Permanent Establishment (PE) Rules in Nepal

In Nepal, a Permanent Establishment (PE) is defined under Section 2(s) of the Income Tax Act, 2058 (2002). A PE is a fixed place of business through which the business of a non-resident person is wholly or partly carried on in Nepal. The following elements typically constitute a PE in Nepal:

1. A fixed place of business, including:
   • An office, branch, or factory
   • A workshop or warehouse
   • A mine, oil or gas well, quarry, or other place of extraction of natural resources
2. A building site, construction, assembly, or installation project, or supervisory activities connected with such projects, lasting more than 90 days within any 12-month period
3. The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged for such purposes, for a period exceeding 90 days within any 12-month period
4. A person acting on behalf of a non-resident person, who habitually exercises authority to conclude contracts in Nepal on behalf of the non-resident person

The concept of PE is crucial for determining the taxability of foreign businesses operating in Nepal. It establishes the threshold at which a non-resident entity becomes subject to Nepalese tax laws on its business profits.

How do PE rules affect foreign businesses in Nepal?

PE rules significantly impact foreign businesses operating in Nepal in several ways:

1. Tax liability: Once a foreign business establishes a PE in Nepal, it becomes liable to pay taxes on the profits attributable to that PE.
2. Compliance requirements: Foreign businesses with a PE must comply with Nepalese tax laws, including filing tax returns, maintaining proper books of accounts, and adhering to various reporting obligations.
3. Double taxation considerations: PE rules interact with double taxation agreements (DTAs) that Nepal has signed with other countries, potentially affecting the overall tax burden of the foreign business.
4. Business structuring: Foreign companies must carefully consider their business structures and operations in Nepal to manage their PE exposure effectively.
5. Withholding tax implications: The presence of a PE may affect withholding tax obligations on payments made to the foreign entity.
6. Transfer pricing scrutiny: Transactions between the PE and its foreign head office or other related entities become subject to transfer pricing regulations.
7. Permanent establishment risk: Foreign businesses must continually assess their activities in Nepal to determine if they create a PE, as unintentional PE creation can lead to unexpected tax liabilities and penalties.

What are the tax implications of having a PE in Nepal?

The tax implications of having a PE in Nepal are significant and multifaceted:

1. Corporate Income Tax: PEs are subject to corporate income tax on their taxable profits at the standard rate of 25%. However, certain industries may have different rates.
2. Profit Attribution: Only profits attributable to the PE are taxable in Nepal. This requires careful analysis and documentation of income and expenses related to the PE’s activities.
3. Withholding Taxes: PEs may be subject to withholding taxes on certain payments, such as interest, royalties, or service fees, made to non-residents.
4. Value Added Tax (VAT): If the PE’s turnover exceeds the VAT registration threshold (currently NPR 5 million per year), it must register for and comply with VAT regulations.
5. Tax Deductions: PEs can claim deductions for expenses incurred for business purposes, subject to certain limitations and documentation requirements.
6. Double Taxation Relief: Foreign businesses with PEs in Nepal may be eligible for relief from double taxation under applicable DTAs.
7. Transfer Pricing: Transactions between the PE and its foreign head office or other related entities must be conducted at arm’s length prices and are subject to transfer pricing scrutiny.
8. Tax Compliance: PEs must file annual income tax returns, make advance tax payments, and comply with various other tax-related obligations.
9. Permanent Establishment Risk: Failure to properly identify and declare a PE can result in significant tax liabilities, penalties, and interest charges.

How long can a business operate before becoming a PE?

The duration of business operations that triggers PE status in Nepal depends on the nature of the activities:

1. Fixed place of business: There is no specific time threshold for a fixed place of business. A PE can be created immediately upon establishing a fixed place of business in Nepal.
2. Construction or installation projects: A PE is created if the project or related supervisory activities continue for more than 90 days within any 12-month period.
3. Service provision: Furnishing services, including consultancy services, through employees or other personnel for more than 90 days within any 12-month period constitutes a PE.
4. Dependent agent: There is no specific time threshold for a dependent agent PE. It is based on the agent’s authority and frequency of contract conclusion.
5. Preparatory or auxiliary activities: Activities of a preparatory or auxiliary nature do not create a PE, regardless of their duration.
6. E-commerce activities: There is no specific time threshold for e-commerce activities. The determination is based on the nature and extent of the activities in Nepal.

It’s important to note that these thresholds may be modified by applicable DTAs between Nepal and other countries. Businesses should carefully monitor their activities in Nepal to avoid unintentionally creating a PE.

