What are the new personal, corporate, and dividend/capital gains tax rates set by the Communist Party of Nepal in 2018?
We may hate taxation, everybody does. But we know that we canu2019t avoid it either. And, especially if you are an aspiring start-up venture with long-run vision and looking for scaling-up through external financing, you should never avoid paying taxes. I will tell you why in the next article, but for now, I want to drag your attention towards the tax-responsibilities of start-up ventures registered as a company. (For full info click here, Taxation System in Nepal )There are three types of Taxes a company needs to pay in Nepal1.Tax Deducted at Source (TDS) Return File:TDS is the amount deducted from the payment made in course of business, employment or investment transactions by the company to the various recipients. Such transactions include, but are not limited to, payment of salaries, interests, rents, royalties, general insurance, dividends, other services etc. That suggests, if the company makes payment for above-mentioned reasons, it should do so only after deducting a certain percentage from the total amount and shall deposit the deducted amount to the government coffers. The applicable TDS rate ranges from 1.5% to 15% depending upon the nature of the transaction.In order to return file the TDS, the company must prepare a monthly TDS statement detailing the transactions, recipients of payment, amount and TDS amount. Such statement along with the TDS amount should be submitted to the concerned Inland Revenue Office (Tax Office) until the 15th day of the following month. A TDS statement need not be submitted for months in which no TDS was deducted.2. Value Added Tax (VAT) Return File:VAT is probably the most u2018recognizedu2024 form of taxation in Nepal as almost all the businesses with annual sales revenue is Rs. 20 lakhs and above shall be registered in a VAT and file periodic VAT return. Additionally, the ventures with less than that revenue threshold can also voluntarily register for VAT. Except for the ventures with No or Low sales revenue, it is advisable for the start-ups to get themselves registered in the VAT.Once registered, the company must collect Sales Book, Purchase Book, and VAT Account and collect VAT on sales and prthe customer with the tax invoice. The tax invoice will require the name and address of the seller and the purchaser, the seller`s PAN number and invoice number, the date of the transaction and a description of the sale including the number of items purchased, the unit cost of each item and a mention of any discounts given.The tax invoice must be prepared in three copies and the first copy should be clearly identified as a tax invoice. The original copy is to be given to the purchaser, the second copy is to be retained for audit purposes while the bottom copy is for use by the seller in preparing a record of the transaction.The difference of VAT collected on sales to VAT charged on purchases determines the amount a company must deposit to the government. A company must submit VAT return and pay the tax within the 25th day of the following month. In general, VAT is payable monthly. However, if the companyu2019s monthly transaction in very low, it can file VAT returns on a bi-monthly or quarterly basis.3. Income Tax:Income tax here referred to the corporate tax that the venture needs to pay on its profit-income. No venture is exempt from paying income tax. In Nepal, income tax is paid on the basis of a ventureu2019s own tax assessment unless the tax office finds a reason to review, alter or even investigate on such tax declaration.Venture compulsorily needs to file the advance tax return (Tax Payable) three times a year in the following installments,u00b7 by the end of the month of Poush 40% of the estimated annual tax payableu00b7 by the end of the month of Chaitra 70% of the estimated annual tax payableu00b7 by the end of the month of Ashad 100% of the estimated annual tax payableThe Inland Revenue Office may verify on the tax assessment provided by the venture. In addition, the office might opt to conduct a full-fledged assessment (tax audit) on the suspicion of the fraud, any time within four years.For full help visit here, https://bizserve.com.np/taxation...Taxation System of NepalHere Iu2019ve discussed complete Taxation System of Nepal. Nepal levies a wide variety of taxes, including income tax (corporate income tax and personal income tax), value added tax, excise duty, customs duty, property related tax (land registration tax, property transfer tax) and others like stamp duty.