Company Incorporation vs. Business Registration in Nepal: Key Differences (and How to Incorporate a Company in Nepal)

You plan to incorporate a company in Nepal. You hear terms like PAN, VAT, trade license, and OCR. These sound similar. They are not the same.
Company incorporation creates a legal person with limited liability. Business registration enables operations and taxation. The two interact. They do not replace each other. This guide breaks down both paths. It also shows the exact sequence that foreign founders should follow.

What each term actually means

Company incorporation
Formation of a separate legal entity under the Companies Act. Registration happens at the Office of the Company Registrar (OCR). Owners gain limited liability. The company can contract, hire, and hold property.

Business registration
The set of operational registrations. These include PAN for tax, VAT where relevant, and any municipal or sector license. Sole proprietors and partnerships use these without forming a company.

Why founders mix them up

Many founders start with PAN to issue tax invoices. They then add VAT. This feels like “registration,” so they assume they “incorporated.” They did not. They only completed tax steps. The legal shield comes only from incorporation. That shield limits personal exposure in business disputes.

What “business registration” includes in practice

1. PAN (Permanent Account Number)
   PAN is your tax identity. You need it to file returns and run payroll. Companies, partnerships, and individuals use PAN.

2. VAT registration
   VAT registration applies when thresholds or special rules trigger it. The standard VAT rate in Nepal is 13 percent. Some businesses register early for input tax credit planning.

3. Operating licenses and approvals
   Your location or sector may require extra permits. Examples include municipal trade licenses, industry registration, or sector approvals for regulated activities.

What “company incorporation” means in Nepal

Incorporation is a legal act under the Companies Act 2063. You file a name reservation, Memorandum, and Articles of Association at OCR. When approved, you receive a Certificate of Incorporation. The company now exists as a separate legal person.

Foreign equity requires more steps. You align with FITTA 2019 for FDI approvals. You route capital through the banking system under Nepal Rastra Bank (NRB) rules. That banking trail protects your repatriation rights.

How to Incorporate a Company in Nepal — step by step

The flow below covers a private limited company. Public companies follow a different regime. Your sector may add permits.

Step 1: Choose the right vehicle and shareholding

Pick a private limited company for limited liability and investor readiness. Finalize shareholders, directors, and the registered office address. Decide the paid-up capital and share classes if needed.

Step 2: Name search and constitutional documents

Reserve your name with OCR. Draft the Memorandum with clear business objects. Draft the Articles with governance rules, share transfer clauses, and board powers. Keep future investor needs in mind.

Step 3: FDI approval where foreign ownership exists

Apply for FDI approval at the Department of Industry or the relevant authority. Fit your activity within the permitted sector list. Record the proposed investment type and amounts.

Step 4: Bring capital through the banking channel

Send capital using formal banking routes. Keep swift messages, credit advices, and purpose codes. NRB evidence is essential for dividend or exit repatriation later.

Step 5: Get your Certificate of Incorporation

File with OCR. Respond to any queries. Receive the Certificate of Incorporation. Your company now exists as a legal person. Open a corporate bank account.

Step 6: Post-incorporation tax registrations

Apply for PAN at the Inland Revenue Department (IRD). Add VAT if thresholds or rules require it, or if you elect to register for credits and tenders.

Step 7: Labor and Social Security Fund (SSF)

Issue written employment contracts under the Labor Act 2017. Register as an employer with the Social Security Fund. Configure contributions and payroll withholding.

Step 8: Sector and municipal licensing

If your activity is an “industry,” follow the Industrial Enterprises Act path. Secure municipal trade licenses and any sector approvals. Confirm environmental clearances when required.

Side-by-side comparison

Use incorporation for scale, risk control, and investment. Use business registration for simple, low-risk trading.

When is basic business registration enough?

Choose basic registration if you are a sole proprietor with limited risk. Your operations are local and simple. You want faster setup and fewer governance duties. You accept personal exposure to business liabilities. You still follow tax and licensing rules.

When should you incorporate a company in Nepal?

Incorporate if you want limited liability, equity investment, or foreign shareholding. Incorporation helps with enterprise clients, tenders, and due diligence. It enables stock options and clean cap tables. It also simplifies joint ventures and future exits.

Typical document pack

Domestic founders

• Proposed Memorandum and Articles of Association.

• Promoters’ citizenship documents.

• Registered office lease or ownership proof.

• Promoter resolutions where needed.

• Photos and contact details.

• Specimen signatures for the bank.

Foreign founders

• Notarized passports and any parent company documents.

• FDI application package and investment plan.

• Inward remittance evidence for capital.

• Sector-specific approvals if required.

Timeline and sequencing that reduce risk

• Finalize shareholding and objects before filings.

• Obtain FDI approval early for foreign equity.

• Route capital through traceable bank channels.

• Open PAN immediately after incorporation.

• Add VAT when thresholds or rules trigger it.

• Register in SSF before starting payroll.

• Keep board minutes, share registers, and statutory books current.

Taxes in brief

• Corporate income tax: Applied on Nepal-source profits.

• VAT: Standard rate is 13 percent on taxable supplies.

