With its growing economy, strategic location, and pro-investment policies, Nepal is rapidly becoming a preferred destination for foreign investors. Whether you're entering through a wholly owned subsidiary, a joint venture, or a branch office, understanding the local tax system is essential.
While foreign company registration in Nepal has been simplified under recent reforms, taxation remains a critical compliance pillar. This guide covers everything foreign businesses need to know about Nepal’s Value Added Tax (VAT), Withholding Tax (TDS), and Corporate Income Tax (CIT) structure, including timelines, rates, and sector-specific provisions.
Nepal’s taxation system is governed by:
Income Tax Act 2058 (2002)
Value Added Tax Act 2052 (1996)
Tax Procedures Act 2058
Finance Act (updated annually)
The key principle is that foreign companies registered in Nepal are treated similarly to domestic entities for tax purposes, with equal obligations to file returns, deduct taxes, and undergo audits.
Corporate Income Tax (CIT) is levied on profits earned from Nepal-based activities.
| Entity Type | Corporate Tax Rate |
|---|---|
| Standard private/public limited company | 25% |
| Special industries (manufacturing, energy, etc.) | 20% |
| Telecommunication and financial sectors | 30% |
| Export-only businesses | 20% (concessional) |
| Requirement | Frequency/Deadline |
| Estimated Tax Installments | 3 times/year (Poush, Chaitra, Ashad) |
| Annual Return Filing | By end of Poush (mid-January) |
| Tax Payment Deadline | Along with annual return filing |
| Audit Report Submission | Within 3 months after fiscal year-end |
Nepal’s fiscal year runs from mid-July to mid-July. CIT must be paid even if no profits are declared (minimum tax applies).
Value Added Tax is a 13% consumption tax applicable on goods and services sold or imported in Nepal.
Foreign companies must register for VAT if:
Annual turnover exceeds NPR 2 million, or
They engage in import/export, consultancy, or digital services
| Requirement | Frequency/Deadline |
| VAT Return Filing | Monthly or Quarterly |
| VAT Payment Deadline | By the 25th day after period end |
| Tax Invoice Issuance | Mandatory for all B2B services |
| Record Keeping | Minimum 6 years |
Exports are zero-rated, meaning companies can claim input VAT refunds.
Foreign companies can claim input VAT on goods/services used for business
Must maintain proper VAT invoices and records
Withholding tax, locally known as Tax Deducted at Source (TDS), is applicable when payments are made for services, salaries, rent, royalties, and more.
| Payment Type | TDS Rate |
| Salary | Slab-based (1% to 36%) |
| Consultancy/Professional Services | 15% |
| Rent (office/property) | 10% |
| Royalties/Franchise Fees | 15% |
| Dividends | 5% |
| Interest to Non-Residents | 15% |
| Contracts/Subcontracts | 1.5% |
TDS must be deducted at payment time and deposited to the tax office by the 25th of the following month.
Maintain a TDS register
File monthly TDS returns
Issue TDS certificates to payees
Reconcile TDS records with audited accounts
Foreign subsidiaries can remit dividends to their parent companies after meeting tax obligations and obtaining regulatory approvals.
| Requirement | Note |
| Dividend Declaration | Via Board Resolution |
| Dividend Withholding Tax | 5% flat rate |
| NRB Approval for Repatriation | Mandatory |
| Tax Clearance Certificate | Required before repatriation |
Dividends are considered final payments and are not taxed again at the shareholder level in Nepal.
| Category | Branch Office | Subsidiary |
| Tax Residency | Non-resident | Resident |
| Taxable Income | Nepal-sourced income | Global income (if applicable) |
| Corporate Tax Rate | 25% | 25% |
| Dividend Tax | Not applicable | 5% on remittance |
| Profit Repatriation Approval | NRB required | NRB + Tax clearance |
Branch offices may appear tax efficient due to no dividend tax, but lack the legal protections and operational flexibility of subsidiaries.
In addition to VAT and CIT, foreign companies may be subject to:
| Tax Type | Rate/Description |
| Excise Duty | On telecom, alcohol, fuel, etc. |
| Customs Duty | On imports (rate varies by product) |
| Education Service Fee | 1.5% on education/training services |
| Social Security Contribution | 20% of salary (11% employee, 9% employer) |
Ensure proper classification of goods and services to apply correct indirect tax rates.
Nepal offers targeted tax reliefs for sectors prioritized under national policy.
| Incentive Type | Eligibility |
| Tax Holidays (up to 10 years) | Hydropower, tourism, SEZs |
| Lower CIT (20%) | Manufacturing, IT, and export units |
| VAT Exemptions | Essential goods/services, exports |
| Customs Duty Concessions | On capital goods, plant, machinery |
| Dividend Tax Relief via DTAAs | If applicable with treaty countries |
Foreign companies must apply for incentives during initial registration and reflect them in audited accounts.
Register for PAN, VAT, and TDS
Maintain double-entry bookkeeping under NFRS
Appoint a Chartered Accountant (CA) licensed by ICAN
Submit audited financial statements annually
File monthly and annual tax returns
Track withholding tax and input VAT
Maintain documentation for profit repatriation
Failure to comply may result in penalties, suspension of business licenses, or blocked fund transfers abroad.
Ignoring TDS on payments to foreign consultants
Missing deadlines for tax returns or payments
Claiming VAT input without proper invoices
Paying dividends without tax clearance
Treating overseas services as tax-exempt without review
Proactive tax planning and local advisory support are essential.
Nepal's tax structure for foreign companies may seem complex, but it is predictable and legally defined. Whether it’s VAT, corporate income tax, or withholding obligations, foreign investors must embed tax compliance into their operating model from day one.
A clear understanding of local tax laws, combined with timely filing and strategic planning, will ensure that your venture remains legally protected and financially optimized.
If you’re considering foreign company registration in Nepal, knowing the tax environment isn’t just good governance—it’s a competitive edge in a growing economy.