Nepal’s strategic location, young workforce, and emerging sectors make it an increasingly attractive destination for international businesses. Thanks to streamlined reforms under the Foreign Investment and Technology Transfer Act (FITTA) 2019, foreign company registration in Nepal has become faster and easier. However, many foreign businesses overlook a critical area that can lead to non-compliance, penalties, or even license suspension: payroll, VAT, and tax filing obligations.
Understanding Nepal’s tax landscape is vital—not only for legal compliance, but also for operational efficiency and business credibility. This comprehensive guide is designed to help foreign business owners navigate Nepal’s payroll regulations, Value Added Tax (VAT) requirements, and corporate tax filing rules.
Once your foreign-owned company hires employees in Nepal—whether locals or expatriates—you must register for and manage payroll in accordance with Nepalese labor, tax, and social security laws.
Your monthly payroll must comply with the following deductions and contributions:
| Component | Rate | Paid By |
|---|---|---|
| Income Tax (TDS) | Progressive (1–36%) | Employee |
| Social Security Fund (SSF) | 20% (11% employee, 9% employer) | Both |
| Provident Fund (EPF/NPF) | 10% employee + 10% employer | Both (if opted) |
| Gratuity (Retirement Savings) | 8.33% of basic salary | Employer |
| Festival Allowance | 8.33% of annual salary | Employer |
All employers must register with the Social Security Fund (SSF) once they hire staff.
Employees must be enrolled within 15 days of joining.
The company must also register for tax deduction at source (TDS) with the Inland Revenue Department (IRD) to legally deduct and deposit payroll taxes.
| Task | Due Date |
|---|---|
| Pay Salary | By end of the month |
| Deposit TDS | Within 25 days of following month |
| Submit SSF Contributions | Within 15 days of following month |
| Submit Payroll Return | Monthly (TDS & SSF portals) |
Late submissions are penalized, and repeated non-compliance may trigger audits or suspension of business operations.
Foreign companies operating in Nepal are required to register for VAT if their annual taxable turnover exceeds NPR 2 million. Even before reaching that threshold, voluntary registration is encouraged, especially for B2B services or import-export businesses.
You must register for VAT in Nepal if:
You sell goods or services exceeding NPR 2 million annually.
You import or export goods.
You work with government contracts or large vendors who require VAT invoices.
You are a foreign company providing consulting, digital services, or software locally.
To register for VAT:
Register the company with the Office of the Company Registrar (OCR).
Obtain a Permanent Account Number (PAN) from the IRD.
Apply online for VAT through the IRD Taxpayer Portal.
Display a VAT registration certificate at the business location.
| Category | VAT Rate |
|---|---|
| Standard Goods & Services | 13% |
| Exports | 0% (Zero-rated) |
| Exempted Goods/Services | No VAT |
VAT returns must be filed:
Monthly if annual turnover is above NPR 10 million
Quarterly if below NPR 10 million
| Filing Task | Deadline |
|---|---|
| File VAT Return | Within 25 days of the period-end |
| Deposit VAT Amount | By the 25th day |
| Maintain Books | Must retain VAT ledgers for 6 years |
Invoices must be tax-compliant, with VAT registration numbers, serial numbers, and itemized values clearly shown.
Every foreign-registered company in Nepal must file taxes and maintain books of account in line with Nepal’s Income Tax Act 2058, the Companies Act, and Inland Revenue regulations.
| Type of Business | Corporate Tax Rate |
|---|---|
| Standard Private/Public Company | 25% |
| Special Industries (e.g. manufacturing) | 20% |
| Financial Institutions, Telecom, etc. | 30% |
| Export-Oriented Businesses (SEZ) | 0–15% (Concessional) |
Domestic operating income
Service income
Gains from sale of assets
Repatriated profits (if applicable)
Note: Branch offices are considered permanent establishments and taxed on Nepal-source income only.
| Filing | Deadline |
|---|---|
| Advance Tax (Estimated) | 3 installments (Poush, Chaitra, Ashad) |
| Annual Tax Return | By end of Poush (mid-Jan) of the following fiscal year |
| Annual Financial Audit Report | Within 3 months of fiscal year end |
| Tax Clearance Certificate | Must be obtained annually to renew business licenses |
| TDS Returns | Monthly, due within 25 days |
Filing can be done via the IRD Taxpayer Portal and requires a digital signature certificate (DSC) for verification.
