This document provides an overview of Nepal's taxation system for the 2010/11 fiscal year. It summarizes major amendments made to income tax laws, outlines tax rates and calculations for individuals and entities, and covers deductions, credits, and concessions. Key points include a reduction in the non-business asset threshold, an increase in the standard interest rate, and tax benefits for industries providing significant employment.
This document provides an overview of Nepal's taxation system for the 2010/11 fiscal year. It summarizes major amendments made to income tax laws, outlines tax rates and calculations for individuals and entities, and covers deductions, credits, and concessions. Key points include a reduction in the non-business asset threshold, an increase in the standard interest rate, and tax benefits for industries providing significant employment.
This document provides an overview of Nepal's taxation system for the 2010/11 fiscal year. It summarizes major amendments made to income tax laws, outlines tax rates and calculations for individuals and entities, and covers deductions, credits, and concessions. Key points include a reduction in the non-business asset threshold, an increase in the standard interest rate, and tax benefits for industries providing significant employment.
This document provides an overview of Nepal's taxation system for the 2010/11 fiscal year. It summarizes major amendments made to income tax laws, outlines tax rates and calculations for individuals and entities, and covers deductions, credits, and concessions. Key points include a reduction in the non-business asset threshold, an increase in the standard interest rate, and tax benefits for industries providing significant employment.
This Nepal Tax Facts 2010/11 booklet aims at providing a brief overview of the Nepalese Taxation system based on Finance Ordinance 2067. The information contained in this booklet is intended as a quick reference guide, specifically designed for our clients. Details of the relevant legislation have not been included. Specific professional advice should be obtained before taking any action. An electronic version of this publication can be downloaded from our website www.bakertillynepal.com This booklet does not cover: Amendments in Indirect Taxes, like VAT, Excise, Customs etc. Minor amendments in Income Tax Act Amendments in Income Tax Rules not available at the time of publication. This booklet shall be updated for changes in Income Tax Rules, if necessary.
Page2
Nepal Tax Facts 2010/11
CONTENTS Chapter 1. Major Amendments in Income Tax Act 2058 2. Tax Calculation of Natural Persons 3. Tax Calculation of Entities 4. Presumptive Taxation 5. Tax Deduction at Source (TDS) rates 6. Due Dates for Payment of Tax and Filing of Tax Return 7. Fees and Interest
Page 04 06 09 12 13 17 18 19
8. Can We Help?
Page3
Nepal Tax Facts 2010/11
1. Major Amendments in Income Tax Act 2058
Area/ Section Provision applicable in F.Y.2009/10 Provision applicable for F.Y.2010/11
1. Definition of Non Business Chargeable Assets
Amount threshold Rs.50 lakhs and 10 years ownership and living in the building.
Amount threshold reduced to Rs.30 lakhs in case of land, land & building and personal house. Personal house means house and land occupied by house or one ropani land whichever is lower.
2. Standard Interest Rate
10%
15%
3. Cost Accounting of Stock
FIFO or Simple Average
FIFO or Weighted Average
Change in control provision of Sec. 57 will not apply.
4. Merger of Banks & Financial Institutions and between insurance companies
No specific provision. Mergers attracted tax and Changes in Control provision affected mergers as previous losses etc. were not allowed to be carried forward.
50% reduction in applicable tax rate to employees in case of group retirement of employees due to merger No capital gain till two years on disposal of shares by shareholders of merged entity. No tax on dividend till two years which is paid to shareholders of the time of merger Notification to IRD should be
Page4
Nepal Tax Facts 2010/11
done within 2068 Kartik and merger should be done within 2070 kartik Removed from Sec. 89. However, service payment attracts TDS at 15% as per Sec.88 in cases where there is no VAT bill. Sec.89Ka & Sec.89Kha removed and new section 95(Ka) introduced with similar provisions. Provision of penal interest inserted in Sec.117(1)(Kha) Within 25th of end of Nepali month in which TDS is made The tax need to be deposited in separate revenue account as Social Security Cost.
5. TDS on payment to Non Resident Persons on Service contracts
10%
6. TDS on disposal of shares & TDS on NBCA 7. TDS Payment 8. 1% tax on minimum exemption limit for employees 9. Additional Tax for natural persons having taxable income exceeding Rs 25 lakhs 10. Remote Area Benefit 11. Installment tax for businesses
Covered by Sec.89Ka & Sec.89Kha
Within 15th of end of Nepali month in which TDS is made
1% was part of income tax.
No provision.
40% of normal tax liability as additional tax need to be paid if taxable income exceeds Rs.25 lakhs.
