Nepal’s Company Act, 2063 (2006) – often called the Companies Act Nepal – is the backbone of the country’s corporate law framework. For foreign-owned businesses and NRNs (Non-Resident Nepalis), understanding this Act is essential for smooth company registration and compliance. The Act defines company types (private, public, foreign, etc.), board duties, share capital rules, and reporting requirements. It works in tandem with the Income Tax Act (2058/2002) and other statutes to ensure transparency and investor protection. In this guide, we explain company setup, governance rules, and Nepal’s tax system to help foreign companies meet regulatory requirements.
The Companies Act, 2063 (2006) sets the rules for forming and running companies in Nepal. It applies to private and public limited companies, holding/subsidiary firms, foreign branches, and even non-profit corporations. Key points include:
Definitions: The Act explicitly defines “company,” “private company,” “public company,” and “foreign company,” among others. For example, a foreign company is one incorporated outside Nepal that does business here.
Board Composition: Private companies must have 3–11 directors. Public companies require at least seven. The Act also mandates independent directors (one for boards up to seven members, two if more) with relevant expertise.
Legal Framework: The Act was amended in 2017 and is supplemented by other laws like the Foreign Investment and Technology Transfer Act (2019) and sector-specific regulations. Together, these laws create an investor-friendly yet compliance-driven environment.
All corporate entities must maintain statutory registers, hold meetings, and submit reports as prescribed. Understanding the Company Act Nepal ensures you meet obligations and avoid penalties (fines, suspension of registration, etc.) for non-compliance.
Foreign companies and NRNs can register a firm in Nepal via the FDI (Foreign Direct Investment) route. The current minimum capital requirement is NPR 20 million (about USD 160,000). The main steps are:
Company Name Reservation: Apply online to the Office of the Company Registrar (OCR) to reserve a unique company name.
Document Preparation: Draft a Memorandum of Association (MOA) and Articles of Association (AOA). These outline objectives, share structure, and governance rules.
FDI Approvals: For 100% foreign-owned entities, obtain approvals from the One-Stop Service Center of the Department of Industry and Nepal Rastra Bank.
Registration Filing: Submit forms and documents to the OCR. Upon approval, you receive a Certificate of Incorporation.
Tax Registration: Register for a Permanent Account Number (PAN) with the Inland Revenue Department (IRD) and, if needed, for VAT.
Types of Companies: Nepal allows private limited companies (restricted share transfer, up to 101 shareholders) and public limited companies (can issue public shares, minimum capital for certain sectors). There are also “companies not distributing profit” (non-profits) for specific purposes. Foreigners cannot directly register a small private company without the FDI route – foreign investment law applies.
Under the Company Act Nepal, strong corporate governance practices are required. Key obligations include:
Board of Directors: Directors must be appointed by the general meeting. Private firms need at least 3 directors, and public firms at least 7. Independent directors are compulsory as noted above.
Company Secretary: Public companies must appoint a company secretary; private companies are encouraged to do so. The secretary maintains records, minutes, and ensures filings.
Meetings & Records: An Annual General Meeting (AGM) must be held within six months of the fiscal year-end (Nepal’s fiscal year ends July 15). Minutes of meetings and audited accounts must be filed.
Statutory Registers: Keep updated registers of shareholders, directors, charges, and share transfers at the registered office.
Transparency: Public companies must disclose detailed financial reports, while all firms must submit annual financial statements and tax returns.
Key Requirements (bullet list):
Annual Meetings: Convene an AGM within 6 months of year-end.
Audited Accounts: A registered auditor must audit books before AGM.
Annual Return: File annual return with OCR after the AGM (listing directors, shareholders, capital).
Board Composition: Maintain required number of directors; appoint independent directors as needed.
Share Capital: Private companies have no fixed minimum capital (except sectoral rules), whereas public companies often face capital thresholds (e.g. banks, insurance).
Maintaining compliance is an ongoing process. Failing to hold AGMs, file returns, or pay taxes on time can lead to penalties or loss of good standing.