(To get full info click here, Taxation System of Nepal)A. Direct TaxesIncome Year:Mid-July of one year to Mid-July of another year (Shrawan to Ashad as per Nepalese Calendar)Corporate Income TaxThe taxability of the income of a person in Nepal is based on two broad principles. Any resident person generating income or receiving any payment from outside Nepal is taxed on the basis of u2018Residence Principleu2019. Similarly, in case of non-resident person generating income or receiving any payment from various income heads viz. employment, business, investment or win fall gain, it is taxed in Nepal on the basis of u2018Source Principleu2019.An entity is a resident in Nepal if it is registered / formed as per the laws of Nepal.Tax RateStatutory corporate income tax rate on a resident person is 25%. However, entities operating banking and General Insurance Business, dealing petroleum products, producing cigarettes, cigars, liquors and other related products are subject to 30% tax rates. Similarly, 20% income tax rate is applicable to- Special Industries (Manufacturing industries specified in Industrial Enterprises Act)- Entities operating road, bridge, tunnel, rope-way or overhead bridge upon construction- Entities operating trolley bus or tram - Cooperatives other than fully exempt from tax- Income from export- Entities constructing public infrastructures on BOOT (Build-Own-Operate-Transfer) model- Entities involved in the construction of Electricity Powerhouse, Production and Transmission linesAmount repatriated by Foreign Permanent Establishment (FPE) of a Non-Resident is subject to tax at the rate of 5%.Taxable IncomeTaxable Income = Total Income u2024 Exempted Income u2024 Deductions u2024 Unabsorbed LossesTotal IncomeIncome means Income from Employment, Business, Investment or Win fall gain and includes the Total Income derived as per Income Tax Act, 2002For details follow this small informative link http://bizserve.com.np/wp-conten...DeductionsGeneral Deduction:Any expenses incurred by a person in connection with the generation of income from business or investment during an Income Year are allowed as deduction.InterestAny interest incurred by a person from the borrowed money in connection with the generation of income from business or investment during an Income Year is allowed as deduction.Cost of Trading StockThe cost of trading stock calculated either on the first-in-first-out basis or weighted average cost basis is allowed as deduction.Repair and Maintenance ExpenseRepair and Maintenance Expense of depreciable asset, owned and used by the person, incurred in connection with the generation of income from business or investment during an Income Year subject to the maximum of 7% of depreciation base at the closing of the year is allowed as deduction. The limit is not applicable to Airline Company if it is within the parameter of the Civil Aviation Authority. Further, the amount or part thereof, which is in excess of the limit, can be added to the depreciation basis prevailing at the beginning of subsequent Income Year, of the pool to which it relates.Pollution Control CostPollution Control Cost incurred in connection with conducting the business during an Income Year subject to the maximum of 50% of adjustable taxable income from all business conducted by the person is allowed as deduction. The amount or part thereof, which is in excess of the limit, can be capitalized in the asset in the beginning of subsequent Income Year and depreciation is allowed subsequently.Research and Development CostResearch and Development Cost incurred in connection with conducting the business during an Income Year subject to the maximum of 50% of adjustable taxable income from all business conducted by the person is allowed as deduction. The amount or part thereof, which is in excess of the limit, can be capitalized in the asset at the beginning of subsequent Income Year and depreciation is allowed subsequently.DeprecationDepreciation of depreciable asset, owned and used by the person, in connection with the generation of income from business or investment during an Income Year is allowed as deduction. Depreciation is allowed as per written down value (WDV) basis method and depreciable assets are categorized into various pools, the rate of depreciation is prescribed by Tax Authority as followsAccelerated Depreciation of 1/3 of applicable rate is also available in case of following entities- Special Industries- Hydro Power and Power Generation- Tram and Trolley- Export Oriented Industries- Entities engaged in infrastructure development under BOOT scheme- Co-operative registered under Co-operative Act (Only for tax exempt)Non-DeductiblesAny expense which is not related to the generation of income is not allowed for deductions. Further, the expense which is of personal nature is not deductible.Losses Carried ForwardLosses can be carried forward up to seven years from the year of occurrence. However, in the case of special industries like entities dealing in petroleum products, BOOT projects, Projects involved in Electricity Power House, Generation and Transmission are allowed to carry forward up to twelve years. In case of long term contract obtained from international bidding losses can be carried back.Deemed Taxable IncomeIf a business cannot prcomplete and accurate information on costs and income while calculating taxable income, the Tax Authority has right to deem and assess the taxable income according to laws.Foreign Tax CreditIn case that a resident person has paid overseas income tax on its taxable income derived from sources outside Nepal, the income tax paid overseas can be adjusted against its tax payable in Nepal. However, the adjustable amount of overseas income tax cannot exceed the amount of income tax otherwise payable in Nepal in respect of non-Nepal sourced income.Tax Avoidance SchemeIf a person makes any arrangement with the purpose of avoiding or reducing tax liability, Tax Authority may, for the purpose of determination of tax liability, re-characterize the arrangement or part of it. Similarly, if a person does any transaction with a purpose to reduce tax liability entering into u2018Transfer Pricingu2024 or u2018Income Splittingu2024 arrangement, Tax Authority has the power to re-characterize and assess the tax.Personal Income TaxAn individual is a resident of Nepal if he resides for a period of 183 days or more in 365 consecutive days. A person who is not a resident of Nepal is the non-resident individual. Income of an individual resident is taxed on a progressive rate as followsThe following amounts are deductibles.