Are there any exceptions to PE rules in Nepal?

Yes, there are several exceptions to PE rules in Nepal, primarily aimed at activities of a preparatory or auxiliary nature. These exceptions include:

1. The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the non-resident person
2. The maintenance of a stock of goods or merchandise belonging to the non-resident person solely for the purpose of storage or display
3. The maintenance of a stock of goods or merchandise belonging to the non-resident person solely for the purpose of processing by another person
4. The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or collecting information for the non-resident person
5. The maintenance of a fixed place of business solely for the purpose of carrying on any other activity of a preparatory or auxiliary character for the non-resident person
6. The maintenance of a fixed place of business solely for any combination of the activities mentioned above, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character

It’s important to note that these exceptions are subject to interpretation and may be scrutinized by tax authorities. Additionally, if the overall activities exceed the scope of preparatory or auxiliary nature, a PE may still be deemed to exist.

How do e-commerce activities factor into PE determination?

E-commerce activities present unique challenges in PE determination due to their often borderless nature. In Nepal, the approach to e-commerce and PE is evolving, but several factors are considered:

1. Server location: If a foreign e-commerce company maintains a server in Nepal through which it conducts core business activities, this may constitute a PE.
2. Website hosting: Merely having a website hosted on a server in Nepal is generally not sufficient to create a PE.
3. Digital presence: Significant digital presence in Nepal, such as targeted advertising or localized websites, may be considered in PE determination.
4. Local support: If the e-commerce company maintains local staff or facilities for after-sales support or other business activities, this could create a PE.
5. Online marketplaces: Foreign companies selling goods through Nepalese online marketplaces may not necessarily create a PE, but this depends on the specific arrangements and activities.
6. Digital services: Provision of digital services to Nepalese customers may create a PE if it meets the service PE threshold (more than 90 days within any 12-month period).
7. Data collection: Extensive data collection activities in Nepal for business purposes may be considered in PE determination.
8. Payment processing: Maintaining local payment processing facilities or arrangements could potentially contribute to PE creation.
9. Fulfillment activities: If the e-commerce company maintains inventory or conducts fulfillment activities in Nepal, this may create a PE.

As e-commerce continues to evolve, Nepal’s tax authorities may introduce more specific guidelines or regulations addressing PE issues in the digital economy. Foreign e-commerce businesses should closely monitor developments in this area and seek professional advice to manage their PE risk in Nepal.

What documentation is required to register a PE?

Registering a PE in Nepal requires submitting various documents to the Inland Revenue Department (IRD). The specific requirements may vary depending on the nature of the PE, but generally include:

1. Application form for PE registration
2. Copy of the foreign company’s registration certificate in its home country
3. Board resolution authorizing the establishment of a PE in Nepal
4. Power of attorney for the local representative
5. Passport copies of the foreign company’s directors
6. Copy of the lease agreement for the PE’s office premises in Nepal
7. Bank account details of the PE in Nepal
8. PAN (Permanent Account Number) registration certificate
9. VAT registration certificate (if applicable)
10. Details of the PE’s activities in Nepal
11. Projected financial statements for the PE’s operations in Nepal
12. Copy of any contracts or agreements related to the PE’s activities in Nepal
13. Tax clearance certificate from the foreign company’s home country
14. Notarized and apostilled copies of key documents (as required)
15. Translations of documents not in English or Nepali (as required)

The registration process typically involves:

1. Submitting the required documents to the IRD
2. Obtaining a PAN for the PE
3. Registering for VAT (if applicable)
4. Opening a local bank account
5. Registering with the Company Registrar’s Office (if required)

It’s advisable to seek assistance from local tax professionals or legal advisors to ensure all necessary documentation is properly prepared and submitted.

How are profits attributed to a PE in Nepal?

