<p>The establishment of any company is backed by the laws, regulatory mechanisms, and various other standards set by the government for the smooth functioning and legal operation of the business. This involves systematically analyzing the company's status from its registration to the point of operation to keep the companies under the regulatory framework and avoid arbitrariness. Registration of the company in itself does not indicate the successful establishment of the company. Still, the company must follow tax regulations, industry standards, employment compliance, and other compliances mentioned in the MOA, AOA, and the Companies Act for successful establishment and operation.&nbsp;&nbsp;</p><h2>&nbsp;</h2><h2><strong>Compliance Checklist for Private Business Operating in Nepal</strong></h2><p>&nbsp;</p><p>In Nepal, there is no specific legislation that contains all the provisions relating to company/business compliance. The regulations pertaining to compliance are scattered in different legislations. Some of the crucial legislations regarding company compliance in Nepal are;</p><p>&nbsp;</p><ul><li>The Companies Act 2063</li><li>The Income Tax Act 2058</li><li>The Value Added Tax Act 2052</li><li>The Excise Duty Act 2058</li></ul><h2>&nbsp;</h2><h2><strong>1. PAN and VAT Registration</strong>&nbsp;</h2><p>&nbsp;</p><p>After the registration of the company to the Office of Company Registrar (<a href="https://ocr.gov.np/">OCR</a>), PAN and VAT should be registered in the&nbsp; Inland Revenue Department (<a href="https://ird.gov.np/">IRD</a>). This process is essential for tax purposes and is required for all businesses operating in Nepal. PAN registration is mandatory for all companies operating in Nepal. Meanwhile, VAT registration is voluntary unless the following turnover is met. Rule 6 of Value Added Tax Rules 2053.</p><p>&nbsp;</p><figure class="table"><table><tbody><tr><td>Type of Business&nbsp;</td><td>Annual Turnover Criteria&nbsp;</td></tr><tr><td>Physical Goods&nbsp;</td><td>Exceeding Rs. 50 lakhs</td></tr><tr><td>Services&nbsp;</td><td>Exceeding Rs. 20 lakhs</td></tr><tr><td>Goods and Services</td><td>Exceeding Rs. 20 lakhs</td></tr></tbody></table></figure><h3>&nbsp;</h3><h3><strong>Documents Required in the Inland Revenue Department&nbsp;</strong></h3><p>&nbsp;</p><ul><li>Copy of the Registration Certificate, Memorandum of Association (MOA), and Articles of Association (AOA).</li><li>Letter issued by the OCR to the IDR during company registration.&nbsp;</li><li>Company stamp.</li><li>Minutes from the board meeting confirming the registration with the Inland Revenue Department (IRD).</li><li>Photocopies of citizenship certificates for all shareholders.</li><li>One shareholder's personal PAN card.</li><li>Rental agreement.</li><li>Proof of submission for an online form on the IRD website.</li><li>Copy of citizenship or payment receipt for any government service by the landlord (such as electricity or water).</li><li>PAN registration application (with a Rs. 10 stamp).</li><li>The appointed representative (by the BOD) is required to appear in person before the relevant IRD to undergo the biometric verification process.&nbsp;</li></ul><h3>&nbsp;</h3><h3><strong>VAT Compliance&nbsp;</strong></h3><p>&nbsp;</p><ul><li>File the Purchase and Sale Register. (Quarterly- once in four months)</li><li>Make payment for the VAT liability within the 25th of the end of the quarterly months. For example, VAT liability for the months of Shrawan, Bhadra, Ashoj, and Kartik&nbsp; is calculated. Now, by the 25th of Mangsir, that needs to be paid.</li><li>Maintain ‘Maskebari’ Record ( Kharid Khata / Bikiri Khata)&nbsp;</li></ul><h3>&nbsp;</h3><h3><strong>Excise Compliance&nbsp;</strong></h3><p>&nbsp;</p><ul><li>File Excise Sales Register</li><li>Make payment for the Excise liability by the 25th of the month&nbsp;</li><li>File the Excise Return within 25 days of the end of the particular month.&nbsp;</li><li>Maintain updated Accounts related to Excise.&nbsp;</li></ul><p>&nbsp;</p><p><strong>Also read:</strong> <a href="https://www.biznestbazaar.com/blog/buying-a-franchise-vs-independent-business">Buying a Franchise vs. Independent Business</a></p><p>&nbsp;</p><h2><strong>2. Obtaining a license or Permission</strong></h2><p>&nbsp;</p><p>Depending on the type of business, some businesses require the obtainment of a license or permission from the respective department after the registration of the company. For example, for a tour and travel-related business, one must obtain a tour license from the Department of Tourism.&nbsp;</p><h2>&nbsp;</h2><h2><strong>3.&nbsp; Opening a Bank Account&nbsp;</strong></h2><p>&nbsp;</p><p>All the transactions related to the company, such as depositing the paid-up capital, salary payment, and other expenses or incomes, should be done via the company’s bank account. This helps maintain transparency in the financial matters of the company and makes audits a breeze. Thus, opening a bank account for the company is mandatory.