Nepal Income Tax Law: Comprehensive Analysis & FY25/26 Changes
Executive Summary: A Strategic Overview
Core Tax Framework
Nepal’s income tax system is fundamentally shaped by the Income Tax Act, 2058, and its accompanying rules, the Income Tax Rules, 2059. This legislative framework establishes the Inland Revenue Department (IRD) as the central body tasked with the administration, collection, and strategic development of tax policy. The system operates on a self-assessment basis, placing the onus on the taxpayer to file accurate returns, with the IRD maintaining the authority to conduct audits and make adjustments as necessary. The fiscal calendar in Nepal is a uniform income year that spans from mid-July to the following mid-July, aligning with the Nepali Fiscal Year (NFY). For a clear distinction in tax treatment, the law differentiates between residents and non-residents. Resident individuals and companies are subject to taxation on their worldwide income, whereas non-residents are only taxed on income derived from sources within Nepal. The taxation methodology varies depending on the type of taxpayer: individuals are subject to a progressive tax system, with rates increasing alongside income, while companies and other corporate entities are generally subject to a flat-rate tax system.
Key Policy Direction
The Government of Nepal’s fiscal policy, particularly as articulated in the recently unveiled Budget for Fiscal Year (FY) 2025/26, reflects a clear and strategic shift in economic priorities. The government is utilizing its tax policy as a powerful instrument to actively foster the development of a modern, knowledge-based economy. This is achieved through a multi-pronged approach that provides substantial tax incentives and concessions to emerging, high-growth sectors. Concurrently, the same policy framework is being employed to discourage certain consumption patterns and industries by increasing the tax and duty burden on what are often referred to as “sin” goods and services, such as tobacco, alcohol, and luxury items. This dual strategy of promotion and discouragement is a sophisticated mechanism for directing economic activity, seeking to cultivate a more diversified and sustainable economic base for the country.
Notable Tax Changes & Incentives
The FY 2025/26 budget introduces several landmark fiscal measures designed to stimulate specific sectors. Most notably, the information technology (IT) sector and its exports have been granted a significant 75% income tax exemption, a policy designed to reduce the effective tax burden to a final 5% withholding tax. This is a pivotal change aimed at making Nepal a highly competitive hub for IT services. In a similar vein, startups with an annual turnover up to NPR 100 million are now granted a complete income tax holiday for their first five years of operation, a measure to encourage entrepreneurship and innovation. To support a transition to a cleaner energy economy, the budget extends tax holidays and customs duty exemptions for green hydrogen production and for industries manufacturing electric vehicle (EV) charging infrastructure. Furthermore, the 2% Digital Service Tax (DST), levied on the turnover of non-resident digital service providers with transactions exceeding NPR 2 million, remains a key tool for broadening the tax base and ensuring fair competition with domestic businesses.
Introduction to Nepal’s Income Tax Framework: Legal and Administrative Foundations
Legislative and Administrative Authority
The legal foundation of Nepal’s income tax system is comprehensively defined by the Income Tax Act, 2058 and its regulatory companion, the Income Tax Rules, 2059. These instruments provide the core legal basis for the imposition, computation, and collection of income tax. All taxation and any subsequent amendments to existing tax laws must pass through a formal legislative process, requiring scrutiny, debates, and final approval by the Federal Parliament via a Finance Bill. This structured process ensures that fiscal policy is enacted with legislative oversight.
The central administrative body responsible for the practical application and enforcement of these laws is the Inland Revenue Department (IRD), which operates under the aegis of the Ministry of Finance. Beyond its role as a tax collector, the IRD is also instrumental in drafting tax policies and laws for various taxes, including income tax, value-added tax, and excise tax. For efficient tax administration across the country, the IRD delegates day-to-day operations—such as taxpayer registration, processing of tax returns and payments, auditing, and taxpayer education—to its network of field offices, known as Inland Revenue Offices (IROs) and Tax Service Offices (TSOs). The IRD has also been actively working to modernize its services by introducing online portals for registration, filing, and refunds, which enhances the efficiency of the tax system and promotes voluntary tax compliance.
Core Tax Concepts
Understanding the fundamental principles of Nepal’s tax system is essential for any individual or entity operating within its jurisdiction. A key concept is the Income Year, which is a uniform period running from the 16th of July to the 15th of July of the following year, corresponding to the Nepali Fiscal Year. This standardized period simplifies accounting and compliance for all taxpayers.