Maximum Rs.30,000
Maximum Rs.50,000
Interest charged on shortfall if Interest charged on shortfall if estimated installment paid is estimated installment paid is lower than 80% of installment as lower than 90% of installment as per final tax liability. per final tax liability.
Page5
Nepal Tax Facts 2010/11
2. Tax Calculation of Natural Persons
A. Tax Rates for Natural Persons & Proprietorship Firms
The 1% tax on employment should be deposited in separate revenue account in IRD.
2. Additional tax of 40% for taxable income exceeding Rs.25 lakhs If the natural person has taxable income of Rs.25 lakhs & above, income tax will be levied at 35%.
3. Tax Rate for Non Resident Natural Person Taxable income of a non resident natural person shall be taxed at 25%. 4. Rebate on Tax Liability for Resident Female with only employment income A female resident natural person having only remuneration income from employment shall be provided with a rebate of 10% on the tax liability. 5. Tax Rate for Non Business Chargeable Assets Gain from disposal of Non Business Chargeable Assets are taxed at 10% after taking into consideration exemption limit (i.e Rs.1,60,000 for individual and Rs.2,00,000 for couples). In case of land and buildings, if the disposed land & buildings has been owned for more than 5 years, tax rate of 5% shall apply. Gain from Non Business Chargeable Assets includes
Page6
Nepal Tax Facts 2010/11
gain from sale of shares of companies, gain from sale of land and building owned and resided for less than 10 years and disposed for more than Rs.30 lakhs.
6. Special Tax Rates for Natural Persons Particulars For incomes earned from operating special industries For incomes earned from export business Applicable Tax Rates 20% where 25% tax rate applies 15% where 25% tax rate applies
B. Deductions and Facilities for Resident Persons
1. Life Insurance Premium While calculating taxable income, life Insurance premium paid by a resident natural person is deductible up to the limit of Rs 20,000. 2. Employees working in Diplomatic Agencies 75% of foreign allowance is deducted from taxable income in case of an employee employed at diplomatic agencies of Nepal situated at foreign countries. 3. Incapacitated natural persons In case of incapacitated natural persons, the minimum exemption limit (Rs.1,60,000 for individual and Rs.2,00,000 for couples) is increased by additional 50%. 4. Remote Area Benefit In case of resident natural persons working in remote areas, minimum exemption limit shall be increased by Rs 50,000 depending on remote area category.
Page7
Nepal Tax Facts 2010/11
5. Additional limit for pension income If income of a resident natural person includes pension income, the taxable income is first reduced by additional 25% or pension amount included in income whichever is lower and then tax liability is calculated on balance income.
C. Tax Credits for Resident Persons
1. Medical Tax Credit In case of approved medical expenses, medical tax credit is available to resident natural persons as deduction from tax liabilities. The limit prescribed is Rs.750 or 15% of Approved medical expense or actual approved medical expense incurred whichever is lower. Any unutilized expenses can be carried forward to next year.
2. Foreign Tax Credit If foreign income is included in taxable income of a resident person, foreign tax credit for tax paid in foreign country in respect of that income. The foreign tax paid can either be deducted as expense or tax liability in Nepal can be reduced by such tax paid up to average rate of tax applicable in Nepal, depending on the option of tax payer.
Page8
Nepal Tax Facts 2010/11
3. Tax Calculation of Entities
A. Normal Tax Rates Entities 1. General companies/firms/industries 2. Special Industries 3. Banks and Financial Institutions 4. General Insurance Companies 5. Entities engaged in the business of petroleum products 6. Industries producing products with tobacco as basic raw material and industries producing liquors, beers and similar other products 7. Entities involved in operation of roads, bridges, tunnels (including cable-car), rope-way, sky bridge, after construction 8. Entities involve in operation of trolley bus & tram 9. Cooperative Societies registered as per Cooperative Act 2048 and engaged in business other than tax exempt 10. Export Income of an entity with source in Nepal Applicable tax rate 25% 20% 30% 30% 30%
30%
20% 20% 20% 20%
11. Trust of dead or incapacitated person will be taxed as natural person
B. Reduced Rates- Concessions for F.Y.2067/68
Corporate Groups 1. Special Industries and Information Technology Industries providing direct employment to 300 or more Nepalese citizens during a period 2. Special Industries providing direct employment to 1200 or more Nepalese citizens during a period Applicable tax rate
90% of applicable rate 80% of applicable rate
Page9
Nepal Tax Facts 2010/11
3. Special Industries providing direct employment to more than 100 Nepalese citizens during a period 33% of which are women, incapacitated and dalits 4. Special Industries operating in very undeveloped area 5. Special Industries operating in undeveloped area 6. Special Industries operating in underdeveloped area 7. Industries established in Special Economic Zone of mountain district as specified by the government and hilly district
80% of applicable rate 10% of applicable rate 20% of applicable rate 30% of applicable rate
0% for 10 years & 50% thereafter
8. Industries established in Special Economic Zone of other areas 0% for 5 years & 50% thereafter 9. In case of dividend of industries in Special Economic Zones, dividend tax is exempt for first five years of operation and 50% concession is provided for dividend tax in next three years 10. Income from foreign technology, management fee and royalty earned by foreign investor from industries established in special economic zone 11. Profit on export income of an industry 12. Income from construction and operation of roads, bridges, tunnels (including cable-car), rope-way, sky bridge or investment and operation of tram, trolley bus 13. Royalty income from export of intellectual property 14. Income from sale of intellectual property 15. Information Technology based industries like cyber cafe, software development, data analysis, digital mapping etc. established at prescribed Information Technology park 16. Licensed Industries engaged in production and distribution of electricity, if the production and distribution is completed by the end of Chaitra 2075.
