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

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