• Withholding tax: Applies to many payments. Rates vary by payment type.

• Nonresident digital services: Special VAT registration and thresholds apply.

Always check the latest IRD notices for your activity. Nepal updates procedures and thresholds periodically.

Post-launch compliance checklist

• Company PAN obtained and active.

• VAT registration in place if required or elected.

• Share register, minute books, and statutory records updated.

• Written employment contracts issued.

• SSF employer and employee registrations completed.

• Bank mandates set and dual signatories configured if needed.

• Industry or municipal licenses secured.

• FDI and NRB evidence archived for repatriation later.

Pros and cons at a glance

Company incorporation — advantages

• Limited liability for owners.

• Easier to raise capital.

• Strong buyer and investor trust.

• Transferable ownership through shares.

Company incorporation — considerations

• Higher governance effort.

• FDI steps and bank evidence required.

Business registration — advantages

• Fast setup for simple services.

• Lower administrative overhead.

• Works for small, local operations.

Business registration — considerations

• No limited liability shield.

• Harder to attract equity investors.

Numbered roadmap for foreign investors

1. Decide entity, ownership, and board structure.

2. Reserve name and draft MOA and AOA.

3. Apply for FDI approval with clear investment details.

4. Remit capital through the banking system with proper evidence.

5. Incorporate at OCR and obtain the certificate.

6. Register PAN and, where required, VAT.

7. Put Labor Act contracts and SSF registrations in place.

8. Secure municipal and sector permits.

9. Set up accounting and internal controls.

10. Prepare for audits and tax returns.

Cost heads you should plan for

• Government fees for incorporation.

• Legal drafting for MOA and AOA.

• FDI processing and translations when relevant.

• Bank charges and remittance costs.

• PAN and VAT registration support.

• Payroll setup and SSF onboarding.

• Municipal and sector licensing.

• Accounting software and audit fees.

Exact amounts vary by capital, sector, and city. Budget a contingency for extra queries or translations.

Banking and foreign exchange notes

• Use investor bank accounts that match the shareholder’s name.

• Keep remittance purpose codes consistent with FDI approvals.

• Save every swift message and bank advice.

• Confirm dividend steps before profit distribution.

• Align any foreign loans with NRB rules from the start.

Sector nuances that often surprise founders

• Technology and SaaS: Review nonresident service rules and VAT issues.

• Manufacturing: Expect industry registration and environmental checks.

• Education, health, finance: Watch for separate sector regulators.

• Tourism and hospitality: Prepare for tourism permits and local taxes.

• Import and export: Confirm customs codes and licensing needs.

Governance and record-keeping essentials

• Maintain a share register and share certificates.

• Hold board and general meetings as required.

• Record minutes with resolutions and attendance.

• Update Articles when governance changes.

• File statutory updates on time.

• Keep a clean cap table for diligence and funding.

Accounting, audit, and tax calendar

• Set a financial year and reporting timetable.

• Configure chart of accounts aligned to tax heads.

• Track withholding obligations on payments.

• File VAT returns on schedule when registered.

• Prepare for audit if your company meets thresholds.

• Archive vouchers and contracts for inspection.

HR, payroll, and SSF

• Issue written employment contracts for each employee.

• Register in SSF as an employer.

• Enroll employees and configure contributions.

• Maintain attendance, leave, and payroll records.

• Apply withholding tax to salaries under tax rules.

• Provide statutory benefits and notices.

Data, IT, and operational hygiene

• Use a reliable accounting system with backups.

• Enforce access control for banking and billing.

• Store corporate seals, stamps, and certificates securely.

• Keep KYC and AML files for shareholders and directors.

• Prepare standard vendor and customer contracts.

• Maintain an SOP for invoicing, collections, and refunds.

What founders often miss

• Confusing PAN or VAT with incorporation. Tax tools do not give limited liability.

• Sending capital informally. Missing bank evidence complicates repatriation.

• Skipping SSF. Inspectors can verify registration quickly.

• Weak minutes and registers. Due diligence fails when records are poor.

• Late VAT setup for tenders. Many buyers expect registered invoices.

SEO image guidance (alt text)

Use a process diagram that shows formation and compliance.
Image alt text: “Steps to incorporate a company in Nepal: OCR filing, FDI approval, NRB inflow, PAN and VAT, SSF.”

FAQs (People Also Ask)

1) Is business registration the same as company incorporation in Nepal?
No. Business registration covers PAN, VAT, and operating licenses. Company incorporation creates a separate legal person with limited liability.

2) Do I need VAT when I first start?
Not always. You must register when thresholds or special rules apply. Many businesses also register early to claim input credits and meet buyer expectations.

3) Can foreign shareholders own 100 percent of a Nepali company?
Yes in many sectors, subject to FITTA and sector rules. Follow FDI approvals and NRB procedures for capital inflow and repatriation.

4) If I only get PAN, am I protected from business risk?
No. PAN only lets you pay taxes. Limited liability comes from incorporation under the Companies Act.

5) Is Social Security Fund registration mandatory?
Yes under current policy for employers. Complete employer registration and enroll employees before paying salaries.