50% of applicable rate 25% Rebate on applicable rate
40% rebate on applicable rate 25% rebate on applicable rate 50% rebate on applicable rate
50% of Normal Rate 100% exemption for first 7 years, 50% for next 3 years.
Page10
Nepal Tax Facts 2010/11
The facility is available also for solar, biogas and wind energy. 17. Listed entities that are productive industries, tourism service, hydropower production, distribution and ransmission 18. Industries manufacturing brandy, wine, syder from fruits in very undeveloped area
10% rebate on applicable rate 40% rebate on applicable rate till ten years of operation
C. Tax Rates for Non Residents
Particulars For incomes earned from operation of water transport, charter service or air transport or by operating a cable, radio, optical fiber or earthsatellite communication business from the transmission of news or information through the equipments installed in Nepal. For incomes earned from providing air transport, water transport or telecommunication services within the territory of Nepal On repatriation of income by Foreign Permanent Establishment 5% 2% 5% Applicable Tax Rates
Page11
Nepal Tax Facts 2010/11
4.Presumptive Taxation A. Income Tax on Owners of public vehicles Type of Vehicle Minibus, Minitruck, Truck and Bus (per vehicle per annum) Car, Jeep, Van, Micro bus (per vehicle per annum) Three Wheeler, Auto Rikshaw and Tempo (per vehicle per annum) Tractor and Power Tiller (per vehicle per annum)
Tax Rs 1,500 Rs 1,200 Rs 850 Rs 750
B. Income Tax for Small Tax Payers
Natural Persons who only have business incomes with annual business turnover of Rs. 20,00,000 and net income below Rs 2,00,000 may chose to pay tax as below subject to that the person cannot claim medical tax credit or advance tax for TDS deposited. Location of business For resident natural persons operating business in Metropolitan and Sub-Metropolitan areas (per annum) For resident natural persons operating business in Municipality areas (per annum) For resident natural persons operating business in other areas Tax Rs 3,500 Rs 2,000 Rs 1,250
Page12
Nepal Tax Facts 2010/11
5.Tax Deduction at Source (TDS) rates
A. Income from Employment
Resident employer should withhold tax while making employment income payment with sources in Nepal to an employer as follows. Monthly TDS = Annual Tax calculated as per schedule 1 on annual employment income divided by 12
B. TDS as per Sec.88
Particulars On Interest, Royalty, Service Charge, Retirement Payment having source in Nepal, except mentioned otherwise Payment made to resident person on Service Charge invoiced in VAT bill On Nepal sourced Interest by Banks and financial institutions and/or listed companies to a natural person. Such payment should not be made in connection with operation of any business. On payment made by a resident person for rent having source in Nepal On payment of gain from Investment Insurance On payment of gain from retirement fund On payment of commission by resident employer company to a non resident person On payment of lease rental of aircraft On payment of premium to non-resident insurance companies 10% 1.5% 5% 5% 5% 10% 5% Rates in % 15% 1.5%
Page13
Nepal Tax Facts 2010/11
C. TDS as per Sec.88 Ka
On windfall gains- except national and international level prizes as prescribed by Nepal Government
25%
D. TDS as per Sec.89
On contract payments exceeding Rs 50,000 Contract refers to agreement entered into for supply of goods or labor or construction/erection/establishment of tangible assets or structure or any work prescribed as contract by the Inland Revenue Department. The limit of Rs.50,000 is calculated by adding contract payments of last 10 days to the same person on same contract. On contract payments made by resident person to non-resident persons: On repair of aircrafts and other contracts Premium paid to non-resident insurance company In other cases, if written notice is issued to the payer resident person 5% 1.5% As per rate prescribed in notice 1.5%
E. TDS as per Sec.95 Ka
On gain from disposal of interest held in a resident entity (either listed in stock exchange or not listed) received by a natural person received by others 10% 15%
Capital Gain tax on disposal of land and building classified as Non Business Chargeable Assets, TDS to be deducted by
Page14
Nepal Tax Facts 2010/11
concerned government office if the land and building is owned for period less than 5 years if the if the land and building is owned for period more than 5 years (If the building is owned and resided for a period more than 10yrs., it does not fall in the definition of Non Business Chargeable Assets and so is not taxable.) On gain from transaction on commodity future market 10% 5% 10%
F. TDS as per Sec. 54
On dividend paid by resident entity On dividend paid by other entities
5% No TDS
G. TDS not required
Payments made by natural persons other than conducting business. However, TDS is required on payment of house rent. Payment of remuneration to the writer of the articles published in Newspaper & magazines. Payment of remuneration for preparation of question paper or checking of answer sheet Interregional interchange charges paid to a bank issuing Credit Cards. Interest or fee paid by Nepal Govt., under an agreement, to Foreign Govt. or an international organization (to which Nepal is a party).
