Construction Company Registration in Nepal (Updated)

Introduction

Construction is one of Nepal’s fastest-growing sectors, driven by infrastructure development, urban expansion, and public-private projects. Every entity engaged in construction work must first register as a company and obtain a valid construction business license. This legal process is regulated mainly by the Companies Act, 2063 (2006) for incorporation and the Construction Business Act, 2055 (1999) for licensing. A registered and licensed construction company can legally participate in government and private tenders, enter contracts, and undertake engineering and civil works. This guide outlines all legal requirements, processes, and compliance obligations for registering a construction company in Nepal in 2025. Construction Company Registration in Nepal (Updated).

Legal Framework Governing Construction Companies

The registration and regulation of construction companies in Nepal rely on several statutes:

Companies Act, 2063 (2006): Governs incorporation, share capital, management, and reporting obligations.
Construction Business Act, 2055 (1999): Defines licensing procedures, classification (A–D), renewal, and penalties.
Construction Business Rules, 2056 (2000): Details forms, fees, technical manpower, and documentation.
Public Procurement Act, 2063 (2006): Regulates participation of licensed contractors in government projects.
Local Government Operation Act, 2074 (2017): Authorizes local bodies to issue, monitor, and renew certain construction licenses.
Labour Act, 2074 (2017) and Occupational Safety Rules: Impose worker safety and welfare obligations.
Income Tax Act, 2058 (2002): Covers tax registration, PAN/VAT, and financial reporting.

Together these laws establish a structured framework for company formation, professional licensing, and ongoing compliance in Nepal’s construction industry.

Types of Construction Business Entities

In Nepal, a construction company can be formed under one of several legal structures depending on ownership and scale:

Private Limited Company – Most common form for small and medium contractors. Minimum of one shareholder and limited liability.
Public Limited Company – Suitable for large infrastructure developers planning to raise public capital. Requires at least seven shareholders.
Partnership Firm – Used for smaller family or group-based operations under the Partnership Act, 2020 (1963).
Joint Venture (JV) – Collaboration between Nepali and foreign contractors for major government or donor-funded projects.
Foreign Company Branch – Permitted under the Foreign Investment and Technology Transfer Act, 2075 (2019) after approval from the Department of Industry.

Choosing the correct entity type affects tax liability, ownership flexibility, and license eligibility.

Classification of Construction Licenses (A, B, C, D)

The Construction Business Act, 2055 divides contractors into four categories according to capital, experience, and project capacity:

Class A: Authorised for national and international projects with capital of about NPR 20 million or above. Requires engineers, large equipment, and experience in major works.
Class B: Handles medium-scale national projects; minimum paid-up capital NPR 10–20 million.
Class C: Works within a specific region or province; paid-up capital NPR 5–10 million.
Class D: Entry-level contractors for local and small projects; minimum capital around NPR 0.3–5 million.

Each class determines bidding limits, qualification requirements, and renewal fees. Proper classification ensures projects are matched to a firm’s financial and technical capability.

Eligibility Criteria

To register and obtain a construction business license, an applicant must satisfy the following baseline conditions:

Be a Nepali citizen or a legally registered company.
Possess a valid Company Registration Certificate from the Office of the Company Registrar (OCR).
Have a registered business address within Nepal and local ward approval.
Hold tax registration (PAN) and VAT certificate from the Inland Revenue Department (IRD).
Employ qualified technical personnel (engineer, sub-engineer, overseer) appropriate for the license class.
Own or lease essential construction equipment with VAT-billed proof.
Maintain sufficient paid-up capital as defined for each class.
Submit proof of insurance for workers and machinery.

Documents Required

Applicants must submit a comprehensive file containing:

Application form for license or company registration.
Memorandum and Articles of Association (MoA & AoA).
Citizenship copies of shareholders and directors.
Recent passport-size photographs of directors.
Company registration certificate from OCR.
PAN and VAT registration certificates.
Tax clearance or updated tax status.
Educational certificates of engineers and overseers.
List and evidence of equipment ownership or lease with VAT bills.
Bank statement showing paid-up capital.
Insurance certificates for employees and machinery.
Ward or municipal recommendation letter verifying business address.

Complete documentation is essential to avoid delay or rejection.

Step-by-Step Registration Process

1 – Name Reservation
Submit a proposed company name to the OCR online portal to ensure uniqueness.

