Business registration in Nepal sets your legal and tax future. Choosing a sole proprietorship or a company affects risk, FDI approvals, taxes, and growth. This guide explains both paths in plain language. You will learn eligibility, costs, timelines, and compliance. You will also see where foreign investors face limits. Use this to decide with confidence and register the right way.
A sole proprietorship is a business owned by one natural person. The owner and the business are the same legal person. There is no separate legal entity. Profits are taxed in the owner’s hands. Liability is unlimited. Local registration is done with the respective authority. PAN and, if needed, VAT come from the Inland Revenue Department.
A private limited company is a separate legal entity. It is incorporated under the Companies Act 2063 (2006). Ownership is held by shareholders. Liability is limited to paid-up capital. The Office of the Company Registrar maintains records. A company files annual returns and audited accounts as required. Tax is paid at corporate rates. Directors manage the company.
| Factor | Sole Proprietorship | Company (Private Limited) |
|---|---|---|
| Legal status | Not separate from owner | Separate legal entity |
| Owner liability | Unlimited, personal assets at risk | Limited to paid-up capital |
| Eligibility for foreign investors | Not eligible for foreign ownership | Eligible via FDI routes |
| FDI approvals | Not applicable | Required for foreign shareholding |
| Tax treatment | Individual tax slabs | Corporate income tax (standard rate) |
| VAT | Register if turnover crosses IRD threshold | Same threshold rules apply |
| Compliance load | Low to moderate | Moderate to high |
| Audit | Usually not required by law at small scale | Often required per law and sector |
| Branding and credibility | Basic | Higher credibility with banks and partners |
| Fundraising | Hard; no equity issuance | Possible with share issuance |
| Profit repatriation | Not available for foreign owners | Possible per NRB rules |
| Hiring foreign staff | Not supported | Possible with company and relevant permits |
| Lifespan | Ends with owner or closure | Perpetual succession |
| Speed to start | Fast | Slower due to incorporation steps |
| Typical fit | Solo trades and micro services | Growth plans and regulated sectors |
Notes and sources (no links): Companies Act 2063; FITTA 2019; NRB Foreign Investment and Foreign Exchange Regulation 2021; IRD VAT Act 2052; Industrial Enterprises Act 2076.
No. A sole proprietorship is tied to a natural person as owner. Nepal’s foreign investment framework channels FDI through companies or branches. A sole proprietorship cannot receive foreign equity. This is the practical and legal position across agencies.
Foreign investors can invest through these forms:
Private limited subsidiary. The most common route. Shareholding by foreign investors is allowed unless the sector is restricted.
Joint venture company. Partner with a Nepali shareholder where policy prefers local participation.
Branch office. Allowed for specific activities and parent-company oversight.
Liaison office. Non-commercial presence for representation only.
References named: FITTA 2019, Industrial Enterprises Act 2076, Negative List schedules, and NRB circulars.
A sole proprietorship carries unlimited personal liability. Business debts can reach the owner’s assets. Contract counterparties often demand personal guarantees.
A company shields owners through limited liability. The company is the contracting party. Liability stays within the company capital unless fraud or wrongful trading occurs. Banks may still seek director guarantees for loans.
Corporate income tax. Companies pay a standard corporate rate set by the Income Tax Act.
Individual tax. Sole proprietors pay progressive individual rates.
VAT. The standard VAT rate in Nepal is 13 percent. Registration applies when turnover crosses the IRD threshold or by mandate.
Withholding. Companies must withhold on certain payments per IRD rules.
Audit and filings. Companies file annual returns, financials, and often audited accounts. Sole proprietors file tax returns and maintain prescribed books.
Named sources: Income Tax Act 2058, VAT Act 2052, IRD Guidelines, Companies Act 2063.
A sole proprietorship is fast and cheap to start. The process is simple. PAN is straightforward. VAT registration adds pre-inspection steps where required.
A company takes longer. Name reservation, MOA and AOA drafting, e-filings, and stamping are required. Share capital rules and sector approvals can add steps. For FDI, approvals and NRB filings add time.
A sole proprietorship cannot sponsor foreign staff. It is limited to the owner and local hires. Labor compliance still applies.
A company can recruit local and foreign staff per law. Work permits, business visas, and labor contracts follow the Labor Act 2074. Companies must register for social security where applicable. Payroll withholding and labor records are mandatory.
Sole proprietors open accounts in their names under PAN. Banking is simple but personal. Funding is personal too. Banks may cap exposure.
Companies open corporate accounts. Capital is paid into the company. Foreign capital must be routed through NRB channels. Dividend and capital repatriation follow NRB approvals and tax clearance. This is the only clean path for foreign investors.
