Handbook

TAXATION

Tax is the government's main source of revenue, and the development of any nation’s economy depends largely on its tax structure. Any business must be registered:

(a)    With an annual taxable turnover of more than 2 million rupees.
(b)   Belonging to a conglomerate which has an aggregate annual taxable turnover exceeding 2 million rupees.

In Nepal, companies have to pay taxes in the form of Direct Taxes (Income tax, House and Land Registration Fee) and Indirect Taxes (Custom Duties, Value Added Tax and Excise Duties) when conducting the business. Taxes must be paid at all levels of federal government, local government and province. Duty and Customs must be paid at the federal level, whereas company taxes and rental taxes must be paid at the local level, and the province government collects motor vehicle taxes, entertainment taxes, and agricultural revenue.

1.      PAN (Income Tax): PAN cards are vital for taxpayers because they are required for all financial activities and are used to track your money's inflow and outflow. It's crucial when it comes to paying income taxes, obtaining tax refunds, and communicating with the IRS. PAN Card is also used as a form of identification. This is done in order to maintain track of the taxes citizen’s pay and revenue leakages. A PAN identifies the holder as a Nepalese taxpayer. It is completely free and cannot be modified or renewed once it has been issued. A person or company with a Nepalese source of income that is liable to income tax must get a PAN from the IRO.

SN Agency Rate of tax Required Document Time Period Remarks
1
Inland Revenue Offices (IRO) .
The normal rate of corporate tax is twenty-five (25) percent
  • To obtain PAN Registration Certificate fill form online application/ standard form of application (Hard Copy)
  • A copy of Board Resolution in relation to PAN Registration
  • Power of Attorney - Original Copy
  • Company Profile - Original Copy
  • Copy of House Rent/Lease Agreement
  • Copy of Citizenship of Landowner/ Company Incorporation Certificate, MOA, AOA and PAN Certificate if Landowner is a Company
  • Copy of Land Ownership Certificate/ Electricity Bill/Telephone Bill
  • Hand sketched Location Map of Registered Office
  • Photographs of the Managing/Executive Director/Representative signing the application - 2 copies
  • A Copy of Company Registration Certificate
  • A Copy of MOA and AOA
  • A Copy of Citizenship of Directors
  • A Copy of Business Registration Certificate
  • A Copy of house rent tax payment receipt (Issued by Local Authority)
  • Company Seal

The company having income from business or investment has to pay tax in three installments within the same fiscal year. The installments should be paid in the following manner:

  • 40% - at the end of mid- January
  • 70% - at the end of mid- April
  • 100% - at the end of mid- June
 The corporate income tax should be deposited at the tax office where the entity obtains its PAN. Tax can also be paid online

2. VAT: VAT (Value Added Tax) is a broad-based tax that includes the value added to each commodity by a company at all stages of production and distribution. It is a contemporary tax system for improving tax collection, improving efficiency and reducing tax avoidance. The current registration threshold for VAT is Rs. 2 million. If an entity's transaction does not exceed the statutory threshold in a fiscal year, it is not necessary to register for VAT or voluntarily register; nevertheless, if the transaction exceeds the threshold, it is required.

SN Nature of Business Annual Transaction
1 Entities carrying out transaction of goods Above NRs.5,000,000
2 Entities providing services Above NRs. 2,000,000
2 Entities involved in transaction of both goods and services Above NRs. 2,000,000

VAT Registration

SN Agency Rate of tax Required Document Time Period Remarks
1
Inland Revenue Offices (IRO) .
VAT is charged at the single rate of 13%.
  • To obtain PAN Registration Certificate fill form online application/ standard form of application (Hard Copy)
  • A Copy of Board Resolution in relation to PAN Registration
  • Power of Attorney- Original Copy
  • Company Profile - Original Copy
  • Copy of House Rent/Lease Agreement
  • Copy of Citizenship of Landowner/ Company Incorporation Certificate, MOA, AOA and PAN Certificate if Landowner is a Company
  • Copy of Land Ownership Certificate/ Electricity Bill/Telephone Bill
  • Hand sketched Location Map of Registered Office
  • 2 copies of the Photographs of the Managing/Executive Director/Representative signing the application
  • A Copy of Company Registration Certificate
  • A Copy of MOA and AOA
  • A Copy of Citizenship of Directors
  • A Copy of Business Registration Certificate
  • A Copy of house rent tax payment receipt (Issued by Local Authority)
  • Company Seal
 Within 25 days of end of each month VAT depending on the nature of goods is deposited at the customs department or the tax authority from which the entity has obtained PAN. Link

3.      Customs Duty: In Nepal, customs charges are calculated based on the cost, insurance, and freight (CIF) value. Import duties range from zero to eighty percent. For most imported commodities, there is a two-tier tariff rate system: one for imports from the South Asian Association for Regional Cooperation (SAARC) countries, which is often lower than imports from all other non-SAARC countries. Any person or company importing or exporting products must do so in accordance with the Customs Act's prescribed routes.

