Digital Tax Rules in Nepal: DST and VAT
Nepal has embraced the digital economy by implementing a comprehensive tax framework for digital services. Through its Digital Service Tax (DST) Procedure; and VAT on Digital Service Procedure, Nepal has established guidelines for taxing non-residents for digital services that are delivered through information technology and provided automatically via the internet with minimal human intervention.
Scope of Digital Services
The scope of digital services as per Nepalese regulations include such a wide variety of digital services such as advertisement and subscription-based services like movies, television, and OTT platforms; cloud computing; data storage solutions; gaming and mobile applications; and online marketplace services. It also covers software supply and its updates, digital content like e-books and e-newspapers, educational services, and different data download capabilities.
Tax Implications for Digital Service Providers
The Nepalese taxation framework has defined different obligations for non-resident digital service providers, depending on the categorization of their customers. The obligations vary depending on whether services are provided to businesses (B2B) or directly to end consumers (B2C).
a). B2C Transaction
For services directly provided to end consumers, the two value compliances of a digital service provider are:
Firstly, they fall under 2% Digital Service Tax if the annual transaction value exceeds NPR 3,000,000. Secondly, they have to account for VAT.
b). B2B Transaction
Digital service providers are not liable for DST, with tax responsibilities shifting to the business customer. Under this arrangement, business customers manage VAT through a reverse charge mechanism and are required to withhold 15% tax on service fees paid to digital service providers.
Compliance Requirements
The non-resident digital service providers must establish its registration and compliance systems upon market entry in Nepal. This includes completion of VAT registration for B2C services, VAT return submissions, and filing annual DST returns.
Disclaimer: This article is for general informational purposes only. The information presented here should not be considered a substitute for professional legal counsel. Professional advice from relevant tax lawyers in Nepal must be sought for specific cases.
