Worldwide VAT, GST and Sales Tax Guide
Kathmandu GMT +5¾
Direct all queries regarding Nepal to the persons listed below in the Kolkata, India, office.
Indirect tax contacts
Sidhartha Jain +91 (33) 6615-3565 sidhartha.jain@in.ey.com
Avisekh Jaiswal +91 (33) 6615-3449 avisekh.jaiswal@in.ey.com
Chirag Mehta +91 (33) 6615-3421 chirag.mehta@in.ey.com
Arnab Dey +91 (33) 6615-3696
arnab.dey@in.ey.com
A. At a glance
Name of the tax
Local name
Value-added tax (VAT)
Date introduced 16 November 1997
Trading bloc membership South Asian Free Trade Area (SAFTA) Bay of Bengal Initiative for Multi-Sectorial Technical Economic Cooperation (BIMSTEC)
Administered by Inland Revenue Department (IRD) (https://ird.gov.np/)
VAT rates
Standard 13%
Other
Zero-rated (0%) and exempt
VAT number format 9-digit number which is same as the permanent account number (PAN), provided to persons registered under the income tax law of Nepal
VAT return periods
Monthly (where annual taxable turnover is greater than NPR10 million); four-monthly (where annual taxable turnover is equal to or less than NPR10 million)
Thresholds
Registration NPR5 million for goods/NPR3 million for mixed supplies of goods and services, and for only services within the last 12 months
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following transactions:
• Supply of goods or services within the state of Nepal
• Import of goods or services into the state of Nepal
• Export of goods or services from the state of Nepal
“consumer” means a person who consumes services and has a normal place of abode in Nepal. However, a person who purchases goods and services by separate arrangement for business purposes or to use in business shall not be considered as a consumer.
Nonresident providers of electronically supplied services for B2B supplies are not required to register and account for VAT on supplies in Nepal. Instead, the customer is required to selfaccount for the VAT due by way of the reverse-charge mechanism (see the Reverse-charge subsection above). Electronically supplied services (known as “digital services” in Nepal) include the following ser vices (whose delivery essentially requires information technology and provided automatically through the internet with minimal human intervention):
• Advertisements
• Movies, television, music, over the top (OTT) and other similar subscription-based services
• Data storage services
• Cloud services
• Gaming
• Service related to mobile application
• Online marketplace services and goods and services provided through it
• Supply and update of software
• Download of data, images and similar services
• Consultancy, skill development and training services
• Similar services to the above
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Nepal.
Registration procedures. A person that intends to engage in any transaction must file an application for VAT registration, in the prescribed format to the tax authorities, prior to carrying out any transactions. Where a person carries out any taxable supplies of goods or services, it must file an application for VAT registration, in the prescribed format to the tax authorities, which must be done within 30 days from the date of imposition of the tax or the date of commencement of such transaction.
The registration application along with the required documents must be submitted online. Generally, the VAT registration number is received in at least three working days.
The required documents to be submitted with the registration application include the following:
• Incorporation certificate
• Memorandum of agreement (MOA)
• Articles of association (AOA)
• Details of the directors (ID, proof of address, photographs)
• Rental/lease agreements
• Copy of the permanent account number (PAN) certificate
Deregistration. A registered person may apply for cancellation of its VAT registration (deregistration) for any of the following circumstances:
• In the case of a body corporate, if the body corporate is closed down, sold or transferred or if the body corporate in any manner ceases to exist
• In the case of an individual ownership, if the owner dies
• In the case of a partnership firm, if it is dissolved or a partner dies
• If a registered person ceases to be engaged in taxable transactions
• If the taxable person files a zero return or does not file a return at all within a consecutive period of 12 months
• If taxable transactions of the taxable person do not reach NPR5 million in the case of goods, and NPR3 million in the case of services and transactions involving both goods and services in past 12 months
• If registered mistakenly
An application for cancellation of registration must set out the circumstance(s) for cancellation of registration and be sent to the tax authorities within 30 days from the date of occurrence of the circumstance for cancellation of registration. The deregistration application is submitted online on the IRD’s official website.
Changes to VAT registration details. A taxable person is required to notify the tax authorities of changes in registration details within specific time frames that differ depending on the change.
Where there is a change to the principal place of business, a registered person must provide the relevant information to the tax authorities within 15 days of the change.
Where there is a change in the nature of the business activity, a registered person must provide information about the change to the tax authorities within 15 days of the change.
Where a registered person transfers ownership of a business or part of a business, it must provide the relevant information by setting out all the details (in the format as set forth in Schedule 4) to the tax authorities within seven days of the date on which the transaction was transferred.
For the above changes, the registered person may submit the information in the form of a request letter to the tax authorities outlining the required changes. In the case of a transfer transaction, since a format has been specified the prescribed format must be used.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 13%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods and services unless a specific measure provides for the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Goods for export
• Services supplied to persons outside of Nepal
• Goods or services imported by a person or mission utilizing diplomatic facility and a person serving in a diplomatic mission enjoying tariff facility, on the recommendation of the Ministry of Foreign Affairs, Government of Nepal
• If any previous treaty or agreement provides for the sales tax exemption on imports, and local purchase is made from the taxable persons, on the recommendation of the concerned project, zero-rating shall be provided on such supplies, so long as such treaty or agreement is in effect
• Raw materials to be sold to and goods manufactured by any industries established pursuant to the laws in force and operated in the special economic zone
• Batteries used in the equipment and mechanism generating energy from solar power, which are produced by any domestic industry and to be supplied by that industry (the use of the zero-rate shall be provided to that industry on that transaction on the recommendation of the Alternative Energy Promotion Center and in accordance with the procedures specified by the Department).
