Understanding Private Limited Company Compliance in Nepal
Private limited company compliance in Nepal requires careful attention to multiple regulatory bodies. Business owners must navigate requirements from the Office of Company Registrar (OCR), Inland Revenue Department (IRD), and various municipal authorities.
Compliance obligations are structured around annual, quarterly, and event-based requirements. These responsibilities must be fulfilled to maintain good standing and avoid penalties.
Annual Compliance Requirements
Office of Company Registrar (OCR) Filings
Annual returns must be submitted to the OCR within specific timeframes. The following documents are required:
|
Document |
Deadline |
Penalty for Delay |
|
Annual Return |
Within 6 months of fiscal year end |
NPR 5,000-25,000 |
|
Audited Financial Statements |
Within 6 months of fiscal year end |
NPR 5,000-25,000 |
|
AGM Resolution |
Within 6 months of fiscal year end |
NPR 5,000-25,000 |
The annual return includes details about directors, shareholders, registered office, and authorized capital. Accuracy is essential, as discrepancies can lead to rejection.
Tax Compliance Obligations
Tax compliance forms the backbone of legal operations. The Inland Revenue Department oversees these requirements:
Income Tax Returns: Corporate income tax must be filed by Poush end (mid-January) for companies following the Shrawan-Ashadh fiscal year. The current corporate tax rate stands at 25% for most private limited companies.
VAT Returns: Monthly VAT returns are submitted by the 25th of the following month. Companies with annual turnover exceeding NPR 50 lakhs must register for VAT.
TDS Returns: Tax deducted at source must be deposited within the first 25 days of the following month. Annual TDS statements are also required.
Quarterly and Monthly Obligations
Social Security Fund Contributions
Contributions to the Social Security Fund (SSF) are mandatory for companies with one or more employees. Monthly contributions are calculated as follows:
- Employee Contribution: 11% of basic salary
- Employer Contribution: 20% of basic salary
- Total: 31% of basic salary
Submissions are made through the SSF online portal by the 15th of each month.
Municipal Tax and Renewals
Business operating licenses must be renewed annually with the respective municipality. Property tax, if applicable, is paid annually based on location and property value.
Statutory Record Maintenance
Proper record-keeping is not optional—it's legally mandated. The following registers must be maintained:
- Register of Members: Updated records of all shareholders
- Register of Directors: Current and past director information
- Minutes Book: Documentation of all board and shareholder meetings
- Share Certificate Register: Issued share certificates with details
- Charge Register: Details of secured loans and charges
These records must be available for inspection by regulatory authorities. Digital maintenance is now accepted, though physical copies may be requested during audits.
Board Meeting and AGM Requirements
Board Meeting Compliance
The board of directors must convene at least four meetings annually. One meeting should be held every three months. Proper notice (typically 7 days) must be given to all directors.
Minutes must be recorded and signed within 30 days. Absence of proper documentation can result in procedural violations.
Annual General Meeting (AGM)
The AGM must be conducted within six months of the fiscal year end. Key agenda items include:
- Approval of audited financial statements
- Declaration of dividends (if applicable)
- Appointment or reappointment of auditors
- Director appointments or changes
- Any special resolutions
Notice for the AGM must be sent to shareholders at least 21 days in advance. The meeting requires a quorum as specified in the company's articles of association.
Compliance Calendar Overview
|
Month |
Compliance Activity |
Applicable To |
|
Every Month |
VAT Return Filing |
VAT-registered companies |
|
Every Month |
TDS Deposit & Return |
All companies with employees/contractors |
|
Every Month |
SSF Contribution |
Companies with employees |
|
Poush (Mid-Jan) |
Income Tax Return |
All companies |
|
Within 6 months |
OCR Annual Return |
All private limited companies |
|
Within 6 months |
AGM Conduct |
All private limited companies |
|
Annually |
Municipal License Renewal |
All companies |
Event-Based Compliance
Certain corporate changes trigger immediate compliance obligations:
Director Appointments or Resignations
Changes in directorship must be notified to the OCR within 35 days. Required documents include:
- Board resolution approving the change
- Consent letter from new directors
- Updated Form 7 (Return of Director)
Changes in Share Capital
Alterations to authorized or issued capital require special resolutions. OCR notification must be completed within 35 days, accompanied by amended memorandum and articles.
Registered Office Changes
Address changes need board approval and OCR notification within 35 days. Public notice in a national newspaper may be required.
Penalty Structure for Non-Compliance
Understanding penalties helps prioritize compliance:
|
Violation Type |
Penalty Range |
Additional Consequences |
|
Late Annual Return |
NPR 5,000-25,000 |
Possible director liability |
|
Tax Filing Delays |
0.05% daily interest |
Maximum 100% of tax due |
|
Failure to Conduct AGM |
NPR 10,000-50,000 |
Director disqualification risk |
|
SSF Non-Payment |
Penalties plus interest |
Legal action possible |
Repeated violations can lead to company strike-off proceedings or director disqualification.
Best Practices for Maintaining Compliance
Implement a Compliance Calendar
A structured calendar system prevents missed deadlines. Digital reminders should be set at least 30 days before each deadline, allowing time for document preparation.
Engage Professional Services
Chartered accountants and company secretaries provide invaluable support. Their expertise ensures accurate filings and regulatory adherence.
Regular Internal Audits
Quarterly internal reviews identify gaps before they become violations. This proactive approach minimizes risk exposure.
Document Everything
Comprehensive documentation protects against regulatory challenges. Every decision, meeting, and transaction should be properly recorded.