The concept of residency is a critical determinant of tax liability. A resident person, defined as a company formed or established in Nepal, or a natural person with a domicile, residence, or place of effective management in the country, is subject to tax on their worldwide income, regardless of where that income is sourced. Conversely, a non-resident is only liable for income tax on income that has a source in Nepal.
Taxable income itself is systematically categorized into four primary headings: business, employment, investment, and windfall gains. This classification provides a clear framework for computing assessable income, which is the total income from these sources before deductions. For business or investment income, all actual costs incurred to generate that income during the year are generally deductible. However, certain expenses are explicitly non-deductible, such as domestic and personal expenses, income tax paid in Nepal, and fines and penalties. The Income Tax Act also contains provisions for depreciation deductions on depreciable properties, which are categorized into different classes with varying depreciation rates, such as 5% for buildings and structures, 25% for computers and office equipment, and 20% for automobiles.
Taxation of Individuals and Natural Persons
Progressive Tax Slabs for Residents
Nepal’s income tax system for resident natural persons is progressive, meaning the tax rate increases as taxable income rises. The structure is tiered into several slabs, with the tax rates differing for individuals and married couples to account for varying household financial structures. A higher basic exemption threshold is provided for married couples, offering a measure of financial relief.
The marginal tax rates for the fiscal year 2025/26 are outlined in the following table, demonstrating the application of higher rates to higher income brackets 16:
Table 3.1: Nepal Progressive Income Tax Slabs and Rates (FY 2025/26)
| Individual Taxable Income (NPR) | Tax Rate (%) | Married Couple Taxable Income (NPR) | Tax Rate (%) |
|---|---|---|---|
| Up to 500,000 | 1 | Up to 600,000 | 1 |
| 500,001 – 700,000 | 10 | 600,001 – 800,000 | 10 |
| 700,001 – 1,000,000 | 20 | 800,001 – 1,100,000 | 20 |
| 1,000,001 – 2,000,000 | 30 | 1,100,001 – 2,000,000 | 30 |
| 2,000,001 – 5,000,000 | 36 | 2,000,001 – 5,000,000 | 36 |
| Over 5,000,000 | 39 | Over 5,000,000 | 39 |
A notable subtlety in the Nepali tax code, which is crucial for accurate financial modeling, concerns the calculation of the higher tax brackets. The tax rates of 36% and 39% are not applied as simple flat rates on their respective income brackets but are calculated as a surcharge on the preceding base rate. Specifically, the 36% rate is computed as the base 30% rate plus an additional 20% on the tax amount derived from that rate. Similarly, the 39% rate is calculated as the base 30% rate with an additional 30% applied to the tax amount. This sophisticated, two-tiered calculation for the highest income levels is a key detail for financial planning and demonstrates a structured approach to taxing high-net-worth individuals.
Deductions and Allowances
The tax system provides various avenues for natural persons to reduce their taxable income.
A key deduction is for contributions made to approved retirement funds, which includes the Social Security Fund (SSF), Citizens Investment Trust (CIT), and Provident Fund (PF). The deductible amount is the lower of NPR 500,000 or one-third of the person’s assessable income. For those contributing to other approved retirement funds but not the SSF, the limit is the lower of NPR 300,000 or one-third of taxable income. Additionally, a natural person can deduct annual premiums paid for a life insurance policy, up to a maximum of NPR 40,000.
Beyond these general deductions, the tax code offers specific allowances for particular circumstances. An incapacitated natural person can claim an additional deduction equal to 50% of the standard minimum exemption limit. For residents working in remote areas, a remote area allowance ranging from NPR 10,000 to NPR 50,000 is available, with the specific amount depending on the area’s category. Employees of Nepal’s diplomatic missions abroad are also granted a concession, as 75% of their foreign allowance can be deducted from their taxable income. These deductions and allowances are designed to provide financial relief and support individuals in specific situations, acknowledging differing life circumstances and costs.
3.3. Special Tax Regimes for Individuals
In addition to the progressive slab system, the tax code includes special provisions for specific types of taxpayers to simplify compliance and encourage economic activity. A key example is the presumptive tax regime for small taxpayers. A resident natural person with an annual business turnover up to NPR 3 million and a net income below NPR 300,000, and whose income is exclusively from Nepal-based business sources, may opt to pay a fixed presumptive tax.
This fixed tax varies by business location, set at NPR 7,500 for metropolitan and sub-metropolitan areas, NPR 4,000 for municipality areas, and NPR 2,500 for other areas. This regime is designed to simplify tax obligations for small-scale entrepreneurs and is compulsory for those who meet the eligibility criteria.
