Nepal taxes residents on worldwide income and non-residents on Nepal-source income only. Nepal operates a self-assessment system, with the Inland Revenue Department conducting post-filing review and audit.
The Nepali tax year runs approximately mid-July to mid-July (following the Nepali calendar, Shrawan 1 to Ashad end). The individual filing deadline is generally within 3 months of the tax year-end.
25% standard rate (30% for banks and financial institutions; 20% for special industries, exporters, and Special Economic Zone companies).
Progressive, 1% to 36%, with a 20% surcharge on income exceeding NPR 5 million.
13% standard VAT.
Under Section 2(ka) of the Income Tax Act 2058, an individual is a Nepal tax resident if present in Nepal for 183 days or more within any 365-day window ending during the income year (mid-July to mid-July), or if their habitual place of abode is in Nepal. A company is resident if incorporated in Nepal or if effectively controlled and managed from Nepal during the year. Residents are taxed on worldwide income; non-residents only on Nepal-source income, generally at a flat 25% rate.
A non-Nepali entity has a Nepal permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Nepal on the entity's behalf, following the OECD Model Treaty definition as applied under Nepali domestic law and any applicable tax treaty.
Nepal has a genuine, dedicated Controlled Foreign Company attribution regime under Section 69 of the Income Tax Act, 2058, titled "Controlled foreign entities": where a non-resident entity is controlled by Nepali resident persons (in practice, tested against control by a small number, commonly described as up to five, resident persons or associates, since the Act itself does not define "control" precisely), the entity's "associated income" for the year is deemed distributed as dividends to its resident beneficiaries in proportion to their rights, whether or not an actual distribution occurred - taxing undistributed profits in the hands of Nepali residents directly. This contradicts a commonly repeated secondary-source claim that "Nepal does not have specific CFC rules"; that claim is inconsistent with the Act's own text and is not relied on here.
Section 14 of the Income Tax Act, 2058 generally allows interest deductions on business borrowings, but applies a specific cap to a "resident entity controlled by an organization entitled to tax exemption" - an entity 25% or more owned or controlled by a tax-exempt organization, a Section 11 tax-exempt person, a non-resident person, or any combination of these. For such an exempt-controlled entity, the deductible interest paid to the controlling party or a related person cannot exceed the sum of the entity's own interest income for the year plus 50% of its taxable income (computed excluding interest); disallowed interest carries forward to future years. This is a targeted anti-avoidance cap rather than a general debt-to-equity thin capitalization ratio applicable to all Nepali entities with related-party debt.
Nepal does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Nepal does not have a comprehensive ATAD2-style anti-hybrid regime.
No foreign bank account or foreign financial asset reporting regime exists in Nepal requiring residents to separately disclose foreign accounts.
Nepal does not provide a broad participation exemption for foreign dividends in the European sense; foreign dividends received by a Nepali company are generally taxable, with relief from double taxation available through Nepal's foreign tax credit system, coordinated against Nepal's own Section 69 CFC regime (see CFC section above) to avoid double-counting income already attributed to a resident beneficiary as a deemed dividend.
Nepal has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Nepal, capped at the Nepali tax otherwise due on that income.
Nepal has double tax avoidance treaties with 11 countries: Austria, Bangladesh, China, India, South Korea, Mauritius, Norway, Pakistan, Qatar, Sri Lanka, and Thailand. Treaty benefits are denied to dual-resident entities where 50% or more of vested ownership is held by persons resident in both Nepal and the treaty partner country, as an anti-abuse measure. A Tax Residency Certificate (format prescribed under Schedule 11 of the Income Tax Act) is required to claim treaty benefits.