Of all the post-incorporation steps, PAN and VAT cause the most needless difficulty. Neither is complicated on its own. What catches founders out is the timing, and the fact that a company's tax responsibilities begin on the day of incorporation, whether or not it has earned a rupee. A company that treats tax registration as a task for "later" usually ends up paying for the delay, either in penalties or in invoices a customer cannot use.
This guide explains what PAN and VAT are, when each applies, how the registration process works in practice, and what it costs in time and money to do both properly from day one.
Quick answer
Every company in Nepal needs a Permanent Account Number (PAN), issued by the Inland Revenue Department. Businesses whose taxable turnover crosses the legal threshold must also register for Value Added Tax (VAT). A company's PAN is obtained soon after incorporation and quickly. VAT registration, and the separate registration of each branch, are the steps first-time founders most often miss.
As a working rule: start the PAN process the week the certificate of incorporation is issued, decide deliberately whether to register for VAT voluntarily, and never issue an invoice without the company's tax numbers on it.
What a PAN is
The PAN is the tax identification number for individuals and businesses in Nepal. Companies obtain it as a post-incorporation step, typically within a short window of receiving the certificate of incorporation. Salaried employees, landlords and self-employed professionals also hold personal PANs for withholding and filing. The number attaches to the person or entity, not to a trade name, so a company that later changes its name keeps its PAN.
For a company, the PAN is the spine of everything that follows. Corporate income tax returns are filed against it. VAT registration is linked to it. Withholding tax deducted by customers is reported under it. Banks ask for it when opening the corporate account, and most established clients will not pay an invoice that does not show it. In practice, a company without a PAN cannot invoice properly, cannot open some banking facilities without difficulty, and cannot file the returns that keep it in good standing.
Individuals need PANs too, and this is the part employees and landlords often miss. Any person earning taxable income, including salary, rent or professional fees, is required to obtain a PAN and many payments are subject to withholding tax at source unless the payee provides one. A landlord who cannot produce a PAN may find tax deducted from rent at a higher rate. A freelance consultant billing a registered company will find the company compelled to withhold. Getting a personal PAN is inexpensive and quick, and it avoids these frictions entirely.
What VAT registration is
VAT applies once taxable turnover reaches the legal threshold, and registration is completed at the Inland Revenue Office. Once registered, the business charges VAT on its sales and claims input VAT on its purchases, filing periodic returns to settle the difference. Businesses below the threshold may register voluntarily, and many B2B suppliers do, because it lets their customers claim input credit on the invoices they receive. For a business selling mainly to other registered businesses, voluntary registration is often a commercial advantage rather than a burden.
Under the VAT Act 2074, the mandatory registration threshold is annual turnover of NPR 5 million, and the standard VAT rate is 13 percent. Certain supplies are zero-rated or exempt, which matters when you plan pricing, so it is worth checking how your particular revenue stream is treated before you commit to numbers in a contract.
The mechanics of a VAT registration are worth understanding before you file. A registered business charges VAT on taxable sales, collects it, and pays the net amount (tax collected minus tax paid on inputs, known as input credit) to the Inland Revenue Department with each periodic return. Input credit is only available where the supplier has issued a valid VAT invoice and the purchase is properly recorded, which is why the quality of your invoicing and bookkeeping directly determines your tax bill. Poorly kept purchase records are one of the most common reasons input credit claims are disallowed on audit.
Voluntary registration deserves a moment of thought rather than a reflex yes or no. It is usually right for businesses selling mainly to other registered companies, because those customers want creditable invoices and will often prefer a registered supplier even at a slightly higher price. It is usually wrong for businesses selling mainly to consumers or to unregistered small buyers, because the business then carries the administrative burden of filing and record-keeping with little offsetting benefit. The decision is commercial as much as legal, and it is worth modelling before you commit, since deregistration is not a simple matter of changing your mind.
Documents you will need
- The certificate of incorporation, or the registration certificate for another entity type
- The memorandum and articles of association, where applicable
- Details of the business premises, including address and ownership or rental documents
- Identification of the authorised representatives and directors
- The business bank account details
- Photographs and citizenship or passport copies of the directors and authorised signatory, as requested by the local office
- The company seal, where your practice uses one on filings
Requirements vary slightly between Inland Revenue Offices, and papers that are perfectly acceptable in one office can draw a request for one extra document in another. Confirming the list with your office, or with counsel, before you submit saves a wasted trip.
The steps for a new company
- Incorporate with the Office of the Company Registrar.
- Apply for the PAN at the Inland Revenue Office soon after incorporation. This is typically straightforward and is often completed within a few working days when the papers are in order.
- Register for VAT once turnover will cross the threshold, or apply voluntarily, with the supporting documents for the business premises and bank account.
- Register each branch or permanent establishment separately, because VAT registration follows premises, not just the head office entity.
- Build the PAN and VAT numbers into invoices, contracts and accounts from day one, so that no billing cycle passes without them.
If the company will import goods or deal with customs, the PAN is also needed for customs clearance, and banks will request it when opening letters of credit or remitting payments abroad. Getting it early prevents a shipment sitting at the port for a paperwork reason.
Costs and timelines
Government fees for PAN registration and for VAT registration are modest, and the larger cost is usually professional fees if you engage a consultant, plus the cost of your own time. The real cost, however, lives in delay. A PAN is generally issued within days of a clean application. VAT registration takes longer, and incomplete premises documentation is the most common cause of the file being sent back.