&nbsp;</p><h2>&nbsp;</h2><h2><strong>4. Registration of Business in Ward Office&nbsp;</strong></h2><p>&nbsp;</p><p>Registration of the business in the <a href="https://en.wikipedia.org/wiki/Wards_and_electoral_divisions_of_Nepal#:~:text=A%20Ward%20(Nepali%3A%20%E0%A4%B5%E0%A4%A1%E0%A4%BE),further%20divided%20into%206%2C743%20Wards.">ward office</a> is another important compliance procedure. It is generally better to register the office at Woda before registration at IRD. However, this can be done later as well unless the IRD officer asks for pre-registration at the Ward office before tax registration.&nbsp;&nbsp;</p><p>&nbsp;</p><p><strong>Also read:</strong> <a href="https://www.biznestbazaar.com/blog/franchise-agreement-15-essentials-you-need-to-know">Franchise Agreement: 15 Essentials You Need to Know</a></p><h2>&nbsp;</h2><h2><strong>5.&nbsp; Compliance as Per The Companies Act 2063</strong></h2><p>&nbsp;</p><p>For the convenience of the readers, I shall divide the compliance into two different headings, the first being the three-month company compliance and the other compliances.&nbsp;</p><h3>&nbsp;</h3><h3><strong>Three Months Compliance Checklist&nbsp;</strong></h3><p>&nbsp;</p><p>According to the general practice, after the incorporation of the company, a 3-month compliance report is presented to the OCR. The three-month compliance mandates include the following documents/details, which are to be submitted within three months of the incorporation of any business:</p><h4>&nbsp;</h4><h4><strong>Formation of the Board of Directors&nbsp;</strong></h4><p><br>Under <a href="https://actnepal.com/en/section/86/1/section-86-board-of-directors-and-number-of-directors-of-companies-act-2063">section 86 of the Companies Act</a>, private companies must adhere to the provisions specified in their Articles of Association (AOA) regarding the formation and the number of directors. Similarly, in accordance with section 97, the procedures for conducting meetings of the Board of Directors for a private company are determined by the AOA.&nbsp; Nevertheless, the Board of Directors must be formed within three months of the company's incorporation, and the meeting minutes to which the Board of Directors are appointed should be included in the records.&nbsp;</p><p>&nbsp;</p><p><strong>Also read:</strong> <a href="https://www.biznestbazaar.com/blog/a-comprehensive-guide-to-securing-startup-funding-in-nepal">A Comprehensive Guide to Securing Startup Funding in Nepal</a></p><h4>&nbsp;</h4><h4><strong>Appointment of Auditor</strong></h4><p>&nbsp;</p><p>Every private business in Nepal must appoint its auditor as per <a href="https://actnepal.com/en/section/110/1/section-110-company-to-appoint-auditor-of-companies-act-2063">section 110</a> of the Companies Act. <a href="https://actnepal.com/en/section/111/1/section-111-appointment-of-auditor-of-companies-act-2063?toc_type=sections">Section 111</a> outlines the appointment of an auditor, which states that the auditor shall be selected as per MOA, AOA, or the consensus agreement of the private company. In case of failure to appoint an auditor by such means, the auditor shall be appointed by the general meeting. Moreover, the private company must inform OCR about the appointment of an auditor within 15 days of such appointment. The first auditor thus appointed holds office only until the first AGM of the company.&nbsp;</p><h4>&nbsp;</h4><h4><strong>Share Allotment and Share Lagat&nbsp;</strong></h4><p>&nbsp;</p><p>The private company, within three months of incorporation, must allot shares. The percentage of representation of the total share and the allocation should be clearly stated in the share Lagat, which shall be submitted to the OCR.&nbsp;</p><h4>&nbsp;</h4><h4><strong>Document of Disclosure by Director</strong></h4><p>&nbsp;</p><p>Section 92 of the Companies Act requires the director to disclose information about company matters, such as directorship in any other company, substantial or personal interest in the company, etc, within seven days after assuming the director's office. The company, upon the recipient of such information, should submit it to the OCR within seven days.&nbsp;</p><p>&nbsp;</p><p><strong>Also read: </strong><a href="https://www.biznestbazaar.com/blog/8-things-to-consider-while-selling-your-business">8 things to consider while selling your business</a></p><h4>&nbsp;</h4><h4><strong>Details of the Addresses of the Registered Office&nbsp;&nbsp;</strong></h4><p>&nbsp;</p><p>According to section 184 of the Companies Act, all private companies in Nepal are required to register the address of their registered company in the OCR within three months of incorporation. The companies must provide contact information details such as telephone, fax, email, etc to the OCR. If the address is changed, it must be notified to the office of the company registrar.&nbsp;</p><h3>&nbsp;</h3><h3><strong>Other Compliances&nbsp;</strong></h3><h4>&nbsp;</h4><h4><strong>Account of the Company</strong></h4><p>&nbsp;</p><p>Every company should maintain its account according to the double-entry accounting system, following the accounting standards enforced by the competent body under the prevailing law. The directors or other top officials of a company are ultimately responsible for keeping all the financial records and accounts in order. In case of failure to comply with this mandate, the director of the officer under whose tenure the report is made shall be liable.