Nepal levies various direct and indirect taxes. Direct taxes include corporate and personal income tax. The corporate income tax rate is generally 25% while personal income tax is progressive. Key indirect taxes are VAT at a single rate of 13% and excise duty on specific goods and services at varying rates. Other taxes include health service tax, education service fee, telecommunication charges, and various environmental taxes. Tax compliance requires filing regular tax returns and making advance payments throughout the fiscal year.

1. Nepal leviesawide varietyof taxes,includingincome tax (corporate incometax andpersonal income
tax),value addedtax,excise duty,customduty,propertyrelatedtax (landregistrationtax,property
transfertax) and otherslike stampduty.Foradditional infoclickhere TaxesSysteminNepal.
A. Direct Taxes
 Income Year:
Mid-Julyof one yearto Mid-Julyof anotheryear(ShrawantoAshadas perNepalese Calendar)
 Corporate Income Tax
The taxabilityof the income of a personinNepal isbasedontwobroad principles.Anyresident
persongeneratingincome orreceivinganypaymentfromoutsideNepalistaxedonthe basisof
‘Residence Principle’.Similarly,incase of non-residentpersongeneratingincome orreceiving
any paymentfromvariousincome headsviz.employment,business,investmentorwinfall gain,
it istaxedinNepal onthe basisof ‘Source Principle’.
An entityisresidentinNepal if itisregistered/ formedasperthe lawsof Nepal.
 Tax Rate
Statutorycorporate income tax rate on residentpersonis25%.However,entitiesoperating
bankingandGeneral Insurance Business,dealingpetroleumproducts,producingcigarettes,
cigars,liquorsandotherrelatedproductsare subjectto 30% tax rates.Similarly,20% income tax
rate isapplicable to
- Special Industries(ManufacturingindustriesspecifiedinIndustrial EnterprisesAct)
- Entitiesoperatingroad,bridge,tunnel,rope-wayoroverheadbridge uponconstruction
- Entitiesoperatingtrolleybusortram - Cooperativesotherthanfullyexemptfromtax
- Income fromexport
- EntitiesconstructingpublicinfrastructuresonBOOT(Build-Own-Operate-Transfer) model
- Entitiesinvolvedinconstructionof ElectricityPowerhouse,ProductionandTransmissionlines
AmountrepatriatedbyForeignPermanentEstablishment(FPE) of aNon-Residentissubjectto
tax at the rate of 5%.
 Taxable Income
Taxable Income = Total Income – ExemptedIncome –Deductions – Unabsorbed Losses
 Total Income
Income meansIncome fromEmployment,Business,InvestmentorWinfall gainandincludesthe Total
Income derivedasperIncome Tax Act, 2002
For detailsfollowthissmall informativelink http://bizserve.com.np/wp-content/uploads/2017/12/DBIN-Part-
4.pdf
Deductions
 General Deduction

2. Anyexpensesincurredbyapersoninconnectionwithgenerationof income from businessorinvestment
duringan Income Yearare allowedasdeduction.
 Interest
Anyinterestincurredbyapersonfromthe borrowedmoneyinconnectionwithgenerationof income from
businessorinvestmentduringanIncome Yearisallowedasdeduction.
 Cost of Trading Stock
The cost of tradingstock calculatedeitheronfirst-in-firstoutbasisorweightedaverage costbasisisallowed
as deduction.
 Repair and Maintenance Expense
Repairand Maintenance Expenseof depreciableasset,ownedandusedbythe person,incurredin
connectionwithgenerationof income frombusinessorinvestmentduringanIncome Yearsubjectto
maximumof 7% of depreciationbase atthe closingof the yearis allowedasdeduction.The limitisnot
applicable toAirlineCompanyif itiswithinthe parameterof Civil AviationAuthority.Further,the amountor
part thereof,whichisinexcessof limit,canbe addedto the depreciationbasisprevailinginthe beginningof
subsequentIncome Year,of the pool towhichitrelates.
 PollutionControl Cost
PollutionControl Costincurredinconnectionwithconductingthe businessduringanIncome Yearsubjectto
maximumof 50% of adjustable taxable incomefromall businessconductedbythe personisallowedas
deduction.The amountorpart thereof,whichisinexcessof limit,canbe capitalizedinthe assetinthe
beginningof subsequentIncome Yearanddepreciationisallowedsubsequently.
 Research and DevelopmentCost
ResearchandDevelopmentCostincurredinconnectionwithconductingthe businessduringanIncome Year
subjecttomaximumof 50% of adjustable taxableincome fromall businessconductedbythe personis
allowedasdeduction.The amountorpart thereof,whichisinexcessof limit,canbe capitalizedinthe asset
inthe beginningof subsequentIncome Yearanddepreciationisallowedsubsequently.
 Deprecation
Depreciationof depreciable asset,ownedandusedbythe person,inconnectionwithgenerationof
income frombusinessorinvestmentduringanIncome Yearis allowedasdeduction.Depreciationis
allowedasperwrittendownvalue (WDV) basismethodanddepreciableassetsare categorizedinto
variouspools,the rate of depreciationisprescribedby Tax Authorityasfollows(Forcomplete details
aboutthisclick here Taxation Systemin Nepal )
AcceleratedDepreciationof 1/3 of applicable rate isalsoavailable incase of followingentities
- Special Industries
- Hydro PowerandPowerGeneration
- Tram and Trolley
- ExportOrientedIndustries
- Entitiesengagedininfrastructure developmentunderBOOTscheme

