PAN & VAT During Company Registration Process in Nepal: What to Know

The company registration process in Nepal does not end with incorporation. For foreign companies, obtaining PAN (Permanent Account Number) and VAT (Value Added Tax) registration is a critical compliance step that determines tax exposure, banking access, invoicing rights, and profit repatriation.

Many international investors mistakenly treat PAN and VAT as routine filings. In Nepal, they directly affect audit risk, regulatory approvals, and future exit options. Understanding how PAN and VAT fit into the company registration process in Nepal can save foreign founders months of delays and significant penalties.

This guide explains PAN and VAT in plain language, with legal references, timelines, and strategic insights tailored for foreign investors.

Understanding PAN and VAT in the Company Registration Process in Nepal

Before a company can legally operate, invoice clients, hire staff, or open a functional bank account, it must comply with Nepal’s tax identification framework.

What is PAN in Nepal?

PAN (Permanent Account Number) is a unique tax identification number issued by the Inland Revenue Department (IRD) under the Income Tax Act, 2002.

PAN is mandatory for:

• Corporate income tax compliance

• Payroll and withholding tax

• Bank account activation

• Profit repatriation approvals

Without PAN, a company is legally inactive.

What is VAT in Nepal?

VAT (Value Added Tax) is governed by the Value Added Tax Act, 1996 and applies to taxable supplies of goods and services.

VAT registration is mandatory when:

• Annual taxable turnover exceeds NPR 5 million (goods)

• Annual taxable turnover exceeds NPR 2 million (services)

Foreign-owned companies often fall into VAT obligations earlier than expected due to service exports and cross-border billing.

Where PAN and VAT Fit into the Company Registration Process in Nepal

The company registration process in Nepal follows a defined regulatory sequence.

Step-by-Step Placement of PAN and VAT

1. Company incorporation at OCR (Office of Company Registrar)

2. Capital commitment approval (for FDI companies)

3. PAN registration at Inland Revenue Department

4. Bank account activation using PAN certificate

5. VAT registration (if applicable)

6. Operational licensing and ongoing tax filings

PAN is mandatory for every company. VAT depends on business activity and turnover.

PAN Registration for Foreign Companies in Nepal

When PAN Must Be Obtained

PAN registration is required immediately after incorporation and before:

• Signing commercial contracts

• Issuing invoices

• Paying salaries

• Importing services or goods

Delays in PAN registration often stall the entire company registration process in Nepal.

Documents Required for PAN Registration

• Certificate of Incorporation

• Memorandum and Articles of Association

• Board resolution authorising PAN registration

• Passport copies of foreign shareholders and directors

• Local registered office address

• Lease agreement (if applicable)

Timeline for PAN Registration

PAN registration typically takes:

• 1 to 3 working days

• Same-day issuance for complete filings

VAT Registration During the Company Registration Process in Nepal

Is VAT Mandatory for All Foreign Companies?

No. VAT registration depends on:

• Nature of business

• Turnover thresholds

• Type of services rendered

• Cross-border transactions

However, many foreign companies voluntarily register for VAT to:

• Claim input tax credits

• Improve credibility with Nepalese clients

• Support B2B invoicing

Businesses Commonly Required to Register for VAT

• IT and software service providers

• Consulting and professional services firms

• Trading and import-export companies

• Manufacturing entities

• Hospitality and tourism businesses

VAT Registration Documents

• PAN certificate

• Certificate of Incorporation

• Business activity declaration

• Office lease agreement

• Bank account details

• Board resolution for VAT registration

PAN vs VAT in Nepal: Key Differences Explained

This distinction is often misunderstood during the company registration process in Nepal.

Common Mistakes Foreign Companies Make with PAN and VAT

Foreign investors frequently encounter avoidable issues.

Key Errors to Avoid

• Registering VAT unnecessarily

• Delaying PAN registration after incorporation

• Misclassifying service exports

• Using incorrect business activity codes

• Issuing invoices before VAT approval

These mistakes can trigger audits and fines.

Compliance Obligations After PAN and VAT Registration

PAN Compliance Requirements

• Annual income tax returns

• Advance tax payments

• Payroll tax filings

• Withholding tax submissions

VAT Compliance Requirements

• Monthly VAT returns

• Electronic invoicing compliance

• Input-output reconciliation

• Audit readiness

Non-compliance penalties can include fines, interest, and suspension of business operations.

PAN, VAT, and Profit Repatriation for Foreign Investors

PAN and VAT compliance directly impact:

• Dividend repatriation

• Royalty payments

• Management fee remittance

• Capital exit approvals

The Foreign Investment and Technology Transfer Act, 2019 (FITTA) requires tax clearance certificates before repatriation.

Without proper PAN and VAT filings, profit repatriation may be denied.

Strategic Advice for Foreign Companies Registering in Nepal

Foreign founders should treat PAN and VAT as strategic tools, not paperwork.

Best Practices

• Obtain PAN immediately after incorporation

• Assess VAT obligations before first invoice

• Maintain clean bookkeeping from day one

• Use professional tax representation

• Align tax structure with long-term exit plans

This approach reduces compliance risk and increases investor confidence.

How Professional Support Simplifies the Company Registration Process in Nepal

A structured compliance partner can:

• Handle OCR, PAN, and VAT filings

• Liaise with Inland Revenue Department

• Ensure audit-ready documentation

• Advise on VAT optimisation

• Support repatriation and exit planning

For foreign companies, this significantly shortens the learning curve.

Frequently Asked Questions (People Also Ask)

Is PAN mandatory during the company registration process in Nepal?

Yes. PAN is mandatory for all companies registered in Nepal. Without PAN, a company cannot operate, open a bank account, or file taxes.

Can a foreign company operate in Nepal without VAT registration?

Yes, if its turnover is below VAT thresholds and activities are VAT-exempt. However, voluntary registration may still be beneficial.

How long does PAN and VAT registration take in Nepal?

PAN usually takes 1 to 3 working days. VAT registration takes 3 to 7 working days if documentation is complete.

What happens if VAT registration is delayed?

Delayed VAT registration can result in penalties, interest, and disallowance of input tax credits from earlier invoices.

Is PAN required for profit repatriation?

Yes. Tax clearance certificates linked to PAN are mandatory for dividend and capital repatriation approvals.

Conclusion

The company registration process in Nepal is incomplete without proper PAN and VAT registration. For foreign companies, these steps define operational legality, tax efficiency, and exit flexibility.

Understanding PAN and VAT early helps investors avoid costly mistakes, regulatory delays, and compliance risks. With the right guidance, Nepal offers a clear and structured tax framework for foreign businesses ready to scale.

Call to Action

Planning to register a company in Nepal or unsure about PAN and VAT obligations?
Speak with a Nepal market entry and tax compliance specialist today to ensure your company registration process in Nepal is fast, compliant, and future-ready.