First Business News Portal in English from Nepal
KATHMANDU: In a significant development, major global technology companies, including Google, Microsoft, Meta (formerly Facebook), and Amazon, have paid taxes to the Nepali government for the first time, despite not having physical offices in the country.
The Internal Revenue Department has reported that nine foreign companies, after completing the registration process, have paid a total of NPR 90 million in Value Added Tax (VAT). Furthermore, these companies are also expected to fulfill their Electronic Service Tax (DST) obligations within the first three months of the upcoming fiscal year (FY 080/81).
Foreign companies conducting financial transactions in Nepal without a physical presence are required to pay 13 percent VAT on a monthly basis and an annual DST rate of 2 percent on their total income earned within Nepal.
To facilitate the tax payments, the department recently enabled the payment of VAT and DST from abroad to Nepal by providing a dollar account specifically for electronic service transactions provided by non-resident entities to Nepalese consumers.
Additionally, the online registration process and application for Permanent Account Number (PAN) have been introduced to bring foreign companies within the tax ambit.
Rajuprasad Pyakurel, Director of the department, acknowledged the initial challenges in bringing these large companies, which do not have physical presence in developing countries like Nepal, into the tax system. However, he emphasized that their willingness to pay taxes and abide by the law sends a positive message.
The department issued Procedures on Value Added Tax on Electronic Services Provided by Non-Resident Persons (Procedure 079) on May 15, which mandates tax payments by non-resident individuals or entities providing electronic services to Nepali consumers and having an annual business turnover exceeding NPR 2 million.
The mentioned procedure explicitly outlines electronic services, including advertising, movies, television, music, over-the-top (OTT) platforms, data collection, cloud services, gaming services, mobile applications, online marketplaces, software supply, data downloads, consultancy, skill development and training services, and similar offerings.
Since the implementation of DST from July 1, several non-resident individuals and digital service providers have sought information about the registration process and tax payments. Director Pyakurel disclosed that LinkedIn and TikTok, among others, have already registered with Nepal’s tax system.
While some companies expressed concerns about retroactive scrutiny of previous transactions and potential interest charges, more companies have gained confidence and willingly registered after the provisions were clarified in the FY 080/81 financial bill.
According to Section 20 of the Economic Act 080, providers of electronic services in Nepal must disclose their business details and file taxes accordingly.
Additionally, Section 33 states that non-resident individuals or entities selling electronic services exceeding NPR 2 million annually will be exempted from fees, interest, and additional charges if they obtain a Permanent Account Number and file Value Added Tax by June 25, 080. This provision also applies to non-residents brought under the tax scope through PAN registration.
Director Pyakurel noted, “After learning about the provisions of Section 33, some companies agreed to register, saying, ‘We are coming.’ Only four companies were registered initially, and then five more were added. Companies that are registered but have not yet paid taxes have made payments based on their business activities in Nepal.
The deadline for DST payment is approaching in July.” He further emphasized that the current fiscal year’s financial bill has effectively brought foreign companies providing electronic services in Nepal under the tax purview.
Foreign companies engaged in providing electronic services to Nepali consumers are being registered with the Big Taxpayer Office. Google Asia Pacific Pvt Ltd, Microsoft Regional Sales Pvt Ltd, and LinkedIn Singapore Pvt Ltd have registered offices in Singapore. NCS Pearson Corporation, based in Bloomington, United States, and Ibsco
International Incorporation in Wilmington County, New Castle, are also registered with the Big Taxpayer Office. Meta Platforms Ireland Limited, with an address in Dublin, Ireland, has also completed registration in Nepal.
Several countries have implemented DST, with India setting it at 2 percent in 2020. Turkey and Hungary have the highest DST rate at 7.5 percent. Additionally, Canada imposes a 3 percent electronic service tax on financial transactions involving electronic services provided by companies.
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