August 28, 2023
Nepal Inland Revenue Department amends VAT and DST procedures relating to digital service
- The Nepal Inland Revenue Department amended procedures, in May 2023, relating to Value Added Tax (VAT) and Digital Services Tax (DST) applicable to providers that render digital services to consumers in Nepal but do not have a fixed place of business in Nepal.
- This Tax Alert provides the background of levy of VAT and DST on digital services provided to consumers in Nepal and highlights the recent changes.
The Nepal Inland Revenue Department (IRD) recently amended the procedures relating to Value Added Tax (VAT) and Digital Services Tax (DST) applicable to digital services consumed in Nepal. Specifically, the changes apply to providers that render digital services to consumers in Nepal but do not have a fixed place of business in Nepal.
Levy of VAT on digital services
With effect from 29 May 2022, a 13% VAT is levied on digital services that nonresidents provide to consumers in Nepal. This levy of VAT applies if a nonresident providing digital services to consumers in Nepal has made transactions valued at more than NPR1 2 million within the last 12 months.
There is a similar levy of Digital Services Tax (DST), which is akin to an income tax. DST is also levied on nonresidents that provide digital services to consumers in Nepal and have transactions valued at more than NPR 2 million per income year. The DST rate is 2% of the total transaction value.
- "Digital Services" include services whose delivery essentially requires information technology and is provided automatically through internet with minimal human intervention. Please refer the Annexure below for the list of services specifically included in the definition of digital services.
- "Consumer" means a person who consumes services and has a normal place of abode in Nepal. However, a person who purchases goods and services by separate arrangement for business purposes or to use in business shall not be considered as a consumer.
- "Non-Resident Person" means a person from outside Nepal who does not have a permanent business address or business representative or legal representative in Nepal.
Registration and compliance
- A Non-Resident Person must obtain a Permanent Account Number (PAN) by registering under Nepal Taxation laws.
- Tax Returns must be filed online annually for income tax and monthly for VAT.
- Tax payments must be made electronically.
Annexure: List of services specifically included in the definition of Digital Services:
Movies, television, music, over the top (O.T.T) and other similar subscription-based services
Data storage service
Service related to mobile application
Online market place service and goods and services to be provided through it
Supply and update of software
Download of data, images and similar services
Consultancy, skill development and training service
Similar services to those listed in number 1 to 10, above
B. Recent amendments in procedures relating to VAT and DST on digital services consumed in Nepal.
The key amendments made by the IRD include:
- The "Tax invoice" that a nonresident issues for providing digital services may be in any format but must contain, at a minimum, the following details:
- Seller's name and PAN
- Consumer's name and PAN (if available)
- Transaction date
- Description of services provided
- Value of transaction
- A consumer who "mis-declares" himself as a person other than the consumer and obtains/consumes the services provided by nonresident shall be held responsible for any tax imposed under the Nepal VAT and DST Laws.
- Where the consideration paid for a supply of digital services is received by a nonresident in a convertible foreign currency, the value of digital services would be calculated in Nepali Rupees according to the exchange rate determined by the Nepal Rastra Bank on the date that the VAT return is submitted to the department.
- Sales details are to be submitted in the monthly VAT Return, which should also include details of consumer's PAN wherever available.
C. Key areas requiring a "deep dive"
- Applicability of VAT and DST based on the operations and revenue streams of the entity
- Requirements for registration and return-filing compliance
- Preparation of VAT and DST returns, including reviewing tax computations and filing returns with authorities
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP, India
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 NPR is the abbreviation for Nepali Rupee.