2 – Prepare MoA & AoA
Draft documents specifying objectives, share capital, and internal rules.

3 – File Application at OCR
Attach required documents and pay registration fee according to capital size.

4 – Obtain Company Certificate
Once verified, OCR issues the Company Registration Certificate.

5 – Register for PAN & VAT
Apply to the IRD for permanent tax identification numbers.

6 – Local Body Registration
Submit business details to the local ward or municipality for address approval.

7 – Apply for Construction License
File an application with the Department of Urban Development and Building Construction (DUDBC) or respective local authority with all technical, financial, and equipment details.

8 – Inspection and Verification
Officials verify equipment, manpower, and capital records.

9 – License Issuance
Upon approval, a Construction Business License Certificate is issued authorising legal operation.

The full cycle typically takes two to three weeks if documentation is accurate.

Minimum Capital Requirements

Capital thresholds reflect a company’s financial stability:

License Class	Minimum Paid-Up Capital (NPR)	Scope of Work
A	20 million +	National / International projects
B	10–20 million	Medium national projects
C	5–10 million	Regional projects
D	0.3–5 million	Local / small projects

Capital verification is mandatory through a bank certificate or audit report, and the figure must match the company’s MoA.

Technical Manpower Requirement

Technical human resources must be permanently employed or under contract:

Class A: At least one civil engineer with bachelor’s degree and supporting sub-engineers.
Class B: One engineer and one overseer.
Class C: One sub-engineer or overseer with diploma.
Class D: Minimum one certified sub-engineer or overseer.

Credentials must be certified and registered with the Nepal Engineering Council. This ensures adherence to professional standards and quality in construction works.

Equipment Requirement

The Construction Business Rules, 2056 specify minimum machinery for license approval:

Concrete mixer machine.
Vibrator and water pump.
Leveling machine, total station or survey instrument.
Generator or compactor.
Transport vehicle or pickup.

Each equipment item must be supported by VAT bill or ownership proof and insured. Leased machinery is accepted if the lease contract is notarised.

Application Fees and Processing Timeline

Company registration fee: Ranges from NPR 1,000 to 15,000 depending on authorised capital.
PAN/VAT registration: Free of charge at IRD.
Construction license fee:
- Class A – NPR 20,000
- Class B – NPR 10,000
- Class C – NPR 5,000
- Class D – NPR 3,000
Renewal fee: Payable annually or bi-annually depending on class.

Average processing time:

Company registration – 3 to 5 working days.
License issuance – 7 to 15 working days after submission.

Post-Registration Compliance

After receiving the license, a construction company must:

File annual returns and audited financial statements with OCR.
Submit monthly or quarterly VAT returns and yearly income tax filings at IRD.
Renew license within the deadline specified by DUDBC or local body.
Maintain insurance for machinery and workers.
Comply with labour laws regarding wages, safety, and working hours.
Keep updated lists of technical staff and equipment.
Follow accounting standards and retain records for inspection.

Failure to maintain compliance may lead to suspension or cancellation of license.

Renewal and Upgrading of License

Licenses must be renewed under Rule 14 of Construction Business Rules 2056.
Requirements for renewal include:

Application for renewal before expiry date.
Updated tax clearance and insurance documents.
Payment of renewal fee.
Updated list of technical staff and machinery.

To upgrade from one class to another, a company must:

Increase paid-up capital as per new class.
Demonstrate project experience and performance.
Employ additional qualified personnel.
Maintain additional machinery capacity.

Renewal ensures continuity of business rights, while upgrading allows growth into larger projects.

Common Issues and Practical Solutions

1. Missing or inconsistent documents:
Prepare a checklist before filing and verify every certificate’s validity.

2. Insufficient technical manpower:
Hire or subcontract qualified engineers registered with the Engineering Council.

3. Equipment ownership gaps:
Lease machinery through notarised contracts and collect VAT bills.

4. Delay in license approval:
Ensure completeness of documents and follow up with the concerned office.

5. Lapsed renewal:
Renew before expiry; late renewals attract penalties and possible suspension.

A proactive compliance system inside the company helps avoid procedural setbacks.

Benefits of Proper Registration

Legal authorisation to perform construction and civil works.
Eligibility to bid for government and donor-funded projects.
Enhanced corporate reputation and client confidence.
Access to institutional finance and insurance.
Structured tax and accounting framework.
Qualification for license upgrade and business expansion.

