Who is required to file corporate income tax?
In Nepal, all registered companies, both domestic and foreign, are required to file corporate income tax. This includes:
- Private Limited Companies
- Public Limited Companies
- Foreign Companies operating in Nepal
- Non-Governmental Organizations (NGOs)
- International Non-Governmental Organizations (INGOs)
- Cooperatives
- Partnerships
The Income Tax Act, 2058 (2002) mandates that any entity engaged in business activities or earning income in Nepal must file corporate income tax returns. This applies regardless of whether the company has made a profit or incurred a loss during the fiscal year.
What is the corporate tax rate in Nepal?
The corporate tax rate in Nepal varies depending on the nature of the business and its annual turnover. As per the current tax laws:
- General businesses: 25% of taxable income
- Banks and financial institutions: 30% of taxable income
- Insurance companies: 30% of taxable income
- Companies engaged in petroleum business: 30% of taxable income
- Companies listed on the Nepal Stock Exchange: 20% of taxable income
- Companies operating in Special Economic Zones (SEZs):
- For the first five years: 0% (tax holiday)
- For the next three years: 50% of the applicable rate
- Thereafter: Full applicable rate
Small and medium-sized enterprises (SMEs) with an annual turnover of less than NPR 5 million are subject to a presumptive tax regime with lower rates.
When is the deadline for corporate tax filing?
The deadline for corporate tax filing in Nepal is tied to the end of the fiscal year, which runs from mid-July to mid-July (Shrawan 1 to Ashad 31 in the Nepali calendar). The key deadlines are:
- Estimated tax return: Within the first 9 months of the fiscal year (by mid-April)
- Final tax return: Within 3 months of the end of the fiscal year (by mid-October)
- Audited financial statements: Within 6 months of the end of the fiscal year (by mid-January)
It’s crucial for corporations to adhere to these deadlines to avoid penalties and interest charges.
What documents are needed for corporate tax filing?
For corporate tax filing in Nepal, the following documents are typically required:
- Completed Income Tax Return Form (IRD Form 03)
- Audited financial statements (balance sheet, profit and loss account, cash flow statement)
- Tax audit report (for companies with turnover exceeding NPR 5 million)
- Reconciliation statement of book profit and taxable income
- Details of related party transactions
- Fixed asset register
- Depreciation schedule
- Bank statements for all accounts
- Copies of tax deduction at source (TDS) certificates
- Proof of advance tax payments
- Minutes of annual general meeting (AGM) approving financial statements
- Copy of PAN (Permanent Account Number) certificate
- Copies of any tax exemption certificates (if applicable)
- Supporting documents for major income and expense items
How is taxable income calculated for corporations?
Taxable income for corporations in Nepal is calculated by adjusting the accounting profit as per the provisions of the Income Tax Act. The general formula is:
Taxable Income = Total Income – Allowable Deductions
The process involves:
- Start with the net profit as per financial statements
- Add back disallowed expenses (e.g., personal expenses, fines, penalties)
- Deduct exempt income (e.g., dividend income already taxed at source)
- Adjust for timing differences (e.g., depreciation differences)
- Apply specific tax provisions (e.g., limits on certain deductions)
- Consider any loss carry-forwards from previous years
Key adjustments often include:
- Depreciation as per Income Tax Act rates
- Limits on entertainment expenses, donations, and CSR activities
- Disallowance of provisions not recognized by tax laws
- Adjustment for unrealized gains or losses
Are there any tax deductions available for corporations?
Yes, Nepal’s tax laws provide several deductions for corporations:
- Depreciation on fixed assets as per prescribed rates
- Repairs and maintenance expenses (up to 5% of depreciable asset value)
- Research and development expenses
- Pollution control expenses
- Training expenses for employees
- Provident fund and gratuity contributions (subject to limits)
- Donations to approved institutions (up to 5% of adjusted taxable income)
- Corporate Social Responsibility (CSR) expenses (up to 1% of annual profit)
- Interest expenses (subject to thin capitalization rules)
- Bad debts written off
- Expenses incurred for earning exempt income (proportionately disallowed)
- Carry forward of business losses for up to 7 years
Specific industries may have additional deductions or incentives as per government policies.
