How to Register a Sole Proprietorship (Private Firm) in Nepal

Setting up as an independent contractor in Nepal is appealing because it allows entrepreneurs to start quickly, keep full control of their operations, and avoid the complex governance structures of companies. A sole proprietorship—officially called a private firm—is easy to establish, but it comes with full personal liability and some administrative requirements. The benefits are simplicity, speed, and minimal costs, while the challenges lie in regulatory paperwork, tax compliance, and limited growth opportunities.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Always check official sources or consult a professional before taking action.

What is a sole proprietorship in Nepal?

In Nepal, a sole proprietorship is known as a private firm under the Private Firm Registration Act, 2014 (1958). It describes a business that is fully owned and managed by one individual. The owner assumes all profits but also bears unlimited liability for any debts or obligations. Other common terms include sole trader or independent contractor.

How does a sole proprietorship work in Nepal?

Private firm vs private limited company in Nepal

Entrepreneurs in Nepal often weigh the simplicity of a private firm against the protections of a private limited company. Below is a comparison of the two structures:

Step-by-step guide: how to register a private firm in Nepal

Step 1: Check eligibility

To register a private firm in Nepal, you must be a Nepalese citizen with valid government-issued identification, such as a citizenship certificate. Foreign nationals cannot directly register a private firm but may apply through the Department of Industry or set up other business entities with approval. Before applying, confirm your eligibility with the Department of Commerce and Supply Management.

Step 2: Choose your business name

Your business name must be unique and not conflict with an existing registered firm. You cannot register duplicate or confusingly similar names with the same objectives. It is advisable to prepare at least two or three alternative names in case your first choice is rejected. Once approved, the name will be listed in the official registry and reserved for your business.

Step 3: Gather required documents

Registration requires multiple documents, including:

• A completed application form from the Department of Commerce and Supply Management.

• Proposed business name(s).

• Address of business premises, with a rental agreement or ownership proof.

• Details of business objectives, goods, or services.

• Personal details of the proprietor, including parents’ and grandparents’ names (a legal requirement in Nepal).

• A self-declaration letter confirming ownership and compliance.

• Capital declaration to determine fees payable.

All documents must be signed by the owner, and copies of citizenship certificates must be attached.

Step 4: Register with the Department of Commerce

Submit your application either in person at the Department’s office or through the official online portal if available. The documents are verified by the registrar, who may request corrections or additional papers. Once approved, you will receive a Certificate of Registration of the private firm. Fees are based on declared capital, ranging from NPR 600 for small firms to over NPR 15,000 for higher-capital businesses.

Step 5: Register for tax (PAN / VAT)

Every private firm must obtain a Permanent Account Number (PAN) from the Inland Revenue Department (IRD). The PAN allows you to pay income tax and is often required for opening a business bank account. The process typically takes 1–3 days.

If your turnover is projected to exceed NPR 2 million (services) or NPR 5 million (goods), you must also register for VAT at the IRD. VAT registration requires additional forms and approval but is necessary to issue VAT invoices and claim input credits.

Step 6: Complete post-registration obligations

After registration, you must comply with ongoing obligations such as:

• Keeping proper books of accounts and records of all income and expenses.

• Issuing receipts and invoices for every transaction.

• Filing tax returns on time—income tax is filed annually, while VAT returns must be submitted monthly if registered.

• Renewing any local trade permits or sector-specific licenses annually.

Failing to meet these obligations can result in penalties from the IRD or suspension of your registration.

Financial and tax obligations for private firms in Nepal

Private firms are subject to tax compliance under the supervision of the Inland Revenue Department (IRD).

• Income tax: Proprietors must register for PAN and pay income tax annually. Progressive tax rates apply under Nepal’s Income Tax Act.

• VAT: Registration is mandatory if turnover exceeds NPR 2M (services) or NPR 5M (goods). The standard VAT rate is 13%.

• Record-keeping: Firms must keep invoices, receipts, and financial statements for audits and compliance.

• Other obligations: Renewal of trade licenses or local permits may apply depending on the municipality.

Launch your contracting career and stay compliant with Deel

Registering as a sole proprietor gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required to start a private firm in Nepal?
There is no official minimum capital requirement. However, registration fees are based on the capital you declare. Fees start at NPR 600 for small firms and increase up to NPR 15,000+ for larger firms.

Do private firms need to register for VAT?
Yes, if your annual turnover exceeds NPR 2 million for services or NPR 5 million for goods. The VAT rate is 13%. Firms below the threshold may choose voluntary registration.

How much are the standard monthly or annual contributions?
The main costs are the one-time registration fee (NPR 600–15,000 depending on capital) and tax filings. If VAT-registered, monthly filings are required. Some municipalities may also require small annual trade license renewals.

Can a private firm hire employees?
Yes. However, once you employ staff, you must register with the Social Security Fund (SSF) and comply with labor laws, including paying social security contributions.

How long does it take to register as a private firm in Nepal?
Registration typically takes 3–7 working days if documents are complete. Obtaining a PAN from the Inland Revenue Department usually adds another 1–3 days.

Can foreign nationals register as private firms in Nepal?
No, foreigners cannot directly register a private firm. They must register under other structures (such as a company) or obtain approvals from the Department of Industry for investment.

Do private firms need a separate business bank account?
Not mandatory, but strongly recommended for tax clarity and smoother record-keeping. Banks often require a Certificate of Registration and PAN to open a business account.

What happens if I stop working as a private firm?
You must apply for deregistration with the Department of Commerce and Supply Management and close your PAN with the Inland Revenue Department. Final tax returns must also be filed.

Are there any government incentives or reduced rates for new private firms?
Nepal does not currently offer specific tax breaks for private firms. However, formal registration makes it easier to access bank loans, government tenders, and investment opportunities.

Can I use Deel as a private firm to get paid by international clients?
Yes. Deel enables private firms and freelancers in Nepal to receive payments in multiple currencies with transparent exchange rates.

Does Deel generate compliant invoices for private firms?
Yes. Deel generates invoices that meet legal and tax requirements in Nepal, saving you administrative time.

Can Deel help me with taxes as a sole proprietor in Nepal?
Yes. Deel provides downloadable payment records and tax reports, which you can use when filing with the IRD. It simplifies compliance but does not replace your accountant.

Does Deel offer contracts for freelancers and private firms?
Yes. Deel offers locally compliant contract templates, ensuring you can work with clients securely.

Can I access benefits through Deel as a private firm?
Yes. Deel provides access to optional perks such as health insurance and retirement savings plans, giving contractors protections usually reserved for employees.