What is VAT and who needs to register?
Value Added Tax (VAT) is an indirect tax levied on the consumption of goods and services in Nepal. The VAT Act 2052 (1996) governs the implementation of VAT in the country. VAT is collected at each stage of the production and distribution process, with the final consumer bearing the ultimate cost.
Businesses that meet certain criteria are required to register for VAT in Nepal. These include:
- Entities with an annual turnover exceeding NPR 5 million
- Importers and exporters of goods and services
- Businesses engaged in specific sectors such as liquor, cigarettes, and construction services
What is the VAT registration threshold in Nepal?
The VAT registration threshold in Nepal is NPR 5 million (approximately USD 37,500) in annual turnover. Businesses that exceed this threshold must register for VAT within 30 days of crossing the limit. However, businesses with turnover below this threshold can voluntarily register for VAT if they wish to do so.
How long does VAT registration process take?
The VAT registration process in Nepal typically takes 3-5 working days from the date of application submission. However, this timeline may vary depending on the completeness of the application and the workload of the tax office.
What documents are required for VAT registration?
To register for VAT in Nepal, businesses need to submit the following documents:
- Completed VAT registration application form (Form VAT-01)
- Copy of company registration certificate
- Copy of PAN (Permanent Account Number) certificate
- Citizenship certificate of proprietor/partners/directors
- Memorandum and Articles of Association (for companies)
- Partnership deed (for partnerships)
- Rental agreement or ownership document of business premises
- Recent passport-sized photographs of proprietor/partners/directors
- Bank statement of the business
- Tax clearance certificate (if applicable)
What are the VAT rates in Nepal?
Nepal has a standard VAT rate of 13% applicable to most goods and services. However, there are also special provisions:
- Zero-rated supplies: Certain goods and services are subject to 0% VAT, such as exports and specific agricultural products.
- Exempt supplies: Some goods and services are exempt from VAT, including basic necessities, education, and healthcare services.
How often should VAT returns be filed?
VAT-registered businesses in Nepal must file VAT returns on a monthly basis. The deadline for filing VAT returns is within 25 days from the end of each Nepali month. For example, the VAT return for the month of Baisakh (mid-April to mid-May) must be filed by the 25th of Jestha (around June 8th).
What are the penalties for late VAT filing?
The penalties for late VAT filing in Nepal are as follows:
- Late filing fee: NPR 1,000 per month or 0.05% of the tax amount, whichever is higher
- Interest: 15% per annum on the unpaid tax amount
- Additional penalty: Up to 100% of the tax amount for intentional non-compliance
How is VAT calculated on sales and purchases?
VAT calculation in Nepal follows the credit method:
- Output VAT: Calculated on taxable sales at 13% (or applicable rate)
- Input VAT: VAT paid on purchases of goods and services used for business purposes
- Net VAT payable: Output VAT minus Input VAT
If the Input VAT exceeds the Output VAT, the excess amount can be carried forward to the next tax period or claimed as a refund under certain conditions.
What records must be kept for VAT compliance?
VAT-registered businesses in Nepal must maintain the following records for at least 6 years:
- Sales and purchase invoices
- VAT account books
- Stock records
- Bank statements
- Import and export documents
- Credit and debit notes
- VAT returns and payment receipts
- Any other documents related to VAT transactions
Can businesses claim VAT refunds in Nepal?
Yes, businesses can claim VAT refunds in Nepal under specific circumstances:
- Excess input VAT: If input VAT consistently exceeds output VAT for three consecutive months
- Exports: Zero-rated supplies resulting in excess input VAT
- Diplomatic missions and international organizations: As per agreements with the Nepal government
The refund process involves submitting a refund application along with supporting documents to the Inland Revenue Department.
What is the process for deregistering from VAT?
To deregister from VAT in Nepal, businesses must follow these steps:
- Submit a VAT deregistration application (Form VAT-07) to the tax office
- Provide reasons for deregistration (e.g., cessation of business, turnover below threshold)
- Submit final VAT return and settle any outstanding tax liabilities
- Undergo a tax audit if required by the tax office
- Receive deregistration certificate upon approval
Are there any government fees for VAT registration?
There are no specific government fees for VAT registration in Nepal. However, businesses may incur costs related to document preparation and professional assistance for the registration process.
Business Loan Process in Nepal
Full Tax Audit in Nepal
Tax Return Filing in Nepal
Which authority handles VAT registration and compliance?
The Inland Revenue Department (IRD) under the Ministry of Finance is responsible for VAT registration and compliance in Nepal. The IRD oversees the implementation of VAT laws, processes registrations, and conducts audits to ensure compliance.
What laws govern VAT in Nepal?
The primary laws governing VAT in Nepal are:
- Value Added Tax Act, 2052 (1996)
- Value Added Tax Rules, 2053 (1997)
- Annual Finance Acts
These laws provide the legal framework for VAT implementation, registration, compliance, and enforcement in Nepal.
How can businesses ensure proper VAT compliance?
To ensure proper VAT compliance, businesses in Nepal should:
- Register for VAT if they meet the threshold or fall under mandatory registration categories
- Maintain accurate and up-to-date records of all VAT-related transactions
- Issue VAT invoices for all taxable supplies
- File VAT returns and make payments on time
- Keep informed about changes in VAT laws and regulations
- Seek professional advice when needed
- Cooperate with tax authorities during audits and inspections
- Implement proper accounting systems to track VAT transactions
- Train staff on VAT compliance requirements
- Regularly review VAT processes and procedures for accuracy and efficiency
Additional FAQs
1. Can foreign businesses register for VAT in Nepal?
Yes, foreign businesses can register for VAT in Nepal if they have a permanent establishment or conduct taxable activities in the country. They must appoint a local representative to handle VAT-related matters.
2. What items are exempt from VAT in Nepal?
Some items exempt from VAT in Nepal include:
- Basic agricultural products
- Educational services
- Healthcare services
- Financial services
- Public transportation
- Books and newspapers
- Certain religious and cultural items
3. How does VAT affect imports and exports?
Imports: VAT is levied on the CIF (Cost, Insurance, and Freight) value plus customs duty of imported goods. Importers must pay VAT at the time of customs clearance.
Exports: Exports are zero-rated, meaning no VAT is charged on the sale, but exporters can claim input VAT on purchases related to their export activities.
4. Is online VAT filing available in Nepal?
Yes, Nepal has implemented an online VAT filing system. VAT-registered businesses can file their returns electronically through the Inland Revenue Department’s web portal.
5. What are the VAT invoice requirements in Nepal?
VAT invoices in Nepal must include:
- Supplier’s name, address, and VAT registration number
- Customer’s name and address
- Invoice date and number
- Description of goods or services
- Quantity and unit price
- Total amount before VAT
- VAT amount
- Total amount including VAT
6. Can VAT registered businesses opt for voluntary deregistration?
Yes, VAT registered businesses can apply for voluntary deregistration if:
- Their annual turnover falls below the registration threshold
- They cease taxable activities
- They have been registered for at least one year
The tax office will review the application and may conduct an audit before approving the deregistration.
Get in Touch with Us
Our team consists of Chartered Accountants, Corporate Lawyers and Chartered Financial Analysts. Our Firm is renowned for provide expert legal, tax and financial services. Contact us for Quick Legal and Tax Consultation.
📧 Email: info@taxconsultantnepal.com
📞 Phone: +977 9840993599
📍 Location: Sinamangal Marga, Old Baneshwor, Kathmandu, Nepal
You can contact us via email, contact form, or phone call. We are also available on WhatsApp, Viber, Telegram, and WeChat for your convenience. Feel free to drop your queries, and our professionals will get back to you promptly.
