Nepal implements tax system for international tech giants

KATHMANDU: In a significant move towards financial regulation and taxation, Nepal has successfully incorporated leading international companies from the information technology and digital services sectors into its tax system.

The government enacted provisions to extend taxation to foreign companies operating in the electricity service business, a groundbreaking step that has now led to the establishment of a Digital Service Tax (DST) framework.

Among the prominent firms that have been officially registered with Nepalese tax authorities are tech behemoths Google Asia Pacific Private Limited, Microsoft Regional Sales Private Limited, LinkedIn Singapore Private Limited, NCS Pearson Incorporated, IBSKO International Incorporated, and Meta Platforms Ireland Limited.

Notably, Google Asia Pacific Private Limited, renowned as one of the world’s largest search engine companies, holds a pivotal position among the registered entities. Likewise, Facebook, encompassing subsidiaries Instagram and WhatsApp, as well as LinkedIn, have been successfully enlisted.

Each registered company brings unique expertise to Nepal’s tech landscape. NCS Pearson Incorporated specializes in developing diverse mobile applications, catering to various needs, while IBSKO International Incorporated is closely associated with advanced research platforms and database management.

Microsoft, with its global eminence in software development and information technology, further bolsters Nepal’s technology ecosystem.

Under the prevailing fiscal laws, non-resident individuals providing electricity services within Nepal are subject to a tax rate of two percent based on their business value.

Subsequently, the newly established digital service tax targets businesses with an annual turnover of up to 2 million Nepalese Rupees, effectively levying taxation on such entities.

Nevertheless, for businesses surpassing this revenue threshold, a distinct tax structure has been devised.

Despite these advances in taxation, there have been some challenges in defining explicit registration processes and tax declaration procedures for companies enlisted in the major taxpayer office.

This lack of clarity has led to uncertainty among entities that are yet to be registered. While provisions exist for dealing with non-compliant companies that have already registered with the tax office, the situation remains ambiguous for those who have not yet embraced Nepal’s tax system.

As a result, a considerable number of information technology companies currently operating in Nepal seem to be operating outside the purview of mandatory taxation.

The potential ramifications of non-registration could be significant, leading to a substantial loss of revenue for the government if digital companies fail to register for taxation promptly.

Nepal’s tax authorities are keenly observing the situation, urging companies within their borders to adhere to the newly established tax regulations to ensure a sustainable and thriving tech ecosystem for the nation’s future growth.