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

Process of Obtaining Tax Clearance Certificate in Nepal?

A tax clearance certificate confirms that an individual or entity: is in compliance with the Nepalese Income Tax Act, 2058 and its regulations, has submitted the tax return, audit report and necessary schedules, and all the taxes have been duly paid to the Government of Nepal Who issues Tax Clearance Certificate? The Inland Revenue Department (IRD) is authorized to obtain tax clearance certificate on behalf of the Ministry of Finance, Government of Nepal. How do I apply? An application must be filed at the concerned Tax Payer's office with NRs 10 stamp with the following documents enclosed: 1) Entity: Copy of the payment of taxes per Self Assessment submitted to IRD. Copy of the Audit Report duly audited by the member of the Institute of Chartered Accountants of Nepal (ICAN). Copy of the Previous Year Income Tax Return and Copy of Tax Clearance Certificate Obtained if any. Copy of the Permanent Account Number (PAN) Certificate. 2) Individual: In the c...
9 comments
Read more

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

Can You Pay Vehicle Taxes in a Different Province's Transport Management Office in Nepal for a Vehicle Registered Elsewhere? Like Koshi to Gandaki?

Introduction Nepal's transformation into a federal state with seven provinces has brought about a distinct shift in governance. Each province now wields the power to establish its own laws, creating a unique administrative setup. Unique Tax Systems in Each Province Since the shift to federalism, an intriguing trend has emerged. Each province has independently set its own tax rates and devised specific procedures for blue book renewals in the transport sector. It's like having a mosaic of rules that don't always align seamlessly. While transport ministers from all provinces initially discussed the possibility of standardizing vehicle tax rates, progress has been slow. Despite an agreement allowing vehicle owners to pay taxes in a province of their choice, regardless of where their vehicle is registered, little has changed. This initiative was handed over to the Federal Ministry of Physical Infrastructure and Transport to oversee ( source ). The Need for Progress Unfortunatel...
Post a Comment
Read more