Foreign companies have to pay only 1.5pc income tax in Nepal

KATHMANDU: Foreign companies, who are providing service in Nepal will pay only one and a half percent income tax while working in Nepal. When there was a dispute about one and a half percent or five percent, the government reduced the rate and fixed it.

The Inland Revenue Department has issued a notice asking to file 1.5 percent tax. The department has issued a notice deciding the tax rate dispute resolution. A foreign company should be treated as a permanent establishment and filed for tax.

Now the company working on the contract of 1 billion will have to pay 15 million tax. It is mentioned in the notice that the income of the entity (permanent establishment) set up to perform the work in Nepal of the international company selected for the supply and connection and construction of tangible assets or structures must be paid out of the entire commercial profit generated from that income.

According to subsection (5) of section (B) and subsection (4) of section (Ka and Da) of Section 2 of the Foreign Company Income Tax Act, 2058 BS, permanent establishment shall be established.

The income of the resident body (permanent establishment) will be the total contract amount contracted by such body to supply and connect and construct tangible assets or structures for any project through a single bidding/purchase agreement in Nepal.

Since all business profits generated from that income have to be taxed in Nepal according to the Income Tax Act, 2058 BS, it has been decided to deduct tax at the rate of 1.5 percent according to subsection (1) of Section 89 of the Income Tax Act, 2058 BS, by the person who pays the amount of the agreement.

The amount of tax deducted must be filed in the revenue account within the specified period and the tax deduction statement (ETDS) must be submitted electronically by keeping the permanent account number of the taxpayer.