SN Agency Rate of tax Time Remarks
1
Custom Department .
Customs duty depends on the goods that are being imported and exported. Custom duties can be changed by Finance Act. At the time of custom clearance. The customs duty is paid at the customs point or the Customs Department. Link

Required Document
Importing from India:
  • Authority letter of Customs Agent
  • livery order of Terminal Management Company (TMC) in case of inland clearance depots (ICDs) at Biratnagar, Birgunj, and Bhairahawa
  • Invoice
  • Nepalese Customs Declaration
  • Packing list
  • Additional documents for specific cargo such as plant quarantine/health/phytosanitary certificates for plants, lab test report for food products, analysis report for chemicals, health certificate for raw wool, a veterinary certificate for animals, etc. where applicable.
Importing from the third country via India:
  • BBN 4 form of The Nepal Rastra Bank (Central Bank)
  • Bill of lading/delivery order
  • Certificate of insurance
  • Certified copy of L/C or advance payment
  • COO (this is not strictly required except where imported goods are subject to a special tariff concession on account of their place of origin
  • CTD (Original)
  • Delivery order of TMC in case of Inland Container Depots (ICDs) at Biratnagar, Birgunj, and Bhairahawa
  • Enterprise registration certificate
  • Invoice
  • Letter of the authority of CA
  • Nepal's Customs Declaration (white color)
  • Paking list
  • VAT registration certificate/PAN
  • Wool specification test report if applicable
  • Additional documents for specific cargo such as plant quarantine/health/phytosanitary certificates for plants, lab test report for food products, analysis report for chemicals, health certificate for raw wool, a veterinary certificate for animals, etc. where applicable
Importing by Air:
  • Air waybill
  • BBN 4 form of NRB
  • Certificate of insurance
  • Certified copy of L/C or advance payment
  • COO (this is not strictly required except where imported goods are subject to a special tariff concession on account of their place of origin)
  • Enterprise registration certificate
  • Invoice
  • Letter of authority for CA
  • Nepal Customs Declaration
  • Packing list
  • VAT registration certificate/PAN
  • Additional documents for specific cargo such as plant quarantine/health/phytosanitary certificates for plants, lab test report for food products, analysis report for chemicals, health certificate for raw wool, a veterinary certificate for animals, etc. where applicable.

4. EXIM Code: The 13-letter EXIM code stands for Export Import Code. The EXIM Code must be obtained by any institution or enterprise engaged in the import and export of any goods or services, whether manufacturing or trade. Annually, the EXIM Code should be updated or renewed; prolonging the Bank Guarantee for another year .Entities that export items valued more than five lakh Nepalese rupees must get an EXIM Code.

S.N Agency Required Documents Remarks
1 Department of Customs
  • Application form
  • Industry registration certificate
  • PAN Certificate
  • License for the transaction of goods which is levied excise duty/ any other regulatory approvals
  • Recommendation letter by the Bank
  • Photograph of the Head of the Company
  • Sketch map to identify the Office of the Company
  • Bank guarantee of minimum one financial year term of three lakhs rupees issued by the Licensed Banks or cash security for the purpose of bank guarantee of minimum of one financial year term issued by Commercial Bank.
    • Note: Bank guarantee is not applicable for company carrying out export operations only.
  • Memorandum of Association/ Articles of Association/ Partnership Agreement as the case may be.
 link

5. Other Taxes

SN Nature of Tax Rate of tax Time Remarks
1
Withholding tax
. 		The withholding rate is different for different kinds of payments. The withheld tax deposited within 25 days from the end of each month.. The withheld amount should be deposited at the tax office from where the entity obtains PAN or can be paid online
2
Excise Duty
. 		Excise is levied at different rates prescribed in Excise Act for different goods and services and can be amended by Finance Act.
  • In case of production, at the time of production.
  • In case of services, excise is recovered at the time of issue of the invoice
  • In case of import, at the time it is considered as import for the customs purpose.
 Excise Duty depending on the nature of goods is deposited at the customs department or the tax authority from which the entity has obtained PAN or online.
3
Business Tax
. 		Different for different Industries. Business tax is required to be paid Annually
4
Rental Tax
. 		Different for different local governments. Rental tax is required to be paid Annually.
5
Motor Vehicle
. 		Dependent on the Province Provincial tax is required to be paid annually.

Tax Payment Procedure

SN Step/Process Agency Time to complete Required Documents
1 Open bank account: A bank account that deals with the collection of your capital, payment of your suppliers, and payment of salary to your staff through cheque. 1 day
  • MOA,AOA,
  • OCR Registration Certificate)
  • Minutes of the board for the opening bank account
  • Photos
  • And any other specific documents are required for opening a bank account.
2
Company detail registration with OCR
 Office of the Company Registrar 1 day
  • The exact address of the registered office. (Within 3 months of registration)
  • Details of allotment after the collection of committed capital from each shareholder within the Fiscal Year of the establishment of the company.
  • Appointment of auditor by the board of the company for the first year.
3
Designing and printing of recording materials
 Materials such as: invoices, receipts, vouchers, and ledgers are required to record the company’s transactions. Sales and Purchase Book are required for transactions relating to Value Added Tax. These materials require a specific format and some even require approval from regulators before use.
4
Design and implementation of an Accounting System:
An accounting system that is in line with Nepal Accounting Standards with a minimum requirement of government authorities – Inland Revenue Department, Office of Company Registrar is required. VAT, Income tax, Excise Duty, and other tax amounts are to be calculated based on the data captured in the company’s accounting system. Failure to submit evidence of the company’s transactions will lead to additional tax, fines, and penalties. An expert’s service is advisable.
5
Fill IRO application form
 Inland Revenue Office 1 day
  • Copy of your citizenship certificate.
  • Copy of company registration certificate.
  • Two identical Passport Size Photos of the person who signed the application form. For Partnership firms, 2 identical size photos of each partner.
  • Sketched map of main office/head office.
  • Rental agreement including receipt of TDS on rental payments for 3 months**
    • *Application documents require the company’s seal. Note: All the document stamped with the company Seal
6
Obtaining a VAT registration certificate
 Inland Revenue Office 1 day A company carrying transaction with a turnover of more than NPR 5,000,000 and in the case of goods and services, a turnover of more than NPR 10,000,000 the last 12 months requires their transactions to be registered. The VAT registration is provided along with the PAN card registration.

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