Tax in Nepal for new companies: corporate tax, TDS and VAT basics

Introduction: your tax roadmap when you incorporate a company in Nepal

Planning tax early saves time and cash. Most new founders ask the same things. What is the corporate tax rate? How does TDS work? When do I register for VAT? This guide answers these questions in plain language. It is written for foreign companies that want to incorporate a company in Nepal. You will see how tax links to banking, payroll, and repatriation. You will also see common mistakes and quick fixes.

Why tax planning matters from day one

Cash leaves fast after incorporation. Rent starts. Payroll starts. Vendors send invoices. You need a working tax setup before the first bill. A clean setup avoids penalties and delays. It also improves audits and profit repatriation. Banks and regulators expect timely returns and payments. Investors expect tax hygiene. Customers expect proper VAT invoices.

Strong tax hygiene delivers four wins.

1. Prevent penalties and interest.

2. Claim credits on time.

3. Support FX approvals and profit repatriation.

4. Build clean books for fundraising or exit.

Corporate income tax in Nepal: rates, base, and returns

Corporate income tax applies to profits. Profit equals taxable income minus allowable deductions. Deductions follow the Income Tax Act 2058 and the latest Finance Act.

Core concepts

• Taxable entity. A Nepal-registered company pays tax on Nepal-source income. A branch pays tax on Nepal-source income of the foreign head office.

• Accounting period. Nepal’s fiscal year usually runs mid-July to mid-July.

• Functional currency. Keep books in NPR. You may track management reports in a secondary currency.

• Transfer pricing. Related party pricing must be arm’s length. Keep files to support pricing.

Corporate tax rates: the usual picture

• Standard corporate rate. Commonly 25% on taxable profits for general companies.

• Sector variations. Specific sectors can face different rates under each Finance Act.

• Incentives. Power, tourism, IT exports, and SEZs may qualify for concessions. Rules change year to year.

Practical tip: confirm your rate category at incorporation. Lock it into your tax memo and board minutes.

Deductions and adjustments

• Allowable expenses. Ordinary and necessary business costs are deductible.

• Capital allowances. Depreciation follows tax schedules.

• Disallowances. Fines, personal expenses, and unsupported cash spend risk disallowance.

• Withholding credits. TDS withheld by customers offsets your final tax.

Returns and payments

• Advance tax. Pay in installments during the year as prescribed by the Finance Act.

• Final return. File the annual corporate return after year end.

• Tax audit. Maintain ledgers, vouchers, and reconciliations. Keep them for regulatory periods.

TDS (Tax Deducted at Source): when you withhold and why it matters

TDS is a pre-collection mechanism. The payer withholds tax from the payee and deposits it to the government. TDS applies to many outbound payments.

Typical TDS trigger areas

• Resident vendor services. Professional and technical services.

• Contracts and supplies. Contract payments and large supply bills.

• Rent. Office, warehouse, and equipment rentals.

• Salary. Employers must withhold salary tax under employee slabs.

• Non-resident services. Cross-border services can attract withholding. PE analysis may also apply.

• Dividends, interest, royalties. Withholding rules apply as set out in law.

The Income Tax Act 2058 and annual Finance Acts prescribe rates. Rates vary by payment type and residency.

TDS obligations for a Nepal entity

• Deduct at payment or credit. Withhold when you pay or recognize expense, whichever comes first.

• Deposit on time. Deposit TDS within the statutory deadline for the period.

• File statements. File periodic TDS returns with payee details.

• Issue certificates. Give TDS certificates to vendors and employees.

• Reconcile. Match TDS deducted with your GL and supplier ledgers.

Why TDS discipline is non-negotiable

• Cash impact. Missed TDS can block expense deductibility.

• Vendor relationships. Vendors need certificates to claim credit.

• Audit trail. Strong TDS proofs reduce audit queries.

VAT in Nepal: registration, rate, and returns

VAT is a consumption tax on value added. The VAT Act 2052 governs registration, invoicing, and returns.

Registration

• Who registers. Businesses that meet turnover criteria or trade in specified goods or services.

• When to register. Register before you cross the threshold or when required by activity.

• PAN first. Obtain PAN before VAT registration.

• Branches. Register each fixed place if required by your structure.

Rates and scope

• Standard rate. Nepal’s VAT is commonly 13% on taxable supplies.

• Zero-rated and exempt. Exports of goods and many services can be zero-rated. Exempt supplies do not allow input credits.

• Input tax credit. Claim VAT paid on eligible business purchases.

Invoicing and compliance

• Tax invoice. Issue valid VAT invoices with your VAT number.

• Return cycle. File VAT returns as per your assigned cycle.

• Payment. Pay net VAT due after credit setoff.

• Records. Keep purchase and sales registers. Retain import documents for credit.

Registrations you should line up in your first month

You cannot run payroll or deduct TDS without registrations. Set these up as your incorporation closes.

1. PAN (Permanent Account Number). Required for all tax activities.

2. VAT registration (if applicable). Needed before issuing VAT invoices.

3. TDS activation. Configure your portal for withholding payments.

4. Payroll setup. Configure employee tax slabs and social security.

5. Industry licenses. Get sector approvals if your sector requires them.

6. Banking setup. Enable online tax payment features with your bank.

Compliance calendar: your first 12 months

Use this checklist to keep filings on track.

