Understanding Corporate Taxation in Nepal: What Businesses Need to Know

Choosing the right legal structure is one of the first strategic decisions foreign companies face when entering Nepal. The debate around private vs public company in Nepal is not just about ownership or prestige. It directly affects taxation, compliance burden, capital raising, and long-term exit options.

Within the first year of operations, most foreign investors realise that corporate tax exposure and regulatory intensity vary sharply between these two structures. This guide breaks it down clearly, practically, and with real-world implications—so you can make a decision aligned with cost efficiency, compliance certainty, and growth strategy.

This article is written specifically for foreign companies, founders, CFOs, and legal teams evaluating Nepal as an outsourcing, back-office, tech, or service delivery destination.

Understanding Corporate Taxation in Nepal: The Legal Foundation

Corporate taxation in Nepal is governed primarily by:

• Income Tax Act, 2058

• Companies Act, 2063

• Annual Finance Acts under the national budget

• Regulatory oversight by the Office of the Company Registrar (OCR)

Nepal follows a residence-based taxation system. Companies incorporated in Nepal are taxed on global income, subject to treaty relief where applicable.

What Is a Private Company in Nepal?

A private company in Nepal is the most common vehicle used by foreign investors for subsidiaries, back offices, and service centers.

Key Characteristics

• Minimum shareholders: 1

• Maximum shareholders: 101

• Share transfer restrictions apply

• Cannot invite the public to subscribe shares

• Common for FDI subsidiaries and cost centers

Private companies dominate sectors like IT services, BPO, consulting, engineering, and captive delivery centers.

What Is a Public Company in Nepal?

A public company in Nepal is designed for large-scale enterprises intending to raise capital from the public.

Key Characteristics

• Minimum shareholders: 7

• No maximum shareholder limit

• Can issue shares to the public

• Must meet stricter disclosure and governance norms

• Often used by banks, hydropower companies, and listed entities

For most foreign service companies, public company status is structurally excessive.

Private vs Public Company in Nepal: Corporate Tax Rates Compared

Both private and public companies are subject to the same base corporate income tax rate, but incentives and exposure differ.

Standard Corporate Income Tax

• 25% for most sectors

• 20% for certain manufacturing and export-oriented entities

• Higher effective rates for banks, insurance, and tobacco industries

Key Insight

Tax rate parity does not mean tax outcome parity. Compliance costs, audit exposure, and reporting intensity differ significantly.

Corporate Tax Compliance: Private vs Public Company in Nepal

Private Company Compliance Snapshot

• Annual income tax return

• Advance tax installments

• Annual audit

• Withholding tax filings

• VAT filings (if registered)

Public Company Compliance Snapshot

• All private company obligations, plus:

  • Enhanced financial disclosures

  • Mandatory audit committees

  • Public reporting obligations

  • SEBON alignment if listed

  • Share registrar coordination

Practical takeaway: Compliance cost for a public company can be 2–3× higher annually.

Table: Private vs Public Company in Nepal (Foreign Investor View)

Dividend Taxation and Profit Repatriation

Dividends distributed by Nepalese companies attract 5% withholding tax.

For foreign shareholders:

• Repatriation requires tax clearance

• NRB approval for outward remittance

• Audited financials and board resolutions mandatory

Private companies offer simpler repatriation workflows due to streamlined governance.

VAT and Indirect Taxes: What Foreign Companies Miss

VAT in Nepal is levied at 13%.

Foreign-owned companies commonly fall into these VAT categories:

• Export of services (often zero-rated)

• Domestic service supply

• Mixed supply models

Private companies are easier to structure as export-oriented service providers, reducing VAT leakage.

Sector-Specific Tax Incentives

Nepal offers incentives under industrial and export frameworks:

• Tax holidays for priority sectors

• Reduced rates for IT and export services

• Accelerated depreciation

• Customs duty exemptions

In practice, private companies qualify for most incentives without public-company complexity.

Governance, Risk, and Tax Scrutiny

Public companies face:

• Higher audit scrutiny

• Public disclosures increasing tax authority visibility

• Shareholder litigation risk

• Media and reputational exposure

Private companies benefit from:

• Controlled governance

• Lower audit friction

• Confidential financials

• Predictable tax assessments

When Does a Public Company Make Sense?

A public company may be justified if you plan to:

1. List on Nepal Stock Exchange

2. Raise capital from local investors

3. Operate in regulated financial sectors

4. Build infrastructure-scale projects

For most foreign service companies, these conditions do not apply.

Practical Recommendation for Foreign Companies

For 90%+ of foreign investors, a private company in Nepal is the optimal structure.

It offers:

• Identical tax rates

• Lower compliance cost

• Faster incorporation

• Cleaner profit repatriation

• Operational flexibility

Common Mistakes Foreign Investors Make

• Assuming public companies enjoy tax advantages

• Underestimating governance costs

• Overengineering legal structure

• Ignoring repatriation workflows

• Misclassifying export services for VAT

Conclusion: Private vs Public Company in Nepal—Make Tax Work for You

When evaluating private vs public company in Nepal, taxation alone should not drive your decision. The real differentiator lies in compliance intensity, governance exposure, and operational agility.

For foreign companies entering Nepal for services, outsourcing, or regional delivery, a private limited company delivers the most efficient tax-to-compliance ratio.

Choosing correctly at incorporation saves years of restructuring later.

Frequently Asked Questions

Is corporate tax different for private vs public company in Nepal?

No. Both are generally taxed at 25%, but compliance and audit costs differ significantly.

Can a foreign company own 100% of a private company in Nepal?

Yes. Full foreign ownership is allowed in most service sectors, subject to approval.

Do public companies get more tax incentives in Nepal?

No. Incentives are sector-based, not structure-based.

Is dividend tax higher for public companies?

No. Dividend withholding tax is generally 5% for both structures.

Can a private company later convert into a public company?

Yes. Conversion is permitted but involves regulatory approvals and restructuring.