Digital Service Tax, 2081

February 18, 2025

About Digital Service Tax, 2081 ("विद्युतीय सेवा कर (डिजिटल सर्भिस ट्याक्स) सम्बन्धी कार्यविधि, २०८१")

In accordance with Section 16 of the Finance Ordinance Act, 2081, the Internal Revenue Department has issued this procedure to simplify and make effective the administration of the Digital Service Tax levied on transactions of digital services provided by non-resident individuals to consumers in Nepal.

Short Title and Commencement:

This procedure shall be called "Procedure Relating to Digital Service Tax, 2081".

This procedure shall come into effect from the 1st of Shrawan, 2081.  

Definitions: 

Unless the subject or context dictates otherwise, in this procedure:

Income Year" means the period from the first of Shrawan of any year to the end of Ashadh of the following year.

Consumer" means a person whose normal place of residence for the consumption of goods and services is Nepal. However, a person who purchases goods or services under a separate agreement or arrangement for commercial purposes or business use shall not be considered a consumer.  

"Act" means the Finance Act, 2081.  

"Tax" means the Digital Service Tax required to be paid under Section 16 of the Act.

"Office" means the Large Taxpayer Office.  

"Transaction Value" means the value of goods and services provided under Section 2(h) of this procedure in any income year.  

"Non-Resident Person" means a person other than a resident person.  

"Digital Service Provided to Consumers of Nepal" means any digital service provided by a non-resident person to consumers, fulfilling any one of the following conditions:

Service received within Nepal,  

Invoice issued to a Nepalese address,  

Payment made from a bank account in Nepal or through payment instruments operated by authorized institutions and bodies for payment,  

Payment made through debit card, credit card or other payment methods issued by a bank or authorized payment provider institution and body in Nepal,  

Service received using an Internet Protocol Address within Nepal, 

Service received using a SIM card with a telecommunication code of Nepal or any landline of Nepal.  

"Resident Person" means a resident person as per the Income Tax Act, 2058.  

"Digital Service" means the following goods and services that require information technology to provide services and are provided automatically through the internet with minimal human intervention:

Advertising services,  

Movies, television, music, over-the-top (OTT) and similar other subscription-based services,  

Data collection service,  

Cloud service,  

Gaming service,  

Mobile application related services,  

Internet marketplace (online marketplace) service and goods and services provided through it,  

Supply and update of software,  

Sale of data collected from resident persons of Nepal, 

Download services including data, pictures, etc.,  

Education, consulting, skill development and training services, 

E-book, e-library, e-magazine services,  

Other similar services besides above

"Details" means the details as per Schedule 3 of this relevant Act ( Digital Service Act 2081), which must be submitted by the person conducting digital service transactions.    

"Permanent Account Number" means the identification number provided to a non-resident person under clause (a) of Section 4 this relevant Act ( Digital Service Act 2081)

Provisions Relating to Basis and Rate of Tax Imposition

(a) Digital service tax will be levied at the rate of two percent on the transaction value (amount excluding indirect taxes levied in Nepal) of digital services provided by a non-resident person to consumers in Nepal.  

(b) No tax will be levied on transactions up to thirty lakh rupees annually of digital service provided to consumers in Nepal, but if the transaction amount exceeds that, tax will be levied as per clause (a) on all transactions.  

(c) This tax being a direct tax, the tax amount cannot be added to the price of the service and recovered.  

(d) Non-resident persons providing internet marketplace (online marketplace) services and providing goods and services through it shall include the price of both goods and services in the transaction value and declare it. However, if a resident person supplies goods and services from such a marketplace, then the non-resident person does not need to include the equivalent amount in their transaction value.  

(e) Income on which tax has been paid under this procedure will not be subject to tax under the Income Tax Act, 2058. However, income from services provided to others besides consumers will be subject to tax under the Income Tax Act, 2058.  

Major Highlights

The main purpose of this act is to simplify and make effective the administration of the Digital Service Tax levied on digital service transactions provided by non-resident individuals to consumers in Nepal.

Tax is levied on the transaction value of digital services provided by non-resident individuals to consumers in Nepal.

Tax Rate: The tax rate is 2% of the transaction value.

Tax Threshold: No tax is levied on annual transactions up to thirty lakh rupees. Tax is applied to all transactions if this threshold is exceeded.

Tax Type: This is a direct tax and cannot be added to the service price and recovered from the consumer.

Online Marketplaces: Non-resident individuals providing online marketplace services must include the price of both goods and services in the transaction value.

Tax Relationship with Income Tax Act: Income taxed under this procedure is exempt from tax under the Income Tax Act, 2058. Income from services provided to others besides consumers remains subject to tax under the Income Tax Act, 2058.

Administration: The Large Taxpayer Office will administer the tax.

Registration: Non-resident individuals must register and obtain a Permanent Account Number to conduct transactions.

Registration Deadline: Application for a Permanent Account Number must be submitted within 30 days of exceeding the taxable transaction limit.

Transaction values must be in Nepalese currency, and accounting must be on an accrual basis.

Transaction details must be submitted to the office electronically within three months of the income year's end.

Penalty for Late Submission: Failure to submit details on time results in a fee of 0.1% per year of the annual transaction amount.

Tax Payment: Tax must be paid electronically to the specified revenue heading within three months of the income year's end.

Interest for Late Payment: Late tax payments incur interest at 15% per year.

Penalty for Underreporting: Underreporting transactions to reduce tax liability results in a fine of 50% of the concealed tax amount.

Registration Cancellation: Registered non-resident individuals can apply for registration cancellation.

Summarized by

Manik Balami

Tax and Legal Advisory Unit

Rudolph Corporate Service Pvt. Ltd.

Disclaimer

This summary is provided for informational purposes only. While every effort has been made to ensure the accuracy and completeness of the information presented, it is based on the interpretation of the provided document, "विद्युतीय सेवा कर (डिजिटल सर्भिस ट्याक्स) सम्बन्धी कार्यविधि, २०८१".

This summary should not be considered a substitute for professional legal or financial advice. Tax laws and regulations are subject to change, and it is essential to consult with qualified professionals for specific guidance related to your situation.

The user is advised to refer to the original document and seek expert advice for any decisions related to Digital Service Tax in Nepal. The provider of this summary assumes no liability for any errors or omissions, or for any actions taken based on the information provided herein.