VAT Registration in Nepal: Thresholds, Mandatory Sectors and Process

Value Added Tax (VAT) is Nepal's main indirect consumption tax, levied at a single flat rate of 13 percent on the supply and import of most goods and services. It is governed by the Value Added Tax Act, 2052 (1996 AD) and the Value Added Tax Rules, 2053 (1997 AD), and is administered by the Inland Revenue Department (IRD) under the Ministry of Finance. The 13 percent rate has remained unchanged since VAT replaced the old sales tax system in 1997, and the Finance Act for FY 2082/83 (2025/26 AD) again left the rate untouched.

VAT registration (locally called 'VAT darta') is the process of formally enrolling a business as a VAT taxpayer so it can legally charge VAT on its sales, issue tax invoices, claim input VAT credit on its purchases, and file periodic returns. Registration is done through the IRD taxpayer portal, and every registered person receives a nine-digit Permanent Account Number (PAN) that also serves as the VAT number. Only a VAT-registered firm may show VAT separately on its bills and reclaim the VAT it pays on inputs.

It is important to distinguish PAN registration from VAT registration. Almost every business and individual earning taxable income in Nepal needs a PAN, but VAT registration is an additional step that is required only when a turnover threshold is crossed or when the business operates in a sector that the law designates as compulsorily registrable. A firm can also register for VAT voluntarily before hitting the threshold, which is common for exporters and B2B suppliers who want to reclaim input VAT.

The core rule is turnover-based. Under Section 10 of the VAT Act 2052 and the registration limits set through the annual Finance Act, a business must register for VAT once its annual taxable turnover crosses the prescribed threshold. The threshold differs by the nature of supply: goods-only businesses face a higher ceiling, while service providers and mixed (goods-plus-services) businesses face a lower one.

For the current framework (FY 2082/83, 2025/26 AD), the goods-only threshold is an annual turnover exceeding NPR 50 lakh (NPR 5,000,000), while the threshold for services-only and mixed goods-and-services businesses is an annual turnover exceeding NPR 30 lakh (NPR 3,000,000). The services and mixed figure was raised in recent years from an earlier NPR 20 lakh limit, so older guides may still quote 20 lakh — always reconfirm the current number against the latest IRD circular at the start of each fiscal year.

The threshold is assessed on turnover over any twelve-month period, not merely a fiscal year, so a business that grows quickly mid-year can cross the line and trigger the obligation early. Once you cross the applicable threshold, registration is mandatory within 30 days. Missing this window exposes the business to penalties, back-assessment of VAT that should have been collected, and interest on unpaid amounts.

Separately from the turnover test, Nepali VAT law lists certain 'specified' businesses that must register for VAT before starting operations, from their very first transaction, no matter how small their turnover. The logic is that these sectors are either high-value, prone to tax leakage, or dominated by discretionary and controlled goods, so the government wants them inside the VAT net from day one. This list is set through the VAT Rules and updated periodically by IRD notice, so a new business in any of these lines should verify the current circular before commencing.

The commonly listed specified sectors include: liquor, beer and wine; tobacco and cigarettes; the production and trade of bricks and tiles; hardware, sanitary ware and electronics; motor parts; marble and dolomite; ice cream; colour labs (photo processing); restaurants and bars with liquor service; and businesses running discotheques, health clubs, and massage/spa services. Because these thresholds do not apply, a small hardware shop or a single-outlet bar-restaurant is expected to be VAT-registered even if its annual turnover is well below NPR 50 or 30 lakh.

Several professional and tourism-related services are also on the compulsory list: audit and accounting firms, tax and legal consultancy, engineering and management consultancy, and education (foreign study) consultancy; travel, trekking, rafting, paragliding and tourist-vehicle operators; and information technology, software, and software-development services. Customs (clearing) agents, crushers, sand and stone mines, and toy businesses are also frequently cited in IRD notices. Anyone entering these fields should treat VAT registration as a precondition to starting rather than an option to defer.

VAT registration in Nepal is handled electronically through the IRD's Integrated Tax System (the taxpayer portal at ird.gov.np), usually followed by verification at the relevant Inland Revenue Office or Taxpayer Service Office. A business first ensures it holds a PAN; the same nine-digit number is upgraded to a VAT registration once the application is approved. Sole proprietors, partnerships, and companies each attach the documents that establish their legal existence and ownership.

The application asks for the business name, address, nature of transactions, expected turnover, bank details, and details of the proprietor, partners, or directors. Standard supporting documents include the business or company registration certificate, the PAN certificate, citizenship certificates (or passport for foreigners) of the owners, a passport-size photo, a hand-drawn or sketched map of the business location, and evidence of the place of business such as a rent agreement or ownership document. Companies also submit the memorandum and articles of association and, where relevant, a board resolution.

After the online form and documents are submitted and verified, the IRD issues the VAT registration certificate, which the business must display at its premises. From that point the firm is legally required to issue VAT invoices, maintain purchase and sales registers, keep records for the statutory period, and file returns on time. There is no government fee for VAT registration itself, though professional help is common for first-time registrants.

Once registered, a business must file VAT returns even in months when it has no transactions (a 'nil' return). The default cycle is monthly: the return for each Nepali (Bikram Sambat) month must be filed, and any net VAT paid, by the 25th of the following month. VAT collected on sales (output VAT) is offset against VAT paid on purchases (input VAT), and only the difference is remitted; if input VAT exceeds output VAT, the credit is generally carried forward and, in export-heavy cases, can be claimed as a refund.

Certain sectors are allowed a longer, four-monthly (trimester) filing cycle instead of monthly — this concession has historically applied to categories such as tourism, transportation, publishers, hotels, and cinema operators. Regardless of cycle, registered firms must issue serially numbered tax invoices (abbreviated tax invoices for small retail sales), record every purchase and sale, and retain accounts for the period required by law.

Non-compliance carries real cost. Late filing attracts a per-day penalty and a minimum fine per return, and failing to register when required can lead to back-assessment of VAT, penalties, and interest. Because thresholds and the specified-sector list can shift with each Finance Act, staying current with IRD circulars is part of ongoing compliance, not a one-time task.

Not everything sold in Nepal carries 13 percent VAT. The VAT Act uses two schedules that are often confused but work very differently. Schedule 1 lists VAT-exempt goods and services, and Schedule 2 lists zero-rated (0 percent) supplies. The practical difference lies in input credit: an exempt supplier cannot charge VAT and cannot reclaim the VAT paid on its inputs, whereas a zero-rated supplier charges 0 percent but can still reclaim full input VAT — which is why exporters receive VAT refunds.

Schedule 1 (exempt) broadly covers basic and socially important items: unprocessed basic foods such as rice, pulses, flour, fresh fish, meat, milk, fruits, vegetables and edible oil; agricultural inputs like seeds, fertiliser, pesticides and live animals; piped drinking water and firewood; medicines and health services; educational services; books, newspapers and magazines; passenger transport (other than long-distance air travel); the purchase and rent of land and buildings; and banking, insurance and other financial services. A business dealing exclusively in Schedule 1 items is not required to register for VAT at all.

Schedule 2 (zero-rated) is dominated by exports. It covers the export of goods and services outside Nepal, supplies made to export processing zones and special economic zones, and certain other supplies the government designates, such as goods sold to diplomatic missions or specified inputs to priority projects. For exporters, the combination of a 0 percent output rate and recoverable input VAT is a deliberate incentive that keeps Nepali exports competitive and free of embedded domestic tax.