foreign investors can avoid costly penalties, ensure profit repatriation, and maintain business continuity. These practices also bolster investor confidence, attract local partnerships, and strengthen credibility with regulators.

If you’re planning foreign company registration in Nepal, it’s not just about getting the license. It’s about sustaining the operation. And that starts with doing the books—correctly, compliantly, and confidently.