Nepal uses a Tax Deducted at Source (TDS) mechanism. Foreign companies must deduct TDS at source when paying vendors, employees, service providers, and consultants.
| Transaction Type | TDS Rate |
|---|---|
| Salary/Wages | 1–36% (slab-based) |
| Rent (office, equipment) | 10% |
| Consultancy / Technical Services | 15% |
| Contractor / Subcontractor (business) | 1.5% |
| Royalty / License Fee | 15% |
| Interest to Non-Resident | 15% |
| Dividend Distribution | 5% |
TDS must be deposited within 25 days of the following month and accompanied by monthly TDS returns.
Nepal’s official fiscal year runs from Shrawan 1 to Ashad end (mid-July to mid-July). All reporting obligations are tied to this cycle.
| Task | Due By |
|---|---|
| VAT Return | 25th of every month/quarter |
| TDS Return | 25th of following month |
| Advance Tax Installments | Poush, Chaitra, Ashad |
| Annual Tax Return | End of Poush (mid-Jan) |
| Financial Statement Submission | 3 months from fiscal year-end |
| SSF Contributions | 15th of following month |
Foreign companies operating in Nepal often use local accounting and payroll software to stay compliant:
Swastik – End-to-end accounting, payroll, VAT, and reporting
Tally Nepal – Indian system localized for Nepalese taxes
BizHub ERP – Payroll, inventory, taxation, and more
SSF Portal – For social security filings and payments
These systems can integrate directly with IRD portals, reducing manual data entry and compliance errors.
| Non-Compliance Area | Penalty Description |
|---|---|
| Late VAT Filing | NPR 1,000/month (individual), NPR 100/day (company) |
| Late TDS Deposit | Penalty + 15% interest + disallowance of expenses |
| Unregistered Employer | Fines + disqualification for contracts/tenders |
| Non-payment of SSF | Legal action + denial of tax clearance |
| Underreporting Income | 25%–100% of tax shortfall as penalty |
Foreign companies must conduct periodic compliance checks with their accounting teams or external tax advisors.
While Nepal’s tax laws impose several obligations, the country also offers notable incentives for foreign investors:
Tax holidays for hydropower, manufacturing, and tourism sectors
50–100% corporate tax exemption in Special Economic Zones (SEZs)
5% dividend withholding tax (low compared to regional peers)
Double taxation treaties with over 10 countries
Repatriation of profits and capital allowed in foreign currency (after tax clearance)
These benefits can significantly reduce the effective tax burden for compliant and well-structured foreign ventures.
Hire a Local Chartered Accountant (CA): Ensure your firm is registered with ICAN and understands NFRS.
Automate with Software: Use integrated payroll and tax platforms to reduce human error.
Stay Ahead of Deadlines: Set calendar alerts monthly and quarterly.
Audit Ready Books: Maintain clean records for tax and audit reviews.
Cross-Check TDS Returns: Errors in TDS cause major penalties and disputes.
Use Tax Clearance Certificates Proactively: Required for profit repatriation, visa renewals, and project bidding.
Nepal offers significant business opportunities for foreign investors—but the cost of ignoring payroll, VAT, and tax obligations can be high. Whether you’re setting up a software development center, manufacturing unit, or tourism venture, understanding Nepal’s tax framework is essential.
From employee benefits to VAT returns and tax clearances, foreign companies must operate with full awareness of regulatory expectations. With the right systems, advisors, and proactive planning, compliance in Nepal is not only manageable—it becomes a competitive advantage.
If you're planning foreign company registration in Nepal, treat accounting and taxation not as afterthoughts, but as strategic pillars of sustainable success.