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Nepal Income Tax: 5 Key Takeaways for Entrepreneurs

Nepal Income Tax: 5 Key Takeaways for Entrepreneurs

Nepal has seen some notable improvements in the recent years in offering business opportunities to its dominant young population.

The Oli government’s pitch for start-up businesses and entrepreneurship is helping many young entrepreneurs to turn their dreams into reality.

There are a wide range of entrepreneurs stemming up across the country through some game-changing initiatives.

However, on the finance side, many of them are still far away from understanding government regulations and tax-related matters, which are key to their growing business.

1) Advanced Tax
Is your company’s Estimated Tax Liability (ETL) after ‘credit to the Withholding Tax’ is NPR 5,000 and more? Then you are liable to pay ‘Advanced Tax’.

In that case, you will have to pay ETL to the Inland Revenue department in the following installments:

40% of total ETL before ‘Poush’ ends;
70% of total ETL before ‘Chaitra’ ends;
And, 100% before the end of ‘Ashad’
Estimated tax shouldn’t be less than 90% of the annual tax paid to the IT department, and tax returns should be filed before the end of next ‘Poush’. Failing to do make this payment puts you under the ambit of ‘Interest u/s 118 (i.e. 15% p.a.) of Income Tax Act of Nepal’.

2) Withholding Tax
According to the Income Tax Act 2058, resident payers making payments covered under Section 87 to 89 can only withhold Income Tax.

Payments covered under Section 87-89 of Nepal IT Act 2058 include:

Withholding Tax on Salary Payment: Slab Rate
Withholding Tax on Services Payment: VAT Invoice – 1.5%, otherwise 15%
Withholding Tax on Interest Payment Paid by Bank FI to Natural Person: 5%
Note: Paid by Any Person to Resident Bank FI: No WHT

Withholding Tax on Contract Payment: 5% (If payment within 10 days is more than NPR 50,000)
Withholding Tax on Rent: 10%
Withholding Tax on Dividend: 5%
Withholding Tax on Payment of gain from Insurance Investment: 5%
Withholding Tax on Gain from Unapproved Retirement Fund: 5%