Tax Implications of Company Incorporation in Nepal for Foreign Investors — 2026 Investor Guide
Foreign businesses looking to enter the Nepalese market must understand the tax landscape, regulatory obligations, and compliance requirements to maximize returns and avoid surprises. With strategic geographic positioning between India and China and expanding sectors such as IT, tourism, and hydropower, Nepal offers compelling opportunities — but the tax system plays a crucial role in planning and operations.
This 2026 guide explains the tax implications of foreign company incorporation, key tax rates, incentives, compliance obligations, repatriation rules, and planning tips.
1. Nepal’s Corporate Tax Regime for Foreign Companies
Foreign-owned companies incorporated in Nepal are generally taxed under the same system as domestic companies. There are no additional “foreign investor” tax penalties, but compliance with local tax law is mandatory.
Corporate Income Tax (CIT)
Standard rate: 25% of net taxable profit for most industries
Higher rate (30%): Financial institutions, telecom, insurance, and similar regulated sectors
Reduced rate (20%): Certain priority industries like hydropower, manufacturing, agriculture under incentive policies
These rates are set out in the Income Tax Act, 2058 (2002) and updated by periodic Finance Acts.
2. Withholding Taxes and Advance Taxation
Nepal imposes withholding tax (WHT) on specific payments made by companies, including those to non-resident entities.
Common Withholding Tax Rates
Dividends: 5% (final withholding)
Royalties, technical fees, interest: ~15%
Rent and fees for services: Vary depending on recipient status and treaty benefits
Withholding taxes are deducted at source and remitted to the Inland Revenue Department (IRD). These obligations apply regardless of whether payments are made inside or outside Nepal.
3. Value Added Tax (VAT) and Consumption Taxes
Foreign companies must register for VAT if their annual turnover exceeds NPR 5 million (approx) and charge the standard rate of 13% on most goods and services supplied in Nepal.
VAT collected on sales = output VAT
VAT paid on purchases = input VAT
Only the net amount is paid to the tax authority
Exports are generally zero-rated, meaning no VAT is charged on exports but input VAT can be claimed.
4. Capital Gains and Other Tax Elements
Aside from CIT and VAT, foreign companies may also encounter:
Capital Gains Tax: Tax on disposal of assets or shares, with typical rates from 10–20%, depending on holding period and asset type
Customs Duty: Applicable on imports of equipment and raw materials (varies by tariff)
Other levies: Property tax, local levies and municipal charges applicable in certain areas
5. Permanent Establishment (PE) and Non-Resident Risks
Foreign companies delivering services or appointing agents in Nepal should be aware of Permanent Establishment (PE) rules. A PE can be triggered by:
a fixed place of business (office, site),
dependent agent activities,
operational presence above a certain threshold.
If a PE is deemed to exist, the foreign firm could be taxed on Nepal-source profits even without full local incorporation.
6. Repatriation of Profits and Capital
One major concern for foreign investors is the ability to repatriate profits. Nepal permits repatriation of:
Dividends
Capital gains from share sales
Loan repayments
Interest, royalties, and fees
Remuneration under certain conditions
Repatriation requires:
Tax clearance certificates
Audited financials
Compliance evidence with CIT, VAT, and WHT obligations
The Nepal Rastra Bank (NRB) and Department of Industry must approve repatriation in foreign currency after tax obligations are met.
7. Double Taxation Avoidance and Treaty Relief
Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with multiple countries (e.g., India, China, South Korea, Austria). These treaties:
reduce withholding tax rates on dividends, interest, and royalties,
prevent the same income from being taxed twice,
provide mechanisms for tax credit claims abroad.
Foreign investors should check whether their home country has a DTAA with Nepal, as treaty benefits can improve after-tax returns.
8. Tax Compliance and Filing Requirements
All companies in Nepal must abide by routine tax filing and compliance standards:
Annual corporate income tax return: Filed after fiscal year end
VAT returns: Monthly or quarterly
Withholding tax returns: Monthly
Annual audited financial statements: Prepared as per Nepali Accounting Standards
Non-compliance can result in penalties, fines, and restrictions on profit repatriation.
9. Tax Incentives and Sector-Specific Benefits
Nepal offers targeted fiscal incentives to attract investment in priority sectors:
Special Economic Zones (SEZs): Tax holidays or reduced taxes
Hydropower & infrastructure projects: Longer tax breaks
Export-oriented manufacturing: Reduced effective rates
Reinvestment allowances or deductions for R&D and training
These incentives can significantly improve the effective tax burden for qualifying foreign investors.
10. Practical Tax Planning Tips for Foreign Investors
✔ Structure your business to maximize SEZ or priority sector incentives
✔ Verify DTAA eligibility to reduce withholding tax leakage
✔ Maintain accurate accounting to support tax filings
✔ Secure tax clearance certificates before repatriation
✔ Engage local tax advisors to stay compliant with evolving rules
Incorporating a company in Nepal presents compelling business opportunities — but thorough tax planning is essential. With straightforward corporate tax rates, accessible repatriation, and growing incentives, Nepal can be an attractive destination for foreign direct investment. Understanding the full spectrum of tax obligations and utilizing treaty benefits help foreign investors make informed decisions while minimizing risk.
For tailored advice on company incorporation, tax compliance, and cross-border tax planning in Nepal, Sherpa Law Associates offers expert legal and tax services designed for international investors.