What are the penalties for late corporate tax filing?
The Inland Revenue Department (IRD) imposes penalties for late corporate tax filing:
- Late filing penalty: 0.1% of the tax liability per day of delay
- Interest on late payment: 15% per annum on unpaid tax
- Understatement of income: 100% of the tax on understated amount
- Failure to maintain proper records: Up to NPR 1,000 per instance
- Non-submission of tax audit report: NPR 1,000 per month of delay
For serious non-compliance, additional penalties may apply, including:
- Suspension of business registration
- Freezing of bank accounts
- Restriction on foreign travel for company directors
How often should corporate tax be paid?
Corporate tax in Nepal is paid through a system of advance tax and final settlement:
- Advance Tax:
- First installment: 40% of estimated annual tax by mid-January
- Second installment: 70% of estimated annual tax by mid-April
- Third installment: 100% of estimated annual tax by mid-July
- Final Settlement:
- Any remaining tax liability must be paid at the time of filing the final tax return (by mid-October)
Companies with turnover less than NPR 2 million may opt for a single annual payment.Income Tax Planning in Nepal
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What is the process for corporate tax filing?
The process for corporate tax filing in Nepal involves the following steps:
- Prepare financial statements and have them audited
- Calculate taxable income and tax liability
- Complete the Income Tax Return Form (IRD Form 03)
- Gather all required supporting documents
- Submit the tax return and documents to the local tax office or online portal
- Pay any remaining tax liability
- Obtain acknowledgment of filing from the tax office
For online filing:
- Log in to the IRD’s online portal
- Fill in the electronic tax return form
- Upload required documents
- Submit the return electronically
- Pay any tax due through online banking or at designated banks
Are there any government fees for corporate tax filing?
There are no direct government fees for corporate tax filing in Nepal. However, companies may incur indirect costs such as:
- Fees for statutory audit (required for all companies)
- Fees for tax consultants or accountants
- Notary fees for document certification (if required)
- Bank charges for tax payments
Which authority oversees corporate tax in Nepal?
The Inland Revenue Department (IRD), under the Ministry of Finance, is the primary authority overseeing corporate tax in Nepal. Key responsibilities include:
- Formulating tax policies and procedures
- Administering tax laws
- Collecting taxes
- Conducting tax audits and investigations
- Providing taxpayer services and education
The IRD operates through regional and local tax offices across the country.
What laws govern corporate income tax in Nepal?
The primary laws governing corporate income tax in Nepal are:
- Income Tax Act, 2058 (2002)
- Income Tax Rules, 2059 (2002)
- Finance Act (annual)
Additional relevant legislation includes:
- Company Act, 2063 (2006)
- Foreign Investment and Technology Transfer Act, 2075 (2019)
- Industrial Enterprises Act, 2076 (2020)
- Special Economic Zone Act, 2073 (2016)
These laws are periodically amended to reflect changes in government policies and economic conditions.
How long should corporate tax records be kept?
As per the Income Tax Act, corporations in Nepal must maintain tax records for at least 5 years from the date of filing the tax return. However, it’s advisable to keep records for a longer period, especially in cases of:
- Ongoing tax disputes
- Carry-forward losses
- Capital assets (until disposal)
- Transactions with related parties
Key records to retain include:
- Financial statements
- Tax returns and supporting documents
- Invoices and receipts
- Bank statements and payment records
- Fixed asset registers
- Payroll records
- Contracts and agreements
Can corporations get extensions for tax filing deadlines?
Yes, corporations can request extensions for tax filing deadlines in Nepal. The process involves:
- Submitting a written application to the local tax office
- Providing valid reasons for the extension request
- Paying an extension fee (if applicable)
Extensions are typically granted for up to 3 months. However, approval is at the discretion of the tax authorities and is not guaranteed. Even with an extension, interest may still accrue on any unpaid tax liability.