Profit attribution to a PE in Nepal follows the principles outlined in the Income Tax Act, 2058 (2002) and related regulations. The key aspects of profit attribution include:

1. Separate entity approach: The PE is treated as a separate entity from its foreign head office for tax purposes.
2. Arm’s length principle: Transactions between the PE and its head office or other related entities must be conducted at arm’s length prices.
3. Functional analysis: A detailed analysis of the functions performed, assets used, and risks assumed by the PE is conducted to determine its contribution to the overall business profits.
4. Direct method: Where possible, profits directly attributable to the PE’s activities are identified and allocated.
5. Indirect method: When direct attribution is not possible, an appropriate allocation method is used, such as turnover ratio, employee headcount, or asset value.
6. Deductible expenses: Expenses incurred for the purposes of the PE’s business, including a reasonable allocation of head office expenses, are generally deductible.
7. Transfer pricing documentation: Detailed documentation supporting the profit attribution methodology and calculations must be maintained.
8. Consistency: The profit attribution method should be consistently applied from year to year, unless there are valid reasons for a change.
9. Limited force of attraction: Nepal generally does not apply a full force of attraction rule, meaning that not all income derived from Nepal is automatically attributed to the PE.
10. Industry-specific considerations: Certain industries, such as insurance or banking, may have specific profit attribution rules.
11. Tax treaty provisions: Where applicable, profit attribution methods specified in DTAs may override domestic rules.
12. Advance Pricing Agreements (APAs): In complex cases, taxpayers may seek APAs with the tax authorities to agree on profit attribution methodologies in advance.

Foreign businesses with PEs in Nepal should carefully document their profit attribution methodologies and maintain robust supporting evidence to withstand potential scrutiny from tax authorities.

Can treaty provisions override domestic PE rules?

Yes, treaty provisions can override domestic PE rules in Nepal. When a Double Taxation Avoidance Agreement (DTAA) exists between Nepal and the country of residence of the foreign entity, the provisions of the treaty generally take precedence over domestic law. This principle is known as “treaty override” and is recognized in Nepal’s tax system.

Key points regarding treaty override of domestic PE rules:

1. Legal basis: Section 73 of the Income Tax Act, 2058 (2002) provides that the provisions of a DTAA shall prevail over the provisions of the Act in case of any conflict.
2. PE definition: DTAAs often contain their own definition of PE, which may be narrower or more specific than the domestic definition.
3. Time thresholds: Treaties may provide different time thresholds for activities such as construction projects or service provision to constitute a PE.
4. Specific exclusions: DTAAs may include additional exclusions from PE status not found in domestic law.
5. Agency PE rules: Treaty provisions on dependent and independent agents may differ from domestic rules.
6. Profit attribution: DTAAs often contain specific guidelines on how profits should be attributed to a PE.
7. Withholding taxes: Treaty rates for withholding taxes on payments to non-residents may be lower than domestic rates.
8. Mutual Agreement Procedure (MAP): Treaties provide for a MAP to resolve disputes on PE issues between tax authorities.
9. Non-discrimination: Treaty non-discrimination clauses ensure that PEs are not treated less favorably than domestic enterprises.
10. Limitation on Benefits (LOB): Some modern treaties include LOB clauses that may limit treaty benefits in certain circumstances.

While treaty provisions can override domestic rules, it’s important to note that:

• The treaty must be properly invoked and applicable to the specific situation.
• Domestic anti-abuse provisions may still apply in cases of treaty shopping or abuse.
• The interpretation and application of treaty provisions may be subject to scrutiny by tax authorities.

Foreign businesses operating in Nepal should carefully review applicable DTAAs and seek professional advice to understand how treaty provisions interact with domestic PE rules in their specific circumstances.

What are the compliance requirements for PEs in Nepal?

PEs in Nepal are subject to various compliance requirements under Nepalese tax laws and regulations. These include:

1. Tax Registration:
   • Obtain a Permanent Account Number (PAN)
   • Register for Value Added Tax (VAT) if turnover exceeds the threshold
2. Tax Returns:
   • File annual income tax returns within three months after the end of the fiscal year
   • Submit quarterly advance tax estimates and payments
3. Financial Statements:
   • Prepare annual financial statements in accordance with Nepal Financial Reporting Standards (NFRS)
   • Have financial statements audited by a licensed auditor if annual turnover exceeds NPR 5 million
4. Book-keeping:
   • Maintain proper books of accounts and supporting documents
   • Keep records for at least five years
5. Withholding Taxes:
   • Withhold taxes on specified payments to residents and non-residents
   • File monthly withholding tax returns and remit withheld taxes
6. Transfer Pricing:
   • Maintain contemporaneous transfer pricing documentation
   • File annual transfer pricing returns for transactions with associated enterprises
7. VAT Compliance (if registered):
   • File monthly VAT returns
   • Issue VAT invoices for taxable supplies
8. Employee-related Compliance:
   • Register with the Social Security Fund (SSF)
   • Withhold and remit employee income tax (Pay As You Earn – PAYE)
   • File annual returns for employee tax withholdings
9. Foreign Exchange Regulations:
   • Comply with foreign exchange regulations for cross-border transactions
   • Obtain necessary approvals for repatriation of profits
10. Annual Reporting:
    • Submit annual returns to the Company Registrar’s Office (if registered as a branch)
11. Tax Assessments:
    • Respond to tax assessment notices and queries from tax authorities
    • Maintain documentation to support tax positions in case of audits
12. Change Notifications:
    • Notify tax authorities of any significant changes in business activities or structure
13. Digital Compliance:
    • Use approved accounting software for maintaining books of accounts
    • Comply with e-filing requirements for various tax returns
14. Industry-specific Compliance:
    • Adhere to any additional compliance requirements specific to the PE’s industry
15. Closure Procedures:
    • Follow proper procedures for closing the PE, including obtaining tax clearance

