How to start a business in Nepal?

Before starting a business in Nepal, it is important to determine the nature of the business i.e. commerce (trade, goods and services distribution) or industry (production or manufacturing). Once the nature of the business has been determined, the prevailing laws of Nepal provide multiple alternatives for the operation of the business.

Entrepreneurs may opt to choose from one of the following business vehicles to start business in Nepal subject to their need and nature of their business.

  1. Private/sole proprietorship firms: Private firms are owned and operated by a single person to operate their business or engage in trade and industry. Therefore, it is registered in the name of a single individual. 

According to Private Firm Registration Act, 2014 B.S. (1957), there are three routes to register one’s business under sole proprietorship i.e (i) Department of Commerce, Supplies & Consumer Protection (trading and commercial business) (ii) Department of Small and Cottage Industry (in case of the cottage and small-scale industrial businesses) and (iii) Department of Industry (in case of industries).

Private firms may be opted by those who intend to undertake trading activities such as, retailers, shops, and importers of products, and professional service providers such as lawyers and accountants. These firms work best for businesses that do not require large capital.

Registration of a private firm in Nepal:

One willing to register a private business firm in Nepal may submit an application in the prescribed legal format to the Department of Commerce, Supplies & Consumer Protection or  Department of Cottage and Rural industry (in case of the cottage and small-scale industrial businesses) or Department of Industry (in case of industries) with the prescribed government fee. The application should include the following details:

a) Name of the Private Firm;

b) Address of the Firm;

c) Objectives, functions and the particulars of goods or commodity to be transacted by the private firm.

d) Name and address of the owner, and the name of his/her father, mother, grandfather and grandmother.

  1. Partnership firms: Partnership firms are established by two or more than two persons collaboratively through a single name to operate a business and share the profits accordingly under an agreement (Kabuliat) made with each other. The maximum number of partners is not determined.

According to Partnership Act, 2020 B.S. (1964), interested individuals must conclude a partnership agreement and submit an application to the concerned department for their business to be registered. Concerned departments have been stated in the private firm registration section above.

Partnership firms are usually operated by lawyers, accountants, retailers and importer of various goods. 

Registration of a partnership firm in Nepal:

A partnership firm must be registered in the concerned department within six months from the conclusion of the partnership agreement. To register a partnership firm, the partners shall submit an application in the prescribed legal format to the concerned department along with the prescribed official fee and a copy of the partnership agreement (if any). The application must encompass the following details:

  1. Full Name of the firm;
  2. The Principal place of business of the firm;
  3. The objectives of the firm including the short description of the nature of the goods or services, as the case may be, which the firm intends to run the business;
  4. The full name, surname, and permanent address of the partners;
  5. The matter of restrictions imposed on the power of a partner, if any;
  6. The types of partnership and the capital subscribed by each partner;
  7. The name of a partner or partners, who represent the firm;
  8. The mode to share the profit and loss between /among partners;
  9. The mode to calculate the profit of a firm;
  10. Any other matters prescribed by the concerned Department stating which should be set out in the application.
  1. Companies: Companies are organized entities with a separate legal personality, perpetual succession, and limited liability (of the shareholders) established to operate a business or engage in trade or industry.  

If individuals are interested in incorporating a company to operate their business, there are two common models for the purpose under Companies Act, 2063 B.S. (2006)

  1. Private limited companies: 
  • Private companies have a number of shareholders ranging between 1 and 101. 
  • These companies cannot sell their shares publicly. 
  • A private company shall not pledge or otherwise transfer the title to, its securities to any person other than its shareholders without fulfilling the procedures stated in the consensus agreement.
  • The composition of a board of directors is not mandatory here. 
  • Holding of an annual general meeting is also not compulsory unless provided otherwise in the consensus agreement. 
  • A private company can begin operating their business right away upon registration thereby not requiring approval from the Company Registrar’s Office, unlike a public company.
  • There is no minimum paid-up capital threshold prescribed for operating a private company.
  1. Public companies:   
  • There must be at least seven shareholders to operate public companies. 
  • Such companies are entitled to sell their shares or debentures publicly. 
  • Even after the process of registration, approval, or business commencement certificate from the Company Registrar’s Office is pivotal to conducting business operations. 
  • The minimum paid-up capital threshold to operate a public company is one crore (ten million) Nepali Rupees unless provided greater sum requirement in other prevailing laws. 
  • Formation of a board of directors and holding of the annual general meetings is compulsory. 