For non-residents, the tax framework is streamlined. A non-resident natural person is subject to a flat tax rate of 25% on their taxable income. This flat rate applies only to income that is sourced in Nepal, simplifying the tax structure for foreign earners who do not have a residence or permanent establishment within the country.
4. Taxation of Businesses and Corporate Entities
4.1. Corporate Income Tax (CIT) Rates
The corporate income tax (CIT) system in Nepal employs a differential rate structure, with rates varying depending on the nature of the business or industry. This approach allows the government to use tax policy as a tool for guiding economic development, incentivizing certain sectors while imposing a higher tax burden on others. The general corporate tax rate for most businesses is a flat 25%. However, several industries are subject to higher rates, particularly those considered to be more profitable or to carry higher social costs.
The following table provides a detailed overview of the various CIT rates applicable in Nepal:
Table 4.1: Corporate Income Tax Rates by Industry
| Company Type | Tax Rate (%) |
|---|---|
| General Business | 25 |
| Banks and Financial Institutions | 30 |
| General Insurance Companies | 30 |
| Telecommunication & Internet Services | 30 |
| Entities dealing in tobacco, liquor, petroleum products | 30 |
| Special Industries (e.g., Hydropower, IT, Tourism) | 20 |
| BOOT projects (roads, bridges, railways) | 20 |
| Cooperatives | 5 to 20 |
| Tax-exempt Entities (e.g., certain trusts) | Rates as per natural person |
The government’s use of differential tax rates is a strategic mechanism to influence industrial and investment behavior. For instance, the higher 30% rate on banks, financial institutions, and telecommunication companies reflects a policy of taxing sectors with strong market power or high profitability. Conversely, the concessional 20% rate for “special industries,” which includes sectors like hydropower, tourism, and IT, is a clear signal of the government’s intention to promote these areas as drivers of future economic growth and development.
4.2. Withholding Tax (TDS): A Key Mechanism for Tax Collection
Tax Deducted at Source (TDS), or withholding tax, is a critical component of Nepal’s tax administration system. It is a mechanism by which tax is collected at the time of payment by the payer, who then remits the deducted amount to the Inland Revenue Department. This system ensures a steady and predictable flow of tax revenue for the government and reduces the burden of tax collection from a wide array of recipients. TDS is applicable to a prescribed set of payments made in the course of business, employment, or investment transactions.
The following table provides a summary of common withholding tax rates on various types of payments:
Table 4.2: Common Withholding Tax (TDS) Rates
| Description | Tax Rate (%) |
|---|---|
| Remuneration (to employees) | Progressive rates |
| Interest, Rent, Royalties, Service Fees (to residents) | 15 |
| General Insurance Premiums (business related) | 1.5 |
| Business Contracts (amounting to over NPR 50,000) | 1.5 |
| Nepal-sourced Dividend (by resident company) | 5 |
| Lump-sum retirement payments (approved funds) | 6 |
| Lump-sum retirement payments (unapproved funds) | 10 |
The withholding agent, who is the payer of the income, is legally obligated to issue a TDS certificate to the recipient within a prescribed timeframe, which is typically within 15 days after the end of the month in which the tax was deducted. For remuneration, a TDS certificate must be issued by the employer within 30 days of the end of the income year. This system of deduction at the source streamlines the collection process and enhances tax compliance across a wide range of transactions.
4.3. Capital Gains Taxation
In Nepal, capital gains are generally treated as part of normal business income and are therefore subject to capital gains tax. This includes gains from the disposal of non-business chargeable assets, such as investment assets. The tax rates on gains from the disposal of certain assets, such as shares, are specified and vary depending on the asset’s holding period and the type of taxpayer.
For a resident natural person, gains from the disposal of interest in an entity listed with the Securities Exchange Board of Nepal (SEBON) are taxed at different rates based on the holding period. If the shares have been held for more than 365 days, the gain is taxed at 5%. If the ownership period is less than 365 days, the tax rate increases to 7.5%. The rates are different for other types of taxpayers and entities. For instance, gains from the disposal of shares in a non-listed entity by a resident natural person are taxed at 10%. For a resident person other than a natural person, the rate on gains from non-listed entities is 15%, while for a listed entity it is 10%.
These differentiated rates for capital gains are designed to provide a degree of incentivization for long-term investment, particularly in listed securities.
