Engaging a contractor in Nepal runs on the contractor’s PAN and a Nepali bank account. Foreign earnings from IT services come in through the banking system, and the bank collects the individual’s tax at that point: 5% advance tax in FY 2082/83, and final withholding in the 2083/84 budget. The legal risk is classification, because the Labour Act 2074 decides whether employment is regular by the nature of the work, whatever the contract says. This guide covers registration, tax, reclassification, the contract and the payer’s paperwork. The payment side is on our Nepal payouts page. It is general information, not legal advice.
Individual or private firm
Individual. Most freelancers work as individuals with a PAN from the Inland Revenue Department and invoice in their own name, receiving money in a personal bank account.
Private firm. A firm is registered by a Nepali citizen with the Department of Commerce and Supply Management, typically within 3 to 7 working days, and takes its own PAN. Foreign nationals cannot register one directly (deel.com, checked 2026-10-27). The choice affects the payout rail: Wise does not send NPR to businesses in Nepal (wise.com, checked 2026-10-27).
The contractor’s tax
At the bank. In FY 2082/83, banks collected 5% advance tax on foreign currency that a resident individual received for software or electronic services, consultancy or uploaded content provided abroad outside a business (SAR, checked 2026-10-27). For 2083/84 the ICAN summary lists foreign-currency receipts of natural persons among final withholding taxes and notes a 50% income tax exemption for IT service export income (ICAN, checked 2026-10-27). We did not confirm the current rate or who qualifies for the exemption. Ask the contractor’s bank and accountant.
Net versus gross. You pay the invoice gross and the bank takes the tax. A contractor who quotes a net figure needs a higher invoice when the rate changes; rates move with each budget.
Reclassification risk
The Labour Act 2074 requires an employment contract for any employment (s.11) and lets the employer engage a person in regular, work-based, time-based, casual or part-time employment (s.10(1)). Regular employment means any employment other than the work-based, time-based and casual types, and if it is disputed whether employment is regular, it is decided on the nature of the work, notwithstanding the contract (s.10(2)). An employment relationship is established even where the employer employs someone verbally (s.12) (faolex.fao.org, checked 2026-10-27).
A single client, fixed hours, a monthly fee and your instructions are the facts a claimant would use (contractor misclassification). If it is employment, the employer owes provident fund (10% of basic pay deducted and matched, s.52), gratuity (8.33%, s.53), a maximum 48-hour week (s.28) and may set six months’ probation (s.13) (faolex.fao.org, checked 2026-10-27). If the role is a job, hire through an EOR.
What to put in the contract
- A written services agreement scoped to deliverables, with the fee, currency, receiving account and who bears transfer charges.
- An invoice for every payment, with the contractor’s PAN, matched to the payment reference.
- IP assignment in writing. The Copyright Act 2059 vests the economic right in the payer where a work is prepared for remuneration (s.6), and requires a written agreement to transfer economic rights (s.24) (WIPO Lex, checked 2026-10-27). Do not rely on the default; assign explicitly and ask local counsel about formalities.
- Independence markers: the contractor’s own equipment and schedule, the right to work for other clients, and a fee tied to deliverables.
Taxes and paperwork
The contractor’s side. Hold a PAN, receive the money in a Nepali bank account, and ask the bank how it books and taxes the inflow.
The client’s side. Pay gross against the invoice. US payers collect a W-8BEN from an individual and file no 1099: pay for work done in Nepal is foreign-source income (irs.gov, checked 2026-10-27). Nepal is not on the IRS list of US income tax treaties (irs.gov, checked 2026-10-27).
How to pay contractors in Nepal
Wise delivers rupees to a personal Nepali bank account, up to NPR 1 million per transfer, usually the same working day (wise.com, checked 2026-10-27). A SWIFT wire is the alternative, and some platforms pay NPR, USD or EUR directly. PayPal is not an established route; in May 2026 the government said it planned to recognise payment gateways but gave no timeline (gadgetbytenepal.com, checked 2026-10-27). Rails, costs and platforms are compared on our Nepal payouts page.
Contractor of Record in Nepal
A Contractor of Record is the contracting party for the contractor and reduces reclassification risk; it does not remove it. In Nepal the work still has to look independent under the Labour Act’s nature-of-work test, and the COR also keeps contracts and invoices consistent across a team. Read the liability clause in the contract rather than the product name. Where the role is a job, with your hours, your tools and core work, hire through an EOR instead. Compare providers in our COR rating.