1. Month 0. Incorporation complete. Apply PAN. Open bank.

2. Month 1. Register for VAT if required. Configure e-invoicing.

3. Monthly. Withhold and deposit TDS. File TDS statement.

4. Monthly or assigned cycle. File VAT return and pay VAT due.

5. Quarterly. Review advance tax against forecasts.

6. Year end. Book closing entries. Complete stock counts.

7. Post-year. File annual corporate return within the statutory deadline.

8. Annual. Approve financial statements. Hold the AGM per Companies Act 2063.

9. Ongoing. Maintain transfer pricing files for related party transactions.

Subsidiary vs branch vs liaison: key tax differences

Choose the form that matches your business model and risk profile. Consider FITTA 2019 for foreign investment approvals when relevant.

Paying people: payroll tax, benefits, and documentation

• Employment contracts. Put salary, allowances, and benefits in writing.

• Payroll tax (TDS on salary). Withhold under employee slabs. Provide payslips and year-end statements.

• Benefits and contributions. Register for required social and insurance programs, as applicable.

• Per diems and reimbursements. Maintain receipts and policies.

• Non-resident directors. Check withholding on director fees.

Transfer pricing and related party rules

• Arm’s length standard. Deal with group companies as independent parties.

• Documentation. Keep contracts, benchmarking, and working papers.

• Management fees and royalties. Support with substance and benefits.

• Cross-border services. Watch for PE risk and withholding.

• Year-end true-ups. Align margins with policies and benchmarks.

Cross-border payments and repatriation

• Dividend repatriation. Ensure audited accounts, tax clearance, and board approvals.

• Service fee payments abroad. Withhold if required by law. Verify PE status of the provider.

• Royalty and IP. Confirm withholding and deductibility.

• FX approvals. Keep invoices, contracts, and tax proofs ready for the bank.

• Intercompany loans. Document terms. Check thin capitalization concepts and interest caps.

Incentives and special regimes to check

• SEZ benefits. Reduced rates and holidays may apply in approved zones.

• Export services. Zero-rating may apply to eligible exports.

• Priority sectors. Tourism, power, and manufacturing may have concessions.

• Start-up reliefs. Confirm availability in the current Finance Act.

Accounting, invoicing, and controls that pass audits

• Chart of accounts. Map tax lines for VAT, TDS, and corporate tax.

• Invoicing. Configure VAT invoice numbers and mandatory fields.

• Vendor onboarding. Collect PAN, VAT, and bank proofs.

• Three-way match. PO, GRN, and invoice for all major spend.

• Document control. Lock month-end once filings are done.

• Systems. Use an ERP or reliable cloud accounting. Maintain backups in Nepal.

Common mistakes and how to avoid them

• Late VAT and TDS filings. Fix with a filing calendar and owner.

• Missing TDS certificates. Automate certificate issuance each month.

• Wrong invoice format. Use a statutory VAT template.

• Cash payments with poor support. Avoid cash for large spends.

• Ignoring PE risk. Review cross-border work every quarter.

• Unclear intercompany pricing. Approve a TP policy at board level.

• No advance tax review. Re-forecast quarterly and adjust installments.

• Under-documented assets. Maintain fixed asset register with tags.

Worked example: first-year tax flow 

This simple flow shows how the three pillars interact.

• You sell services for NPR 10,000,000 plus VAT if applicable.

• You incur operating costs of NPR 6,000,000.

• Customers deduct TDS on your invoices where required.

• You deduct TDS on vendor bills and deposit it.

• You file VAT returns and claim input credits.

• At year end, you compute taxable profits.

• You offset TDS credits against your corporate tax.

• You pay the balance and file your return on time.

Numbers are examples. Your actual rates and credits depend on current Finance Act schedules and your sector.

Quick-reference table: who does what, and when

What the law expects you to know 

• Companies Act 2063 (2006). Company governance, filings, and AGMs.

• Income Tax Act 2058 (2002) + Finance Acts. Corporate tax base, rates, TDS, and returns.

• VAT Act 2052 (1996). VAT registration, invoicing, credits, and returns.

• FITTA 2019. Foreign investment approvals and conditions for certain sectors.

• Banking FX rules. Documentary requirements for remittances and imports.

These titles are the primary references used by tax teams in Nepal.

FAQs 

1) Do I need VAT when I incorporate a company in Nepal?
Register for VAT if your turnover or activity requires it. Many B2B models register early to claim input credits.

2) What is the standard corporate tax rate in Nepal?
General companies commonly face a 25% rate on taxable profits. Sector-specific rates can differ each year.

3) How does TDS work for local vendors?
You withhold at payment or credit for specified payments. Deposit the tax and issue certificates to vendors.

4) When is VAT due each month?
VAT returns are filed on your assigned cycle. Many taxpayers file and pay monthly for the prior month.

5) How soon can I remit profits abroad?
After audited accounts and tax clearance. Ensure FX documents and board approvals are in order.