Understanding PAN vs VAT in Nepal: A Simple Guide for New Business Owners (2026)

If you are starting a business in Nepal, freelancing, running an online store, or opening a shop, one of the first and most confusing questions you’ll face is:

Do I need PAN or VAT? Or both?

Many new business owners in Nepal misunderstand the difference between PAN (Permanent Account Number) and VAT (Value Added Tax). Choosing the wrong one—or delaying registration—can lead to penalties, compliance issues, and lost business opportunities.

This simple, Nepal-focused guide explains PAN vs VAT, who needs what, registration rules, real-world examples, and how to make the right decision for your business in 2026.

What Is PAN in Nepal?

PAN (Permanent Account Number) Explained

PAN is a tax identification number issued by Nepal’s Inland Revenue Department (IRD) to track income and taxes of individuals and businesses.

PAN is mandatory for:

• Businesses
• Freelancers
• Professionals
• Companies
• Partnerships
• NGOs (non-profit PAN)

Key Purpose of PAN

• Income tax filing
• Withholding tax tracking
• Opening bank accounts
• Issuing invoices
• Legal financial transactions

Important:
PAN does not allow you to charge VAT to customers.

What Is VAT in Nepal?

VAT (Value Added Tax) Explained

VAT is a consumption tax charged on goods and services at each stage of the supply chain.

In Nepal, the standard VAT rate is 13%.

VAT registration allows a business to:

• Charge VAT to customers
• Claim VAT credit on purchases
• Issue VAT invoices
• Deal with VAT-registered companies and institutions

PAN vs VAT – Core Differences Explained Simply

Feature PAN VAT

Issued By | Inland Revenue Department | Inland Revenue Department
Purpose | Income tax tracking | Consumption tax collection
Tax Rate | Income-based | 13% VAT
Mandatory For | Almost all businesses | Only eligible businesses
Invoice Type | Normal invoice | VAT invoice
Suitable For | Small businesses, freelancers | Larger or VAT-eligible businesses
VAT Credit | ❌ Not allowed | ✅ Allowed

Who Needs PAN in Nepal?

You must register for PAN if you are:

• A registered company (Private/Public)
• A sole proprietor
• A freelancer or consultant
• An online seller
• A shop owner
• A service provider (IT, marketing, design, etc.)

Examples

• Freelance graphic designer in Kathmandu
• Small clothing shop in Lalitpur
• Digital marketing agency in Pokhara

➡ All require PAN registration

Who Needs VAT in Nepal?

VAT registration is mandatory if:

1. Your Annual Turnover Exceeds the VAT Threshold

• Goods: Above NPR 50 lakh (approx.)
• Services: Above NPR 20 lakh (approx.)

(Thresholds may be revised—always verify annually)

2. You Are in a VAT-Mandatory Business

Some businesses must register for VAT regardless of turnover, such as:

• Import/export businesses
• Hotels and restaurants
• Travel and trekking agencies
• Manufacturing industries
• Electronics and automobile traders

PAN vs VAT – Real Business Scenarios in Nepal

Scenario 1: Freelancer / Consultant

• Web developer in Kathmandu
• Graphic designer working remotely

✅ PAN required
❌ VAT not required (unless threshold crossed)

Scenario 2: Small Retail Shop

• Grocery shop in Bhaktapur
• Clothing store in Pokhara

✅ PAN mandatory
 ➡ VAT only if turnover exceeds threshold

Scenario 3: IT Company or Agency

• Registered Pvt. Ltd. company

✅ PAN mandatory
 ➡ VAT recommended if dealing with corporate clients

Scenario 4: Online Store / Marketplace Seller

• Selling products nationwide

✅ PAN mandatory
 ➡ VAT required if revenue crosses threshold or importing goods

Can a Business Have Both PAN and VAT?

Yes.
 VAT registration is linked to PAN, not separate from it.

Once VAT is approved:

• Your PAN becomes VAT-enabled
• You must issue VAT invoices
• You must file VAT returns regularly

PAN Registration Process in Nepal (Simple Overview)

Documents Required

• Citizenship certificate
• Company registration certificate (if company)
• Rental agreement or office address
• Business details

Timeline

• Same day or 1–2 working days

Cost

• Free (government service)

VAT Registration Process in Nepal (Simple Overview)

Additional Requirements

• Business address verification
• Bank account
• Business nature assessment
• Previous financial data (if applicable)

Timeline

• 3–7 working days (varies by IRD office)

Ongoing Obligations

• Monthly VAT returns
• Proper VAT invoices
• Accurate bookkeeping

Common Mistakes New Business Owners Make

• Registering VAT too early and facing compliance burden
• Avoiding VAT even when legally required
• Issuing incorrect invoices
• Mixing personal and business income
• Not filing returns on time

Penalties apply even if no income is earned.

PAN vs VAT – Which One Is Right for You? (Quick Decision Guide)

Business Type PAN VAT

Freelancer | ✅ Yes | ❌ No
Small Shop | ✅ Yes | Optional
Pvt. Ltd. Company | ✅ Yes | Often Yes
Online Store | ✅ Yes | Depends
Import/Export | ✅ Yes | ✅ Mandatory

Why PAN & VAT Compliance Matters for Growth

Proper tax registration:

• Builds business credibility
• Enables corporate contracts
• Helps with bank loans & funding
• Avoids fines and legal issues
• Makes your business scalable

Many large companies will not work with non-VAT businesses.

FAQ – PAN vs VAT in Nepal

Q: Can I start business without PAN?
No. PAN is legally mandatory.

Q: Is VAT bad for small businesses?
Not bad—but compliance-heavy. Register only when required.

Q: Can I cancel VAT later?
Yes, if turnover drops and criteria are met.

Q: Do online sellers need VAT?
Depends on turnover and business model.

Q: Is PAN required for bank accounts?
Yes, for business accounts.