Skip to main content

I am Nepali working for a Foreign Company, will I be liable for tax?

Applicability of tax depends on the residential status as defined by Income Tax Act. 

It has nothing to do with citizenship status. A natural person might be a citizen of Nepal but a non-resident for the purpose of taxation. Similarly, foreign nationals might be residents of Nepal. We have three yardsticks to test whether a natural person is a resident or non-resident of Nepal.

1) Natural Person stays in Nepal for 183 days or more in a consecutive period of 365 days.

2) Natural Person is an employee of Nepal Government

3) Natural Person normal place of abode is Nepal.

The question above doesn't specify whether a natural person is working for a foreign company out of Nepal or outside of Nepal. 

Opinion A: Let us assume that a natural person stays abroad & has not been in Nepal for more than a year or so, in such a case, there will not be any tax liability in Nepal. Why? Because the person doesn't full any of the criteria listed above and thus, is non-resident and for non-resident only income having source in Nepal is taxable. Here, income is also from a foreign source.

Opinion B: Let us assume that a natural person stays abroad & has been in Nepal but for less than 183 days in a consecutive 365 days that fall in an Income year, in such a case, there will not be any tax liability in Nepal. Why? Because the person doesn't full any of the criteria listed above and thus, is non-resident and for non-resident only income having source in Nepal is taxable. Here, income is also from a foreign source.

Opinion C: Let us assume that a natural person stays abroad & has been in Nepal for more than 183 days in a consecutive 365 days that fall in an Income year, in such a case, a person will have to pay tax in Nepal. Why? Because the person fulfills criteria no. 1 listed above & thus, is a resident. For residents both income from local & foreign source is taxable.

Opinion D: Let us assume that a natural person stays in Nepal & working from home for a foreign company, in such a case, a person will have to pay tax in Nepal.  Why? Because the person fulfills criteria no. 1 & 3 listed above & thus, is a resident. For residents both income from local & foreign source is taxable.

Instagram, Facebook & Tiktok @arthabichar.nepal

How do government keep track of those incomes? Is it possible? Will government find out if not paid?

Nepal follows a Self Tax Assessment system requiring the taxpayer to self-declare their income and applicable tax for the Income Year. Inland Revenue Department (IRD) can do assessments (jeopardy or amended) based on the returns submitted. However, there is a grey area now which IRD needs to further clarify on. According to Income Tax Act, Amendment 2077/78, a tax return shall be filed by a natural person only with income above NRs. 40 lakh. Any other natural person with lower income does not require a filing. As such YouTubers, bloggers, or even employees of the Foreign company having income less than NRs. 40 lakhs are enjoying the loophole and most probably, not paying taxes.

The question, around whether the government can find out and bring those in the tax bracket? It shouldn't be hard as long as the payments are being received through a banking channel and not illegally through hundi etc. It is just that government is busy fire fighting and has other competing priorities, I feel that this has been in the shadow.

Follow us on Instagram, Facebook, and Tik Tok, search for @arthabichar.nepal. And, let us know how you find our content. Thank you and enjoy reading.

Labels:

Comments

  1. shantiMay 21, 2021 at 4:18 PM

    This is a very great information. I have learned a lot from your posts and I really hope people also start to understand why we need to learn about tax and all.

    ReplyDelete

Post a Comment

Most Viewed

Tax Collection Agency codes for IRD Offices all over Nepal

Inland Revenue Department Nepal has published the agency codes that shall be used for the collection of direct and indirect taxes for the general public's information. Each code consists of 9 numbers. There are in total 59 agency codes currently in use. From these codes, we can classify that there are four types of IRD offices currently in operation. 1) Inland Revenue Office 2) Tax Payer Service Office 3) Large Tax Payer Service Office, and 4) Medium Tax Payer Service Office When shall you use these codes? It shall be used while choosing the agency where the tax should be deposited while completing the form for depositing the taxes. Agency Code list below: S.N. Agency Code Name Address 1 305011620 Inland Revenue Office Lahan 2 305030201 Tax Payer Service office Phidim 3 305030301 Tax Payer Service office Illam 4 305030401 Tax Payer Service office Khandbari 5 305030601 ...
1 comment
Read more

Online Payment of Taxes in Nepal: Process prescribed by Inland Revenue Department

Nepal Government has officially enabled the online payment of taxes levied by Inland Revenue Department per the decision of 2074/11/11. E-Payment (Online) Payment of taxes services is available to only those: a) who have availed Self Verification Service from Tax Payer's Office, thus, have username and password to log on to IRD  Tax Payer's Portal b) who have linked their company's bank account with Connect IPS , online payment service provider recognized by Nepal Government and managed by Nepal Clearing House Limited (NCHL) and thus, have a username and password. Those who do not have their bank account linked can easily do so by following the process below: Open www.connectips.com Create your Account ( Mobile No., Email id and Date of Birth is Mandatory for verification) Note Username and Password just entered while creating your account You will receive a verification code on your mobile and email, please input that get your account verified.  Now, to link ...
10 comments
Read more

Nepalese VAT Act: Understanding VAT Claims for Food Expenses in Business

Introduction: Determining whether a business can claim VAT against food expenses depends on the nature and purpose of the expenditure. Let's walk through a checklist to find the answer: 1) Was it a Business Expense?      If yes, proceed to question 2. Otherwise, VAT cannot be claimed. 2) Was it for Entertainment Purposes?      If yes (e.g., staff retreat, gatherings, farewells), VAT cannot be claimed. Otherwise, it may be eligible. VAT Act and Regulations: Rule 41 of VAT Regulation specifies that certain services or goods are not eligible for input tax credit under Sec 17 of the Nepalese Income Tax Act. These include: 1) Beverages (excluding mineral water, as clarified in the directive) 2) Alcohol or alcohol-based beverages like whiskey and beer 3) Petrol for vehicles 4) Entertainment expenses In the case of food expenses, it's crucial to determine whether they fall under the category of entertainment expenses. This encompasses activities that provide perso...
Post a Comment
Read more