3. - Co-operativeregisteredunderCo-operative Act(Onlyfortax exempt)
B. Non-Deductibles
Anyexpense whichisnotrelatedtogenerationof income isnotallowedfordeductions.Further,expense
whichisof personal nature isnotdeductible.
 LossesCarried Forward
Lossescan be carriedforwardup to sevenyearsfromthe yearof occurrence.However,incase of special
industrieslike entitiesdealinginpetroleumproducts,BOOTprojects,ProjectsinvolvedinElectricity
PowerHouse,GenerationandTransmissionare allowedtocarry forwardupto twelve years.Incase of
longtermcontract obtainedfrominternationalbiddinglossescanbe carriedback.
 DeemedTaxable Income
If a businesscannotprovide completeandaccurate informationoncostsandincome while calculating
taxable income,the Tax Authorityhasrighttodeemandassessthe taxable income accordingtolaws.
 ForeignTax Credit
In case that a residentpersonhaspaidoverseasincome tax onitstaxable income derivedfromsources
outside Nepal,the incometax paidoverseascanbe adjustedagainstitstax payable inNepal.However,
the adjustable amountof overseasincome tax cannotexceedthe amountof income tax otherwise
payable inNepal inrespectof non-Nepal sourcedincome.
 Tax Avoidance Scheme
If a personmakesanyarrangementwiththe purpose of avoidingorreducingtax liability,Tax Authority
may,for the purpose of determinationof tax liability,re-characterize the arrangementorpart of it.
Similarly,if apersondoesanytransactionwithapurpose to reduce tax liabilityenteringinto‘Transfer
Pricing’or‘Income Splitting’arrangement,Tax Authorityhasthe powertore-characterize andassessthe
tax.
Personal Income Tax
An individual isresidentinNepal if he residesforaperiodof 183 daysor more in365 consecutive days.
A personwhoisnot residentof Nepal isnon-residentindividual.Incomeof anindividual residentis
taxedonprogressive rate asfollows(Forcompletedetailsaboutthisclickhere TaxationSystemin
Nepal )
The followingamountsare deductibles.
- ContributiontoRetirementPaymentuptomaximumof NPR300,000
- Donationto tax exemptedentitiesuptomaximumof NPR100,000
- Insurance premiumuptoNPR 20,000
- Remote areaallowancesuptomaximumof NPR50,000

4. Further,medical tax creditupto maximumof NPR750 is allowedandremainingcanbe carriedforward.
Additionally,10%tax rebate isallowedtofemale individual.
Withholding Taxes
(Forcomplete detailsaboutthisclickhere TaxationSystemin Nepal )
FollowingAdvanceTaxesare applicable:
 Gainon Sale of Shares
- In case of sale bya natural person - 5% - ListedCompany,10% - UnlistedCompany
- In case of sale byany otherperson - 10% - ListedCompany,15% - UnlistedCompany.
However,normal tax rate isapplicable toa personotherthannatural personand advance tax paid can be
allowedtosetoff fromfinal tax liability.
 Gainon Transfer of Land & Building
Gain ontransferof landor land& buildingontransactionexceedingNPR3 million(tobe collectedby
landrevenue officeatthe time of registration) incase of natural person
- Disposal of land or land& buildingownedformore than5 years – up to 2.5%
- Disposal of landor land& buildingownedupto5 years – up to 5%
- In othercase – normal tax rate applicable
 Change of Control
Where there ischange of 50% or more inthe underlyingownershipof anentityascomparedwithits
ownership3yearspreviously,the entityshallbe treatedasdisposingoff anyassetsandany liabilities
ownedbyit.Where there ischange in ownershipduringthe Income Yearof anentity,the partsof the
Income Year before andafterthe change inownershipare treatedasseparate Income Years.
Compliance Requirement
 Income Tax Return
Withinthree monthsfromthe endof Income Year.If applicationismade toTax Office forextension,IRD
may extendsuchnotice formaximumof three months.
 Advance Tax Return
Basedon estimatedtax liability
- WithinMid-January(Poushend) of Income Year(FirstInstallment) –40% of Tax Liability
- WithinMid-April (Chaitraend) of Income Year(SecondInstallment) –70% of Tax Liability
- WithinMid-July(Ashadend) of Income Year(thirdInstallment) –100% of Tax Liability
 Tax Assessment

