Unveiling Tax Rates in Nepal: What You Need to Know for FY 2025-26

Choosing between a private vs public company in Nepal is not a paperwork decision.
It directly shapes your tax exposure, compliance load, capital strategy, and exit flexibility.

For foreign companies entering Nepal in FY 2025-26, the tax framework has matured.
Rates are stable. Rules are clearer. Enforcement is stricter.

This guide explains, in plain language, how private and public companies are taxed in Nepal, what foreign investors should expect, and how to structure correctly from day one.

If you are a CFO, founder, or strategy lead, this is written for you.

Nepal’s Corporate Tax Landscape FY 2025-26: The Big Picture

Nepal’s tax regime is governed primarily by the Income Tax Act, 2002 and the annual Finance Act under the national budget.

For FY 2025-26, corporate taxation follows a standardized rate model with targeted incentives.

Key baseline facts

• Standard Corporate Income Tax (CIT): 25%

• VAT: 13%

• Dividend withholding tax: 5%

• Capital gains tax: structure dependent

• Tax year: Mid-July to Mid-July

Both private and public companies start from the same base rate.
The differences appear in incentives, capital access, and regulatory expectations.

What Is a Private Company in Nepal?

A private company in Nepal is defined under the Companies Act, 2006 and regulated by the Office of Company Registrar.

Core characteristics

• 1 to 101 shareholders

• No public share issuance

• Share transfer restrictions

• Ideal for FDI subsidiaries, back-office units, and cost centers

For most foreign companies, this is the default entry vehicle.

What Is a Public Company in Nepal?

A public company allows capital participation from the general public and is subject to enhanced governance.

Core characteristics

• Minimum 7 shareholders

• Eligible to issue public shares

• Mandatory regulatory disclosures

• Suitable for capital-intensive or market-facing businesses

Public companies fall under additional oversight from the Securities Board of Nepal.

Private vs Public Company in Nepal: Tax Rates Compared (FY 2025-26)

Here is the core comparison foreign investors look for.

Insight:
Tax rates are equal.
Tax efficiency comes from structure, not entity type alone.

Why Private Companies Are Preferred by Foreign Investors

Over 80% of foreign-owned companies in Nepal choose the private company structure.

Here is why.

1. Simpler compliance

Private companies face:

• Fewer disclosures

• No market reporting

• Faster decision cycles

This matters when Nepal is a supporting operation, not the primary market.

2. Controlled ownership

Foreign parent companies retain:

• Full equity control

• Board authority

• IP protection

This is critical for tech, BPO, and financial services.

3. Tax predictability

Private companies benefit from:

• Stable CIT treatment

• Export income incentives

• Controlled dividend timing

For CFOs, predictability beats theoretical upside.

When a Public Company Structure Makes Sense

A public company in Nepal is not wrong.
It is just purpose-specific.

Consider this route if you plan to:

• Raise capital locally

• List on NEPSE

• Operate consumer-facing services at scale

• Access IPO-linked tax incentives

For most foreign firms, this is a Phase 2 or Phase 3 decision.

Tax Incentives Available to Both Structures

Nepal offers activity-based incentives, not entity-based favoritism.

Common incentives include

• Reduced tax rates for priority industries

• Tax holidays for export-oriented services

• Accelerated depreciation allowances

• Customs and VAT exemptions on capital imports

Eligibility depends on sector, location, and revenue source, not whether the company is private or public.

Sector-Specific Tax Treatment Foreign Companies Should Know

IT and Digital Services

• Export income may qualify for reduced effective tax

• Zero-rated VAT on exported services

• Strong alignment with Nepal’s 2026 policy goals

BPO and Back-Office Operations

• Recognized as service exports

• Eligible for incentive treatment

• Favorable audit interpretation when structured correctly

Manufacturing and Processing

• Location-based tax holidays

• Customs duty relief

• Long-term CIT reductions

This is where structuring advice matters more than entity choice.

Compliance Obligations: Private vs Public Company in Nepal

Private company compliance

• Annual tax return filing

• Audited financial statements

• Annual general meeting

• Statutory registers maintenance

Public company compliance

Everything above, plus:

• Quarterly disclosures

• Shareholder reporting

• Market governance requirements

• Regulatory filings with SEBON

Practical takeaway:
Higher compliance equals higher internal cost.

Dividend Distribution and Repatriation Tax

Foreign companies care deeply about profit repatriation.

Key facts

• Dividends are taxed at 5% withholding

• Repatriation is allowed after tax clearance

• Nepal Rastra Bank approval is procedural, not discretionary

Both private and public companies follow the same repatriation rules.

Capital Gains Tax Considerations

Capital gains tax depends on:

• Holding period

• Shareholder type

• Transaction structure

Private companies often offer cleaner exits through negotiated share transfers.
Public companies provide market liquidity, but with disclosure obligations.

Private vs Public Company in Nepal: Strategic Comparison for Foreign Firms

Here is the strategic view, beyond tax rates.

• Private company: control, predictability, lower cost

• Public company: capital access, visibility, governance premium

For foreign entrants, private companies usually win the first-five-years test.

Common Mistakes Foreign Companies Make

Avoid these early-stage errors.

1. Choosing a public structure too early

2. Ignoring sector-based incentives

3. Mixing commercial and cost-center activities

4. Misclassifying export income

5. Underestimating compliance timelines

These mistakes cost more than tax itself.

Step-by-Step: Choosing the Right Structure in Nepal

Follow this decision logic.

1. Define your Nepal activity

2. Identify revenue source

3. Assess capital needs

4. Map repatriation strategy

5. Choose private or public structure

6. Optimize incentives legally

Structure first. Register second. Operate last.

Regulatory Authorities You Will Interact With

Foreign companies typically engage with:

• Office of Company Registrar

• Inland Revenue Department

• Nepal Rastra Bank

Public companies also engage with SEBON and NEPSE.

Conclusion: Private vs Public Company in Nepal—The Tax Reality

The private vs public company in Nepal debate is not about tax rates alone.

Both pay 25% corporate tax in FY 2025-26.
The difference lies in control, compliance, and strategic flexibility.

For most foreign companies, a private company offers the cleanest, safest, and most tax-efficient entry into Nepal.

Public companies shine later, when capital and market presence matter more than simplicity.

The right structure today prevents tax pain tomorrow.

Frequently Asked Questions 

Is tax lower for public companies in Nepal?

No. Both private and public companies are taxed at 25% corporate income tax. Incentives depend on sector, not structure.

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

Yes. Full foreign ownership is permitted in approved sectors under Nepal’s FDI framework.

Are dividends taxed differently for private and public companies?

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

Is VAT registration mandatory for private companies?

Yes, if taxable turnover exceeds the statutory threshold or if VAT-able services are provided.

Can a private company later convert into a public company?

Yes. Conversion is allowed, subject to regulatory approvals and compliance upgrades.