5. Tax Incentives, Exemptions, and Strategic Policies
5.1. Thematic Analysis of Incentives
Nepal’s tax incentive policy has shown a clear evolution from broad, general tax holidays to a more targeted and nuanced approach, particularly as reflected in the Budget for FY 2025/26. Historically, tax incentives were provided through blanket concessions, such as tax holidays for manufacturing industries and Special Economic Zones (SEZs).
The shift in the latest budget represents a more sophisticated use of fiscal policy. Rather than offering broad concessions, the government is now actively using tax policy to promote specific high-growth, high-value-add sectors. The focus is on fostering a modern, digital, and green economy by offering targeted tax breaks to sectors like information technology, startups, and green energy initiatives. This approach moves beyond simply attracting capital and is aimed at building a competitive advantage in sectors that align with global trends in technology and sustainability.
This strategic move is intended to diversify the economy away from its traditional reliance on agriculture and tourism and to create a more resilient economic base less susceptible to fluctuations in traditional sectors.
5.2. Detailed Breakdown of Key Incentives
The recent budget has formalized several significant tax incentives to stimulate specific sectors.
Information Technology & Startups: The most transformative of these is the new tax regime for the IT sector. Under the budget for FY 2025/26, IT service exporters, including both individuals and companies, are granted a substantial 75% income tax waiver on their export revenue. This is a game-changing policy that effectively reduces the tax burden on export income to a highly competitive final withholding tax rate of just 5%. Additionally, to foster a robust startup ecosystem, a full income tax exemption is now available for the first five years of operation for startups with an annual turnover of up to NPR 100 million.
Green Energy & Infrastructure: The government is also deploying tax policy to accelerate the transition to a green economy.
Industries involved in the production and assembly of electric vehicle (EV) charging machines are granted a five-year income tax exemption and a concessional 1% customs duty on necessary equipment imports. Similarly, green hydrogen producers will receive a five-year income tax holiday, demonstrating a commitment to supporting future-oriented energy sources. Hydropower projects licensed to produce, transmit, or distribute electricity are entitled to a significant 10-year full tax exemption, followed by a 50% concession for the next five years. This long-term concession is designed to encourage substantial investment in a sector that is a core strength of Nepal’s economy.
Other Concessions: The tax code continues to provide concessions to industries based on their geographical location. Tax rebates are available for industries operating in remote areas (90% concession), undeveloped areas (80%), and less-developed areas (70%), all designed to promote balanced regional development. Industries located in Special Economic Zones (SEZs) also benefit from tax exemptions, further encouraging concentrated investment and development in designated areas.
6. Tax Compliance and Administration
6.1. The PAN System and Self-Assessment
Central to Nepal’s tax administration is the Permanent Account Number (PAN) system. All individuals and companies with assessable income are required to register with the Inland Revenue Office (IRO) and obtain a PAN. This unique identification number serves as the primary identifier for all tax-related transactions and is crucial for compliance. The process of obtaining a PAN can be initiated online through the official IRD website’s Taxpayer Portal, which streamlines the application process. The online application involves filling out a form, uploading required documents such as citizenship certificates or business registration details, and then submitting the application for verification and processing by the IRD.
Nepal’s tax system operates on a self-assessment basis, where taxpayers are responsible for computing their own tax liability and filing their annual tax returns. While the IRD generally accepts these returns as final, it reserves the right to conduct a detailed audit of a taxpayer’s affairs at any time. This self-assessment model places a high degree of responsibility on the taxpayer to maintain accurate records and ensure full compliance, a practice that is monitored by assessing officers who frequently make tax audit assessments and adjustments.
6.2. Filing Deadlines and Penalties
Adherence to filing deadlines is a non-negotiable aspect of tax compliance in Nepal. The standard due date for filing an Income Tax Return (ITR) is the 31st of July for the preceding fiscal year. However, as observed for the FY 2024-25 (Assessment Year 2025-26), the Ministry of Finance has extended the deadline on multiple occasions, first to September 15th and then again to September 16th, due to various technical glitches and issues with the e-filing portal. These extensions, while providing temporary relief, also highlight the importance of staying informed about official announcements from the Ministry of Finance and the IRD.
Failure to comply with tax obligations carries significant penalties, which are designed to deter non-compliance and maintain the integrity of the tax system.