- Contribution to Retirement Payment up to the maximum of NPR 300,000- Donation to tax exempted entities up to the maximum of NPR 100,000- Insurance premium up to NPR 20,000- Remote area allowances up to the maximum of NPR 50,000Further, the medical tax credit up to the maximum of NPR 750 is allowed and remaining can be carried forward. Additionally, 10% tax rebate is allowed to a female individual.Withholding TaxesFollowing Advance Taxes are applicable:Gain on Sale of Shares- In case of sale by a natural person - 5% - Listed Company, 10% - Unlisted Company- In case of sale by any other person - 10% - Listed Company, 15% - Unlisted Company.However, the normal tax rate is applicable to a person other than the natural person and advance tax paid can be allowed to set off from final tax liability.Gain on Transfer of Land & BuildingGain on transfer of land or land & building on transaction exceeding NPR 3 million (to be collected by land revenue office at the time of registration) in the case of natural person- Disposal of land or land & building owned for more than 5 years u2024 up to 2.5%- Disposal of land or land & building owned up to 5 years u2024 up to 5%- In other cases u2024 normal tax rate applicableChange of ControlWhere there is the change of 50% or more in the underlying ownership of an entity as compared with its ownership 3 years previously, the entity shall be treated as disposing of any assets and any liabilities owned by it. Where there is the change in ownership during the Income Year of an entity, the parts of the Income Year before and after the change in ownership are treated as separate Income Years.Compliance RequirementIncome Tax ReturnWithin three months from the end of Income Year. If an application is made to Tax Office for an extension, IRD may extend such notice for the maximum of three months.Advance Tax ReturnBased on estimated tax liability- Within Mid-January (Poush end) of Income Year (First Installment) u2024 40% of Tax Liability- Within Mid-April (Chaitra end) of Income Year (Second Installment) u2024 70% of Tax Liability- Within Mid-July (Ashad end) of Income Year (third Installment) u2024 100% of Tax LiabilityTax AssessmentThe assessment system is based on Self-Assessment. However, an assessment under Self-Assessment scheme may be subject to review and amendment by Tax Authority which can be performed within four years from the date of submission of Income Tax Return.Advance RulingIf there is ambiguity in application of any issue as per Income Tax Act, there is provision of making application for advance ruling to IRD and the instruction issued by IRD is binding to the applicant.AppealIf the taxpayer is not satisfied with the decision of amended assessment by Tax Authority, the taxpayer has a right to apply for administrative review by depositing one-third of disputed amount and further to Revenue Tribunal by depositing half of the principal portion of disputed amount and the full portion of fines and penalties.B. Indirected TaxesVATApplicability:VAT is applicable to the supply of goods or services,- supplied into Nepal,- imported into Nepal, and- exported from NepalSome goods or services which are of basic necessities and agro-products are exempted and some are zero-rated (export of services)Tax Rate - Single rate 13%RegistrationEvery person supplying the goods crossing threshold of NPR 5 million and supplying services or goods & services both crossing the limit of NPR 2 million are required to be registered under VAT.Taxable ValueTaxable Value means the price the supplier receives from recipient including expenses related to transportation and the amount of profit plus excise duty, ownership fee and other taxes but excludes discount, commission or other similar commercial rebates.VAT RecordsPurchase book, Sales Book and VAT records, either manual or computerized, are the basic records to be maintained by a registered person.VAT Credit and RefundVAT paid on the purchase of raw materials and expenses on production of finished goods are allowed to take credit within one year from the date of the transaction. VAT credit is allowed for goods or services exported out of the country and charged at zero rate. Input tax credit of a tax period which could not be adjusted against next six consecutive months, the taxpayer can claim the refund. Similarly, in case of more than 40 percent of export out of total sales in a tax period is eligible for a refund of Such excess tax paid in the same tax period. Such refund shall be made within 3 years from the end of tax period.VAT ReturnEvery