Compliance requirements can be complex and subject to change. PEs in Nepal should seek professional assistance to ensure full compliance with all applicable regulations and to avoid penalties for non-compliance.

How do PE rules affect foreign construction projects?

PE rules significantly impact foreign construction projects in Nepal. The key aspects include:

1. Time threshold: A construction site, project, or supervisory activities related to such projects create a PE if they last more than 90 days within any 12-month period.
2. Project aggregation: Related projects may be aggregated to determine if the time threshold is met.
3. Subcontractor activities: Time spent by subcontractors on site may count towards the PE threshold.
4. Preparatory activities: Time spent on preparatory work (e.g., setting up site office) may be included in the PE determination.
5. Profit attribution: Once a PE is established, profits attributable to the project become taxable in Nepal.
6. Withholding taxes: Payments to non-resident subcontractors may be subject to withholding tax.
7. Permanent establishment risk: Exceeding the time threshold unexpectedly can lead to retroactive PE creation and tax liabilities.
8. Treaty provisions: Applicable DTAs may modify the PE threshold or provide specific rules for construction projects.
9. VAT implications: Long-term projects may trigger VAT registration requirements.
10. Employee taxation: Expatriate employees working on the project may become taxable in Nepal.
11. Compliance burden: Creating a PE leads to various tax compliance obligations in Nepal.
12. Contract structuring: Careful structuring of construction contracts can help manage PE exposure.
13. Joint ventures: PE rules apply to foreign partners in joint ventures with local entities.
14. Equipment importation: Temporary importation of construction equipment may have customs and tax implications.
15. Project completion: Proper closure procedures, including tax clearance, are necessary upon project completion.

Foreign construction companies should carefully plan their activities in Nepal to manage PE risks and comply with local tax regulations.

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Are there penalties for failing to declare a PE?

Yes, there are significant penalties for failing to declare a PE in Nepal. The Nepalese tax authorities take a serious view of non-compliance with PE rules. Penalties may include:

1. Late registration penalty: A fine of up to NPR 5,000 for each month of delay in registering the PE.
2. Tax assessment penalties: Additional tax of up to 100% of the assessed tax liability for failure to file returns or underreporting of income.
3. Interest charges: Interest on unpaid taxes at 15% per annum, compounded annually.
4. Penalty for non-maintenance of documents: A fine of up to NPR 1,000 for each instance of failure to maintain required documents.
5. Penalty for non-submission of documents: A fine of up to NPR 1,000 for each instance of failure to submit required documents.
6. Criminal penalties: In severe cases of tax evasion, criminal prosecution may be initiated, potentially resulting in imprisonment.
7. Reputational damage: Non-compliance can lead to reputational damage and increased scrutiny in future dealings with Nepalese authorities.
8. Retroactive taxation: Tax authorities may assess taxes, interest, and penalties retroactively from the date the PE was deemed to have been created.
9. Withholding tax penalties: Penalties for failure to withhold taxes on payments made by the undeclared PE.
10. VAT penalties: If the PE should have been VAT registered, penalties for non-registration and non-compliance with VAT regulations may apply.
11. Transfer pricing penalties: Additional penalties may apply for non-compliance with transfer pricing regulations.
12. Customs penalties: If the PE imported goods without proper declaration, customs penalties may be imposed.
13. Social security penalties: Penalties for non-compliance with social security regulations for employees of the undeclared PE.
14. Disallowance of expenses: Expenses claimed by the foreign entity related to the undeclared PE may be disallowed for tax purposes.
15. Increased audit risk: Failure to declare a PE may result in increased scrutiny and audits of the foreign entity’s activities in Nepal.