Page15
Nepal Tax Facts 2010/11
Interest upto Rs. 10,000.00 earned on deposit kept in Rural Development Bank, Postal Saving Bank, rural community based micro credit institutions & cooperatives as per sec 11(2) of the Act.
Payment of interest to a resident bank or other resident financial institution Payments that are exempt from tax General insurance premium.
H. Payment of TDS
Even if the payer fails to deduct TDS, it is regarded as TDS has been deducted by the payer. The existing provision that TDS should be deposited within 15 days of end of Nepali month in which TDS has been made has been revised to 25 days of end of Nepali month.
Page16
Nepal Tax Facts 2010/11
6. Due Dates for Payment of Tax and Filing of Tax Return
A. For payment of Advance Tax
Due Dates Poush end 2067 (Mid January 2011) Chaitra end 2067 (Mid April 2011) Ashad end 2068 (Mid July 2012) Amount to be deposited* 40% of estimated tax liability 70% of estimated tax liability 100% of estimated tax liability
Notes
Advance tax (in installment) is to be paid by every person having or likely to have assessable income from business or assessable income from investment in an income year. However, in case a persons total estimated tax liability is below Rs 5,000 advance tax in installments need not be paid. Amount to be deposited denotes cumulative minimum amount to be paid within the due dates.
B. For filing annual tax returns
Annual tax return should generally be filed within 3 months from the end of an income year. So, the due date of filing annual tax returns for the income year 2067/68 (2010/11) is Asoj end 2068 (Mid October, 2011). However, a taxpayer may have this due date extended for a maximum period of 3 months i.e. up to poush end 2068 (mid January, 2012) in case he files an application in the IRD with bonafide reasons for such extension.
Page17
Nepal Tax Facts 2010/11
7. Fees and Interest
A. Sec. 117, Sec. 118 and Sec.119 of Income Tax Act Particulars For failure to submit estimated income statement For delay in filing annual tax return Fees and Interest Rs 2,000 for each of such statements. For Small Tax Payers Rs 100 per month For Others Fee at the rate of 0.1% on gross assessable income* or Rs 100 per month, whichever is higher. For failure to keep documents as required by Act For under estimation of advance tax installments Fee at the rate of 0.1% on gross assessable income* or Rs 1000, whichever is higher. Interest at 15% per annum on shortfall amount. The limit of 80% has been revised to 90% while calculating estimation difference. 1.5% of TDS to be deposited per annum Interest at 15% per annum for the period of failure to pay tax, considering part of a month as a complete month.
For non submission of TDS return For failure to pay tax
Gross Assessable income of a person for a period means assessable income of the person for the period calculated by including all the items of taxable income and ignoring all allowable expenses, for the period.
B. Additional Deductions for businesses
Manufacturing entities may deduct 50% of capital amount for power generating assets in the year of acquisition as additional depreciation Capital expenditure incurred for purchasing fiscal printer and cash machine can be claimed as depreciation in the year of purchase.
Page18
CAN WE HELP? CONTACT
Nepal Tax Facts 2010/11
Mukunda Dev Adhikari Phone: 00977-1-4442044/4440935 Email: [email protected]
Baker Tilly Nepal Pvt. Ltd. is registered as private limited company in office of company registrar. Baker Tilly Nepal is an independent member of Baker Tilly International. Baker Tilly International Ltd. is a United Kingdom company. Each member firm is a separate and independent legal entity. Baker Tilly is a trademark of the UK firm Baker Tilly UK Group LLP, used under license. Neither Baker Tilly International nor any of its member firms has any liability for each other actions or omissions.