Table 6.1: Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| Late Filing (ITR) | A late fee of up to NPR 5,000. For taxpayers with an income below NPR 500,000, the fee is reduced to NPR 1,000. |
| Late Payment of Tax | A 15% annual interest rate is charged on the unpaid amount from the date the deadline is missed. |
| Non-submission of Returns | A late fee and interest at prescribed rates are charged. |
| False or Misleading Returns | A penalty ranging from 50% to 100% of the tax loss incurred, with the possibility of fines and even imprisonment. |
These penalties underscore the legal and financial risks associated with non-compliance. In addition to the monetary penalties and interest charges, a late ITR filing may also result in delayed processing of tax refunds and may attract closer scrutiny from the tax department, potentially leading to a detailed audit.
7. International Taxation and Agreements
7.1. Taxation of Non-Residents
The tax system in Nepal distinguishes between the tax liabilities of residents and non-residents, particularly in the context of international transactions. Non-resident persons and foreign permanent establishments are taxed exclusively on their Nepal-sourced income. This applies to income earned or acquired from a business, employment, or investment that has a source within Nepal.
A key mechanism for taxing non-residents is through withholding taxes. Payments made to non-residents for services such as interest, royalties, and technical service fees are generally subject to a withholding tax rate of 15%. However, specific provisions may apply; for example, dividends paid by a resident company to non-resident shareholders are subject to a final withholding tax of 5%. These withholding taxes serve as the final tax on such payments, simplifying the tax burden for the non-resident recipient while ensuring revenue collection for the Nepali government.
7.2. Double Taxation Avoidance Agreements (DTAAs)
To facilitate international trade and investment, Nepal has entered into Double Taxation Avoidance Agreements (DTAAs) with several countries. These bilateral treaties aim to prevent taxpayers from being taxed on the same income by both Nepal and the other signatory country. The DTAAs often provide for reduced withholding tax rates on various income streams such as dividends, interest, and royalties. They also include provisions for the exchange of information between tax authorities and procedures for resolving tax disputes through mutual agreement.
Nepal’s current network of DTAAs is listed below:
Table 7.1: Nepal’s DTAA Network
| Country | Year of Agreement |
|---|---|
| India | 1987 |
| Norway | 1996 |
| Thailand | 1999 |
| Sri Lanka | 1999 |
| Mauritius | 2000 |
| Austria | 2000 |
| China | 2001 |
| Qatar | 2007 |
| Pakistan | 2008 |
| Bangladesh | 2019 |
| South Korea | 2001 |
The expansion of Nepal’s DTAA network is a strategic imperative to attract greater foreign direct investment (FDI). While the country has successfully signed treaties with several nations, it has yet to conclude agreements with major FDI source countries like the United Kingdom and the United States. The IRD has publicly stated that negotiations are in process with countries such as Singapore, Malaysia, and the UK. The government’s active focus on expanding this network indicates a clear recognition that DTAAs are vital economic tools that reduce tax uncertainty and encourage capital inflow from foreign investors. The evidence suggests a clear correlation between DTAAs and increased investment, as seen with countries like India, China, and South Korea, which have witnessed a significant rise in investment since signing their respective treaties.
7.3. The Digital Service Tax (DST)
In a forward-looking move to modernize its tax system for the digital age, Nepal introduced a Digital Service Tax (DST). This tax is a direct response to the global challenge of taxing non-resident digital companies that generate significant revenue within a country without a physical presence.
The DST is a 2% tax levied on the transaction value of digital services provided by a non-resident person to a consumer in Nepal. This applies to a wide range of services, including online advertising, streaming, cloud services, and online marketplaces. The tax is only applicable when the annual transaction value exceeds NPR 2 million, and if this threshold is met, the tax is applied to the entire transaction value, not just the excess amount.
The implementation of the DST is a sophisticated policy choice. By taxing turnover rather than profit, the government simplifies enforcement and ensures tax collection from a sector that is notoriously difficult to track using traditional corporate income tax methods. Non-resident service providers are required to register online with the IRD and file annual tax returns within three months of the completion of the income year. This policy positions Nepal as an active participant in the global effort to tax the digital economy and signals its commitment to broadening the tax base in a fair and modern manner.
8. Analysis of Recent Amendments: Budget FY 2025/26
8.1. Overview of Fiscal Strategy
The Budget for Fiscal Year 2025/26, presented by Finance Minister Bishnu Paudel, is a clear policy statement prioritizing strategic economic sectors. The government’s fiscal strategy is designed to promote innovation, digital transformation, and sustainable growth. This is accomplished by allocating significant resources and providing targeted tax relief to the information technology, green energy, and domestic startup ecosystems, while simultaneously increasing taxes on industries like tobacco and alcohol to discourage consumption and raise revenue. The budget also takes steps to simplify tax administration and enhance digital tax monitoring.
