Simple Tax Guide for Americans in Nepal
US Expat Taxes - Nepal
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Nepal for over 8 years. Our clients live in - Kathmandu and are mainly working for US government agencies.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Nepal for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Nepalese Tax System for the American Expatriates.
Nepal individual income tax rates are progressive to 25%. Tax exemption limit is Rs.160,000 for individuals and Rs.200,000 for couples:
Tax rates for resident individuals
|Income (Rs.)||Tax Rate|
|0 - 160,000||1%|
|160,001 - 260,000||15% (+ Rs. 1,600)|
|Above Rs. 260,000||25% (+ Rs. 16,600)|
Tax rates for Married (including widow & widower)
|Income (Rs.)||Tax Rate|
|0 - 200,000||1%|
|200,001 - 300,000||15% (+ Rs. 2,000)|
|Above Rs. 300,000||25% (+ Rs. 17,000)|
Tax rates for Proprietorship Firm - single
|Income (Rs.)||Tax Rate|
|0 - 160,000||0%|
|Above Rs. 260,000||25% (20% for Export Income and Income from Special Industry) + Rs. 15,000|
Tax rates for Proprietorship Firm - married
|Income (Rs.)||Tax Rate|
|0 - 200,000||0%|
|Above Rs. 300,000||25% (20% for Export Income and Income from Special Industry) + Rs. 15,000|
Having only Business Income with Annual Turnover up to Rs 20 Lacs and Annual Income up to Rs. 2 Lacs
- In the Metropolitan or Sub Metropolitan Cities Rs. 5000
- In the Municipalities Rs. 2500- In the Municipalities Rs. 2500
- In the rest of Nepal Rs. 1500
Tax Rate for Non Resident Natural Person: Taxable income of a non resident natural person shall be taxed at 25%.
- Resident Disabled Individual shall get an additional 50% of Exemption Limit (i.e. 50% of Rs. 200,000 in case of couple & Rs. 160,000 in case of single).
- Resident Woman, having only Remuneration Income, shall be entitled to a Tax Rebate of 10%.
- Individual having Life Insurance Policy shall get an additional exemption from hid Taxable
- Income to the extent of Rs. 20,000 or Premium Amount, whichever is lower. 4. Husband and Wife, having separate income source, are given option either to get assessed separately or jointly as family.
- Annual Remote Area Allowance up to Rs. 30,000 is exempted from tax.
- Employees working in Nepalese Mission abroad are allowed 75% exemption on Foreign Allowances.
- There is no levy of any Additional Income Tax
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 on tax calculated as above.
Tax on 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
- 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.50 lakhs.
Special Tax Rates for Natural Persons
|Particulars||Applicable Tax Rates|
|For incomes earned from operating special industries||20% where 25% tax rate applies|
For incomes earned from export business
|20% where 25% tax rate applies|
Tax Deductions and Facilities for Resident Persons
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.
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.
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%.
Remote Area Benefit - In case of resident natural persons working in remote areas, minimum exemption limit shall be increased by Rs 30,000, Rs 24,000, Rs 18,000, Rs 12,000 or Rs 6,000 depending on remote area category of A, B, C, D and E prescribed in Income Tax Rules 2059.
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.
Tax Credits for Resident Persons
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.
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.
Nepal Corporate Tax Rates
The standard rate of corporate tax in Nepal is 25%. However, different entities are taxed at different rates:
Particulars / Tax Rate
- Bank, Finance Company, General Insurance Company, Petroleum Entities: 30%
- Cigarette, Tobacco, Beer and Alcohol Company: 30%
- Special Industries & IT Industries: 20%
- Entities engaged in construction & operation of Road, Bridge, Tunnel, Ropeway, Trolley Bus and Tram: 20%
- Co-operative Institution registered under Co-operative Act, 2048 (other than co- operatives dealing in except dealers in Exempted Transaction): 20%
- Entity wholly engaged in the (BOOT) projects conducted so as to build public infrastructure, own, operate and transfer it to the HMG & in power generation, transmission, or distribution: 20%
- Non-resident person Providing Shipping, Air Transport or Telecommunications Services in Nepal: 5%
- Private Limited Co., Limited Co., Partnership Firm not specifically mentioned above: 25%
- Airline Services having office in and business in Nepal but not operating flights to and within Nepal: 2%
- All Export Entities: 20%
- Repatriation of income of a Foreign Permanent Establishment of a Non-Resident situated in Nepal: 5%
Reduced Tax Rates
Corporate Groups Applicable tax rate
- Information Technology industries: 22.5%
- Special Industries and Information Technology Industries providing direct employment to 300 or more Nepalese citizens during a period: 90% of applicable rate
- Special Industries providing direct employment to 1200 or more Nepalese citizens during a period: 80% of applicable rate
- Special Industries providing direct employment to more than 100 Nepalese citizens during a period 33% of which are women, incapacitated and dalits: 80% of applicable rate
- Special Industries operating in very undeveloped area: 50% of applicable rate
- Special Industries operating in undeveloped area: 70% of applicable rate
- Special Industries operating in underdeveloped area: 75% of applicable rate
- Industries established in Special Economic Zone of mountain district as specified by the government and hilly district: 0% for 10 years & 50% thereafter
- Industries established in Special Economic Zone of other areas: 0% for 5 years and 50% thereafter (In case of dividend of such industries, dividend tax is exempt for first five years of operation and 50% concession is provided for dividend tax in next three years)
- Income from foreign technology, management fee and royalty earned by foreign investor from industries established in special economic zone: 50% of applicable rate
- Industries established in remote areas: 0% for 10 years
- Information Technology based industries established at prescribed Information Technology park: 75% of Normal Rate
- Licensed Industries engaged in production and distribution of electricity, if the production and distribution is completed
by the end of Chaitra 2075: 100% exemption for first 7 years, 50% for next 3 years.
