Running a business in Nepal comes with a defined set of tax obligations. Miss one and the consequences compound quickly: interest accrues, penalties stack, and the IRD's audit risk scoring moves against you. The challenge for most business owners is not unwillingness to comply. It is not having a clear picture of what compliance actually requires across the full calendar year.
This article lays out the core tax compliance requirements in Nepal for businesses, structured as a working checklist. It covers registration obligations, periodic filing deadlines, withholding tax responsibilities, and the annual compliance cycle that every business operating in Nepal needs to manage.
Checklist for Businesses over Tax Compliance Requirements in Nepal
Here’s a practical checklist every business in Nepal should follow to stay compliant year-round.
1. Get Your Registrations Right (PAN & VAT)
Everything in Nepal's tax system flows from two registrations. Without these in place, nothing else works correctly.
PAN Registration
The Permanent Account Number is the foundation of tax identity in Nepal. Every business entity, whether a sole proprietorship, partnership, private limited company, or public company, must obtain a PAN from the IRD before commencing operations.
PAN is required for opening a business bank account, registering with the Office of the Company Registrar, and filing any tax return. Operating without a PAN is not a technical oversight. It is a fundamental compliance failure with immediate consequences.
PAN registration is done through the IRD's online portal or at a district IRD office. Required documents include the business registration certificate, citizenship certificate of the proprietor or authorised representative, and a recent passport photograph. For companies, the incorporation certificate and memorandum of association are additionally required.
VAT Registration
Businesses with annual taxable turnover at or above NPR 50 lakhs are required to register for VAT. Certain business categories must register regardless of turnover. VAT registration links your business to the monthly filing cycle and to the IRD's invoice matching system. Once registered, all taxable sales must be accompanied by a proper tax invoice and monthly returns must be filed by the 25th of the following month.
Businesses below the threshold can register voluntarily when input tax credit recovery and commercial relationships with registered buyers make it worthwhile. The decision should be taken with a clear understanding of the compliance obligations that registration creates.
2. The Annual Tax Compliance Calendar
Nepal operates on a fiscal year running from Shrawan 1 to Ashadh end (mid-July to mid-July). Most tax deadlines are anchored to this calendar. Here is what the year looks like from a compliance standpoint.
Advance Tax Payments
Corporate income tax in Nepal is not settled only at year-end. It is paid in three advance installments during the fiscal year under Section 94 of the Income Tax Act, 2058.
The first installment, covering 40% of the estimated annual tax liability, is due by Poush end (mid-January). The second instalment, covering a further 70% cumulative, is due by Chaitra end (mid-April). The third instalment, bringing the cumulative payment to 100% of the estimated liability, is due by Ashadh end (mid-July), coinciding with the close of the fiscal year.
The estimate is based on the prior year's tax liability or a reasonable estimate of the current year's liability. Underestimating advance tax results in interest charges on the shortfall. Businesses that consistently underpay advance tax attract IRD attention and face compounding interest that erodes the cash flow benefit of deferring payment.
Annual Tax Return
Filing The annual income tax return must be filed within three months of the fiscal year end, placing the standard deadline at Ashwin end (mid-October). Extension requests can be filed with the IRD for legitimate reasons, but extensions are not automatic and the tax payable remains due regardless of whether the return has been filed.
The return requires a full income statement and balance sheet for the fiscal year, a computation of taxable income reconciling accounting profit to taxable income through allowable deductions and disallowances, and supporting schedules for depreciation, interest, and any special income tax provisions applicable to the business.
The difference between accounting profit and taxable income is where most compliance complexity sits. Depreciation rates under the Income Tax Act differ from accounting depreciation.
Certain expenses that are valid accounting charges are disallowed for tax purposes. Related party transactions require arm's length pricing under Section 33. A business that simply files its accounting profit as taxable income without reconciliation is almost certainly filing incorrectly.
3. Monthly and Periodic Obligations
TDS Compliance
Tax Deducted at Source is one of the most operationally demanding compliance requirements in Nepal because it attaches to a wide range of payment types and applies continuously throughout the year, not just at filing time.
TDS must be deducted at the point of payment for salaries and wages, rent, service fees paid to residents, interest payments, dividends, contractor and consultancy payments, and payments to non-residents. Each payment category carries its own applicable rate under Schedule 1 of the Income Tax Act.
