Tax Clearance Certificate Process in Nepal

A Tax Clearance Certificate (Kar Chukta Pramanpatra) is one of the most frequently requested compliance documents in Nepal. Companies, branch offices, sole proprietorships and individual taxpayers all require it at some stage, and foreign investors cannot repatriate funds, sell shares or close a company without it. This guide, prepared by CompanyNP, explains the legal basis, the eligibility conditions, the documentation and the exact procedure, relying on the Income Tax Act 2058, the Companies Act 2063, the Foreign Investment and Technology Transfer Act 2075 (FITTA), Nepal Rastra Bank regulations and the published guidance of the Inland Revenue Department.

What Is a Tax Clearance Certificate in Nepal and Which Laws Govern It?

A Tax Clearance Certificate is an official document issued by the Inland Revenue Department (IRD) through the concerned Inland Revenue Office (IRO), Taxpayer Service Office or Large Taxpayers Office. It certifies that, for a specified income year, the taxpayer has:

• filed the income tax return required under Section 96 of the Income Tax Act 2058;
• paid all assessed income tax, instalment tax, withholding tax (TDS), value added tax, excise duty and other dues administered by the IRD;
• no outstanding interest, fees or penalties recorded against its Permanent Account Number (PAN).

The Statutory Framework

The certificate does not stand alone in a single section of one statute. Instead, it arises from the interaction of several laws and regulations.

Income Tax Act 2058 (2002)

The Act creates the primary obligations. Section 78 requires every person carrying on a business, employment or investment to obtain a PAN. Section 94 requires instalment tax payments in Poush, Chaitra and Ashadh. Section 95Ka governs advance tax, including advance tax on the disposal of shares. Section 96 requires an income return within three months of the end of the income year, and Section 98 allows the Inland Revenue Office to extend that deadline by up to three months. Sections 117 and 119 impose fees and interest for late filing and late payment. A Tax Clearance Certificate is issued only when these obligations are satisfied. The full text is available at the Nepal Law Commission portal, https://www.lawcommission.gov.np.

Companies Act 2063 (2006)

Section 108 requires companies to prepare annual financial statements, and Section 111 requires the accounts to be audited by an auditor licensed under the Nepal Chartered Accountants Act. Section 76 requires an annual general meeting within six months of the close of the financial year, and Section 80 requires an annual return to be filed with the Office of the Company Registrar (https://www.ocr.gov.np). Because the Inland Revenue Office relies on audited statements, company law compliance and tax compliance are practically inseparable. When a company applies for deregistration, the Company Registrar requires evidence of tax clearance.

FITTA 2075 (2019) and Nepal Rastra Bank Rules

Section 20 of FITTA permits a foreign investor to repatriate dividends, sale proceeds of shares, royalties, lease rentals and technology transfer fees in convertible foreign currency, subject to the approval of the approving authority and to proof that all applicable taxes in Nepal have been paid. The Department of Industry (https://www.doind.gov.np) and the Investment Board Nepal act as approving authorities depending on the size of the investment. Nepal Rastra Bank, under the Foreign Investment and Foreign Loan Management Bylaws, grants the final foreign exchange approval and expressly asks for a Tax Clearance Certificate and audited financial statements.

Who Needs a Tax Clearance Certificate and When?

Categories of Applicants

• Private limited and public limited companies registered under the Companies Act 2063.
• Branch offices and liaison offices of foreign companies registered under Section 154 of the Companies Act.
• Foreign direct investment companies approved under FITTA 2075.
• Sole proprietorships and partnership firms registered with the Department of Industry, Department of Commerce or local bodies.
• Non-governmental organisations, cooperatives and other tax-exempt entities that still file returns.
• Natural persons who have taxable income, including foreign nationals employed in Nepal.

Situations Where the Certificate Is Mandatory

Foreign Investment and Exit Transactions

• Repatriation of dividends, share sale proceeds, royalty or technology transfer fees under Section 20 of FITTA.
• Transfer of shares from a foreign investor to a Nepali or another foreign party, where capital gains tax must be settled first.
• Winding up, liquidation or deregistration of a company under Chapter 12 of the Companies Act 2063 or the Insolvency Act 2063.
• Closure of a branch office and remittance of the closing balance.

Domestic Commercial and Administrative Needs

• Participation in public procurement and tenders under the Public Procurement Act 2063, where bidders must submit a valid Tax Clearance Certificate for the latest income year.
• Renewal of certain business licences, including those issued by the Department of Industry, Nepal Tourism Board and Department of Commerce.
• Bank loan applications, credit facility renewals and bank guarantee arrangements.
• Applications for business visas and work permit-related processes for foreign nationals, where the employing entity must show tax compliance.
• Registration of property transfers and settlement of capital gains at land revenue offices in specified cases.

How Is a Tax Clearance Certificate Obtained? Step-by-Step Process

The process is now largely digital through the IRD taxpayer portal at https://ird.gov.np, with a final verification step at the concerned Inland Revenue Office.

