Who gets taxed in Nepal?

Who gets taxed in Nepal? Isn’t that straight forward question? The simple answer would be whoever earns an income. But, believe me.. it isn’t that simple. Income Tax Act, 2058 uses the term “person” for those who will be taxed in Nepal. It, actually, bifurcates the person into two categories:

1) Natural Persons

2) Entity (Artificial Person)

1) Natural persons are further classified into four border categories.

a) Single natural person

b) Couple who opted to be taxed as a single person

Clarification: For the purpose of taxation, each of the spouses is treated as a single natural person unless they opt to file tax jointly as a couple.

Figure 1: Answer to who gets taxed in Nepal?

c) A widow or widower with dependent, and

Clarification: For the purpose of taxation, a widow or widower with dependents is treated as a couple.

d) Sole proprietorship firm.

2) Entity, on the other hand, have many categories:

a) Partnership firm

Clarification: The partnership form should have less than 20 partners. If higher, that will be treated as a deemed company.

b) Trust

c) Company

Clarification: Company not only includes companies registered under the Companies Act but also, other institutions or body corporate incorporated under other Acts approved through Parliament such as Co-operatives, NGOs, Gorkhapatra Sansthan, Nepal Tourism Board, etc.

d) Local Authorities such as municipalities etc.

e) Central Government

f) Foreign Government, and

g) Permanent Establishment

We are also active on Instagram, Facebook, and Tiktok. Just search for @arthabichar.nepal. Any questions or comments, please feel free to reach out. Thank you.

Comments

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...

VAT Directive 2069, Second Amendment 2076

Inland Revenue Department has published the updated VAT directive with the amendment as of 2076. This is a second amendment to the directive that was originally published in 2069 B.S. The main purpose of the directive is to bring consistency in the understanding of the taxpayers, tax administrators including different stakeholders. It is also believed that the directive will help the implementation of VAT even simpler. It is also part of the education/awareness program conducted by the department. As a general public, we also hope that this document will act as a bridge minimizing the confusion taxpayers have over the VAT Act and Regulation. Although, introduction of the Act itself has crossed two decades mark but still need was felt for more clarity especially some of the recent changes. So, we heartily welcome this document. You can find the VAT Directive 2069, Second Amendment 2076 here.

What is Nepal Standard Industrial Classification (NSIC Code)? Brief Explanation

NSIC (Nepal Standard Industrial Classification) Code is an economic classification of the economic activities that happen within the territory of Nepal. It has four digits representing different economic transactors bringing in consistency in collection and reporting of the economic data. It is mainly helpful for the economic data analysis hence, the economists, researchers and the policy makers including government will benefit from it. NSIC Code is formulated in accordance with ISIC (International Standard Industrial Classification) bringing in homogeneity and comparability of economic data with the world who has adopted ISIC framework. To localize the codes, guidance has been followed as prescribed by System of National Account, SNA – 1993 and International Standard Classification of Occupation, ISCO – 88. NSIC Code has defined Nepalese economic and institutional sector in three categories, mainly, to define the principal activities of the producing agents within Nepales...

Arthabichar Nepal - Guide to Entrepreneurs, Startups, and Business Enthusiast

Search This Blog