Compliance guide
PAN vs VAT registration in Nepal: which one your business needs
PAN is the tax identity almost every business in Nepal needs. VAT registration sits on top once turnover or trade requires it. What each obliges you to do, and what changes.
By Sulachhan Shiwakoti · Chief Executive Officer, Kuver Books · Reviewed by Dev Raj Upreti , Chartered Accountant · Published
In short
PAN is the permanent account number every business in Nepal needs to trade and file income tax. VAT registration is an additional registration that applies once taxable turnover crosses the threshold, or immediately for certain trades. PAN alone means no VAT on your bills and no input credit. VAT means both, plus monthly returns.
On this page
New shop owners in Nepal usually ask about PAN vs VAT registration as if they have to pick one. They do not. Almost every business needs PAN first, and VAT registration is added on top of it.
What is PAN registration?
PAN stands for permanent account number. It is the tax identity the Inland Revenue Department issues to a business or an individual. You need it for almost every formal business activity: issuing bills, opening a current account in the business name, bidding for work, filing income tax, and having tax withheld correctly when somebody pays you.
If you sell anything as a business, you need it. There is no real turnover level below which a business can trade formally without one.
PAN registration requires you to keep records and file income tax on your income. It does not make you collect VAT. A PAN-only business issues bills without VAT, charges no tax on its sales, and cannot claim back the VAT it pays on its own purchases. That last point is the hidden cost of staying outside VAT. The VAT you pay on purchases (input VAT) simply becomes part of your costs.
What is VAT registration?
VAT registration is a separate registration under the Value Added Tax Act 2052, and there are three ways into it.
The first is turnover. Once your annual taxable turnover crosses the threshold, you must register. For goods the threshold is NPR 50 lakh annual turnover for goods. For services, or a mixed supply of goods and services, it is NPR 30 lakh annual turnover for services or mixed supply. You have 30 days from becoming liable to apply.
The second is your trade or location. Certain classes of business must be registered from the first day, whatever their turnover. The classes are set out in the VAT Rules and in Department notices. They have changed over the years, so check your own trade with the IRD or your accountant.
The third is choice. You may register voluntarily while you are below the threshold.
We cover the mechanics, documents and penalties in VAT registration in Nepal.
Side by side
| Topic | PAN only | VAT registered |
|---|---|---|
| Who needs it | Almost every business | Businesses over the threshold, specified trades, or by choice |
| Tax on your sales | None charged | VAT charged on taxable sales at 13% VAT |
| Input tax on purchases | Absorbed as cost | Claimable against output VAT with a valid tax invoice |
| Your document | A bill carrying your name, address and permanent account number | A tax invoice showing the VAT separately, or an abbreviated tax invoice for retail sales |
| Returns | Income tax filing | Income tax filing plus a VAT return, usually monthly by the 25th of the following Nepali month |
| Registers | Ordinary books of account | Sales and purchase registers that tie to your invoices, plus the counterparty schedule |
| Certificate on display | Permanent account number certificate | Both certificates at the place of business |
Should you register voluntarily?
Two numbers decide it, and neither of them is your turnover.
The first is the share of your customers who are registered. A registered buyer claims back the VAT you charge, so your price does not really rise for them, and they prefer your tax invoice. If most of your sales are to other businesses, registration makes selling to them easier. If most are to walk-in retail customers, registration adds a cost they pay in full.
The second is the input VAT in your own purchases. If you buy stock from registered wholesalers, you already pay VAT that you cannot get back. Registering turns that cost into a credit you can claim.
Weigh both against what registration asks of you: a monthly return (even in months with no trade), proper registers, and a strict numbered invoice sequence.
What changes the day your certificate is issued?
Five things start at once.
Your document changes from a simple bill to a tax invoice that shows the tax separately. For retail sales to consumers who will not claim the credit, you can use a shorter abbreviated tax invoice.
Input VAT becomes money you can claim, so supplier bills matter. If a purchase has no valid tax invoice from a registered supplier, you cannot claim its VAT.
A monthly return begins, due by the 25th of the following Nepali month along with the payment.
You keep registers, and you file the counterparty schedule (a list of the businesses you traded with) with the return. So registration numbers and registered trade names belong on your party records, not in the remarks field.
If you bill electronically, the Electronic Billing Procedure 2074 also applies: enlisted software, your own permission letter, sequential numbers within the fiscal year, reprints marked and counted, no deletion, and a server inside Nepal.
The software habit that makes this painless
One habit does most of the work. When you create a customer or supplier, put the permanent account number and the VAT registration number on the party record, and use the registered trade name. Your tax invoice, your input claim and the counterparty schedule you file all depend on that record being right.
In Kuver Books, customer and supplier records hold both numbers. Invoices apply VAT per line and print the tax separately in A4, A5 or thermal receipt widths. The VAT report hub produces the registers, the summary by Nepali month and the counterparty schedule, ready to export. If you register mid-year, you keep using the same records and do not start again. The invoicing page shows the documents, and you can check a figure in the VAT calculator before you issue anything.
Whether your trade or turnover requires registration today is a question for the IRD or your accountant. Ask it before the 30 days start running.
Sources
- Income Tax Act 2058 · Permanent account number registration and income tax obligations.
- Value Added Tax Act 2052 and VAT Rules 2053 · VAT registration, thresholds, compulsory registration by class of trade, and invoicing.
- Inland Revenue Department · Registration forms, the taxpayer portal and the office directory.
Chief Executive Officer, Kuver Books
Sulachhan Shiwakoti is the Chief Executive Officer of Kuver Books, which he owns and leads. The software is built by AITC International in Kathmandu. He writes about Nepali tax compliance and shop operations.
Kuver Books does this for you.
See how PAN and VAT details sit on a customer record in Kuver Books