Dividend Distribution by Companies in Nepal

Dividend Must Come From Distributable Profit

Section 182 prohibits paying dividend from amounts other than profit set aside for dividend distribution.

Before dividend is distributed, the company must account for matters including:

• preliminary/pre-operating expenses where applicable;

• depreciation according to applicable accounting standards;

• amounts required by law to be paid/set aside from profit;

• accumulated losses from earlier financial years;

• statutory reserves where another law requires them.

Therefore:

Accounting profit for the current year ≠ automatically distributable profit.

Accumulated Losses Must Be Cleared

Suppose: Current-year profit:

NPR 10,000,000

Prior accumulated loss: NPR 7,000,000

Ignoring other adjustments: Potential amount remaining after past loss:

NPR 3,000,000

The company cannot distribute the full current-year NPR 10 million merely because this year's Profit or Loss Statement shows that figure.

AGM / Shareholder Approval

Ordinary final dividend is generally declared/approved through the General Meeting according to the Companies Act and company governance framework.

Section 182 also prohibits a company from making other cash or in-kind distributions to shareholders out of company funds merely as a substitute for a properly approved dividend.

45-Day Payment Rule

Once dividend has been validly declared, the company should generally distribute it within: 45 days from the dividend decision.

Exceptions include circumstances where:

• another law prohibits payment;

• entitlement to dividend is disputed;

• circumstances beyond the company's control prevent payment within the period.

Late Dividend

If the company fails to distribute the dividend within the statutory 45-day period, Section 182 requires payment with the prescribed interest, subject to the statutory framework.

Companies should therefore avoid declaring a dividend without ensuring:

• sufficient distributable profit;

• cash-flow availability;

• banking arrangements;

• tax withholding capacity.

Who Is Entitled to Dividend?

The person whose name appears in the shareholder register at the relevant time—or the lawful successor to that person—is entitled to the dividend according to Section 182.

This makes the shareholder register especially important around:

• share transfer;

• inheritance;

• record dates;

• dividend declaration.

Interim Dividend

Section 182 permits the Board to distribute interim dividend from the previous financial year's profit where:

• the Articles permit interim dividend; and

• the annual financial statements for that year have been audited and approved by the Board.

A company should therefore not casually distribute “advance dividend” from uncertain current-year profit.

Government-owned Company

A company wholly or partly owned by Government of Nepal requires prior Government approval before distributing dividend, and Government may issue necessary directions concerning the dividend.

Tax on Dividend

Dividend distribution also creates Income Tax obligations.

The company should separately determine:

• applicable withholding rate;

• shareholder type;

• resident/non-resident status;

• final/non-final character;

• treaty implications where relevant.

The Companies Act determines whether the dividend may legally be distributed.

The Income Tax Act determines how the dividend is taxed.

These are separate tests.

Bonus Shares

A bonus share is a capitalisation of qualifying profit/reserve and follows separate Companies Act procedures.

Do not treat: cash dividend

and bonus share issue as the same corporate action.

Bonus share issues require their own:

• shareholder approval;

• capital adjustment;

• Section 56/179 compliance;

• OCR/CAMIS record.

Unclaimed Dividend — Five Years

Under section 182(9), dividend still unclaimed five years after the general-meeting decision is transferred to the section 183 fund. Section 182(10) requires a national-daily notice giving at least one month to claim before the five-year period expires.

Section 182(11) requires the declared-dividend amount to be deposited in a separate account within 45 days after general-meeting approval and paid from that account. The company cannot use it for another purpose. Keep the bank reconciliation and unclaimed-dividend record with the resolution.

Dividend Register

Maintain:

• financial year;

• distributable profit;

• AGM/Board resolution;

• dividend per share;

• shareholder;

• shares eligible;

• gross dividend;

• TDS;

• net payment;

• payment date;

• unclaimed balance;

• Investor Protection Fund transfer date.

Example

Distributable profit: NPR 5,000,000

Issued shares: 100,000

Dividend approved: NPR 30 per share

Gross dividend: 100,000 × NPR 30

= NPR 3,000,000

The company must then:

• calculate applicable dividend TDS;

• pay shareholders net amount;

• deposit/file withholding;

• complete payment within the statutory period;

• retain records.

Dividend Checklist

• Finalise audited financial statements

• Calculate accumulated losses

• Calculate distributable profit

• Check statutory reserves

• Check AOA

• Pass required Board/shareholder resolution

• Determine shareholders entitled

• Calculate dividend per share

• Calculate TDS

• Pay within 45 days

• File/deposit withholding

• Reconcile bank

• Maintain dividend register

• Track unclaimed dividend

• Publish notice before 5-year transfer

• Transfer qualifying amount to Investor Protection Fund

Common Errors

Declaring dividend from current profit without clearing accumulated losses

Treating cash balance as distributable profit

Missing the 45-day payment requirement

Paying shareholders informal cash distributions outside approved dividend

Ignoring dividend withholding tax

Leaving unclaimed dividend indefinitely in company accounts

Further guidance and practical checks

Dividend planning should combine Companies Act distributable-profit rules, cash-flow planning and Income Tax withholding before the dividend is declared.