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Tax Registration System in Nepal: Questions regarding PAN and VAT

The tax registration process and the decision whether to register a business under PAN or VAT can be quite confusing for many entrepreneurs. Especially, entrepreneurs with ideas relating to alcohol distribution, export and import, handicrafts often seem to have queries on requirements for registration. Based on such queries received from various aspiring entrepreneurs this blog attempts to provide basic details on the tax registration system of Nepal.

PAN Registration

All businesses in Nepal are required to obtain a PAN registration certificate from Inland Revenue Office (IRO) before coming into operation. The law of Nepal mandates PAN registration, therefore, it is crucial to understand PAN and the process of obtaining PAN.

What is PAN?

PAN (Permanent Account Number) is a unique identification number issued to all taxpayers and tax deducted at source (TDS) withholding agents throughout Nepal. The one time allotted PAN of a taxpayer or TDS withholding agent never changes.

What kinds of companies and organizations must obtain PAN?

As per the law, the kinds of companies and organizations which have to obtain a PAN certificate as a mandate are:

  1. persons engaged in the business (commercial transaction) registering or without registering firm.
  2. partnership firm, company and organization conducting business and non-business activities and who may have to pay income tax and VAT.
  3. all organizations deducting tax at source.

What is the process to apply for PAN?

The process to apply for the registration of PAN begins with either collecting application form for registration from respective Inland Revenue Office (IRO) or downloading the forms from the link provided in the website of Inland Revenue Department (IRD). Then the application form must be filled and submitted at the concerned Office of Inland Revenue.

What documents are required to submit before Inland Revenue Office (IRO) for PAN registration?

The documents required to be submitted at Office of Inland Revenue includes:

      • Copy of your citizenship certificate. For foreigners, any other authentic identification document.
      • Copy of the company registration certificate (if applicable).
      • Two identical passport size photos of the person who signs the application form. For Partnership Firms, two identical size photos of each partner.
      • Proof of deposit, if requested by your Inland Revenue Office (foreigners only).
      • Sketched map of the location of your main office or head office.
      • Rental agreement including receipt of TDS on rental payment for three (3) months
      • Application documents requiring company’s seal

Note: And case where an individual desires to register his partnership firm, limited company, corporation or any other organization through a representative, the authority must be given through a signed Power of Attorney (POA) form to the representative. The signed POA must be presented  before the tax officer at IRO along with the submission of the application for PAN registration. The representative must also produce his/her citizenship card.

VAT registration

VAT registration is also as important as PAN registration to understand prior to a business coming into operation.

What is VAT?

VAT (Value Added Tax) is a broad-based tax that covers the value added to each commodity by an organization/ firm at all stages of production and distribution. The VAT registration certificate is provided by the Inland Revenue Office (IRO) subsequent to VAT registration. VAT registration is denoted in the PAN certificate itself and separate certificate is not provided.

Any individual engaged in any taxable transaction must submit an application for registration in the prescribed form before IRO. However, there are few thresholds, not exceeding which, does not require VAT registration.

  1. Person carrying out transaction with a turnover not more than fifty lakh Rupees and in case of goods and services a turnover not more than ten lakh Rupees in the last twelve months. Any person who imports the goods amount to export price of ten thousand Rupees or more per annum for business purposes into the Nepal has to get his transaction registered.
  2. In cases where an entrepreneur carrying on small transactions desires to get his transaction registered at his own will, he can make an application. In such cases, the tax officer completes an examination procedure and registers the transaction.
  3. Whereas for the following businesses even below the threshold, VAT registration is mandatory:
    • Hardware, sanitary, furniture, fixtures ,furnishings, automobiles, motor parts, electronics, marbles, education consultancy, health club, catering service, park place, discothèque, color lab, parking services, restaurant with bar, dry cleaners with machinery.
  4. Having following conditions for the transaction of taxable goods and services:
    • More stock of goods at the time of inspection.
    • Expenditure more than 1 Lakh on telephone and house rent.
    • Business premises within the prescribed market or road area.

Subsequent to VAT registration there are statutory requirements a VAT registrant must fulfill in accordance to law. They are:

  • Submissions of VAT return and pay tax within the 25th day of the following month (month/trimester based on type of registration).
  • Providing their customers with a tax invoice.
  • Maintaining Purchase Book, Sales Book and VAT Account.
  • Keeping their VAT records for a period of 6 years.
  • Informing IRO of any changes in regard to the business including new address, telephone number or a reorganization of a partnership.
  • Hanging the Certificate of VAT registration in the premises of business where customers can easily see and read it,
  • Allowing tax officers to enter the premises of business to examine the business records and the stock on hand.

For further details regarding PAN and VAT registration please visit the Inland Revenue Department Website or consult a Tax Consultant.