Registration of a company in Nepal:

Interested persons are required to submit an application to the Company Registrar’s Office in the prescribed legal format along with registration fee (calculated on the basis of the authorized capital of the company) incorporating the following documents:

  1. Proposed Memorandum of Association
  2. Proposed Articles of Association 
  3. In case of the public company: copy of the agreement, if any, entered into between the promoters prior to incorporation
  4. In case of a private company: copy of the consensus agreement
  5. Approval or license from a competent authority, if required (for carrying on any particular type of business or transaction under the prevailing laws)
  6. Where the promoter is a Nepalese citizen: a certified copy of the citizenship certificate
  7. Where the promoter is a body corporate: registration certificate of such body, the decision of the Board of Directors, and major documents relating to the incorporation of such body. 
  1. Local businesses

Interested individuals may also operate local businesses with lesser capital by registering at the local level (municipality) at ward level. Examples include tea shops, small grocery stores, and so on. These need not be registered as firms or companies. Local businesses can operate only within the specific ward where it is registered. These businesses are governed by local municipality law. The following documents are required for the registration of local businesses in the ward of the municipality:

  • Rental agreement;
  • Citizenship certificate of the owners; 
  • Two passport size pictures of the business owner(s).

Private/Sole Proprietorship, Partnership, Companies registered pursuant to the prevailing laws are mandatorily required to register their businesses with local level authority and Inland Revenue Office (tax registration). Likewise, local businesses are also required to register themselves with Inland Revenue Office (tax registration). The registration process is discussed below.

  1. Local ward registration

For the registration of a company at the local level, following documents must be submitted alongside the application:

  • Company Registration Certificate;
  • Memorandum of Association;
  • Articles of Association;
  • Lease agreement;
  • Property Ownership Document of the land lord;
  • Citizenship of the land lord.

In case of private firms and partnership firms, following documents are required for the local ward registration:

  • Rental agreement;
  • Citizenship certificate of the owners or partners;
  • Two passport size pictures of the business owner(s);
  • Property Ownership Document of the landlord;
  • Citizenship of the landlord.

2.Tax registration

2.1 Permanent Account Number (PAN) Registration

All business entities in Nepal must obtain a Permanent Account Number (PAN) registration certificate from the Inland Revenue Department before commencing their business. PAN is a distinct identification number provided to all taxpayers in Nepal. This includes private firms, partnership firms, companies, and all forms of local businesses.  

For PAN registration, an entity must submit an application to the Inland Revenue Office with the following documents:  

  • Copy of citizenship certificate;
  • Copy of company registration certificate;
  • Two identical passport size photos of the person who signs the application form. In case of partnership firms, two identical size photos of each partner.
  • Sketched map of the location of the main office;
  • Rental agreement including proof of payment of rental tax at local level authority; 
  • Application documents requiting the company’s seal;
  • Individual Permanent Account Number of Director or Shareholder whose photograph will be used in the tax registration certificate. 

2.2 Value Added Tax (VAT) Registration 

VAT is the tax that covers value-added to each commodity at all stages of production and distribution. VAT registration is incorporated within the PAN certificate. It is provided by the Inland Revenue Office. Businesses with transactions exceeding 20 lakh (Two Hundred Thousand) Nepali Rupee for services and 50 lakh (Five Hundred Thousand) Nepali Rupee for goods should be registered in VAT.

VAT registration is compulsory for businesses associated with hardware, sanitary, furniture, fixtures, furnishings, automobiles, electronics, marbles, education consultancy, audit services, catering service, party palace, parking services, restaurant with bar, color lab, ice cream factory, boutique, dry cleaners with machinery and other businesses specified in the VAT Act irrespective of their turnovers.

An individual or entity involved in taxable transactions under Value Added Tax Act, 2052 (1996) must submit an application in the prescribed format before the Inland Revenue Office. 

Disclaimer: This note is prepared solely for the purpose of information and shall not be, in any way, treated as a legal opinion. It is advised to consult a lawyer for legal advice. Please note that the copyright for this note vests on Vidhi Legal Concern.