Tax in Nepal

Who is the tax authority?

The Inland Revenue Department (IRD) administers income tax, VAT, and most other domestic taxes in Nepal. It operates under the Ministry of Finance and maintains the national taxpayer portal at ird.gov.np.

For large corporate taxpayers, the Large Taxpayers' Office (LTO) in Kathmandu handles assessments separately. Customs duties and border levies are administered by the Department of Customs, also under the Ministry of Finance.

The substantive legal framework rests on three main statutes: the Income Tax Act 2058 (2002 AD), the Value Added Tax Act 2052 (1996 AD), and successive annual Finance Acts that set rates and update thresholds.

The Bikram Sambat fiscal year

Who is a Nepalese tax resident?

Under Section 2(t) of the Income Tax Act 2058, an individual is a tax resident in Nepal during an income year if any one of three conditions is met:

• Their normal place of residence (permanent home) is in Nepal, OR
• They are physically present in Nepal for 183 or more days in any 365-day period that overlaps with the income year, OR
• They are an employee of the Government of Nepal posted abroad

Residents are taxed on their worldwide income. Non-residents are taxed only on Nepal-source income at flat or schedular rates — typically 25% on most categories, with lower rates available under applicable bilateral tax treaties.

Personal income tax rates

Nepal applies five progressive brackets for FY 2080/81. The first NPR 500,000 of net income is taxed at 1% (effectively a social-security-layer rate). Couples receive a 10% rebate on tax payable and a higher basic threshold of NPR 600,000.

Employees and self-employed individuals also make Social Security Fund (SSF) contributions:

Allowable deductions include medical insurance premiums (up to NPR 40,000) and contributions to approved retirement schemes (up to NPR 300,000).

Corporate income tax

Nepal's corporate income tax (CIT) varies by sector. The standard rate is 25% for most resident companies.

Tax losses carry forward for 7 years (10 years for hydroelectric projects, 12 years for export-oriented industries). Loss carryback is not available. Nepal has not yet transposed the OECD Pillar Two global minimum tax.

Capital gains tax

Capital gains are taxed separately from ordinary income under the Income Tax Act 2058.

Capital gains on securities are typically withheld at source by stockbrokers or financial institutions at the time of disposal. Real property transactions involve registration at Land Revenue Offices, where the gain is assessed.

VAT and indirect taxes

Nepal's Value Added Tax Act 2052 (1996 AD) imposes a standard VAT rate of 13% on the supply of goods and services.

VAT registration is required once annual turnover exceeds NPR 5,000,000 (NPR 5 million). Below that threshold, registration is voluntary. VAT-registered businesses must submit monthly returns by the 25th of the following Nepali calendar month.

The Electronic Billing System (EBS) is mandatory for VAT-registered taxpayers. Reverse-charge VAT applies to imported services. Digital services supplied by foreign B2C providers also fall within the VAT net under Finance Act amendments.

Withholding tax obligations on domestic payments include: 5% on rent income, 15% on dividends to residents, 15% on interest (reduced to 5% for banks and financial institutions), 15% on royalties, and 25% on service fees paid to non-residents.

Currency framework — the NPR/INR peg

Remittances from Nepali workers abroad — primarily in Gulf states and India — account for approximately 30% of Nepal's GDP. This inflow is denominated in foreign currency and must be converted to NPR at the peg rate when received.

Treaty network

Nepal has approximately 8 active bilateral double tax agreements (DTAs). India is by far the most significant partner — Nepal's largest trading relationship and the source of large labour flows in both directions.

Nepal is a SAARC member and party to the SAARC Limited Multilateral Agreement on Avoidance of Double Taxation, which provides a regional coverage layer. Transfer pricing provisions were introduced in Income Tax Act amendments around 2017 but enforcement remains at an early stage. Nepal has not signed the OECD MLI.

Regional cohort — South Asia (SAARC)

Nepal sits within the South Asian tax cohort alongside six other SAARC member states. All seven jurisdictions apply progressive personal income tax and a VAT-equivalent indirect tax, but differ significantly in rates, thresholds, and treaty depth.

LDC status and transition

Businesses investing in Nepal should track the graduation timeline. Incentive frameworks tied to LDC status — including certain duty-free access provisions and bilateral development-finance terms — will change as Nepal crosses the graduation threshold.

Common pitfalls

Foreign businesses and individuals regularly encounter these compliance traps in Nepal:

When to call a tax professional

Some Nepal tax situations can be handled through the IRD portal. Others involve enough complexity that qualified guidance is worthwhile.

Specific triggers that warrant qualified assistance:

• Your income crosses the 30% bracket (NPR 1,000,000 and above)
• You have cross-border income subject to a DTA, or non-resident income subject to Nepalese WHT
• You operate a company in banking, insurance, hydro power, or a sector with a non-standard CIT rate
• You are claiming CIT incentives under SEZ or priority-sector rules
• You received an IRD assessment or audit notice
• You are uncertain whether the VAT registration threshold applies to your activities
• You need to convert BS filing dates to Gregorian calendar equivalents and ensure advance-tax instalments are correctly calculated
• You have real property or securities disposals subject to capital gains

You can find vetted Nepal practitioners through the directory below.

This page is general information. It does not constitute personal guidance for your specific situation. Tax rules change with each Finance Act. Always verify current figures with the IRD or a licensed Nepal practitioner before filing.