8.2. Key Tax Highlights
The FY 2025/26 budget introduces several pivotal changes that will significantly impact taxpayers across various sectors.
IT Sector Incentives: The government has made a landmark move to establish Nepal as a global hub for IT services.
A new policy grants a 75% income tax exemption on income earned from the export of IT services. For a resident person in Nepal, a final withholding tax of 5% will now be levied on income earned from exporting information technology services abroad, effectively bringing down the tax burden to a highly competitive rate. Additionally, IT-based industries, along with hotels and resorts, will receive income tax and electricity tariff exemptions similar to those granted to special industries.
Startup and Entrepreneurship Support
To foster a vibrant entrepreneurial ecosystem, startups with an annual turnover up to NPR 100 million are now fully exempt from income tax for a period of five years. The budget also announced the provision of concessional loans at a 3% interest rate for startups, easing access to capital for new businesses.
Green Energy and Infrastructure Promotion
The government has introduced a consistent policy to promote clean energy and reduce dependence on fossil fuels. Industries manufacturing or assembling electric vehicle charging machines will be granted a five-year income tax exemption along with excise duty exemptions. Additionally, machinery required for green hydrogen production will be exempt from all taxes. These measures complement the decision to keep taxes on electric vehicles unchanged, reinforcing a long-term commitment to promoting green transportation and domestic electricity consumption.
Other Notable Changes
The budget also includes a number of other tax-related changes. It has eliminated advance tax on the import of essential items such as food grains, legumes, and fruits, a measure aimed at reducing import costs and stabilizing prices. Furthermore, the Value Added Tax (VAT) levied on digital payment services has been abolished, making e-payments more attractive and affordable. Conversely, taxes on alcoholic beverages, tobacco, and cigarettes have been increased, with higher customs and excise duties applied to discourage their consumption.
Strategic Implications and Conclusion
Synthesis of Insights
Nepal’s income tax law is not merely a set of revenue-generating regulations; it is a dynamic instrument of fiscal policy being used to actively shape the country’s economic future. The strategic shift from broad, often inefficient, tax holidays to a more targeted, performance-based incentive structure is a clear indicator of a maturing fiscal policy. The government is now using its tax system to actively cultivate a new economic identity, one that is built on high-value sectors like IT, innovation, and green energy, rather than a sole reliance on traditional industries. The introduction of the Digital Service Tax further underscores this modernization, as it represents a sophisticated response to the challenges of taxing the global digital economy and serves to broaden the tax base in a forward-looking manner.
The concurrent focus on expanding the Double Taxation Avoidance Agreement (DTAA) network demonstrates a clear understanding of the causal link between tax treaties and foreign direct investment. The government is actively working to reduce tax uncertainty for foreign investors, recognizing that a stable and predictable tax environment is a prerequisite for attracting global capital. These combined efforts—sector-specific incentives, digital tax frameworks, and international tax treaties—signal a strategic and cohesive plan to foster a more diversified, resilient, and internationally competitive economy.
Final Recommendations
Based on the comprehensive analysis of Nepal’s tax landscape, a set of key recommendations can be made for individuals and entities seeking to operate within its framework.
- For Investors and Businesses: The new budget has created significant opportunities, particularly in the information technology and green energy sectors. Investors should conduct thorough due diligence to understand the specific tax incentives available for their intended industry and ensure their business model is structured to maximize these benefits. While the standard corporate tax rate is 25%, the significant concessions for special industries can drastically reduce the effective tax rate, making these sectors highly attractive.
- For Exporters: The 75% tax exemption for IT service exports is a major competitive advantage. Entities and individuals engaged in this field should ensure their tax compliance and record-keeping are impeccable to qualify for the new 5% final withholding tax rate, as this represents a substantial reduction in tax liability and positions Nepal as a competitive location for IT outsourcing.
- For All Taxpayers: The frequent changes and occasional extensions to tax deadlines, as observed for FY 2024-25, highlight the dynamic nature of Nepal’s tax system. All taxpayers should proactively monitor official announcements from the IRD and the Ministry of Finance to stay informed about changes to laws, rates, and deadlines. Given the complexities of the tax code, engaging with a qualified local tax advisor is a prudent measure to navigate compliance requirements, minimize tax liabilities, and mitigate the risk of penalties associated with late filing or misrepresentation. The government’s push for a digital and simplified tax environment means leveraging online portals and electronic services will become increasingly critical for seamless compliance.
