A non-resident entity having a branch or a permanent establishment in Nepal is subject to tax on income earned by such branch or permanent establishment in Nepal. The tax is levied at the same rate as for resident companies i.e. at 25%.
Foreign airlines operating in Nepal are subject to turnover-based taxation on sales arising from the transport of passengers and goods originating from Nepal (excluding transits) and for the sale of tickets from Nepal for travel outside Nepal (other than originating from Nepal). Other income of the airlines is treated as normal income and taxed accordingly. The rate of tax is 5% where income is earned from transporting passengers, mail, or cargo by sea or air that is embarked in Nepal. Where such income is earned through the territory of Nepal, the rate of tax is 2%.
A withholding tax at the rate of 5% applies on the remittance of after-tax profits from the branch to its foreign head office.
Nepal sourced income earned by non-residents not having a permanent establishment in Nepal is subject to withholding tax in the country (see Sec. 8.2.2. below).
Effective 17 July 2022, the digital services tax (DST) is levied at the rate of 2% on the transaction value of the digital services provided by non-residents to Nepalese consumers. A non-resident providing digital services in Nepal exceeding NPR 2 million in the last twelve months is required to register and is liable to DST. Income that is subject to DST is not taxable under the Income Tax Act.
Digital services mean services delivered via electronic or digital means or similar networks, whose supply is essentially automated, involves minimal human intervention, and is impossible to deliver in the absence of information technology.
Digital services include:
- Advertising services;
- Movies, television, music, over-the-top (OTT) services, and other similar subscription-based services;
- Data collection services;
- Cloud services;
- Gaming services;
- Mobile application-related services;
- Online marketplace service and the services and goods provided through it;
- Supply of and updating of software;
- Sales of data collected from residents of Nepal;
- Downloading services including data and image downloads;
- Education, consultancy, skill development, and training services;
- E-book, e-library, and e-newspaper service; and
- Other services of similar nature.