5. AssessmentsystemisbasedonSelf-Assessment.However,anassessmentunderSelf-Assessmentscheme
may be subjecttoreviewandamendmentbyTax Authoritywhichcanbe performedwithinfouryears
fromthe date of submissionof Income Tax Return.
 Advance Ruling
If there is ambiguityinapplicationof anyissue asperIncome Tax Act,there isprovisionof making
applicationforadvance rulingtoIRD andthe instructionissuedbyIRDisbindingtothe applicant.
 Appeal
If the taxpayerisnotsatisfiedwith the decisionof amendedassessmentbyTax Authority,the taxpayer
has a rightto applyfor administrative review bydepositingone thirdof disputedamountandfurtherto
Revenue Tribunal bydepositinghalf of principalportionof disputedamountandfull portionof finesand
penalties.
C. In-directedTaxes
VAT
 Applicability:
VATis applicable onsupplyof goodsorservices;
- suppliedintoNepal,
- importedintoNepal,and
- exportedfromNepal
Some goodsor serviceswhichare of basic necessitiesandagro-productsare exemptedandsome are
zerorated (exportof services)
 Tax Rate - Single rate 13%
 Registration
Everypersonsupplyingthe goodscrossingthresholdof NPR5millionandsupplying servicesorgoods&
servicesbothcrossingthe limitof NPR2 millionare requiredtobe registeredunderVAT.
 Taxable Value
Taxable Value meansthe price the supplierreceivesfromrecipientincludingexpensesrelatedto
transportationandthe amountof profitplusexcise duty,ownershipfeeandothertaxesbutexcludes
discount,commissionorothersimilarcommercial rebates.
 VAT Records

6. Purchase book,SalesBookandVAT records,eithermanual orcomputerized,are the basicrecordsto be
maintainedby aregisteredperson.
 VAT Creditand Refund
VATpaidon purchase of raw materialsandexpensesonproductionof finishedgoodsare allowedto
take creditwithinone yearfromthe date of transaction.VATcreditisallowedforgoodsorservices
exportedoutof countryand chargedat zero rate.Inputtax creditof a tax periodwhichcouldnotbe
adjustedagainstnextsix consecutivemonths,the taxpayercanclaimthe refund.Similarly,incase of
more than 40 percentof exportoutof total salesina tax periodiseligible forrefundof Suchexcesstax
paidin the same tax period.Suchrefundshall be made within3yearsfrom the endof tax period.
 VAT Return
EveryregisteredtaxpayerisrequiredtosubmitVATreturnwithin25daysfrom the endof Nepalese
Calendarmonth.However,certainindustrieslike publishinghousesandbrickindustrycanoptfor
quarterlysubmission.
 Facilities
Bank guarantee facilityisavailableforVATpayable onpurchase of raw materialsandservicesforthose
industriesexportingmore than40% of itsproductionduringprevious12 months.
 Tax Assessment
AssessmentsystemisbasedonSelf-Assessment.However,anassessmentunderSelfAssessment
scheme maybe subjectto reviewandamendmentbyTax Authoritywhichcanbe performedwithinfour
yearsfrom the date of submissionof VATReturn.
 Advance Ruling
If there is ambiguityinapplicationof anyissue asper VATAct, there isprovisionof makingapplication
for advance rulingtoIRD and the instructionissuedbyIRDisbindingtothe applicant.
 Appeal
If the taxpayerisnotsatisfiedwiththe decisionof amendedassessmentbyTax Authority,the taxpayer
has a rightto applyfor administrative review bydepositingone thirdof disputedamountandfurtherto
Revenue Tribunal bydepositinghalf of principalportionof disputedamountandfull portionof finesand
penalties.
Excise Duty
 Applicable Act: Excise Act2002 & Excise Rules2003 and amendmentmade byFinance Actfrom
time to time.