Named sources: NRB Foreign Investment and Foreign Exchange Regulation 2021, FITTA 2019.
A company has a board, minutes, share registers, and compliance calendars. This improves governance and partner trust. Vendors, landlords, and large customers prefer dealing with companies. Equity investment and bank debt are easier within a company.
A sole proprietorship has no share capital. Partners invest by lending to the owner. That limits scale.
Choose a sole proprietorship when:
You are a Nepali citizen starting small and local.
You want simple tax and low compliance.
You do not need investors or foreign staff.
Your risk is low and insured.
Choose a company when:
You plan to grow and hire a team.
You want limited liability and a separate entity.
You need FDI or plan to repatriate profits.
You sell to enterprises or regulated buyers.
You need credibility with banks and partners.
Check name availability with the local authority.
Prepare ID, address proof, and photographs.
Complete the application form and pay fees.
Obtain registration certificate.
Apply for PAN with the IRD.
Assess VAT need and register if required.
Open a bank account and set up books.
Reserve a unique name with the Office of the Company Registrar.
Draft MOA and AOA. Include clear objects and share capital.
File incorporation documents and pay fees.
Obtain Certificate of Incorporation and company PAN.
If foreign owned, apply for FDI approval per FITTA.
After approval, bring in capital through NRB channels.
Register for VAT if required by turnover or sector.
Open corporate bank accounts.
Appoint auditor and adopt a compliance calendar.
For foreign staff, apply for permits and business visas.
Sole proprietorship. Income is part of the owner’s return. Deductions follow the Income Tax Act 2058.
Company. Tax at corporate rates. Incentives may apply by sector and location.
Standard VAT rate is 13 percent.
Exemptions and zero-rating follow schedules in the VAT Act 2052.
Ensure proper tax invoices and electronic filing.
Companies must withhold tax on salaries, rent, services, and dividends per IRD rules.
Sole proprietors with employees must withhold on payroll.
Non-compliance triggers penalties and interest.
Sole proprietorship risk. Consider professional indemnity and public liability coverage.
Company risk. Add directors’ and officers’ insurance where relevant.
Build internal controls and approval matrices early.
Keep contracts clear on liability and dispute resolution.
Some sectors need extra licenses or approvals. Examples include finance, healthcare, education, energy, and telecom. A company structure is often mandatory in regulated sectors. Check sector rules before you draft your MOA objects.
Sole proprietorship
Owner ID and address proof
Business address and tenancy proof
Application form and photographs
PAN application
VAT application if required
Company
Proposed name and objects
MOA and AOA drafts
Shareholder and director KYC
Registered office proof
Board resolutions for FDI where applicable
FDI approval documents and NRB filings
PAN and VAT registrations
Large buyers run due diligence on counterparties. A company often passes vendor onboarding faster. Tenders and frame agreements may require company registration. A sole proprietorship may face caps on contract size and duration.
Sole proprietorship. Days to a couple of weeks, depending on VAT inspection.
Company (domestic capital). One to three weeks after complete filings.
Company with FDI. Add regulatory approvals and NRB processes. Timelines vary by sector and completeness.
Use a compliance calendar for returns and deadlines.
Maintain a clean chart of accounts from day one.
Adopt payroll software and keep HR files complete.
For FDI, archive every remittance and approval letter.
Appoint a responsive auditor and tax advisor.
| Scenario | Risk tolerance | Funding plan | Compliance appetite | Best fit |
|---|---|---|---|---|
| Test a small local service | High | Self-funded | Low | Sole proprietorship |
| Sell to global brands | Low | Equity and bank debt | Moderate | Company |
| Bring foreign partners | Low | Foreign equity | High | Company with FDI |
| Hire expatriate specialists | Low | Corporate budgets | High | Company |
| Enter regulated markets | Low | Formal capital | High | Company |
1) Can a foreigner open a sole proprietorship in Nepal?
No. The foreign investment regime requires investment through a company or branch. Sole proprietorships are for natural persons and do not accept foreign equity.
2) Which is cheaper to start in Nepal: sole proprietorship or company?
A sole proprietorship is cheaper and faster to start. A company costs more due to drafting, filings, and approvals. FDI adds extra steps and fees.
3) What is the VAT rate in Nepal?
The standard VAT rate is 13 percent under the VAT Act 2052. Registration depends on turnover thresholds and sector rules set by the IRD.
4) Can I repatriate profits from Nepal?
Yes, if you invest through a company and follow NRB rules. Dividends and capital gains remittances require prior approvals and tax clearance.
5) When should I convert a sole proprietorship into a company?
Convert when you plan to hire, raise funds, limit liability, or enter tenders. Conversion aligns your structure with growth and compliance needs.