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Basic agricultural products
• Goods for basic needs (e.g., salt, oil, electrical energy, etc.)
• Live animals and animal products
• Agricultural inputs
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in Nepal.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Nepal.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Nepal is not recoverable.
H. Invoicing
VAT invoices. Every registered person is required to issue a full VAT invoice to the recipient of its supplies, for both goods and services. However, there are special rules for retailers (see the Simplified VAT invoices subsection below).
No input tax credit shall be admissible against a tax invoice if the information specified is not included in such invoice.
Credit notes. A “credit note” means a supplementary invoice based on which the registered person can make a decreasing adjustment of one or more invoices issued earlier related to the amendment. A “debit note” means a supplementary invoice based on which the registered person can make increasing adjustment of one or more invoices issued earlier that is related to the amendment.
Electronic invoicing. Electronic invoicing is mandatory in Nepal, for certain taxable persons.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for certain taxable persons in Nepal. The requirements related to electronic invoicing are the same as those for paper invoicing.
Electronic invoicing is mandatory for the following taxable persons:
• Taxable persons with an annual turnover greater than NPR100 million for all types of supplies
• Taxable persons engaged in the supply of internet services, furnishings, hotels and restaurants with an annual turn-over greater than NPR50 million
For other taxable persons, it may only issue electronic invoices where it has obtained prior approval from the tax authorities. However, nonresident digital service providers and airlines are not required to obtain approval from the tax authorities to issue invoices electronically.
The tax authorities may by publishing a notice order specified taxable persons (as specified in the notice) to compulsorily issue invoices through an electronic medium and affiliate, such as the Central Billing Monitoring System (CBMS) of the tax authorities.
Simplified VAT invoices. Simplified VAT invoices are allowed in Nepal for retail supplies. If any taxable person carries out retail sales of any goods or services, it can file an application to the tax authorities, and the tax authorities may then grant permission that the taxable person while conducting retail sales of any goods or services can instead of issuing full VAT invoices issue abbreviated tax invoices.
The main requirements of abbreviated tax invoices include the following:
• Where several goods of small value have been sold, the abbreviated tax invoice issued shall mention the name of each item of goods separately
• A registered person who issues an abbreviated tax invoice to the recipient must maintain the following records: – Prepare and maintain a duplicate copy of the original invoice
separate explanatory letter is required to be provided and there is no specified deadline by when the corrections must be made.
Digital tax administration. There are no transactional reporting requirements in Nepal.
J. Penalties
Penalties for late registration. The penalty for not applying for registration within the prescribed time limit is NPR20,000 every time the taxable person does not comply with the provisions of law. Additional penalties and interest will also apply if there is any evasion of VAT on sales before registration.
There is no specific penalty in Nepal for the late registration of VAT. However, interest and fees may be leviable since late registration would lead to late payment of taxes. A fine of 50% of VAT due is charged if a person required to be registered engages in any transaction(s) without registration for VAT.
Penalties for late payment and filings. For the late payment of VAT due, a penalty at the rate of 10% per annum shall be imposed on the amount of tax due. Further, if any amount due to be paid is not paid within the time period, interest shall be charged at 15% per annum on the outstanding amount from the date of the expiry of the time period.
For the late filing of VAT returns due, a penalty at the rate of NPR1,000 per tax period shall be imposed or 0.05% of tax payable per day, whichever is higher.
Penalties for errors. Failure to display the VAT registration certificate in a conspicuous manner at the taxable person’s principal place of business and additional places of business; or failure to use the VAT registration number for all transactions relating to VAT, excise and customs duty; and to other prescribed transactions attracts a penalty of NPR1,000 for each breach.
Failure to place the tax board at designated places attracts a penalty of NPR2,000 for each breach.
Failure to issue an invoice attracts a penalty of NPR10,000 for each breach, and NPR1,000 each time for not taking the invoice. “Not taking the invoice” applies to the procurer of goods/service who was required to obtain a VAT invoice for the transaction but failed to do so. For instance, purchasing services worth NPR3.5million. As the procurer is already aware that a person providing services greater than NPR3 million during the year is required to register for VAT, the procurer shall be held guilty for not obtaining a VAT invoice from the supplier.
Failure to maintain updated accounts of transactions attracts a penalty of NPR10,000.
Where a taxable person is found to have used a software for the issuance of electronic invoices that can delete or correct data, a penalty of NPR500,000 may be imposed.
There are no specific penalties associated with the late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details. However, a general penalty of NPR10,000 may be imposed for each default. For further details, see the subsection Changes to VAT registration details above.
Penalties for fraud. If a taxable person commits any of the following offenses, the tax authorities may impose on such a person the sentence of a fine of 100% of the claimed amount of tax or of imprisonment for a term not exceeding six months or both:
• Preparing a false account, invoice or other document
• Evading tax by committing a fraud
• If an unregistered person acts as if it were a registered person
• Selling on under-invoicing