To avoid these penalties, foreign businesses should carefully assess their activities in Nepal and seek professional advice to ensure compliance with PE rules and timely declaration of any PE created.

How do PE rules impact digital service providers?

PE rules have significant implications for digital service providers operating in Nepal:

1. Server PE: A server located in Nepal through which core business functions are performed may create a PE.
2. Digital presence: Substantial digital presence in Nepal may be considered in PE determination.
3. Service PE threshold: Providing digital services for more than 90 days within any 12-month period may create a PE.
4. E-commerce activities: Online sales to Nepalese customers may potentially create a PE, depending on the nature and extent of activities.
5. Data collection: Extensive data collection activities in Nepal for business purposes may factor into PE determination.
6. Local support: Maintaining local staff or facilities for customer support may create a PE.
7. Digital advertising: Targeted digital advertising in Nepal may be considered in assessing PE status.
8. Cloud services: Providing cloud services to Nepalese customers may potentially create a PE, depending on the nature of the services.
9. Software as a Service (SaaS): Offering SaaS to Nepalese users may trigger PE considerations.
10. Digital content delivery: Maintaining content delivery networks or caching servers in Nepal may impact PE status.
11. Online marketplaces: Operating online marketplaces targeting Nepalese consumers may create PE risks.
12. Mobile applications: Developing and maintaining apps specifically for the Nepalese market may factor into PE determination.
13. Digital payments: Facilitating digital payments for Nepalese customers may be considered in PE assessment.
14. Artificial Intelligence (AI) services: Providing AI-based services to Nepalese clients may create PE risks.
15. Virtual presence: As digital economy evolves, the concept of “virtual PE” may gain relevance in Nepal’s tax framework.

Digital service providers should closely monitor developments in Nepal’s approach to taxing the digital economy and seek professional advice to manage their PE exposure.

Which authority oversees PE matters in Nepal?

In Nepal, PE matters are primarily overseen by the Inland Revenue Department (IRD), which operates under the Ministry of Finance. The key aspects of IRD’s role in PE matters include:

1. Interpretation of PE rules: The IRD provides guidance on the interpretation and application of PE rules in Nepal.
2. PE determinations: The IRD assesses whether a foreign entity’s activities in Nepal constitute a PE.
3. Tax assessments: The IRD conducts tax assessments for PEs and determines their tax liabilities.
4. Audits and investigations: The IRD has the authority to audit and investigate PEs for tax compliance.
5. Rulings and clarifications: The IRD may issue rulings or clarifications on specific PE-related issues.
6. Enforcement: The IRD enforces compliance with PE rules and imposes penalties for non-compliance.
7. Treaty interpretation: The IRD interprets and applies DTA provisions related to PEs.
8. Transfer pricing: The IRD oversees transfer pricing matters related to PEs.
9. Appeals: The IRD handles initial appeals against PE-related tax assessments.
10. Registration: The IRD manages the registration process for PEs in Nepal.
11. Information exchange: The IRD participates in international information exchange related to PE matters.
12. Policy development: The IRD contributes to the development of PE-related tax policies and regulations.
13. Advance rulings: The IRD may provide advance rulings on PE matters in certain cases.
14. Mutual Agreement Procedures: The IRD participates in MAPs under DTAs for PE-related disputes.
15. Capacity building: The IRD conducts training and capacity building programs on PE matters for its staff.

While the IRD is the primary authority, other government bodies may also be involved in PE-related matters, such as:

• Ministry of Finance: Oversees overall tax policy, including PE-related policies.
• Revenue Tribunal: Hears appeals against IRD decisions on PE matters.
• Supreme Court: The final appellate authority for PE-related legal disputes.
• Nepal Rastra Bank: Involved in foreign exchange aspects of PE operations.
• Department of Industry: May be involved in PE registration for certain industries.

Foreign entities dealing with PE matters in Nepal should primarily engage with the IRD, while being aware of the potential involvement of other authorities in specific aspects of PE regulation and compliance.

How do PE rules interact with transfer pricing regulations?

