Business income and entities in Nepal

Under Schedule 1 of the Income Tax Act 2058, for FY 2083/84:

• General business entities: 25%
• Banks, financial institutions, general insurance, telecom and internet, money transfer, capital markets, securities and merchant banking, commodity futures, brokerage, tobacco, liquor and beer trade, and petroleum work: 30%
• Special (manufacturing) industries: 20%
• Cooperatives on non-exempt transactions: 5% in a municipality, 7% in a sub-metropolitan city, 10% in a metropolitan city
• Schools and colleges under a public guthi: 20%
• Repatriated income of a non-resident's permanent establishment: 5%
• Non-residents on section 70 income: 5%, or 2% for shipping, air and telecom services not departing Nepal

Where the Government and a person have an agreement for infrastructure development and construction, the rate agreed at the time applies for the full term of the agreement. The tax rate is 20%.

Such entities are taxed at 20%.

Rates range from a minimum of 1% through 10%, 15%, 20% and 25% to a maximum of 30%. Section 11 of the Act gives partial concessions to certain sectors and categories.

Schedule 1 of the Income Tax Act 2058. Each year's Finance Act amends the schedule, so the Finance Act for the relevant fiscal year must also be checked. Section 11 grants concessions to certain sectors, which affects the actual tax burden.

Section 11 business concessions. Several have sunset dates (for example Chaitra 2080 for new hydropower and mineral projects), so check whether a concession is still open to new businesses in FY 2083/84:

11(1)

Agricultural businesses, vegetable dehydration businesses and cold stores registered as a firm, company, partnership or organised body receive a 100% exemption. Other agricultural income is not taxed, except income from agricultural business on land referred to in section 12(d) and (e) of the Lands Act 2021.

11(1)

Income from agricultural business registered as a firm, company, partnership or organised body: 50% exemption.

11(2)

Not taxed, including dividends distributed: cooperatives registered under the Cooperatives Act 2074 engaged in agriculture or forest-based industries such as sericulture, fruit farming and processing, coffee farming and processing, herb farming and processing, vegetable seed production, beekeeping and honey, rubber farming, leasehold forestry and agroforestry; cold stores for vegetables; cooperatives trading agricultural seeds, animal feed, pesticides, fertiliser and non-motorised farm tools; and cooperatives or unions operating in a rural municipality.

11(2ka)

Interest up to NPR 25,000 a year on deposits with microfinance institutions, rural development banks and postal savings banks operating in rural municipalities, and with the cooperatives in 11(2): not taxed.

11(2kha)

Special industries operating fully throughout the year: one-third off the tax for a resident natural person taxed at 30%; 20% off the tax for an entity.

11(3)(ka)

Special industries and IT industries employing Nepali citizens directly throughout the year pay: 90% of tax with 100 or more employees; 80% with 300 or more; 75% with 500 or more; 70% with 1,000 or more. A further 10% reduction applies where more than 100 are employed and at least 33% of them are women, Dalits or persons with disabilities.

11(3)(kha)

Special industries in least developed areas pay 10% of tax for ten years from commercial operation; in underdeveloped areas 20%; in less developed areas 30%.

11(3)(ga)

Special industries and tourism industries (excluding casinos) with capital above NPR 1 arba employing more than 500 people year-round: no tax for five years from operation, then 50% off for three years. Existing such industries that expand installed capacity by at least 25%, reach NPR 2 arba capital and employ more than 300 people year-round receive the same on income from the expansion.

11(3ka)(ka)

Industries in special economic zones in Himalayan districts and designated hill districts: no tax for ten years from operation, then 50% off.

11(3ka)(kha)

Industries in special economic zones elsewhere: no tax for five years, then 50% off.

11(3ka)(ga)

Dividends distributed by special economic zone industries: no tax for five years, then 50% off for three years.

11(3ka)(gha)

Foreign investors in special economic zone industries: 50% off tax on income from foreign technology, management service fees and royalties.

11(3kha)

Persons exploring and extracting minerals, petroleum, natural gas and fuel that begin commercial operation by Chaitra 2080: no tax for the first seven years, then 50% off for three years.