From the company's side, the useful discipline is to treat tax registration as part of the incorporation sprint rather than a task for the first quiet month. In our experience, founders who file for PAN in the same week they receive their certificate are never the ones calling in a panic about an invoice a client has refused to pay.
A worked example
A technology consultancy incorporates in Kathmandu and plans to bill clients in Nepal and abroad. Because most of its clients are VAT-registered businesses that want input credit, the firm registers for VAT voluntarily even before crossing the threshold. Its PAN is issued within days of incorporation, and the same numbers appear on every invoice. Later, when the consultancy opens a second office in Pokhara, it knows the branch must be registered separately.
A competitor that waits until turnover forces the issue finds that invoices issued in the meantime cannot support the customer's input claim, leaving an awkward hole in its early bookkeeping. Two of its larger clients quietly move to registered suppliers. The competitor's eventual registration is not late in any legal sense, but the commercial cost of the gap was real and entirely avoidable. That contrast is the single most useful thing to take from this guide.
Consequences of late registration
Operating without a PAN where one is required attracts penalties, and VAT carries the same risk. The Inland Revenue Department can impose fines for failure to register within the prescribed period, and for a registered business that fails to file returns or pays late, penalties and interest accrue quickly and can exceed the underlying tax for smaller amounts.
Late VAT registration also means the business could not issue valid VAT invoices for the period before registration, which complicates both customer billing and input claims. Customers who discover after the fact that invoices they paid cannot support an input credit often ask for that credit to be made good, and the supplier has little legal ground to refuse.
Because the tax obligations of a company run from incorporation even before revenue begins, registering early is cheaper and simpler than catching up. A catch-up filing also tends to arrive with a request for explanation, which invites a wider look at the accounts than most new businesses would want.
Annual compliance after registration
With PAN and VAT in place, the ongoing obligations begin: periodic VAT returns, social security contributions if you employ staff, and the annual corporate income tax return supported by audited financial statements. Missing a filing date attracts fines quickly and invites scrutiny. Most businesses keep a compliance calendar from the start rather than tracking deadlines by memory.
A few points worth building into that calendar. VAT returns are generally filed on a monthly cycle, commonly due by the 25th of the following month, and must be accompanied by payment of any net tax due. Books of account must be maintained in accordance with the company and tax laws, and audited statements prepared for the annual return. Withholding tax deducted during the year must be deposited and reported on its own cycle. If staff are employed, contributions to the Social Security Fund are monthly obligations in their own right.
Businesses that appoint a accountant or bookkeeper still benefit from one partner or director understanding the calendar. The deadline that slips is almost always the one nobody owned.
Common mistakes
- Treating PAN as something to arrange after the first invoice, and then stalling a payment because the invoice lacks the number.
- Registering for VAT purely because a competitor did, without checking whether the customer base can actually use the credit.
- Opening a second branch and assuming the head office registration covers it, when each permanent establishment requires its own registration.
- Issuing invoices without the prescribed particulars, which customers then reject or which fail on audit.
- Filing VAT returns without reconciling input credit properly, leading to claims being disallowed later.
- Letting the annual return creep up as a surprise, rather than preparing audited accounts through the year.
None of these are exotic errors. They are the ordinary ones, and each is avoidable with a little discipline in the first few months.
Frequently asked questions
Is PAN registration mandatory for every company?
Yes. Every company in Nepal must obtain a PAN. It is required for tax filing, for VAT registration, for proper invoicing and for most banking arrangements.
When must a company get its PAN?
Soon after incorporation, within the short window set by the Inland Revenue Department. In practice, filing in the same week you receive the certificate avoids almost every downstream problem.
When does VAT registration become mandatory?
Once taxable turnover reaches the legal threshold, currently NPR 5 million in annual turnover under the VAT Act 2074. Below it, registration is voluntary but often worthwhile for B2B suppliers.
Can I register for VAT voluntarily?
Yes. Many businesses do, so their customers can input credit on their invoices. It is most useful where your buyers are registered businesses, and less useful where you sell mainly to consumers.
Does each branch need its own registration?
Yes. Each branch or permanent establishment is registered separately for VAT, because the registration is tied to the premises from which taxable supplies are made.
What happens if I register late?
Penalties apply, and invoices issued before registration cannot support a customer's VAT claim. Customers may ask that the credit be made good, and the delay invites a closer look at the accounts.
How often are VAT returns filed?
Returns are filed on a periodic cycle, commonly monthly and generally due by the 25th of the following month. Confirm the cycle that applies to you and build it into your compliance calendar.
Do employees and landlords need PANs too?
Yes, individuals with taxable income including salary, rent and professional fees are required to hold PAN, and many payments are subject to withholding at source unless the payee provides one.
Can a company deregister from VAT if it was registered voluntarily?
Deregistration is possible in principle but is not a simple about-face. The rules restrict frequent switching, and the Inland Revenue Department examines the application. Decide deliberately before registering rather than assuming you can easily undo it.
What records must a VAT-registered business keep?
Sales and purchase records, VAT invoices, input credit documentation, and books of account maintained in the prescribed form. The quality of these records determines whether input credit claims survive an audit.
How Pluto Associates can help
We handle PAN and VAT registration for companies, branches and foreign-invested entities, and support the ongoing filing and compliance that keeps a business in good standing with the Inland Revenue Department. If you would like a clear view of your situation, contact our team for a consultation, message us on WhatsApp, or call +977 9802356987. We will tell you what is possible, what it costs, and how long it takes.