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.
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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.
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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.
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