---
title: "Tax in Nepal for new companies: corporate tax, TDS and VAT basics"
description: New to Nepal? Learn corporate tax, TDS, and VAT basics to incorporate a company in Nepal smoothly. Clear steps, deadlines, and compliance tips.
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---

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

[![Pjay Shrestha](https://app.hubspot.com/settings/avatar/746dc962bd466bc39a861c64c40c6f32)](https://digitalconsultingventures.com/insights/author/pjay-shrestha)

[Pjay Shrestha](https://digitalconsultingventures.com/insights/author/pjay-shrestha) Sep 16, 2025 1:14:58 PM 6 min read

![Incorporate a company in Nepal — corporate tax, TDS, and VAT setup checklist](https://digitalconsultingventures.com/hubfs/Untitled%20design%20%2815%29-2.jpg)

## 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

| Feature | Nepal Subsidiary | Branch of Foreign Company | Liaison/Representative Office |
| --- | --- | --- | --- |
| Legal status | Separate Nepal company | Extension of foreign entity | No commercial income permitted |
| Corporate tax | On Nepal profits per law | On Nepal source profits | Not applicable if no income |
| VAT | Registers if taxable | Registers if taxable | Usually not applicable |
| TDS | Withhold on payments | Withhold on payments | Withhold on staff/office payments if applicable |
| Profit repatriation | Dividends to parent, subject to rules | Remittance of branch profits | Cost reimbursement only |
| Compliance | Full corporate filings | Branch tax filings | Activity reports to authority |
| Transfer pricing | Yes for related parties | Yes on head office allocations | Not applicable for non-income activities |

> 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

| Task | Owner | Frequency | Evidence to keep |
| --- | --- | --- | --- |
| PAN application | Finance | One-time | PAN certificate |
| VAT registration | Finance | One-time | VAT certificate |
| TDS deduction | AP/Payroll | Each payment | TDS workings |
| TDS deposit & return | Finance | Monthly | Deposit challan, TDS return |
| VAT return | Finance | Monthly or assigned | Return, payment proof |
| Advance tax review | CFO/Advisor | Quarterly | Forecast and workings |
| Annual tax return | CFO/Advisor | Yearly | Audited FS, schedules |
| TP documentation | CFO/Advisor | Yearly | Intercompany files |
| Board approvals | Company Secretary | Yearly | Minutes and resolutions |

---

## 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.

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