11(3ga)

Software development, data processing, cyber cafes and digital mapping industries in zoological, geological and biotech parks, technology parks and IT parks designated in the Nepal Gazette: 50% off.

11(3gha)

Persons licensed to generate, transmit or distribute hydropower commercially who begin by Chaitra 2080: no tax for the first ten years, then 50% off for five years. The same applies to electricity from solar, wind and biomass.

11(3nga)

Export income from Nepal sources: 25% off where a resident natural person is taxed at 20%; 50% off where taxed at 30%; 20% off for entities. Persons exporting IT-based services such as business process outsourcing, software programming and cloud computing and earning foreign currency receive a 50% reduction on tax on that foreign currency income until FY 2084/85. Manufacturing industries exporting their own products receive a further 35% off the tax remaining after the above reduction, for both natural persons and entities.

11(3cha)

Entities, for ten years from commercial operation: operating trams or trolley buses 40% off; building and operating ropeways, cable cars, railways, tunnels or sky bridges 40% off; building and operating roads, bridges, tunnels, railways or airports 50% off.

11(3chha)

Entities listed on the securities market in manufacturing, tourism services, hydropower generation, distribution and transmission, and those in 11(3ga): 15% off.

11(3ja)

Fruit-based brandy, cider and wine industries, for ten years from operation: 40% off in least developed areas; 25% off in underdeveloped areas.

11(3jha)

Royalty income from exporting intellectual property: 25% off the rate.

11(3nya)

Income from selling intellectual property by transfer: 50% off the rate.

11(3ṭa)

Tourism industries with capital above NPR 1 arba, or airlines operating international flights: no tax for five years from operation, then 50% off for three years.

11(3ṭha)

Special and tourism industries that capitalise accumulated profit as shares to expand capacity: 100% exemption from dividend tax on that capitalisation.

11(3ḍa)

A private company with paid-up capital of NPR 50 crore or more that converts to a public company: 10% off for three years from conversion. Not available to companies that were required to incorporate as public companies under section 12 of the Companies Act 2063.

11(3ḍha)

Domestic tea production and processing, dairy, and textile industries: 50% off tax on income from selling their products.

11(3ṇa)

Health institutions operated by community organisations: 20% off.

11(3ta)

Micro enterprises: No income tax for seven years from the start of business; three further years if run by a woman entrepreneur.

11(3tha)

Infrastructure: Entities building and operating public infrastructure for handover to the Government, and those building power plants, generating and transmitting electricity: 20% off.

11(3da)

Industrial areas: Special industries established in or relocated to an industrial area or industrial village: 50% off for three years from operation, then 25% off for five years.

11(3dha)

Local raw materials: Income from selling domestically produced raw or auxiliary materials to special industries: 20% off.

11(3na)

Startups: Startups designated by the department using innovative knowledge, ideas, skills, technology or methods, with turnover up to NPR 1 crore a year: 100% off for five years.

11(3pa)

Special industries relocating from Kathmandu Valley to outside it: 100% off for three years from relocation, then 50% off for two years.

11(3pha)

Industries producing new goods using only used goods that directly affect the environment as raw material: 50% off for the first three years, then 25% off for two years.

11(4)

Where a person carries on activities eligible for different concessions, income is calculated as if each activity were carried on by a separate person.

11(5)

Where more than one concession could apply to the same income, the person may take only one of their choosing, in addition to the 11(2kha) concession.

11ka

Where the Government and a person sign an agreement to build and operate infrastructure, the tax concessions in the Act at the time of signing apply for the full term of the agreement.

Industries operating in remote areas designated by the Government pay no income tax for ten years from the date operations begin. In later income years, tax is charged at up to 50% of the normal liability.

It applies to a resident natural person whose only income is Nepal-source business income, whose taxable business income does not exceed NPR 10 lakh, whose turnover is above NPR 30 lakh and below NPR 1 crore, and who does not earn income from consultancy or specialist services such as those of doctors or engineers. Tax is the sum of parts (a) and (b), or (a), (b) and (c), under section 4(4ka) of the Income Tax Act 2058.