Stay Updated on Regulatory Changes
Laws evolve regularly. Subscribing to OCR notifications and IRD circulars ensures awareness of new requirements.
Common Compliance Mistakes to Avoid
Several errors repeatedly occur among private limited companies:
Delayed AGM Conduct: Many companies miss the six-month window, triggering penalties and compliance issues.
Incomplete Annual Returns: Missing information or incorrect data leads to rejections and resubmission delays.
TDS Calculation Errors: Misapplication of TDS rates results in underpayment or overpayment, both creating complications.
Poor Record Maintenance: Inadequate documentation creates problems during audits or regulatory inspections.
Ignoring Municipal Requirements: Local compliance is often overlooked, resulting in operational difficulties.
Digital Compliance Tools
Technology has simplified compliance management:
OCR Online Portal: Electronic filing of annual returns and forms reduces processing time significantly.
IRD Portal: Online tax filing, payment, and return submission streamline tax compliance.
SSF Portal: Digital contribution submission and employee management improve efficiency.
Accounting Software: Integrated solutions track obligations and generate reports automatically.
Special Considerations for Different Company Types
Companies with Foreign Investment
Additional compliance includes:
- Industrial Enterprises Act registration
- Department of Industry (DOI) reporting
- Foreign exchange reporting to Nepal Rastra Bank
- Repatriation documentation for dividends
Inactive Companies
Even dormant companies must maintain basic compliance:
- Annual return filing (though simplified)
- Minimal tax returns
- OCR notification of inactive status
Alternatively, formal dissolution procedures can be initiated.
Consequences of Persistent Non-Compliance
Chronic violations lead to severe outcomes:
Company Strike-Off: The OCR can remove non-compliant companies from the register after due notice.
Director Liability: Directors become personally liable for company debts if compliance failures are willful.
Legal Proceedings: Tax authorities can initiate prosecution for serious violations.
Reputational Damage: Compliance issues affect banking relationships, vendor contracts, and business reputation.
Checklist Summary
✓ File annual return with OCR within 6 months
✓ Conduct AGM within 6 months of fiscal year end
✓ Submit audited financial statements
✓ File income tax returns by Poush end
✓ Submit monthly VAT returns (if registered)
✓ Deposit and report TDS monthly
✓ Pay SSF contributions by 15th of each month
✓ Renew municipal business license annually
✓ Hold minimum 4 board meetings annually
✓ Maintain all statutory registers
✓ Update OCR on directorship changes within 35 days
✓ Notify capital structure changes within 35 days
✓ Keep corporate records for minimum 7 years
Frequently Asked Questions
What happens if annual returns are filed late?
Late filing attracts penalties ranging from NPR 5,000 to NPR 25,000. Additionally, directors may face personal liability, and the company risks being struck off the register after prolonged non-compliance.
Can a private limited company operate without conducting an AGM?
No. The AGM is legally mandatory and must be conducted within six months of the fiscal year end. Failure to do so results in penalties and potential director disqualification.
Is VAT registration mandatory for all private limited companies?
VAT registration becomes compulsory when annual turnover exceeds NPR 50 lakhs. Companies below this threshold may register voluntarily but aren't legally required to do so.
What documents must be submitted with the annual return?
The annual return package includes the completed annual return form, audited financial statements, AGM minutes, list of shareholders and directors, and proof of annual return fee payment.
How frequently must board meetings be conducted?
At least four board meetings must be held annually, with at least one meeting every three months. Proper notice and minute-recording requirements must be followed.
Can compliance obligations be fulfilled by company directors themselves?
While possible, engaging professional services (chartered accountants, company secretaries) is advisable. Complex requirements and frequent regulatory changes make professional assistance valuable.
What is the penalty for late TDS deposit?
Interest at 0.05% per day (approximately 18% annually) is charged on late TDS deposits. In serious cases, penalties up to 100% of the tax amount can be imposed.
Are digital signatures acceptable for OCR filings?
Yes. The OCR accepts digital signatures for online filings. However, specific technical requirements must be met, and authorized signatories must be properly registered.
How long must corporate records be retained?
Company records must be maintained for a minimum of seven years. Some records, particularly those related to incorporation and share capital, should be retained permanently.
What triggers a company audit by regulatory authorities?
Random selection, complaint-based investigations, unusual financial patterns, industry-specific risk factors, or previous compliance violations can trigger regulatory audits.
Take Action Today
Compliance management requires consistent attention and professional expertise. Establish your compliance calendar immediately, engage qualified professionals, and implement systematic record-keeping practices.
For personalized compliance support, consult with registered chartered accountants and company secretaries experienced in Nepal's regulatory environment.
References
- Office of Company Registrar (OCR), Nepal - https://www.ocr.gov.np - Official government portal for company registration and compliance requirements
- Inland Revenue Department (IRD), Nepal - https://ird.gov.np - Tax laws, regulations, and filing procedures
- Social Security Fund (SSF), Nepal - https://www.ssf.gov.np - Employee contribution requirements and procedures
- Nepal Law Commission - https://www.lawcommission.gov.np - Company Act 2063 and related legislation
- Ministry of Industry, Commerce and Supplies - https://www.moics.gov.np - Industrial policy and foreign investment regulations
- Institute of Chartered Accountants of Nepal (ICAN) - https://www.ican.org.np - Professional accounting standards and guidance
Disclaimer: This content is for informational purposes only and does not constitute legal or professional advice. Regulations change frequently. Consult qualified professionals for specific compliance guidance.
