Tax Compliances for Companies under Income Tax Act in Nepal

Companies as business entities are subject to various tax compliances including filing income returns, advance tax and Tax Deducted at Source (“TDS”) under the Income Tax Act, 2002 (“Income Tax Act”). The self-assessment system is followed to file tax returns in Nepal.

a. Filing of income returns

Companies are required to file their income returns within 3 months after the end of every fiscal year at relevant Inland Revenue Office as per Income Tax Act. Further, the timeline of filing income returns can be extended up to a maximum of next 3 months upon the submission of an application for extension. The income returns have to be signed by the manager or relevant authorities of the companies covenanting that it is true and complete.

b. Advance Tax

Companies are required to file advance tax on an installment basis pursuant to Income Tax Act as follows:

  1. For normal taxpayers
Installment Due Date Amount Payable
First installment by end of the month of Poush Amount to be paid from 40% of estimated tax
Second installment by end of the month of Chaitra Amount to be paid from 70% of estimated tax
Third installment by end of the month of Ashad Amount to be paid from 100% of estimated tax
2. For taxpayers on transaction basis
Installment Date Payable Amount Payable
First installment by end of the month  of Poush Tax at prescribed rate on the transaction up to 20th Poush
Second installment by end of the month of Ashad Tax at prescribed rates on [actual turnover up to 20thAshadh plus estimated turnover till Ashad end] minus tax paid up to the end of Poush.

c. TDS

The person making the payment under various headings is required to withhold the applicable tax rate pursuant to the Income Tax Act.

The applicable tax rates for TDS are as follows:

S.N.TransactionWithholderWithholdeeRate (in percent)Withholding/Final withholding payment
1.      SalaryEmployerEmployeeOn the basis of slab rate of Income Tax ActWithholding payment
2.      Retirement paymentGovernment of Nepal or approved retirement fundBeneficiary5Final withholding payment
3.      CommissionResident CompanyNon-resident person5Withholding payment
4.      Lease of aircraftLesseeLessor10Withholding payment
5.      Service chargeResident PersonService provider registered in VAT1.5Withholding payment
6.      Rent except for natural personCompanyResident person10Final withholding payment
7.      Vehicles in rentResident personPerson registered in VAT1.5Withholding payment
8.      Payment of returns of mutual fundMutual fundIndividual5Final withholding payment
9.      Payment for use of satellite, bandwidth, optical fiber, tools related to communication or electricity transmission lineService ReceiverService Provider10Withholding payment
10.  Payment for carriage serviceResident personService Provider2.5Withholding payment
11.  Payment for carriage serviceResident personService Provider registered in VAT1.5Withholding payment
12.  Payment of interest rate of loan in foreign currencyResident bank and financial institutionsForeign banks10Final withholding payment
13.  Payment of dividendCompanyShareholder5Final withholding payment
14.  Benefit payment of insurance serviceInsurance companyInsured5Final withholding payment
15.  Benefit payment from unapproved retirement fundUnapproved retirement fundBeneficiary5Final withholding payment
16.  Payment of interest including deposits, bonds and debenturesResident bank, financial institution, cooperative organization or any other body issuing bondsIndividual5Final withholding payment
17.  Windfall gainResident personRecipient25Final withholding payment
18.  Payment of contract exceeding fifty thousand rupeesResident personParty1.5Withholding payment
19.  Payment of deed or contractResident personNon-resident person5Withholding payment
20.  Commission in payment of a premiumResident personNon-resident person1.5Final withholding payment
21.  Premium of reinsuranceNon-resident insurance company

Resident person

 

1.5Withholding payment
22.  Payment for work exceeding five million rupees

Resident person

Consumers committee1.5Withholding payment
23.  Except for provided transactions including interest, service fees and royaltyResident personPerson having source of consideration in Nepal15Withholding payment

Companies are required to submit the statements of withholding tax within 25 days from the end of month in specified format at relevant Inland Revenue Office. The statement of TDS can be submitted through electronic medium, commonly known as e-TDS.

Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein. The copyright of the contents of this article is vested with Imperial Law Associates.

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