Essential Compliance Obligations After Company Incorporation in Nepal

Successfully incorporating a company in Nepal is only the beginning of your entrepreneurial journey. Post-incorporation, foreign investors must fulfill a series of compliance obligations governed by the Companies Act 2006, Foreign Investment and Technology Transfer Act (FITTA) 2019, and various sector-specific regulations. Non-compliance can lead to penalties, reputational damage, and operational setbacks. This article dives into the key statutory and regulatory requirements, ensuring your company remains on solid legal and financial ground.

1. Corporate Governance and Company Updates

1.1 Board of Directors and Shareholders’ Meetings

• Board Composition: Nepali law requires at least one director; foreign-owned entities often appoint additional directors to meet governance needs.
• Board Resolutions: Major corporate decisions—such as capital increases or policy changes—must be formally documented.
• Annual General Meeting (AGM): Under the Companies Act, every company must hold an AGM within six months of the fiscal year-end to approve audited financials, appoint auditors, and discuss shareholder matters.

1.2 Company Registry Filings

• Changes in Directorship/Shareholding: Promptly notify the Office of the Company Registrar (OCR) of any alterations in your board structure or share distribution.
• Amendments to MoA/AoA: If you revise your company’s Memorandum or Articles of Association, submit updated documents to OCR for review and approval.

2. Financial Reporting and Audits

2.1 Statutory Audit

• Licensed Auditor: All registered companies in Nepal must engage an ICAN-certified auditor (Institute of Chartered Accountants of Nepal) for annual audits.
• Compliance with NFRS: Nepal Financial Reporting Standards (NFRS), harmonized with IFRS, mandate transparent presentation of financial data, ensuring investors and regulators have a clear view of the company’s performance.
• Audit Timeline: The statutory audit must be completed within six months of the fiscal year-end.

2.2 Accounting Best Practices

• Accrual Accounting: Income and expenses are recorded when earned or incurred, aligning with NFRS/IFRS principles.
• Segmental Reporting: For large multinational entities, segmental disclosures may be required, especially when operating in distinct sectors.

3. Tax Compliance Obligations

3.1 Permanent Account Number (PAN) and Tax Filings

• PAN Registration: Post-incorporation, companies must register for a Permanent Account Number (PAN) with the Inland Revenue Department (IRD).
• Monthly/Quarterly Tax Returns: Depending on turnover and business structure, companies may need to file advance tax or withholding tax returns.

3.2 Value Added Tax (VAT)

• VAT Threshold: VAT registration is mandatory if your annual turnover exceeds NPR 2 million.
• VAT Invoicing: Maintain standardized tax invoices for all transactions; non-compliance triggers penalties from the IRD.
• Input Tax Credit: Proper documentation of VAT paid on eligible inputs allows you to claim tax credits, optimizing your cash flow.

3.3 Withholding Tax

• Payments to Non-Residents: Interest, dividends, royalties, or technical service fees paid abroad may incur withholding tax rates up to 15%.
• Double Taxation Treaties: Nepal has tax treaties with select countries, potentially reducing or exempting certain withholding tax obligations.

4. Labor and Employment Requirements

4.1 Work Permits and Visa Regulations

• Expatriate Staff: Foreign employees must obtain work permits and the appropriate visa category (business or working visa) from the Department of Labor and the Department of Immigration.
• Local Hiring Quotas: Certain sectors mandate a ratio of local-to-foreign staff; non-compliance may affect license renewals.

4.2 Social Security Fund (SSF) Contributions

• Mandatory Registration: Companies hiring Nepali employees must enroll in the SSF program.
• Employer and Employee Contributions: Percentage-based contributions for healthcare, insurance, and retirement benefits are outlined by the Social Security Act.

5. Foreign Exchange Regulations

5.1 Capital Inflows and Outflows

• Nepal Rastra Bank (NRB) Registration: All foreign investment inflows—whether equity or loan-based—must be recorded with the NRB to facilitate smooth repatriation later.
• Repatriation of Profits and Dividends: Obtain tax clearance from the IRD and secure NRB approval to remit earnings or loan repayments abroad.

5.2 Regular Compliance Reporting

• Annual Reporting: Foreign-invested companies must submit financial reports and capital reconciliation statements to NRB, confirming all foreign currency transactions comply with local monetary policy.
• Penalties for Violations: Failure to adhere to NRB guidelines can result in currency conversion restrictions and delayed dividend distribution.

6. Renewals, Licenses, and Sector-Specific Obligations

Companies in regulated industries—such as banking, insurance, telecommunications, hydropower, or tourism—may face additional renewals or licensing requirements:

• Annual Renewal: Licenses issued by regulatory bodies like Nepal Rastra Bank, Insurance Board, or Department of Tourism often require annual or biennial renewals.
• Sectoral Compliance: Ensure continuing adherence to industry guidelines, from capital adequacy in banking to safety inspections in tourism and aviation.

Frequently Asked Questions (FAQ)

1. When should I conduct my company’s first AGM in Nepal?

AGMs must be held within six months following the fiscal year-end. Newly incorporated companies often align their first AGM with the end of their initial fiscal cycle.

2. Are statutory audits mandatory for small companies in Nepal?

Yes. All registered companies—regardless of size or turnover—must undergo an annual audit by a licensed auditor.

3. How often do I file VAT returns?

Typically, VAT returns are filed monthly if your turnover is significant. Smaller businesses may qualify for quarterly filing, depending on IRD stipulations.

4. Can foreign shareholders repatriate dividends freely?

Yes, provided you obtain tax clearance from the IRD and secure approval from Nepal Rastra Bank (NRB). Accurate financial records and statutory compliance are essential to smooth repatriation.

5. Do I need separate work permits for each foreign employee?

Yes. Every expatriate staff member requires an individual work permit and the correct visa category from the Department of Labor and the Department of Immigration.

Conclusion

Maintaining post-incorporation compliance in Nepal involves a broad spectrum of obligations—from annual audits and tax registrations to labor law adherence and foreign exchange regulations. By proactively managing these requirements, foreign investors can safeguard their reputation, foster growth, and streamline operations in Nepal’s evolving market.

At Digital Consulting Ventures, we specialize in guiding foreign enterprises through Nepal’s complex compliance landscape. Our expert team ensures your business stays legally compliant and financially optimised—from incorporation to everyday operations.