(a) On turnover up to NPR 30 lakh, a fixed amount by location:

Metropolitan or sub-metropolitan city

NPR 7,500

Municipality

NPR 4,000

Elsewhere

NPR 2,500

(b) On turnover above NPR 30 lakh up to NPR 50 lakh:

Trading goods at a commission or markup of up to 3%, such as gas or cigarettes

0.25%

Other trading businesses

1%

Service businesses

2%

(c) On turnover above NPR 50 lakh up to NPR 1 crore:

Trading goods at a commission or markup of up to 3%

0.3%

Other trading businesses

0.8%

Service businesses

2%

Under section 94(1ka) the tax is paid in two instalments:

By the end of Poush

tax on turnover up to 20 Poush at the prescribed rate

By the end of Asar

tax on actual turnover to 20 Asar plus estimated turnover to the end of Asar, less the amount already paid by the end of Poush

The Finance Act 2083 did not change these amounts, so they apply for FY 2083/84.

It applies to a resident natural person whose business income does not exceed NPR 3 lakh, whose annual turnover does not exceed NPR 30 lakh, and who is not VAT registered, under section 4(4) of the Income Tax Act 2058. Tax is a fixed amount by location:

Metropolitan or sub-metropolitan city

NPR 7,500

Municipality

NPR 4,000

Elsewhere

NPR 2,500

The Finance Act 2083 did not change these amounts, so they apply for FY 2083/84.

It applies to a resident natural person whose only income is Nepal-source business income, whose taxable business income is up to NPR 10 lakh, whose turnover is above NPR 30 lakh and below NPR 1 crore, and who does not earn income from consultancy or specialist services such as those of doctors or engineers. Tax is the sum of parts (a) and (b), or (a), (b) and (c), under section 4(4ka) of the Income Tax Act 2058.

(a) On turnover up to NPR 30 lakh, a fixed amount by location:

Metropolitan or sub-metropolitan city

NPR 7,500

Municipality

NPR 4,000

Elsewhere

NPR 2,500

(b) On turnover above NPR 30 lakh up to NPR 50 lakh:

Trading goods at a commission or markup of up to 3%, such as gas or cigarettes

0.25%

Other trading businesses

1%

Service businesses

2%

(c) On turnover above NPR 50 lakh up to NPR 1 crore:

Trading goods at a commission or markup of up to 3%

0.3%

Other trading businesses

0.8%

Service businesses

2%

Turnover tax is paid in two instalments:

By the end of Poush

tax on turnover up to 20 Poush at the prescribed rate

By the end of Asar

tax on actual turnover to 20 Asar plus estimated turnover to the end of Asar, less the amount paid by the end of Poush

The Finance Act 2083 did not change these amounts, so they apply for FY 2083/84.

a company that owns hire vehicles must still pay the tax charged per vehicle. Because this is advance tax rather than a final tax, it can be credited against the annual tax liability.

Annual tax per hire vehicle for FY 2083/84 (Finance Act 2083): car, jeep, van or micro bus NPR 6,500 (up to 1300 cc), 7,000 (1301-2000 cc), 7,500 (2001-2900 cc), 9,500 (2901-4000 cc), 11,000 (above 4000 cc); mini-truck, mini-bus or water tanker 9,500; mini tipper 11,000; truck or bus 12,500; dozer, excavator, loader, roller or crane 17,500; oil tanker, gas bullet or tipper 17,500; tractor 3,500; power tiller 3,000; auto rickshaw or three-wheeler 3,500; electric vehicle 4,000 (up to 50 kW), 5,000 (50-125 kW), 7,500 (125-200 kW), 9,500 (above 200 kW); electric rickshaw 3,500; two-wheeler 3,000.

For natural persons, yes. For hire vehicles owned by companies and other entities, the tax is compulsory but not final: the entity must self-assess and pay tax with its income tax return, and can then credit the per-vehicle tax already paid.

You cannot pay presumptive tax. You must self-assess at the normal rates, file an income tax return and pay the tax. A non-resident cannot pay presumptive tax even with only business income, and must pay at the normal rates. Presumptive tax is available only to resident natural persons; partnerships, companies and other entities cannot use it.

A resident natural person paying presumptive tax cannot claim credit for medical expenses or for withholding tax.