A legally registered and licensed company gains long-term sustainability and credibility in Nepal’s competitive construction market.

Role of Legal Advisors

Engaging a professional law firm such as Medha Law & Partners ensures the process is precise and compliant. Legal experts assist in:

Drafting and reviewing MoA & AoA tailored to construction activities.
Advising on capital structure and shareholding.
Coordinating with OCR, IRD, municipalities, and DUDBC.
Preparing technical and financial documentation.
Handling renewal, upgrade, and compliance audits.
Representing the company in disputes or regulatory inquiries.

Professional legal guidance reduces administrative errors and speeds up the approval timeline.

Accounting and Tax Considerations

Once registered, the company becomes a taxpayer under the Income Tax Act 2058:

Corporate income tax rate – 25 percent of net profit.
VAT – 13 percent on goods and services supplied.
Withholding obligations for subcontract payments.
Annual audit requirement under the Companies Act 2063.

Maintaining transparent accounts and timely submissions helps sustain credibility with both regulators and clients.

Labour and Safety Compliance

Construction companies must protect their workforce under the Labour Act 2074 and Occupational Health and Safety Regulations.
They are required to:

Provide employment contracts and insurance coverage.
Maintain safe work environments following Nepal Building Codes.
Ensure use of protective gear and safety supervision.
Register workers with the Social Security Fund.

Compliance with safety and labour standards prevents accidents and legal disputes.

Environmental and Local Requirements

Under the Environment Protection Act 2076, larger projects may require an Initial Environmental Examination (IEE) or Environmental Impact Assessment (EIA).
Local municipalities also impose by-laws concerning waste management, material storage, and noise control.
Construction companies must obtain building permits and follow zoning regulations applicable in their operation area.

Penalties for Non-Compliance

The Construction Business Act 2055 authorises authorities to impose:

Fines for operating without a license.
Suspension or cancellation for false information.
Blacklisting under the Public Procurement Rules 2064 for repeated violations.
Penalties for employing unqualified technical staff.

Maintaining proper documentation and renewal schedules prevents exposure to such penalties.

Growth Opportunities for Licensed Construction Companies

Registered contractors can participate in diverse sectors:

Road, bridge, and hydropower construction.
Housing and real-estate development.
Government infrastructure and municipal projects.
Public-private partnership ventures.
International aid and donor-funded infrastructure works.

A proper license enhances eligibility for national tenders and international collaborations.

Digital Reforms and Online Registration

Nepal’s OCR and IRD portals now allow online application and submission of forms. DUDBC is gradually digitising license records for transparency.
Electronic filing reduces processing time and paper documentation. Applicants can track progress and receive digital certificates through official portals, increasing efficiency in the registration process.

Frequently Asked Questions

Q1. How long does construction company registration take in Nepal?
Company incorporation takes about 3 to 5 working days, and obtaining the construction license usually takes 7 to 15 days after all documents are verified.

Q2. What are the main governing laws?
The process is governed by the Companies Act 2063, Construction Business Act 2055, Construction Business Rules 2056, and local government by-laws.

Q3. Can a foreign company operate construction work in Nepal?
Yes. Foreign companies may register a branch or form a joint venture under the Foreign Investment and Technology Transfer Act 2075 after obtaining approval from the Department of Industry.

Q4. What happens if a license is not renewed on time?
The company becomes ineligible to bid or operate until renewal is completed, and penalties may apply for late submission.

Q5. Is VAT registration required?
Yes. Construction companies exceeding the VAT threshold must obtain VAT registration and issue VAT invoices for every transaction.

Q6. What qualifications are required for technical personnel?
At least one engineer or sub-engineer with a valid degree or diploma registered at the Engineering Council is mandatory depending on license class.

Q7. Can a company upgrade its construction license?
Yes. By increasing capital, equipment, and technical staff, a company can apply to move from Class D to C or higher after meeting performance and experience conditions.

Conclusion

Construction company registration in Nepal integrates legal incorporation, licensing, taxation, and compliance under several national laws. Following the defined procedures and maintaining updated records enable companies to operate lawfully and participate in national development projects. Proper legal guidance from Medha Law & Partners, a leading corporate law firm in Nepal, ensures that every stage—from company formation to license renewal is efficient, compliant, and aligned with the nation’s legal framework.

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