15th October 2025, Kathmandu
The government of Nepal has ushered in a landmark regulatory change, signaling a major shift in how high-value property transactions are conducted across the nation.
Real Estate Transactions Limit
In a pivotal move published in the Nepal Gazette, the Ministry of Land Management, Cooperatives, and Poverty Alleviation has fixed a mandatory requirement: any real estate transaction exceeding a value of Rs 3 crore (NPR 30 million) must now be executed through a registered company. This new provision, enacted under the authority of Sections 26 (Ka) and (Kha) of the Land Revenue Act, is a powerful stride toward injecting professionalism, accountability, and unparalleled transparency into the real estate market, directly combating the shadow economy.
This directive is not merely a formality; it creates a clear dividing line in the market. Transactions valued at or below ₹3 crore can still be completed by individuals following standard procedures. However, once the value crosses this crucial threshold, the transaction is elevated to a formal business activity, legally mandating the involvement of a registered corporate entity. The new rule ensures that the entire sector, particularly the high-stakes segment, operates under a formal, verifiable, and tax-compliant structure, irrespective of the physical size or area of the land involved.
The Legal Backbone: Sections 26 (Ka) and (Kha) of the Land Revenue Act
The foundation for this significant regulatory overhaul lies within the existing framework of the Land Revenue Act. Specifically, the mandate to professionalize and regulate the real estate business stems from provisions like Sections 26(Ka) and 26(Kha) (or related sections such as 26A and 26B, as found in the latest amendments to the Land Revenue Regulation), which govern the licensing, registration, and operation of real estate businesses.
These sections, broadly speaking, grant the government the authority to stipulate the conditions under which an individual or institution can engage in the real estate business. They cover critical aspects such as the mandatory requirement of a license to operate as a real estate entrepreneur, the designation of an authority to grant and renew such licenses, and the setting of rules to monitor transactions. By linking the ₹3 crore limit to these sections, the government is essentially classifying all transactions above this amount as professional business activities that fall under the strict oversight and reporting framework designed for licensed entities.
Key requirements stemming from the spirit of these sections often include:
- Mandatory Licensing: Individuals or entities conducting real estate business, especially high-value transactions, must secure an official license from the designated government authority.
- Compliance and Reporting: Licensed entities are subject to ongoing compliance, including the submission of annual audit reports and tax clearance certificates, ensuring their financial health and adherence to legal norms are regularly verified.
- Structured Operation: Provisions, like requiring transactions to be carried out through a Geo-Information System (GIS) or a registered Land Service Center, ensure a documented and traceable transaction process.
The new Rs 3 crore rule weaponizes the existing corporate regulatory structure to enforce these compliance requirements on all major property deals.
Curbing the Shadow Economy: A Direct Attack on Money Laundering
The primary and most critical objective of this new legislation is to combat the pervasive issue of money laundering and illicit financial flows that have historically plagued the high-value segment of Nepal’s property market. Real estate, due to its non-standardized valuation and large transaction volumes, is internationally recognized as a high-risk sector for the circulation of undeclared or ‘black’ money.
Why Corporate Registration Enforces Transparency:
- Mandatory Audited Financials: An individual conducting a transaction has limited public financial disclosure. A registered company, however, is legally required to maintain detailed, verifiable accounting records, undergo annual audits, and file financial statements with the Office of the Company Registrar (OCR) and the Inland Revenue Department (IRD). This creates a paper trail for the origin and destination of the transaction amount.
- Tax Compliance: Unlike private individuals who may operate with less scrutiny on their income sources for large, infrequent transactions, companies are subject to corporate tax laws. This ensures that the profit generated from the sale is correctly calculated and that the associated taxes are fully paid to the government, significantly reducing revenue leakage.
- Know Your Customer (KYC) and Reporting: Registered companies engaging in real estate as a business activity are classified as ‘Designated Non-Financial Businesses and Professions’ (DNFBPs) under the Anti-Money Laundering (AML) Act. This subjects them to stricter KYC requirements for their clients and, crucially, mandates the reporting of high-value and suspicious transactions to the Financial Information Unit (FIU) of the Nepal Rastra Bank (NRB). The initial threshold for reporting high-value transactions to the FIU has often been set around Rs 1 crore (NPR 10 million) or ₹3 crore, ensuring that any transaction passing the new corporate registration limit is automatically under AML scrutiny.
- Professional Accountability: Operating as a company entails directors’ liability and regulatory penalties. This professionalizes the market by limiting high-value deals to entities that can be held legally accountable for fraudulent practices or tax evasion, making the risk of using illicit funds significantly higher.
The Practical Impact: What This Means for Buyers and Sellers
This regulatory shift fundamentally alters the process for executing multi-crore property deals, with direct consequences for both real estate developers and high-net-worth individuals.
- For the Buyer/Seller (Individual): If an individual wishes to purchase a property worth more than ₹3 crore, they will need to either establish a company for the transaction or transact through a corporate structure already owned by them. This introduces the administrative steps of company registration, which involves drafting a Memorandum of Association (MOA) and Articles of Association (AOA), and obtaining a Permanent Account Number (PAN) from the IRD.
- For the Real Estate Industry: The new rule formalizes large-scale developers and major players who deal in multi-crore projects. They must operate as licensed companies, complete with the stringent renewal requirements, security deposits, and operational mandates specified in the Land Revenue Regulations. This is expected to weed out informal operators and bring stability to pricing and construction quality.
- Focus on Banking Channels: The need for a company to show legitimate sources of funds and audited financial reports further reinforces the government’s efforts to push all large transactions—including registration fees, capital gains tax, and the sale amount itself—through formal banking channels, minimizing cash transactions and enhancing traceability.
By setting the Rs 3 crore benchmark, the government aims to protect the integrity of the capital-intensive real estate sector. This is a critical step in Nepal’s ongoing efforts to align its financial regulations with international standards, particularly those recommended by global bodies like the Financial Action Task Force (FATF), and ultimately secure the nation’s financial reputation. The move is a clear signal: the era of informal, high-value property dealings is rapidly coming to an end.
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