Legal Environment of Business in Nepal 21 May 2017 TAX Legal Environment of Business in Nepal 21 May 2017 Saroj Shrestha

Introduction Any business entity, including industry that has to pay income tax or Value Added Tax (VAT) should obtain the PAN. The industry has to be registered with the District office of the Inland Revenue Department or Inland Revenue Office (IRO) before its operation. In order to get PAN, there is no fee or deposit imposed. Saroj Shrestha

PAN Registration PAN registration is essential for buying land, building and clearance of goods at custom office. Therefore, it is recommended that the companies are registered with IRO immediately after incorporation. For this, the company has to apply with an application form as shown in Income Tax Act and Rules along with the following documents:

Major Taxation Laws Income Tax Act, 2058 Income Tax Regulation, 2059 Value Added Tax Act, 2052 Value Added Tax Regulation, 2053 Fiscal Act, 2073

Required Documents for PAN Copy of the certificate of incorporation Copy of the memorandum and articles of incorporation Copy of the citizenship certificate (or passport in case of foreign national) who signs the application Two passport size photo of the individual who signs the application Hand drawn sketch of the business location of the applicant Power of attorney, if applicable.

Tax Deducted at Source (TDS) TDS should be deducted when the payment is made to the payee. Withholding tax (popularly known as Tax Deduction at Source or TDS) is one of the leading source of tax receipts of the government. The TDS mechanism has several benefits, especially to the government, with tax collection being easier mode of collection through withholding agents.

TDS TDS also removes the administrative burden of collecting tax from employees and other unaccounted sector. 24 November 2018

Income Tax Tax Rate Assessed as Individual First Tax slab Rs. 250,000 1% Next Rs.100,000 15% Balance Exceeding Rs. 350,000 25% Assessed as Couple First Tax Slab Rs. 300000 1% Next Rs. 100,000 15% Balance Exceeding Rs. 400,000 25%  

Income Tax.. In case the Taxable Salary of an Individual is more than Rs. 25 Lakhs, additional tax at the rate of 40 percent shall be levied on the tax applicable on the income above Rs. 25,00,000 24 November 2018

Income Tax Act, 2058 Normal Corporate tax: at 25%. Certain sectors like hydropower are taxed at concessional rate of 20% and other sectors like banking are taxed at 30% (section 2(4), Schedule 1, Income Tax Act 2002)  Dividend: at 5% (Section 88 (2) (a), ITA)  Capital gains (for the gain from the disposition of the shares of non-listed company) are subject to withholding tax at 10% for a natural person and at 15% for others (section 95A, ITA).

Cont.. However, the entire capital gain is subject to tax at the normal corporate rate applicable to the particular entity/person.

Some other tax Value Added Tax (VAT): 13% on the goods and service subject to VAT (Value Added Tax Act 1996). Withhold taxes: Certain payments are subject to withholding including payment of royalties (15%) and rent (10%).   24 November 2018

Cont.. Custom duty: Applies at the rate as imposed by the Fiscal Act introduced each fiscal year based on the nature of the goods being imported. Tax returns are filed under a self-assessment system and must be certified by the Auditor and submitted along with the audited accounts within the stipulated time.

Double Taxation Treaties Nepal has also entered into Double Taxation Treaties (DTTs) with 10 countries: People Republic of China. India. Mauritius. Sri Lanka. Pakistan. Republic of Korea. Thailand. Austria. Norway. Qatar.

If you have any questions or concerns, please discuss .. Thank you !