PE rules and transfer pricing regulations in Nepal are closely interrelated and have significant implications for multinational enterprises. Key aspects of their interaction include:

1. Arm’s length principle: Transactions between a PE and its foreign head office or other related entities must be conducted at arm’s length prices.
2. Profit attribution: Transfer pricing methods are used to determine the profits attributable to a PE based on its functions, assets, and risks.
3. Comparability analysis: PEs must conduct comparability analyses to justify their transfer prices, considering the unique aspects of PE operations.
4. Documentation requirements: PEs must maintain transfer pricing documentation to support their intra-group transactions and profit attribution methods.
5. Deemed transactions: Certain dealings between a PE and its head office, which may not be recognized in separate entity accounts, may be deemed as transactions for transfer pricing purposes.
6. Allocation of head office expenses: Transfer pricing principles guide the allocation of head office expenses to PEs.
7. Intangibles: The use of intangibles by a PE must be compensated at arm’s length prices, considering the development, enhancement, maintenance, protection, and exploitation (DEMPE) functions.
8. Services: Intra-group services provided to or by a PE must be priced according to transfer pricing rules.
9. Financial transactions: Loans or other financial arrangements between a PE and related entities are subject to transfer pricing scrutiny.
10. Customs valuation: Transfer pricing policies may impact customs valuations for goods imported by a PE.
11. Dispute resolution: Transfer pricing disputes involving PEs may be subject to Mutual Agreement Procedures under applicable DTAs.
12. Advance Pricing Agreements (APAs): PEs may seek APAs to agree on transfer pricing methodologies with tax authorities in advance.
13. Thin capitalization: Transfer pricing rules interact with thin capitalization provisions in determining the deductibility of interest paid by PEs.
14. Permanent establishment risk: Inappropriate transfer pricing policies may increase the risk of creating a PE in certain situations.
15. Compliance burden: PEs face additional compliance requirements due to the interaction of PE and transfer pricing rules.

Multinational enterprises with PEs in Nepal should carefully consider the interplay between PE rules and transfer pricing regulations to ensure compliance and optimize their tax positions.

FAQs:

1. Does having a local agent create a PE in Nepal?

Having a local agent in Nepal may create a PE, depending on the nature of the agent’s activities. A PE is generally created if the agent:

• Has and habitually exercises authority to conclude contracts on behalf of the foreign enterprise
• Maintains a stock of goods from which they regularly deliver on behalf of the foreign enterprise
• Habitually secures orders for the foreign enterprise

However, an independent agent acting in the ordinary course of their business does not typically create a PE.

2. How do I determine if my activities constitute a PE?

To determine if your activities constitute a PE in Nepal:

1. Assess if you have a fixed place of business in Nepal
2. Evaluate the duration of your activities (e.g., construction projects, service provision)
3. Review the nature of your activities (core business vs. preparatory/auxiliary)
4. Consider the activities of any dependent agents in Nepal
5. Examine your digital presence and e-commerce activities
6. Review applicable DTA provisions, if any
7. Consult with local tax professionals for a comprehensive assessment

3. Can a PE be created through a subsidiary company?

A subsidiary company does not automatically create a PE for its foreign parent company. However, a PE may be created if:

• The subsidiary acts as a dependent agent for the parent company
• The parent company has a fixed place of business within the subsidiary’s premises
• The subsidiary’s activities go beyond those of an independent agent

Each case is assessed based on the specific facts and circumstances.

4. What tax rates apply to PEs in Nepal?

PEs in Nepal are generally subject to the following tax rates:

• Corporate Income Tax: 25% (standard rate, may vary for certain industries)
• VAT: 13% (if registered)
• Withholding taxes: Vary depending on the nature of payment and recipient’s status

Applicable DTA provisions may modify these rates in certain cases.

5. How do I close a PE in Nepal?

To close a PE in Nepal:

1. Notify the Inland Revenue Department of the intention to close
2. File all outstanding tax returns and settle any tax liabilities
3. Obtain a tax clearance certificate
4. Close local bank accounts and settle any outstanding debts
5. Deregister from VAT (if applicable)
6. Notify the Company Registrar’s Office (if registered as a branch)
7. Comply with any industry-specific closure requirements
8. Repatriate any remaining funds following central bank regulations

It’s advisable to seek assistance from local professionals to ensure all closure requirements are met.

6. Where can I find detailed guidance on PE rules?

Detailed guidance on PE rules in Nepal can be found in:

1. Income Tax Act, 2058 (2002) and its regulations
2. Circulars and rulings issued by the Inland Revenue Department
3. Applicable Double Taxation Avoidance Agreements
4. Nepal’s transfer pricing guidelines
5. Publications by professional accounting and law firms in Nepal
6. International resources such as OECD guidelines (for general principles)

For specific queries, it’s recommended to consult with local tax professionals or seek clarification from the Inland Revenue Department.

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