From Business Registration to PAN — Setting Up a Taxable Business in Nepal
Starting a business in Nepal involves more than picking a name and opening the shutters. Between the idea and the first legal sale, there is a specific sequence of steps — business registration and tax in Nepal are two separate but connected processes, and getting the order wrong is one of the most common mistakes new entrepreneurs make. This guide walks through the full setup process: where to register depending on your business type, whether PAN or VAT comes first, which tax regime fits your size, how to open a compliant bank account, and what to expect in your very first year of filing.
Registering With the Office of Company Registrar (OCR) or Local Ward Office
Where you register first depends entirely on the legal structure you choose:
Private limited companies and public companies: These are registered through the Office of Company Registrar (OCR) under the Companies Act, 2063. The process typically involves reserving and getting approval for a unique company name, preparing the Memorandum of Association (MOA) and Articles of Association (AOA), submitting the incorporation application with shareholder documents, and receiving the certificate of incorporation. After OCR registration, the company still needs to register at the local ward office where it operates, before proceeding to tax registration.
Sole proprietorships and small local businesses: These generally skip OCR entirely and register directly at the local ward office (or, for certain categories, the Department of Cottage and Small Industries), which issues a local business registration or operating certificate.
Partnership firms: Depending on scale and structure, partnerships may register through the Department of Industry / Company-related process or through the ward office, so it is worth confirming the correct route for your specific partnership before applying.
Getting PAN vs VAT Registration — Which Comes First
This is one of the most common points of confusion for new business owners, and the rule is straightforward: PAN always comes first. Every business — regardless of size, structure, or sector — must obtain a Permanent Account Number (PAN) from the Inland Revenue Department before it can legally issue invoices, open a business bank account, or pay taxes. VAT registration is a separate, additional layer that sits on top of an existing PAN, and it only becomes necessary in one of these situations:
Your annual turnover is projected to cross the mandatory VAT threshold, your business falls into a category that must register for VAT regardless of turnover (such as certain professional services, IT, or specified goods), or you choose to register voluntarily to claim input VAT credit or appear more credible to larger clients.
In short: apply for PAN as part of your initial registration, and treat VAT as a decision you revisit once you understand your expected turnover and sector obligations, rather than something to apply for reflexively on day one.
Choosing Turnover-Based vs. Regular Tax Regime
Once your PAN is active, you also need to understand which income tax regime you fall under, since this affects how much bookkeeping your business needs from day one:
Presumptive (fixed) tax: For very small resident individual businesses with turnover up to a modest threshold and low taxable income, a flat annual amount applies based on the local government type, with minimal accounting required.
Turnover-based tax: For businesses in a mid-range turnover band, a small percentage of gross turnover is paid instead of computing tax on detailed profit figures, which simplifies compliance compared to full bookkeeping.
Regular (book-based) tax: Businesses above the turnover-based band, along with certain excluded professions (such as consultants, doctors, engineers, auditors, and lawyers), must maintain full accounting records and pay tax on actual computed profit under the standard slab or corporate rate structure.
New business owners should estimate their expected first-year turnover honestly, since choosing the wrong regime — or failing to switch when required — can create compliance problems down the line.
Opening a Business Bank Account Tied to PAN
Once registration and PAN are complete, opening a dedicated business bank account is a practical next step, and most banks in Nepal will require the PAN certificate as a core document. A typical bank account opening package includes the PAN certificate, the company or ward registration certificate, citizenship documents of the owner(s) or authorized signatories, and, for companies, board resolution or partner authorization documents specifying who can operate the account. Keeping business transactions inside this dedicated account — rather than mixing them with a personal account — makes tax filing significantly easier and gives you a clean paper trail if IRD ever asks for supporting records.
First-Year Filing Obligations Checklist
Once your business is registered and operating, keep this checklist in mind for your first year of compliance:
File your income tax return by the applicable annual deadline, based on your chosen tax regime (presumptive, turnover-based, or regular). If VAT-registered, file monthly VAT returns by the prescribed due date, even in months with no sales. If you employ staff or pay rent, contract fees, or professional charges above the withholding threshold, deduct and deposit TDS monthly, and file the corresponding withholding return. Keep basic transaction records from day one, even if you are on presumptive tax, since IRD can still request supporting information. And track your turnover monthly against the thresholds for your current regime, so you know in advance if you are approaching a point where you will need to register for VAT or switch tax systems.
Frequently Asked Questions
Do I need PAN before opening a shop in Nepal?
Yes. A PAN is a basic legal requirement for operating any business in Nepal, including a small retail shop. In practice, most small businesses first register at the local ward office to get a local operating certificate, and then apply for PAN at the Inland Revenue Department using that certificate — both need to be in place before you can legally trade, issue receipts, or open a business bank account.
Can I register a company and a sole proprietorship the same way?
No. A private limited company must go through the Office of Company Registrar first, with its own incorporation documents and process, before proceeding to ward and PAN registration. A sole proprietorship generally skips the OCR step entirely and registers directly at the ward office, making it a faster and simpler route for very small businesses.
What happens if I start trading before completing registration?
Operating without proper local registration and a valid PAN exposes the business to penalties and can complicate matters retroactively once you do register, since IRD may ask for details of income earned during the unregistered period. It is far simpler to complete registration and obtain PAN before issuing your first invoice.
Disclaimer: This article is intended for general information only and does not constitute legal or tax advice. Registration requirements and thresholds can vary by business type and are updated periodically through the Finance Act. Please consult an ICAN-registered Chartered Accountant before making any decisions based on this content.
Discussion