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Nepal – Employer of Record

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Country Introduction – Nepal

Capital – Kathmandu
Currency – Nepalese Rupee (NPR)
GDP – 36.29 billion USD (2021)
People/Nationality – Nepali
Language – Nepali
Major Religion – Hinduism
Population – 31,105,435 as of (February 9, 2024)

Nepal’s economy is primarily agrarian, with agriculture serving as the backbone of its economy and employing a large portion of the population. It is renowned for its stunning natural beauty and cultural heritage, including the majestic Himalayas and Mount Everest. Tourism plays a vital role in the economy, contributing significantly to foreign exchange earnings and employment opportunities.

Nepal has immense potential for hydropower generation due to its numerous rivers and rugged terrain. Industries such as textiles, cement, and handicrafts contribute to the economy. Nepal’s trade is heavily influenced by its geographical position between India and China. The country relies on imports, especially for petroleum products and industrial goods. Exports include carpets, garments, handicrafts, and medicinal herbs.

Nepal is a melting pot of diverse cultures, languages, and traditions. The country is home to various ethnic groups, each with its own distinct customs, festivals, and practices. Living in Nepal provides an opportunity to immerse yourself in this vibrant cultural tapestry. From the majestic peaks of the Himalayas to lush green valleys and serene lakes, Nepal boasts breathtaking natural scenery.

Nepal is a deeply religious country, with Hinduism and Buddhism playing significant roles in daily life. Temples, monasteries, and religious festivals are integral parts of Nepali culture, contributing to a spiritual atmosphere that permeates daily life. Overall, living in Nepal can be a rewarding experience for those who appreciate cultural diversity, natural beauty, and a Nepali society is known for its warmth, hospitality, and sense of community.

Contract of Employment

Written contract is not mandatory by law. However, it is advisable for employers to provide written contracts to their employees. Written contracts help to clarify terms and conditions of employment, including job responsibilities, salary, working hours, benefits, and termination procedures.

Permanent Employment Contract: This type of contract offers long-term employment without a specified end date, providing employees with job security and entitlements to benefits and labor law protections.

Fixed-Term Employment Contract: These contracts establish a specific period of employment, after which they end unless renewed. They are commonly used for temporary or project-based work with limited duration.

Probation Period

Maximum, 6 months


The notice period is typically determined based on the length of service of the employee:

For employees with less than one year of service, the notice period is typically 15 days.

For employees with more than one year but less than three years, the notice period is typically one month.

For employees with more than three years of service, the notice period is typically two months.

However, it’s important to note that the specific notice periods can vary based on the terms outlined in the employment contract, collective bargaining agreements (if applicable), and other relevant factors.

Working Hours

48 hours per week.


According to the Labor Act, employees are entitled to overtime compensation for work done beyond the standard working hours. The weekly overtime limit has been raised from 20 hours to 24 hours. Overtime compensation is set at 1.5 times the standard pay rate.

13th Month Pay

In Nepal, the concept of a “13th-month pay” or a year-end bonus is not a statutory requirement under the labor laws. However, some companies or employers may choose to provide a bonus or additional compensation to employees at the end of the year as a gesture of goodwill or as part of their company policy.

Annual Leave

The duration of annual leave entitlement varies based on the length of service:

– Employees with less than 5 years of service are entitled to 15 days of annual leave per year.
– Employees with 5 or more years of service are entitled to 30 days of annual leave per year.

Sick leave

Employees are granted a maximum of 12 days of paid sick leave annually. Those employed for less than a year receive sick leave in proportion to their tenure. A medical certificate is necessary for sick leave exceeding three days.

Maternity and Paternity Leave

Female employees are entitled to a total of 52 weeks (or 13 months) of maternity leave. This period includes both pre-delivery and post-delivery leave.

Male employees are entitled to up to 15 days of paid paternity care leave.


The standard VAT rate in Nepal is 13%. However, certain goods and services may be subject to different rates, exemptions, or zero-rating based on government policies and regulations.

