Taxes in Nepal

Nepal's federal tax system includes income tax, value-added tax (VAT), excise duty and customs duty. Provinces and local levels may impose additional taxes under their own legal rules, so their charges should not be added to central Inland Revenue Department rates without checking the relevant authority. The Inland Revenue Department (IRD) administers income tax, VAT, excise, permanent account numbers (PAN), tax deducted at source (TDS), digital service tax and taxpayer services. Inland Revenue Offices, Taxpayer Service Offices, the Large Taxpayer Office and the Medium Taxpayer Office serve different taxpayer groups. The Ministry of Finance sets tax policy through the annual Finance Act and budget. The Department of Customs handles import declarations, valuation, tariff classification and release at customs points. A PAN is generally required before taxable income is earned or a TDS obligation arises. Applications can be submitted through the IRD Taxpayer Portal or through the responsible Inland Revenue Office or Taxpayer Service Office. VAT registration generally applies within 30 days after taxable activity begins. The threshold is more than NPR 50 lakh in twelve months for taxable goods and more than NPR 30 lakh for taxable services or mixed turnover. Voluntary VAT registration is also possible. Changes to registration information generally have to be reported within 15 days. VAT invoices are required for taxable supplies. The standard VAT rate is 13%, subject to exempt and zero-rated schedules. Import VAT is generally collected through Customs. Excise applies to specified goods such as tobacco, alcohol, beer, soft drinks, vehicles and other products listed in the current schedule. Excise rates and licensing requirements depend on the product, so a general rate should not be assumed. Customs duty depends on the HS code, customs value, origin, applicable exemption or preference and the annual Integrated Tariff. Imports may therefore involve customs duty, VAT, excise and other charges. Exports are generally treated as VAT zero-rated or otherwise VAT-privileged when the required evidence is available. For individuals, the FY 2083/84 income-tax table uses approximate bands of 1% on the first NPR 10 lakh for applicable taxpayers, 10% on the next NPR 5 lakh, 20% on the next NPR 10 lakh, 27% on the next NPR 15 lakh and 29% above NPR 40 lakh. The treatment can differ for couples, pensions and SSF-related cases. Employment benefits, interest, dividends, rent and capital gains can have separate rules or withholding treatment. Agricultural income of a natural person is generally exempt, while agricultural business income is taxable. A resident company generally pays 25% income tax. The rate is 30% for specified sectors, including banks and financial institutions, insurance, telecommunications and internet services, money transfer, capital-market and securities activities, tobacco, alcohol, beer and petroleum. Registered cooperatives use different rates for non-exempt turnover: 5% in a municipality, 7% in a sub-metropolitan city and 10% in a metropolitan city. Eligible small resident individuals may use presumptive or turnover-based regimes under the current Finance Act. Qualifying foreign-currency IT-service exports receive a 50% income-tax relief for FY 2083/84 when the conditions are met. Annual self-assessment income returns are generally due within three months after the end of the income year. Businesses and investment taxpayers generally pay advance income tax in three instalments: 40% by the end of Poush, 70% cumulatively by the end of Chaitra and 100% cumulatively by the end of Ashadh, based on estimated annual tax. TDS deposits and returns are generally due within 25 days after the end of the relevant month. VAT returns are commonly due by the 25th day after the applicable monthly or quarterly period. Records should generally be kept for at least five years unless the Department sets another period. Tax audit certification is typically relevant when turnover exceeds NPR 1 crore or professional income exceeds NPR 50 lakh. Late filing or late payment can lead to fees, interest, penalties, assessment and collection action. Payments can be made through an approved bank or ConnectIPS, but the payment status and tax credit may take several minutes to update. Taxpayers can request administrative review from the IRD Director General, generally within 30 days after receiving the decision notice. The undisputed tax and 25% of the disputed tax generally have to be paid before review. If no decision is issued within 60 days after filing the review, an appeal to the Revenue Tribunal may be available. Tax clearance certificates are issued through the responsible IRD office, while refunds are limited to statutory cases such as qualifying exports, overpayments and specified diplomatic or other schedule-based situations. Residents are generally taxed on Nepal-source and foreign income, while non-residents are taxed on Nepal-source income and income connected with a permanent establishment. Double-tax agreements and foreign-tax credits can change the result when the required residence certificate, beneficial-ownership evidence and other documents are available. Non-resident digital services can be subject to a 2% Digital Service Tax on transaction value excluding Nepal indirect tax, with no DST up to NPR 20 lakh per year and registration, returns and payment through the Large Taxpayer Office after the threshold is exceeded. Covered services include online advertising, OTT and media, cloud storage, gaming, apps, software, downloads, online marketplaces and online education or consultancy. Non-resident electronic services also have a separate VAT procedure. Related-party transactions can require arm's-length pricing and documentation under the Transfer Pricing Directives 2024/2081 and section 33 of the Income Tax Act.