In 2079 (2022), Nepal introduced a Digital Service Tax (DST) under Section 20 of the Finance Act, 2079, ensuring that non-resident entities supplying digital services to consumers in Nepal contribute to the country’s revenue. A parallel VAT regime also applies. This insight summarises both the direct (DST) and indirect (VAT) tax frameworks.
01What counts as a digital service to a Nepali consumer
A service is treated as supplied to a consumer in Nepal where any one of the following applies: it is received within Nepal; the billing address is in Nepal; payment is made through Nepali bank accounts or licensed payment instruments; payment is by a card issued by Nepali banks or providers; it is received using a Nepali IP address; or it is received using a SIM with Nepal’s country code or a Nepali landline.
“Digital service” covers services delivered automatically over the internet with minimal human intervention — advertising; streaming/OTT and subscription media; data storage; cloud; gaming; mobile-application services; online marketplaces; software supply and updates; sale of data collected from Nepali residents; downloads; online education, consultancy and training; and e-books, e-libraries and e-newspapers.
A “consumer” is a person with a normal place of abode in Nepal; purchases made by separate arrangement for business use are excluded. A “non-resident person” is any person who is not resident under the Income Tax Act, 2058 (2002).
02Direct tax (DST) — rate and basis
DST is charged at 2% of the transaction value (excluding indirect taxes levied in Nepal). Operators of online marketplaces disclose transaction value including goods and services supplied through the marketplace, but exclude amounts relating to supplies by resident persons. DST is a direct tax and is not added to the price of the service. Consumers are responsible for any incorrect self-declaration.
03DST — threshold and exemption
Digital services to consumers in Nepal are exempt up to a transaction value of NPR 2 million per income year; once that threshold is crossed, tax applies to the entire amount. Income taxed under the DST procedure is not also taxed under the Income Tax Act.
04DST — registration
The tax is administered by the Large Taxpayer Office (LTO). Taxable persons must register and obtain a PAN before transacting (non-registration does not remove the tax liability), applying within 30 days of exceeding the threshold; voluntary registration is available at any time. Those already VAT-registered need no separate PAN. Applications are made online with notarised English copies of the home-country registration certificate, the home tax ID, and authorisation and passport details of the designated representative. The Office issues a certificate within seven days, or gives reasons within 15 days if it cannot.
05DST — returns, payment and audit
Transaction values are disclosed in Nepali currency on an accrual basis. Returns are filed annually within three months of the income-year end; late filing attracts a fee of 0.1% per year, and late payment attracts interest of 15% (s.20(3)). The LTO may audit; understated liability attracts a penalty of 50% of the concealed amount. Assessment follows an initial order, a 15-day window for defence, and a final order — served validly to the registered email or representative.
06Indirect tax (VAT) on digital services
Following the Finance Act, 2079’s amendment to the VAT Act, 2052 (1996), non-resident persons supplying digital services to consumers must also register for and deposit VAT at 13% on the transaction value. For VAT, “digital service” excludes the sale of data collected from Nepali residents, educational services, and e-books/e-libraries/e-newspapers. Services supplied to entities (other than consumers) are not digital services for VAT; where a non-consumer buys from abroad, the reverse-charge under s.8(2) applies.
07VAT — registration and compliance
Non-residents whose taxable digital-service transactions exceed NPR 2 million in the last twelve months must register within 30 days and collect VAT from the date of registration (voluntary registration is also possible). The Office issues a certificate within seven days. Failure to register can attract a fine of NPR 20,000 per instance.
08VAT — invoicing, returns and payment
Registered non-residents may issue self-designed tax invoices (no IRD e-approval needed) showing the seller’s name and PAN, the buyer’s name and PAN if available, the date, and a description and price. Invoices are issued when the service is supplied or consideration received, whichever is earlier; foreign-currency consideration is recorded in both the currency and NPR at the NRB rate on the return date. Returns are filed within 25 days of the tax period (s.18); late filing attracts the higher of 0.05% per day or NPR 1,000 per period. VAT is paid online at revenue heading 33316; late payment attracts 15% interest plus a 10% additional fee.
09Appeals and cancellation
A non-resident dissatisfied with an assessment may seek administrative review by the Director General of the IRD and, if still dissatisfied, appeal to the Revenue Tribunal. To deregister, an online application is filed; registration is not cancelled until outstanding liabilities are settled, and the Office decides within three months.
10Payment details
The IRD provides a Nepal Rastra Bank USD revenue account for non-residents to deposit DST and VAT, with transfer fees borne by the taxpayer. Deposits should reference the Large Taxpayer Office (code 305043401), the taxpayer’s PAN, and the revenue heads — 33316 for VAT and 11445 for DST.