Nepal's Digital Tax Initiative: A New Era for International Companies

Nepal has taken a significant step by imposing taxes on large global corporations like Google and Facebook. The decision followed the announcement of the 2022/23 budget, in which a 2% tax on electronic services provided to Nepalese customers has been implemented.

Initially, Nepal's Inland Revenue Department urged these overseas entities to register within Nepal. Although they distributed notices in Nepali, the department soon realized that the firms might not comprehend the language. As a result, they sent out additional notices in English.

However, the necessary software to incorporate these companies into Nepal's tax system was not available. The development of this software began, and it was ready by December 2022. By May, Google and another organization called EBSCO International Corporation had completed their registration. Currently, six foreign firms have registered with Nepal's tax system.

A 2% tax rate applies to electronic services providers. However, if a company's annual digital service transactions within Nepal exceed Rs 2 million, that entity will be exempt from this tax. If transactions surpass this threshold, taxes shall be imposed on all transactions without adding them to the service prices.

A wide array of digital services falls under this tax regime - ranging from advertising, movies, TV shows, and music to data collection, cloud services, gaming apps, and online marketplaces. It also encompasses software updates, data, and image download services as well as education-based platforms such as consultation and skill development training programs, e-books e-libraries, and e-magazines.

The tax shall be enforced when a service is provided in Nepal or if either an invoice is addressed to Nepal or payment is deposited into a Nepali bank account. Additionally, it is applicable if payments come through debit cards, credit cards, or other payment methods authorized by Nepali banks and payment providers. A service utilizing an IP address or receiving transmissions via SIM cards or landlines based in Nepal will also be subjected to these taxes.

This initiative paves the way for these tech giants to legitimately conduct business in Nepal, potentially enticing more foreign businesses to register and operate within the country.