Digital Service Tax in Nepal
20 October 2022
The Inland Revenue Department of Nepal formulated the Procedure Related to Digital Service Tax, 2022 (“Procedure Related to Digital Service Tax”) which came into effect on 17 July 2022. The Procedure Related to Digital Service Tax sets out the provisions related to registration, filings of tax returns and de-registration applicable for non-resident digital service providers.
Scope of Services
Under the Procedure Related to Digital Service Tax, digital service includes the following services, rendering to the customer, which essentially require information technology and provided automatically through internet with minimal human intervention:
- Advertising services;
- Movies, television, music, over the top (O.T.T.) and other similar subscription based services;
- Data collection services;
- Cloud services;
- Gaming services;
- Mobile application related services;
- Online marketplace services and services and goods provided through it;
- Supply and update of software;
- Sales of data collected from Nepal resident person;
- Download of data, images and similar services;
- Education, consultancy, skill development and training services; and
- E-book, e-library and e-newspaper.
Basis of Taxation
Digital service tax is levied on non-resident person for digital services provided to consumers in Nepal for transaction value of more than NPR 2,000,000 (Two million) per income year.
Rate of Tax
The rate of digital service tax is two (2) percent on the transaction value of digital service (excluding indirect tax value levied in Nepal) provided by non-resident person to consumers in Nepal.
The income returns filed under the Procedure Related to Digital Service Tax shall not be subject to tax as per Income Tax Act, 2002.
The Large Taxpayer Office is the regulating authority to administer the digital service tax.
The procedures to obtain permanent account number for non-resident person are set out below:
If non-resident person has been already registered at Value Added Tax (“VAT”), no separate permanent account number is required. Further, a non-resident digital service provider is required to file an application for permanent account number within 30 days from the date of exceeding transaction threshold.
Recording of Transaction
Non-resident digital service providers must maintain an account in accrual basis and disclose transaction value in Nepalese Rupees.
Filing of Returns
Non-resident digital service providers must file tax returns and pay applicable tax amount at the Large Taxpayer Office via online medium within 3 months of end of income year.
If a registered non-resident person intends to de-register for any reason or close its transaction in Nepal, such person must file an application at the Large Taxpayer Office. Upon receipt of such application, the Large Taxpayer Office will notify about de-registration or reason of not being deregistered within 3 months.
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