Income Tax

For Residents:

Particulars Rs. Tax Rate
Upto 4,00,000 1%
Next 1,00,000 10%
Next 2,00,000 20%
Next 13,00,000 30%
Balance Exceeding 20,00,000 36%
Assessed as couple    
Upto 4,50,000 1%
Next 1,00,000 10%
Next 2,00,000 20%
Next 12,50,000 30%
Balance Exceeding 20,00,000 36%

For Non-Residents:

Nature of Transaction Tax Rates
Income earned from normal transactions 25% flat rate
Income earned providing shipping, air or telecom services, postage, satellite and optical fiber project 5%
Income earned providing shipping, air or telecom services through the territory of Nepal 2%
Repatriation of profit by Foreign Permanent Establishment 5%

Employer / Employee Contributions

In Nepal, both employers and employees are obligated to contribute to various social security schemes and funds:

Employees’ Provident Fund (EPF) and Citizens Investment Trust (CIT) require contributions from both employers and employees, typically at a rate of 10% of the employee’s basic salary.

The Social Security Fund (SSF) covers health, accident, maternity, and old age benefits, with contributions from both employers and employees, varying based on the benefits provided.

Employers are mandated to contribute to a gratuity fund, providing lump-sum payments to employees upon retirement, resignation, or termination.

Employers may have additional contribution requirements, such as to the Workers Welfare Fund, as per labor laws or government regulations.

 Public Holidays

In Nepal, public holidays vary based on religious, cultural, and national observances. Some of the major public holidays observed in Nepal include:

Mid-April – Nepali New Year
April or May – Buddha Jayanti
September or October – Dashain
October or November – Tihar (Deepawali)
September 20 – Constitution Day
May 28 – Republic Day
December 25 – Christmas
Eid al-Fitr and Eid al-Adha – date varies

Severance Pay

In Nepal, severance pay is provided to employees upon termination of employment under certain conditions. Governed by the Labor Act, key points include:

Eligibility: Employees terminated for reasons other than serious misconduct are typically entitled to severance pay.

Calculation: Severance pay is based on the length of service, generally equivalent to 15 days’ wages per completed year of service.

Payment: Severance pay is disbursed as a lump sum upon termination, with employers responsible for timely payment.

Special Circumstances: Certain situations like business restructuring may entail additional severance pay or benefits as per the Labor Act.

Compliance: Employers must adhere to severance pay regulations to avoid legal consequences.

Work and Residence Permits (Expatriates)

In Nepal, expatriates intending to work and reside in the country typically require both a work permit and a residence permit. Here are the key points regarding work and residence permits for expatriates in Nepal:

Work Permit: Expatriates must obtain a work permit from the Department of Labor and Employment Promotion to legally work in Nepal. The employer is usually responsible for initiating the work permit application process on behalf of the expatriate employee. The work permit is issued based on the specific job offer and is typically valid for one year, renewable upon application.

Residence Permit: In addition to the work permit, expatriates also need a residence permit to legally reside in Nepal. The Department of Immigration issues residence permits. Expatriates must apply for a residence permit within 30 days of entering Nepal or receiving the work permit. The residence permit is usually linked to the validity of the work permit and may be renewed accordingly.

Application Process: The application process for work and residence permits involves submitting various documents, including a valid passport, visa, work contract, health check-up report, and other relevant documents as required by the authorities. The employer may also need to provide supporting documents related to the job offer and business operations.

Renewal: Both work and residence permits must be renewed before their expiration dates to maintain legal status in Nepal. Renewal applications should be submitted well in advance of the expiry date to avoid any disruptions in employment or residency status.

Compliance and Regulations: Employers and expatriates must comply with the relevant laws and regulations governing work and residence permits in Nepal. Failure to adhere to the requirements may result in penalties, fines, or deportation.

Special Categories: Certain categories of expatriates, such as volunteers, researchers, or individuals working for diplomatic missions or international organisations, may have different requirements or procedures for obtaining work and residence permits.

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