&nbsp;</p><h4>&nbsp;</h4><h4><strong>Preparation of Annual Financial Statement&nbsp;</strong></h4><p>&nbsp;</p><p>The Board of Directors (BOD) of private businesses in Nepal needs to prepare an annual financial statement comprising the following elements within six months of the expiry of its financial year.</p><p>&nbsp;</p><ul><li>Balance sheet as of the last date of the financial year.&nbsp;</li><li>Profit and loss account of the financial year.&nbsp;</li><li>Description of cash flow of the financial year.</li></ul><p>&nbsp;</p><p>Also, Boards of directors must approve all these financial accounts, which then should be certified by an auditor.&nbsp;</p><p>&nbsp;</p><p><strong>Also read: </strong><a href="https://www.biznestbazaar.com/blog/advantage-of-buying-registered-business-in-nepal">Advantage of Buying Registered Business in Nepal</a></p><h4>&nbsp;</h4><h4><strong>Report of Board of Directors&nbsp;</strong></h4><p>&nbsp;</p><p>For a private company with the paid –up capital of ten million rupees or more or with an annual turnover of ten million rupees or more, the BOD needs to prepare a separate report along with the financial statement. The elements that must be incorporated in the report are mentioned in section 109 (4) of the Companies Act. This report needs to be prepared annually. The annual financial statements and the Board of Directors' report must be approved by the board and signed by the Chairperson and at least one director. Also, the prepared financial documents should be kept for at least five years after the relevant financial year ends. Moreover, if anyone creates false financial statements or reports, and if the directors approve them, they can be punished under the law.</p><h4>&nbsp;</h4><h4><strong>Auditor Report&nbsp;</strong></h4><p>&nbsp;</p><p>The auditor provides a report to the shareholders or the appointing authority, which certifies the accuracy of the balance sheet, profit and loss account, and cash flow statement, all based on the company's audited books, records, and accounts. Like other reports, the Auditor report should be made annually, and the report must be signed or verified by the auditor.&nbsp;</p><h2>&nbsp;</h2><h2><strong>6.&nbsp; Income Tax Compliance&nbsp;</strong></h2><p>&nbsp;</p><p>Companies must meet different tax requirements, such as filing income returns, advance tax, and Tax Deducted At Source (“TDS”) under the <a href="https://www.lawcommission.gov.np/en/wp-content/uploads/2018/10/income-tax-act-alongwith-each-year-financial-acts-amendment-2058-2002.pdf">Income Tax Act, 2058</a>.&nbsp;</p><p>&nbsp;</p><ul><li>The company must maintain books of account, invoices, and documents for at least five years from the expiration date of the concerned income year.&nbsp;</li><li>The private companies in Nepal need to file income returns within three months of the expiry of a fiscal year at the <a href="https://ird.gov.np/">Income Tax office&nbsp;</a> (please verify this about ITO)</li><li>Payment of advance tax in periodic installments is required as per the Income Tax Act. 40% of the estimated tax should be paid by the end of the push, 70% by the end of Chaitra, and 100% of the estimated tax by the end of the Ashad. However, the system differs for companies that pay tax based on transactions.&nbsp;</li><li>For TDS, the individual making the payment should withhold the applicable tax rate according to the Income Tax Act.&nbsp;</li><li>Companies must then provide a statement of the withheld tax within 25 days from the end of the month in a specific format to the relevant Income Tax Office. This statement can be submitted electronically, typically referred to as e-TDS.</li></ul><p>&nbsp;</p><p><strong>Also read:</strong> <a href="https://www.biznestbazaar.com/blog/franchise-of-foreign-brand-business-in-context-of-nepal">Franchise of foreign brand business (in context of Nepal)</a></p><h2>&nbsp;</h2><h2><strong>Conclusion&nbsp;</strong></h2><p>&nbsp;</p><p>Adherence to a comprehensive compliance checklist is vital to ensure legal and smooth business operations. From tax registrations to corporate governance and financial reporting, staying in compliance with the diverse <a href="https://www.biznestbazaar.com/blog/legal-process-of-selling-a-private-business-in-nepal">legal requirements</a> outlined in the Companies Act, Income Tax Act, and other relevant regulations is fundamental. Company compliance further increases the company's value due to transparency and good corporate governance.&nbsp;</p><p>&nbsp;</p><p><strong>Disclaimer</strong>: The information provided here is for informational purposes only and should not be considered as legal advice. Please consult with a qualified legal expert for professional legal opinions. You can also consult with our <a href="https://www.biznestbazaar.com/hire-professional">professionals</a> for further assistance.</p><p>&nbsp;</p>

Compliance Checklist for Private Business Operations in Nepal

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