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.
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.
A private company in Nepal is the most common vehicle used by foreign investors for subsidiaries, back offices, and service centers.
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.
A public company in Nepal is designed for large-scale enterprises intending to raise capital from the public.
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.
Both private and public companies are subject to the same base corporate income tax rate, but incentives and exposure differ.
25% for most sectors
20% for certain manufacturing and export-oriented entities
Higher effective rates for banks, insurance, and tobacco industries
Tax rate parity does not mean tax outcome parity. Compliance costs, audit exposure, and reporting intensity differ significantly.
Annual income tax return
Advance tax installments
Annual audit
Withholding tax filings
VAT filings (if registered)
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.
| Criteria | Private Company | Public Company |
|---|---|---|
| Corporate tax rate | 25% (standard) | 25% (standard) |
| Minimum shareholders | 1 | 7 |
| Public share issuance | Not allowed | Allowed |
| Compliance burden | Moderate | High |
| Annual governance cost | Lower | Significantly higher |
| Best for foreign investors | ✅ Yes | ❌ Rarely |
| Typical use case | FDI subsidiary, back office | Large-scale capital markets |
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 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.
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.
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
A public company may be justified if you plan to:
List on Nepal Stock Exchange
Raise capital from local investors
Operate in regulated financial sectors
Build infrastructure-scale projects
For most foreign service companies, these conditions do not apply.
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
Assuming public companies enjoy tax advantages
Underestimating governance costs
Overengineering legal structure
Ignoring repatriation workflows
Misclassifying export services for VAT
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.
No. Both are generally taxed at 25%, but compliance and audit costs differ significantly.
Yes. Full foreign ownership is allowed in most service sectors, subject to approval.
No. Incentives are sector-based, not structure-based.
No. Dividend withholding tax is generally 5% for both structures.
Yes. Conversion is permitted but involves regulatory approvals and restructuring.