You can fill in the D-01 return and revenue deposit form and pay through the bank counter at whichever tax office is convenient. The form must show your PAN, the income year, turnover and deductible amounts, the taxpayer's name and signature (or the representative's name and signature), and the taxpayer's mobile number.

A fee is charged for filing the return late, and interest for paying the tax late.

After paying the tax and filing the return with those details, you can obtain proof of filing from the relevant Inland Revenue Office or Taxpayer Service Office. For returns filed electronically, the receipt generated by the system once the return is submitted and verified is the proof of filing.

Within the deadline for filing the return, that is by the end of Ashwin of the following fiscal year.

Within the deadline the Income Tax Act sets for filing returns: tax for the previous fiscal year must be paid by the end of Ashwin of the current fiscal year.

Under the current arrangement, taxpayers who must file the D-01 return do not submit it at the Inland Revenue Office or Taxpayer Service Office. Instead they fill in the D-01 return and revenue deposit form directly at the bank counter when paying the tax. The form must show the taxpayer's PAN, the income year, turnover and deductible amounts, the taxpayer's name and signature (or the representative's name and signature), and the taxpayer's mobile number.

Anyone can deposit the tax at the bank on the taxpayer's behalf, but the D-01 return must be signed and submitted by the taxpayer or their authorised representative.

Presumptive tax is paid at the Inland Revenue Office or Taxpayer Service Office where you are registered; for hire vehicles, at the Transport Management Office. Deposit the cash at the bank and submit the simplified return with the voucher to the relevant office. You can also file online through the Taxpayer Portal at www.ird.gov.np without visiting the Large Taxpayer Office, Medium Level Taxpayer Office, Inland Revenue Office or Taxpayer Service Office.

A fixed lump sum that satisfies annual tax liability in the circumstances set out in Schedule 1 of the Income Tax Act. It applies to a resident natural person who chooses it, earns up to NPR 3 lakh or has turnover up to NPR 30 lakh, has only Nepal-source business income, and does not claim medical or withholding tax credits:

Metropolitan or sub-metropolitan city

NPR 7,500 a year

Municipality

NPR 4,000 a year

Elsewhere

NPR 2,500 a year

For FY 2077/78, the Finance Bill (Replacement) 2078 gave a 90% reduction on this tax.

The Finance Act 2083 did not change these amounts, so they apply for FY 2083/84.

Two. Tax on turnover up to 20 Poush at the prescribed rate is paid by the end of Poush. By the end of Asar, pay the tax on actual turnover to 20 Asar plus estimated turnover to the end of Asar, less the amount paid by the end of Poush.

This tax began in FY 2072/73. It applies where taxable business income is up to NPR 10 lakh and turnover is above NPR 30 lakh and below NPR 1 crore, at the rates set by nature of business in Schedule 1, section 1(17) of the Income Tax Act 2058.

The Finance Act 2083 did not change these amounts, so they apply for FY 2083/84.

Tax calculated as a fixed percentage of a taxpayer's total annual sales.

An organisation registered as tax-exempt with an exemption certificate loses the exemption in any of these situations:

1. 1It ceases to be a public or charitable organisation without a profit motive.
2. 2It does not file its return with audited financial statements at the relevant Inland Revenue Office on time, until it does so.
3. 3Its property or income is used to give personal benefit to any person.
4. 4It engages in activities outside the objectives in its constitution.
5. 5It does not renew its exemption certificate, until it does so.

1. 1Apply to the relevant Inland Revenue Office with the organisation's registration certificate, constitution, PAN certificate, and, for an existing organisation, the previous income year's return with the audit report. An organisation the Act says need not register does not have to apply.
2. 2The applicant must be a charitable or social organisation without a profit motive, as defined as a tax-exempt organisation in section 2(dha) of the Act.
3. 3Each year, the organisation must file its return and renew the exemption certificate within one year of the end of the income year.
4. 4It must file its return with audited annual financial statements within one year, and pay tax on any amounts received other than those covered by section 10(chha).
5. 5The auditor's report must state whether the organisation withheld tax under Chapter 17 of the Income Tax Act 2058, whether it received any amounts other than those in section 10(chha), and whether it acted only in line with its objectives.
6. 6Where payments to the organisation are subject to withholding under Chapter 17, the payer must withhold; if no tax is due on that income, the organisation must claim a refund.
7. 7Grants obtained by competing with taxable persons and organisations are not recognised as exempt.
8. 8The organisation must not use its property or income for the personal benefit of any individual. If it does, it loses its tax-exempt status.
9. 9The organisation must not act against the objectives in its constitution.

within one year of the end of the income year. Apply in the department's prescribed format with the previous year's income tax return, audited financial statements, and details of tax withheld and deposited. The certificate is renewed if the tax officer's review confirms the organisation qualifies.