The deducted tax must be deposited with the IRD by the 25th of the following month. TDS returns must be filed on the same schedule. Failure to deduct when required makes the paying entity liable for the undeducted amount plus interest and penalties. Failure to deposit deducted tax on time attracts interest from the date it was due.
TDS certificates must be issued to recipients within the prescribed period. Recipients use these certificates to claim credit against their own tax liabilities. Failure to issue certificates creates problems for counterparties and generates complaints that reach the IRD.
VAT Returns
VAT registered businesses file monthly returns by the 25th of the following month. The return declares output VAT collected on sales, input VAT paid on purchases, and the net payable or credit position. Net VAT payable is remitted alongside the return.
VAT compliance requires monthly reconciliation of purchase and sales books against invoices, verification that input tax credit claims are supported by valid tax invoices from registered suppliers, and proper treatment of any exempt or zero-rated supplies in the business's activity mix. Filing the return without first completing this reconciliation is one of the most common sources of VAT compliance errors.
Social Security Fund Contributions
The Social Security Fund Act requires employers to contribute to SSF on behalf of their employees. The employer contribution rate is 20% of basic salary and the employee contribution rate is 11%. Contributions are due monthly and must be deposited through the SSF portal within the prescribed deadline.
SSF compliance is an area where many businesses, particularly smaller ones, remain non-compliant either through ignorance of the requirement or deliberate avoidance. The SSF and IRD have moved toward greater enforcement and cross-referencing, and non-compliance creates both financial liability and labour law exposure.
4. Record Keeping Requirements
Tax compliance in Nepal is not just about filing returns on time. It requires maintaining records that substantiate the positions taken in those returns for the period prescribed by law.
The Income Tax Act requires records to be maintained for the assessment period plus an additional period for audit purposes. In practice, businesses should maintain financial statements, bank statements, invoices issued and received, contracts and agreements, payroll records, and depreciation schedules for a minimum of five years. For businesses in sectors with higher audit risk, maintaining clean records for longer is prudent.
The VAT Act has specific record keeping requirements for VAT-registered businesses including purchase books, sales books, and VAT accounts maintained in prescribed formats. These records are the primary evidence base in a VAT audit and their absence or disorganisation makes audit defence significantly harder.
5. Transfer Pricing and Related Party Transactions
Section 33 of the Income Tax Act requires that transactions between related parties be conducted at arm's length prices. This applies to transactions between a company and its shareholders, between group companies, and between a business and its associated persons as defined under the Act.
Where the IRD determines that related party transactions were not at arm's length, it has the authority to recharacterise the transaction at market prices and assess additional tax on the difference. The assessment risk is highest for intercompany loans with below-market interest rates, management fees without clear service documentation, and inventory transfers between related entities at prices that diverge from market rates.
Businesses with significant related party transactions should maintain contemporaneous documentation supporting the arm's length nature of those transactions. This documentation serves as the primary defence in an IRD transfer pricing review and should be prepared at the time of the transaction rather than reconstructed after the fact.
6. Dealing with IRD Notices and Assessments
Receiving a notice from the IRD is not the end of the matter. The process provides opportunities to respond with documentation and legal argument before an assessment becomes final.
The most common notices businesses receive are requests for information or documents under Section 81 of the Income Tax Act, show-cause notices requiring explanation of specific positions taken in filed returns, and assessment notices proposing additional tax liability following audit.
Each notice type carries its own response deadline and procedural requirements. Missing a response deadline allows the IRD to proceed with an assessment based on available information, which is almost always less favourable to the taxpayer than a documented response would have been. Businesses that receive IRD notices should engage a qualified tax consultant or CA firm immediately to manage the response within the required timeframe.
Where an IRD assessment is received and the taxpayer disagrees with the proposed liability, the Act provides an objection mechanism and ultimately a right of appeal to the Revenue Tribunal. These mechanisms require technical engagement with the legal and factual basis of the IRD's position and are most effectively navigated with professional representation.
Industry-Specific Tax Compliance Requirements
Certain industries carry additional tax compliance requirements beyond the standard corporate framework.