Step 1: Confirm the Income Year and Registration Status

Nepal’s income year runs from the first day of Shrawan to the last day of Ashadh, roughly mid-July to mid-July. Before applying, confirm that the PAN is active, that the taxpayer is correctly registered for VAT or excise if applicable, and that the registration details held by the Inland Revenue Office match those held by the Office of the Company Registrar. Any mismatch in address, business activity or shareholding must be corrected first.

Step 2: Complete the Statutory Audit

Under Section 111 of the Companies Act 2063, the annual financial statements must be audited by a licensed auditor appointed by the annual general meeting. The audit report, balance sheet, profit and loss account and cash flow statement form the factual basis for the income tax return. Sole proprietors below the prescribed turnover thresholds may file under the presumptive or turnover-based systems recognised in the Income Tax Act, in which case a full audit may not be required.

Step 3: File All Periodic Returns

Before an annual return can be processed, all periodic filings must be up to date:

• Monthly or four-monthly VAT returns under the Value Added Tax Act 2052.
• Monthly TDS returns and deposit of withheld amounts under Chapter 17 of the Income Tax Act 2058.
• Excise returns, where the taxpayer holds an excise licence.
• Instalment tax payments in Poush, Chaitra and Ashadh under Section 94.

Step 4: Submit the Annual Income Tax Return

The income return, commonly filed as Form D-03 for entities and D-01 or D-02 for small and individual taxpayers, must be submitted within three months of the end of the income year, that is, by the end of Ashoj. An extension of up to three months, generally to the end of Poush, may be granted by the Inland Revenue Office on written application under Section 98.

Step 5: Settle All Outstanding Liabilities

Any remaining self-assessed tax, together with interest under Sections 118 and 119 and fees under Section 117, must be deposited through a bank or the electronic payment channels linked to the IRD portal. A certificate will not be issued while any amount remains payable, including amounts under administrative review or appeal unless the required deposit has been made.

Step 6: Apply Online for the Certificate

Log in to the taxpayer portal, select the tax clearance application module, choose the relevant income year and submit the request. The system generates a submission number that must be recorded.

Step 7: Verification by the Tax Officer

The concerned tax officer reviews the filing history, payment records, TDS reconciliation and any pending assessment under Sections 99 to 101. Supporting documents may be requested in physical or scanned form.

Step 8: Collection of the Certificate

Once verification is complete, the certificate is printed at the Inland Revenue Office bearing the taxpayer name, PAN, income year and the officer’s signature and seal. Verified electronic copies are also retrievable from the portal and are accepted by most agencies, including Nepal Rastra Bank.

Indicative Timeline

• Compliant taxpayers with no arrears: generally one to five working days.
• Taxpayers with pending reconciliation or assessment: two to six weeks.
• No government fee is charged for the certificate itself; costs arise only from unpaid tax, interest, fees and professional charges.

What Should Foreign Investors Know About Tax Clearance, Repatriation and Exit?

Repatriation Sequence Under FITTA and NRB Rules

A foreign investor seeking to remit funds abroad typically follows this order:

1. Obtain the Tax Clearance Certificate from the Inland Revenue Office for the relevant income year.
2. Apply to the Department of Industry or the Investment Board Nepal for repatriation recommendation under Section 20 of FITTA 2075.
3. Apply to Nepal Rastra Bank, Foreign Exchange Management Department, for foreign exchange approval, attaching the certificate, audited accounts, board and shareholder resolutions, evidence of the original inward remittance and the share transfer or dividend documents. Guidance and forms are published at https://www.nrb.org.np.
4. Remit through the commercial bank named in the approval.

Taxes That Must Be Settled Before Exit

Dividend Tax

Dividends distributed by a resident company are subject to final withholding tax at five percent under Section 88 of the Income Tax Act 2058. The company must deposit the withheld amount and reflect it in its TDS return before clearance is granted.

Capital Gains on Share Transfer

Gains on the disposal of shares in a resident entity attract advance tax under Section 95Ka, with different rates for listed and unlisted shares and for natural persons and entities, as fixed by the Finance Act of the relevant year. The Office of the Company Registrar will not record a share transfer involving a foreign investor without proof of tax payment and departmental approval.

Branch Profit Repatriation

Under Section 68 of the Income Tax Act 2058, income of a foreign permanent establishment that is repatriated is subject to tax at five percent, in addition to the normal corporate rate applicable to the branch.

Common Reasons Applications Are Rejected

• Unfiled or incorrectly filed VAT or TDS returns for earlier periods.
• Mismatch between audited financial statements and the figures declared in the income return.
• Failure to hold the annual general meeting or to file the annual return with the Company Registrar.
• Unpaid instalment tax attracting interest under Section 118.
• Pending amended assessment proceedings initiated by the tax officer.

Practical Compliance Advice

• Maintain a compliance calendar aligned with the Nepali fiscal year.
• Reconcile TDS deposits with the electronic TDS system every month.
• Apply for clearance well before any planned share transfer, tender submission or remittance.
• Retain certificates for all income years, since agencies often request the last three years together.

Frequently Asked Questions