The Inland Revenue Department, an Inland Revenue Office, the taxpayer service section of a Taxpayer Service Office, or the offices' help desks.

The application format can be downloaded from the department's website, www.ird.gov.np, but the application must be submitted to the office under the Inland Revenue Department where the organisation holds its PAN.

The head of the organisation or its authorised representative.

The office under the Inland Revenue Department where the organisation holds its PAN.

it can carry on commercial transactions such as contracts or service agreements, with or without competing for them. However, these are taxable transactions, so income from them is taxed under the Income Tax Act even if the organisation holds an exemption certificate.

before applying for the exemption.

Once registered with a PAN, it must withhold tax at the rates in the Income Tax Act on all payments subject to withholding, such as salary, house rent, contract or agreement payments and service payments, at the time of payment or when the expense is recorded. It must file the statement and deposit the tax at the relevant Inland Revenue Office or Taxpayer Service Office within 25 days of the end of each month. Late withholding or deposit attracts fees and interest.

An organisation with an exemption certificate that has taxable transactions must file within 3 months of the end of the fiscal year. If it has no taxable transactions, it must file the return with the relevant Inland Revenue Office or Taxpayer Service Office within one year of the end of the income year, for renewal purposes.

It must have its accounts audited and file its return annually within 3 months of the end of the fiscal year. If it also earns taxable income beyond its exempt income, it must file instalment statements, the annual return and pay tax on time.

It must obtain a PAN from an office under the Inland Revenue Department, and renew its registration certificate each year within one year of the end of the income year. It must file returns annually, and file withholding statements and deposit withheld tax on time. If it has income-taxable transactions, it must file the return and pay the tax within 3 months of the end of the fiscal year.

Apply for exemption to an office under the Inland Revenue Department. The application must show the name of the body or organisation, its PAN, its registration number with the relevant authority, address, objectives, place of operation, the name, position and address of the chair or head, and details of its sources of income.

Attach:

• The organisation's constitution
• A copy of any approval or renewal certificate required from another authority
• A copy of the PAN certificate
• A copy of the audit report, if any

Non-taxable receipts such as donations, gifts, grants, financial assistance and membership fees received to help achieve the organisation's objectives, and support received from government or non-government bodies, domestic or foreign.

Only non-taxable income such as donations, gifts, grants and membership fees received to support its objectives, and support from government or non-government bodies, domestic or foreign, is exempt. If it carries on business or investment like any other taxpayer, for example earning interest or house rent, that income is taxed.

• Non-profit social, religious, educational and charitable organisations of a public nature holding a tax-exempt certificate from the Inland Revenue Department, and non-business organisations formed to promote social or sporting facilities where members take no benefit
• Political parties registered with the Election Commission, which the Income Tax Act 2058 defines as tax-exempt

If the school operator earns a living from the school as profit or gain, that profit is taxed like any other taxpayer's. The operator must file a return, self-assess and pay the tax. If the operator also draws a salary as principal or chief executive, tax must be withheld on it and deposited, as for employment income.

Agricultural income is not taxed, except for firms, companies, partnerships and organised bodies carrying on agriculture as a business.

Agricultural income is not taxed at federal level, except for firms, companies, partnerships and organised bodies carrying on agriculture as a business. Income from agricultural business registered as a firm, company, partnership or organised body receives a 50% reduction in tax.

House rent is taxed at 10%, and for natural persons this tax is final. Companies renting out property must file a return and self-assess. From FY 2075/76, natural persons pay house rent tax to the local level at the rate it sets, while entities whose business is renting pay 10% at the Inland Revenue Office or Taxpayer Service Office.