Banks and Financial Institutions
Banks, development banks, and finance companies licensed by Nepal Rastra Bank are subject to NRB reporting requirements alongside their standard tax obligations. Loan loss provisioning, interest income recognition, and capital adequacy calculations each have tax treatment implications that require specialist understanding. The IRD and NRB frameworks interact in ways that can create compliance tension without careful management.
NGOs and INGOs
Non-governmental organisations and international NGOs operating in Nepal face compliance requirements under the Income Tax Act alongside their Social Welfare Council registration and reporting obligations. Tax exemption for NGOs is conditional on activities remaining within the scope of the exemption and on proper compliance with filing requirements. Many NGOs that assume blanket tax exemption find on closer examination that portions of their income or activities do not qualify.
Import and Export Businesses
Businesses involved in import carry Customs duty obligations alongside VAT on imports at the point of entry. VAT paid on imports is creditable against VAT payable on subsequent taxable sales, but requires proper documentation through customs entry documents. Export businesses are entitled to zero-rated VAT treatment and in certain circumstances to refund of input tax accumulated against export revenue.
Working with GPR on Tax Compliance
GP Rajbahak and Co. Chartered Accountants work with businesses across Nepal to manage the full scope of tax compliance requirements, from registration through to annual return filing, TDS management, VAT compliance, advance tax planning, and IRD audit representation. The firm's tax practice covers both the recurring compliance calendar and the more complex advisory work that arises when businesses face transfer pricing questions, IRD assessments, or sector-specific tax issues.
For business owners who want to be confident that their compliance obligations are being managed accurately and on time, GPR provides both the technical expertise and the operational capacity to deliver that assurance. If you want your compliance handled end-to-end without gaps,
GPR’s tax team can manage the full cycle—from registration to audit representation.
FAQs
1. What are the main tax compliance requirements in Nepal for a private limited company?
A private limited company in Nepal must maintain PAN registration, file monthly TDS returns and deposit deducted tax by the 25th of the following month, file monthly VAT returns if registered for VAT, pay advance income tax in three instalments during the fiscal year, file the annual income tax return within three months of fiscal year end, maintain SSF contributions for employees, and keep financial records for the prescribed period.
2. What happens if advance tax instalments are not paid on time in Nepal?
Late or insufficient advance tax payments attract interest under the Income Tax Act on the shortfall between the amount paid and the amount due at each installment date. The interest runs from the installment due date to the date of actual payment. Consistent underpayment of advance tax also increases the business's risk profile with the IRD and may trigger closer scrutiny of the annual return. Advance tax planning based on a realistic estimate of the year's taxable income is the most straightforward way to manage this exposure.
3. Which payments require TDS deduction in Nepal and at what rates?
TDS applies to a range of payment types including employment income, rent, service fees, interest, dividends, contractor payments, and payments to non-residents. The applicable rate varies by payment category under Schedule 1 of the Income Tax Act. Employment income is taxed under the progressive slab rates applicable to individuals. Rent paid to residents attracts TDS at 10%. Dividends carry a 5% TDS rate. Service fees to resident persons attract TDS at 15%. Non-resident payments carry higher rates depending on the nature of income. The correct rate must be applied at source at the time of payment.
4. How long must tax records be kept in Nepal?
The Income Tax Act requires businesses to maintain records for the assessment period and beyond for audit purposes. In practice, maintaining financial statements, tax returns, invoices, contracts, payroll records, and bank statements for a minimum of five years is the standard approach. VAT registered businesses must maintain purchase books, sales books, and VAT accounts in the prescribed format for the period specified under the VAT Act. In audit situations, these records are the primary evidence base and their absence significantly weakens the taxpayer's position.
5. Can a business negotiate with the IRD if it receives a tax assessment it disagrees with?
Yes. The Income Tax Act provides a structured objection and appeal process for taxpayers who disagree with IRD assessments. The first step is filing a formal objection with the IRD within the prescribed deadline, supported by documentation and legal argument addressing the specific basis of the assessment. If the objection is not resolved satisfactorily, the taxpayer has the right to appeal to the Revenue Tribunal. The process is technical and procedurally demanding, making professional representation by an experienced tax consultant in Nepal essential for achieving the best available outcome.