7.  Applicability:Excise Dutyisapplicable togoods/servicesproduced/importedintoNepal.
Relaxationandexemptionare mentionedtocertaingoodsproducedinNepal.
 Tax Rate: Specifictoindividual itembasedonspecificrate orad-valorembasis.
 Valuation:On production – Factory Price andOn Import –Value forcustom purpose pluscustom
duty
 Licensing:Noone can manufacture,import,sale orstore aproduct withouttakinglicense.
License takenisvalidforone yearand has to be renewedbypayingrenewal fee.
 Excise Duty Credit:Excise dutypaidon purchase of raw materialsandauxiliarymaterials
allowed.Noexcisedutycreditisallowedtopackagingmaterials.
 ManagementSystem: Physical Control System –incase of liquor,cigarette andtobacco.Self-
Removal System –incase of othergoods.
 Facilities:BankGuarantee Facilityisprovidedtogoodsimportedthroughbonedwarehouse.Full
exemptionof excise dutyisprovided incase of export.Similarly,fullexemptionisprovidedto
industriesproducinggoodsusingscrapmore than90%.
 Records: Recordsof excisable goodspurchased,produced,sold,releasedandbalance of stock
as certifiedbyexcisedutyofficer.
 Time ofPayment:
(Forcomplete detailsaboutthisclickhere TaxationSystemin Nepal )
 Excise Return:
Within25 daysfromthe endof Nepalese Calendarmonth.
 Advance Ruling:
If there isambiguityinapplicationof anyissue asperExcise Act,there isprovisionof makingapplication
for advance rulingtoIRD and the instructionissuedbyIRDisbindingtothe applicant.
 Appeal:
If the taxpayerisnotsatisfiedwiththe decisionof amendedassessmentbyTax Authority,the taxpayer
has a rightto applyfor administrative review bydepositingone thirdof disputedamountandfurtherto
Revenue Tribunal.
CustomDuty
 Applicable Act: CustomsAct2007 & CustomsRules2007 and amendmentmade byFinance Act
fromtime to time.
 Applicability:CustomDutyisapplicable toimportandexportof goodsand services.Tax Rate:
Specifictoindividual item(asprescribedintariff onthe basisof HScode)
 Taxable Value:Basedon transactionvalue determinedasperGeneral AgreementonTariff and
Trade 1994 andvaluationprinciplesmentionedinCustomsAct.

8.  Facilities:BankGuarantee FacilityisprovidedtoexportindustriesandDutyFree Shops.Further,
certaincustom exemptionisprovidedtothose industriesestablishedinSpecial EconomicZone
(SEZ).Special exemption/concessionisprovidedtothose goodsif importedfromneighboring
countrieslike China,India.Also,concessional tariffrate applicableforthe import of those goods
whichare importedunderbilateral/multilateral agreement.
 Post Clearance Audit (PCA): CustomAuthoritycanmake PCA afterclearance of goods as
required.
 Appeal and Review:If an importerisnotsatisfiedwiththe valuationmade byCustomAuthority,
he can applytoValuationReview Committee.
Other Taxes
 Health Service Tax: 5% of healthservice invoicesof all entitiesprovidinghealthservicesexcept
for those providedbyGovernmentof Nepal andCommunityHospitalsshall be charged.
 Education Service Fee:1% on monthlyfee andadmissionfee (Applicable toprivate sector
schoolsprovidingmore thanhigherlevel secondaryeducation)
 TelecommunicationService Charge:To be charged fromcustomer11% of the collectedamount.
 Telephone OwnershipFee:Rs.1,000 perconnectionincase of postpaidand2% of value of SIM
and Recharge Card
 Infrastructure Tax: Rs. 5 perliterforimportof petrol,diesel andaviationfuel.
 Road Repairand ImprovementFee:Rs.4 perliterinpetrol andRs. 2 per literinDiesel
 PollutionControl Fee:Re.0.50 perliterinpetrol anddiesel
 Casino Royalty: Annual License Fee forCasino –Rs. 30 million.Annual License Fee forCasino
usingonlymodernequipmentandmachines –Rs.7.5 million
For more detailsonclickhere Taxation Systemin Nepal (Source:https://bizserve.com.np)