Foreign investors and NRNs in Nepal are subject to the same tax regime as local companies. Key taxes include:
Corporate Income Tax (CIT): The general CIT rate is 25% of taxable profits. However, banks, financial institutions, insurance firms, petroleum companies, and telecom/internet businesses pay 30%. (Tax treaties may reduce withholding rates on repatriated profits.)
Withholding Taxes (WHT): Nepal imposes WHT on various payments. For example, dividends distributed by Nepali companies to resident shareholders incur 5% WHT (and to NRNs as per tax law). Interest, royalties, and service fees paid abroad are typically subject to 15% WHT.
Value Added Tax (VAT): VAT is 13% on most goods/services. Businesses whose annual turnover exceeds NPR 5 million must register for VAT.
Other Taxes: Social security contributions, municipal taxes, and specific levies (like hydropower royalties) may apply depending on your sector.
Tax Filing and Payments: Companies must register for a PAN with the IRD. Corporate tax is self-assessed: you file an annual return within three months of fiscal year-end (i.e. by mid-July). Tax payments are made in advance installments (typically January, April, and July) based on estimated income. Staying compliant requires accurate bookkeeping, timely audit and return filing, and depositing any due taxes (including VAT and WHT) on schedule.
Nepal offers incentives to attract investment. Examples include:
Concessional Tax: Newly registered manufacturing industries often enjoy a reduced CIT rate (as low as 20%) and accelerated depreciation. IT companies may get 15% CIT.
Tax Holidays: Enterprises in underdeveloped regions (e.g. certain Himalayan areas) can be fully exempt from income tax for 5–10 years.
Export Rebates: Export-oriented businesses enjoy a 50% rebate on export earnings.
Power Projects: Hydropower firms commonly get 5–7 years of tax holiday.
Re-invested Profit: Dividends received from Nepali companies are tax-exempt for companies, encouraging reinvestment.
To leverage benefits, proper structuring is key. Engage tax advisors to align your business plan with Nepal’s incentive schemes (approved by Department of Industry or IRD). Always document expenses and filings carefully to satisfy audit requirements and claim incentives.
Foreign businesses should maintain a strict compliance calendar. A summary is provided below:
| Requirement | Applicability | Frequency/Deadline |
|---|---|---|
| Company Incorporation | Foreign & local firms | Once, at start-up (register with OCR) |
| Annual General Meeting (AGM) | All companies | Within 6 months of fiscal year-end |
| Audit & Financial Statements | All companies | Audited financials must be prepared before AGM (audit report to OCR within 30 days of AGM) |
| Annual Return (Form) | All companies | File with OCR annually after AGM |
| Income Tax Return | All companies | File with IRD within 3 months of year-end (mid-July) |
| VAT Return | Registered dealers | File monthly/quarterly as per turnover |
| Business License Renewal | Sector-specific firms | Annually or as required by sector law |
Staying on schedule is vital. Delays invite fines (e.g. NPR 100 per month late for tax returns) and interest. We strongly recommend a compliance calendar and professional support.
Good governance builds trust with regulators and investors. Important compliance tasks include maintaining an up-to-date General Meeting Register, Director Register, and Shareholder Register, as well as reporting any changes (e.g. new director appointment) to OCR. Companies should also follow the Corporate Governance Directive if they are listed, which mandates disclosure norms and board practices.
Many foreign firms work with corporate service providers for these tasks. Advisory services cover appointment of independent directors, implementing control policies, secretarial services, and internal audit support. Such expertise ensures that your Nepal entity not only meets statutory requirements but also adopts best practices in governance.
Navigating Nepal’s Company Act and tax system may seem complex, but it ensures legal certainty and a stable investment climate. This guide has covered the essentials of company formation, governance rules, and the tax regime for foreign companies in Nepal. By following these compliance steps—holding timely meetings, maintaining records, and filing taxes—you can run your Nepal business with confidence.
Ready to expand in Nepal? Our team of corporate law and tax experts can help you register your company, structure taxes, and maintain full compliance under the Companies Act Nepal. Contact us today to schedule a consultation and ensure your Nepal operations are set up for success.