registered taxpayer is required to submit VAT return within 25 days from the end of Nepalese Calendar month. However, certain industries like publishing houses and brick industry can opt for quarterly submission.FacilitiesBank guarantee facility is available for VAT payable on the purchase of raw materials and services for those industries exporting more than 40% of its production during previous 12 months.Tax AssessmentThe assessment system is based on Self-Assessment. However, an assessment under the SelfAssessment scheme may be subject to review and amendment by Tax Authority which can be performed within four years from the date of submission of VAT Return.Advance RulingIf there is ambiguity in the application of any issue as per VAT Act, there is provision of making application for advance ruling to IRD and the instruction issued by IRD is binding to the applicant.AppealIf the taxpayer is not satisfied with the decision of amended assessment by Tax Authority, the taxpayer has a right to apply for administrative review by depositing one-third of disputed amount and further to Revenue Tribunal by depositing half of the principal portion of disputed amount and the full portion of fines and penalties.Excise DutyApplicable Act: Excise Act 2024 & Excise Rules 2024 and amendment made by Finance Act from time to time.Applicability: Excise Duty is applicable to goods/services produced/imported into Nepal. Relaxation and exemption are mentioned to certain goods produced in Nepal.Tax Rate: Specific to an individual item based on specific rate or ad-valorem basis.Valuation: On production u2024 Factory Price and On Import u2013Value for customs purpose plus custom dutyLicensing: No one can manufacture, import, sale or store a product without taking the license. License taken is valid for one year and has to be renewed by paying a renewal fee.Excise Duty Credit: Excise duty paid on the purchase of raw materials and auxiliary materials allowed. No excise duty credit is allowed to packaging materials.Management System: Physical Control System u2024 in the case of liquor, cigarette and tobacco. Self-Removal System u2024 in case of other goods.Facilities: Bank Guarantee Facility is provided to goods imported through a boned warehouse. Full exemption of excise duty is provided in case of export. Similarly, full exemption is provided to industries producing goods using scrap more than 90%.Records: Records of excisable goods purchased, produced, sold, released and balance of stock as certified by excise duty officer.Time of Payment:Excise Return:Within 25 days from the end of Nepalese Calendar month.Advance Ruling:If there is ambiguity in the application of any issue as per Excise Act, there is a provision of making application for an advance ruling to IRD and the instruction issued by IRD is binding to the applicant.Appeal:If the taxpayer is not satisfied with the decision of amended assessment by Tax Authority, the taxpayer has a right to apply for administrative review by depositing one-third of disputed amount and further to the Revenue Tribunal.Custom DutyApplicable Act: Customs Act 2024 & Customs Rules 2024 and amendment made by Finance Act from time to time.Applicability: Customs Duty is applicable to the import and export of goods and services. Tax Rate: Specific to individual item (as prescribed in tariff on the basis of HS code)Taxable Value: Based on transaction value determined as per General Agreement on Tariff and Trade 1994 and valuation principles mentioned in Customs Act.Facilities: Bank Guarantee Facility is provided to export industries and Duty-Free Shops. Further, the certain custom exemption is provided to those industries established in Special Economic Zone (SEZ). Special exemption/concession is provided to those goods if imported from neighboring countries like China, India. Also, concessional tariff rate applicable for the import of those goods which are imported under the bilateral/multilateral agreement.Post Clearance Audit (PCA): Custom Authority can make PCA after clearance of goods as required.Appeal and Review: If an importer is not satisfied with the valuation made by the Customs Authority, he can apply to the Valuation Review Committee.Other TaxesHealth Service Tax: 5% of health service invoices of all entities providing health services except for those provided by the Government of Nepal and Community Hospitals shall be charged.Education Service Fee: 1% on monthly fee and admission fee (Applicable to private sector schools providing more than higher level secondary education)Telecommunication Service Charge: To be charged from customer 11% of the collected amount.Telephone Ownership Fee: Rs. 1,000 per connection in case of postpaid and 2% of the value of SIM and Recharge CardInfrastructure Tax: Rs. 5 per liter for import of petrol, diesel and aviation fuel.Road Repair and Improvement Fee: Rs. 4 per liter in petrol and Rs. 2 per liter in DieselPollution Control Fee: Re. .50 per liter in petrol and dieselCasino Royalty: Annual License Fee for Casino u2024 Rs. 30 million. Annual License Fee for Casino using only modern equipment and machines u2024 Rs. 7.5 millionComplete Taxation System Of Nepal For more details follow this link: http://bizserve.com.np/wp-conten...