What is the audit requirement for corporate tax filing?
In Nepal, all registered companies are required to have their financial statements audited by a licensed auditor before filing corporate tax returns. The audit requirements are:
- Companies with annual turnover exceeding NPR 5 million: Full statutory audit
- Companies with turnover between NPR 2-5 million: Review audit
- Companies with turnover less than NPR 2 million: Self-declaration (no audit required)
The audit report must be submitted along with the tax return. For listed companies and public limited companies, the auditor must be approved by the Office of the Auditor General.
Additional FAQs:
1. How does corporate tax differ for foreign companies?
Foreign companies operating in Nepal are subject to the same corporate tax rates as domestic companies. However, there are some key differences:
- Permanent Establishment (PE) concept applies
- Withholding tax on repatriation of profits (5-15% depending on tax treaties)
- Thin capitalization rules for interest deductibility
- Transfer pricing regulations for related party transactions
- Double Tax Avoidance Agreements (DTAAs) may provide relief
2. Can corporate tax losses be carried forward?
Yes, corporate tax losses in Nepal can be carried forward for up to 7 years. The carry-forward is subject to the following conditions:
- Losses must be from business or investment sources
- The company must continue the same business activity
- There should be no substantial change in ownership (over 50%)
- Losses are set off against future profits in the order they were incurred
3. What is the minimum tax for corporations in Nepal?
Nepal has a minimum tax provision for certain corporations:
- 0.3% of gross turnover for companies with turnover exceeding NPR 2 million
- This applies even if the company incurs a loss or has lower tax liability
Exceptions exist for certain industries and start-ups in their initial years.
4. Is online corporate tax filing available in Nepal?
Yes, online corporate tax filing is available in Nepal through the Inland Revenue Department’s e-filing portal. The system allows for:
- Online submission of tax returns
- Electronic payment of taxes
- Access to tax-related information and forms
- Viewing of tax account status
However, some documents may still need to be submitted physically.
5. How are corporate tax disputes resolved?
Corporate tax disputes in Nepal are resolved through a multi-tier process:
- Administrative Review: Filing an application with the IRD
- Revenue Tribunal: Appeal against IRD decisions
- Supreme Court: Final appeal on points of law
Taxpayers can also request Advance Rulings from the IRD for clarity on tax treatment of specific transactions.
6. What are the tax implications of corporate restructuring?
Corporate restructuring in Nepal has various tax implications:
- Mergers: Generally tax-neutral if certain conditions are met
- Acquisitions: May trigger capital gains tax for sellers
- Demergers: Can be tax-neutral if approved by tax authorities
- Change in ownership: May affect carry-forward of losses
- Conversion of entity type: May have tax consequences based on valuation
Each restructuring case is unique and requires careful tax planning and compliance with both tax and company laws.
How to calculate corporate tax in Nepal?
Corporate tax is calculated based on taxable income.
Taxable income = Gross Income – Allowable Expenses.
Tax rates for companies vary:25% for domestic companies
30% for foreign companies operating in Nepal
Additional taxes (e.g., tax on dividends) may apply.
Who can file a D2 return in Nepal?
The D2 return must be filed by corporate taxpayers who are registered under Nepal’s Income Tax Act.
It includes businesses, companies, or firms earning taxable income.
How to pay company tax in Nepal?
Corporate taxes in Nepal can be paid via the online payment system of the Inland Revenue Department (IRD).
Alternatively, payment can be made at bank branches authorized by the IRD.
Tax payment receipts must be submitted with the tax return.
How to file an income tax return in Nepal?
1. Corporate tax returns (Form D2) should be filed annually by December 31st.
2. Use the IRD’s online portal or submit physically at the nearest tax office.
3. Attach financial statements, tax payment receipts, and required documents.
How do you calculate normal corporate income tax?
1. Calculate income by subtracting allowable business expenses from total revenue.
2. Apply the applicable tax rate based on company type (domestic or foreign).
3. Taxable income = Revenue – Deductible expenses.
4. Apply tax credits or deductions if applicable to reduce the tax liability.
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