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Tax Guide

Financial Year – 17 July to 16 July
Currency – Nepalese rupee (NPR)

Corporate Tax Summary

Residence – A company is resident in Nepal for the tax year if it fulfils any of the following criteria:

  • It is incorporated under the law of Nepal
  • Its effective place of management in the tax year is in Nepal

Basis of Taxation – Resident companies are taxed on the income generated, regardless of the source of the income and non-resident companies are taxed on their Nepalese source income.

Reference
Corporate Income Tax Rate (%)25% flat rate for normal entitiesIn the following cases, different rates apply:
Banks and financial institutions: 30%
General insurance companies: 30%
Telecommunications and internet services, money transfer, capital market businesses, entities dealing in cigarettes, beedi, cigars, tobacco, khaini, guthka, betel paan, masala, liquor, beer or entities engaged in the business of petroleum products: 30%
Branch Tax Rate (%)25%
Withholding Tax Rate:
Dividends – Franked5%Dividends distributed by a resident company to a resident or non-resident person are subject to a final withholding tax at the rate of 5 percent. Dividends of a non-resident entity which are distributed to a resident beneficiary are taxed as part of the income of the beneficiary. The distribution of dividends which are derived after final withholding tax is exempted from tax.
Dividends – Unfranked5%
Dividends – Conduit Foreign Income5%On income sent abroad in any tax year. ‚Income sent abroad‘ is income required to be sent abroad by a foreign permanent establishment of a non-resident person situated in Nepal.
Interest15%For interest sourced in Nepal and paid by a resident person. However, if the interest is paid by a bank or financial institution to any natural person for a deposit which is sourced in Nepal and is not related to the operation of a business then 5% final withholding tax applies.
Royalties from Intellectual Property15%Applies to royalties received by any person for having allowed anyone to use any property situated in Nepal or accepting the right to use the property or the restriction on the use of such property. Source of payment in Nepal is an important consideration when determining the tax liability of any person.
Fund Payments from Managed Investment Trusts15%Gains from unapproved retirement funds are taxed at a flat rate of 5%.
Branch Remittance Tax
Net Operating Losses (Years)
Carry backIs allowed only in the case of a global contract as per Section 25 of Income Tax Act of Nepal
Carry forward7 years, and in the case of BOOT (Build Own Operate Transfer), 12 years

Individual Tax Summary

Residence – A natural person is resident in Nepal for the tax year if they fulfil any of the following criteria:

  • Normal place of abode is in Nepal
  • Present in Nepal for 183 days or more in a period of 365 days
  • Employee of the Government of Nepal deployed in any foreign country.

Basis of Taxation – Resident individuals are taxed on the income generated, regardless of the source of the income and non-resident individuals are taxed on their Nepalese source income.

Filing Status – Each taxpayer shall file a return of income for the tax year within 3 months after the end of such year. An extension of up to 3 months can be given on application.

Personal Income Tax Rates

Taxable IncomeTax Payable – ResidentsTax Payable – Non Residents
Up to NPR 400,000 (individual) / 450,000 (couple)1%25% flat rate
Next NPR 100,00010%
Next NPR 200,00020%
Next NPR 1,300,00030%
Balance exceeding NPR 2,000,00036%

Goods and Services Tax (GST)

Rate13% VAT
Taxable TransactionsSee registration below.
RegistrationThe general conditions for mandatory registration under the Nepalese VAT Act 2052 are:

  • People obtaining business loans exceeding NPR 1,000,000
  • The threshold for registration for a goods business is annual turnover exceeding NPR 5,000,000, while in the case of a services or mixed goods and services business it is NPR 2,000,000 annually.

VAT registration must take place within 30 days of the above conditions coming into effect.
The above conditions apply to all types of transactions that are not listed in Schedule 1 (reference: VAT Act 2052) which have been exempted from VAT registration.

FilingUnder the VAT Act 2052, each person and business registered for Value Added Tax is mandatorily required to submit either monthly, bimonthly or quarterly VAT returns. The VAT return must be filed within a period of 25 days following the end of the of Nepalese calendar month to which the VAT belongs. In the case of tourism service providers, the returns must be submitted bimonthly, provided that an application for such bimonthly VAT returns has been approved. Some businesses, such as publication, broadcasting media, electronic or other media, brick producers etc. can submit VAT returns every 4 months.
PaymentThe amount of VAT payable must be paid within the same 25-day filing period for it to be approved by the tax authorities. Amounts above NPR 1 million should be paid by cheque, draft or through banking channels.

Other Taxes Payable

TaxReference
Payroll TaxPayroll taxes are levied on an individual’s salaries, wages and benefits given by the employer according to the various slab rates as prescribed, subject to deductions and rebates as allowed by the Nepalese Income Tax Act.
Stamp DutyStamp duty in Nepal is governed by the Stamp Duty Act and is levied on various documents and deeds of transfer, deeds of loans, or deeds of sale of goods etc. as prescribed in section 4 of the Act and as recognised by the Government of Nepal.
Land TaxLand tax in Nepal is levied at the province and local government body’s notified rates, which are determined from time to time.

Last updated: 28.06.2020

Contact us:

Accountant in Bogota
Yuddha Raj Oli
FCA – Senior Partner
Mobile: +977 1 9801047283