Tax Rates for Non Residents
Particulars / Applicable Tax Rates
- For incomes earned from operation of water transport, charter service or air transport or by operating a cable, radio, optical fiber or earth-satellite communication business from the transmission of news or information through the equipments installed in Nepal: 5%
- For incomes earned from providing air transport, water transport or telecommunication services within the territory of Nepal: 2%
- On repatriation of income by Foreign Permanent Establishment: 5%
Advance Income Tax
Income Tax for fiscal year should be paid in 3 installments as follows:
|First||Up to Mid-January (Poush end)||40%|
|First||Up to Mid-January (Poush end)||40%|
|Second||Up to Mid- April (Chaitra end)||70%|
|Third||Up to Mid-July (Ashadh end)||100%|
Where an instalment of tax paid by a person is less than 80% of Tax Payable, interest shall be levied @ 10% for each month and part of month from the date of first installment on the amount to the excess of 80% of the instalment that would have paid over the installment paid.
The presumptive tax-payers need not require paying any advance tax as above. Further if the Tax Amount for the fiscal year is less than Rs 5000, installment is not required to be paid.
Carry Forward of Loss
- Carry Forward of Loss from Business and Investment can be made up to 7 years.
- Carry Forward of Loss can be made up to 12 years in case of Projects building, operating & transferring public infrastructure to the Nepal Government, Projects building Electricity Production House, generating & transmitting electricity and entities dealing in petroleum products under Nepal Petroleum Act, 2040.
- Loss incurred in business or investment where assessee enjoys full / partial tax exemption cannot be carried forward.
Penalty for Non-Filing of Income Tax Return on Time
- Non-Filing of Estimated Income Tax Return Income u/s 95 within due date shall attract penalty of Rs. 2000 per Return.
- Non-Filing of Income Tax Return Income u/s 96 within due date shall attract penalty of @ 0.10% of Annual Turnover or Rs. 100 per month whichever is higher.
Tax Concession and Rebates
- 10 Years Tax Holiday from date of operation and 50% Tax Rebate thereafter to industries established in Special Economic Zone (SEZ) of Himalayan Districts and other prescribed Hilly District.
- 5 Years Tax Holiday from date of operation and 50% Tax Rebate thereafter to industries established in other Special Economic Zone (SEZ).
- 100% Rebate for first 5 Years from date of operation and then 50% Rebate for next 3 Years on dividend distributed by industries established in Special Economic Zone (SEZ).
- 50% Rebate on Income Tax on income from Foreign Technology or Management Consultancy or Royalty earned by foreign investors of industry established in SEZ.
- 10 Years Tax Holiday from date of operation to industries established in remote areas.
- 25% Tax Rebate to IT Industries established in prescribed Information Technology Park.
- Entities having license for Electricity generation, transmission & distribution, if commences generation / generation & transmission / generation & distribution / generation, transmission & distribution of Hydro-electricity commercial manner by Chaitra end, 2075; such entities shall have Tax Holiday for a period of first 7 Years and 50% Tax Rebate thereafter for 3 Years, from date of such commencement of generation, transmission & distribution. Such facilities shall also be applicable for Electricity generated from Solar/Wind/Organic Materials.
However, entities already having started commercial production of electricity before Shrawan 01, 2066 shall be eligible for facility as prevalent at the time of obtaining license
- 50%, 30% & 25% Rebate on Income Tax for 10 Years including the year of operation to Special Industries operating in Highly Undeveloped, Undeveloped & Under-developed areas respectively.
- 10 % Rebate on Income Tax to Special Industries and IT Industries which provide direct employment to 300 Nepalese nationals throughout the year. [Earlier, it was 500 Nepalese].
- 20 % Rebate on Income Tax to Special Industries which provide direct employment to 1200 Nepalese nationals throughout the year.
- 20 % Rebate on Income Tax to Special Industries which provide direct employment to 100 Nepalese nationals including 33 percent women, dalits (the downtrodden) or the handicapped, throughout the year
Tax Deduction at Source (TDS) rates
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)
Particulars / Tax Rates
- On Interest, Royalty, Service Charge, Retirement Payment having source in Nepal, except mentioned otherwise: 15%
- Payment made to resident person on Service Charge invoiced in VAT bill: 1.5%
- 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: 5%
- On payment made by a resident person for rent having source in Nepal: 10%
- On payment of gain from Investment Insurance: 5%
- On payment of gain from retirement fund: 5%
- On payment of commission by resident employer company to a non resident person: 5%
- On payment of lease rental of aircraft: 10%
- On payment of premium to non-resident insurance companies: 1.5%
- On gain from transaction on commodity future market: 10%
- On windfall gains except national and international level prizes as prescribed by Nepal Government: 25%
Nepal vat (Value Added Tax)
Standard rate of Value Added Tax in Nepal is 13%. Certain goods/services are exempt.
Entity having turnover of Rs.2.0 million or more is required to get registered with Valu Added Tax Office and 13% VAT shall be applicable to it.