Introduction: Navigating Nepal's 2025-26 Tax Landscape
The Finance Bill 2082 (2025) has introduced significant reforms to Nepal's tax regime for the 2025-26 fiscal year. With strategic incentives for priority sectors, simplified digital tax rules, and extended amnesty schemes, businesses have new opportunities for tax optimization. The Inland Revenue Department (IRD) has consolidated the Income Tax Act, providing clarity on current regulations. This guide outlines key changes and actionable strategies to help businesses minimize liabilities while remaining compliant.
Strategic Tax Incentives for Priority Sectors
The government has introduced targeted tax exemptions to stimulate investment in high-growth and sustainable industries:
- Information Technology, Hotel, and Tourism Sectors: Businesses in these sectors now qualify for a 20% concession on applicable corporate tax rates. This expansion brings these industries into tax incentive frameworks previously reserved for manufacturing, agriculture, and minerals.
- Green Hydrogen and EV Infrastructure: Complete income tax exemption for the first five years of operation for industries involved in green hydrogen production and manufacturing/assembling EV charging machines.
- Industrial Zones and Villages: Exceptional tax holidays with 100% income tax exemption for the first ten years, followed by a 50% exemption for the next five years.
- Start-Up Entities: The definition has been expanded. Start-ups with an annual turnover of up to NPR 10 Crores are now eligible for a full income tax exemption for their first five years of operation.
Key Changes in Digital Services and Compliance
Digital Service Tax (DST)
The requirement for a permanent establishment for foreign digital service providers has been removed. Such entities now only need to comply with DST and VAT. A 2% DST applies to Business-to-Consumer (B2C) transactions where annual turnover in Nepal exceeds NPR 3 million. Business-to-Business (B2B) digital services are exempt from DST.
Removal of Advance Tax on Imports
To ease cash flow, the requirement to pay advance income tax at customs on several essential goods has been removed. This applies to items like live animals, meat, dairy products, fresh flowers, plants, and fruits.
Simplified "Change in Control" Tax
For onshore transfers of shares between resident entities, applicable charges and interest on income tax arising from a change in control will be waived if the applicable tax is paid based on a revised assessment by July 15, 2025. This does not apply to offshore transactions.
Income Tax Slabs for Individual Business Owners & Professionals
While corporate rates vary, individual business owners, partners, and professionals are taxed under personal income slabs. Understanding these is crucial for sole proprietorships and pass-through entities.
| Individual Income Tax Slabs (FY 2082/83 - 2025/26) | ||
|---|---|---|
| Annual Taxable Income (NPR) | Tax Rate | Applicable To |
| Up to 500,000 | 1% | Single Individuals |
| 500,001 – 700,000 | 10% | |
| 700,001 – 1,000,000 | 20% | |
| 1,000,001 – 2,000,000 | 30% | |
| 2,000,001 – 5,000,000 | 36% | |
| Above 5,000,000 | 39% | |
| Up to 600,000 | 1% | Married Couples (Joint) |
| 600,001 – 800,000 | 10% | |
| 800,001 – 1,100,000 | 20% | |
| 1,100,001 – 2,000,000 | 30% | |
| Above 2,000,000 | 36% (Up to 5M) / 39% (Above 5M) | |
Actionable Tax Planning Tips for Business Owners:
- Maximize Deductions: Ensure full claims for business expenses, approved retirement fund contributions (provident fund, CIT), and insurance premiums (up to NPR 40,000).
- Utilize Sector-Specific Incentives: If operating in IT, tourism, green energy, or industrial zones, formally apply for the applicable tax holidays or concessions with the IRD.
- Plan for Digital Services: Foreign entities serving Nepali consumers must register for DST. Local businesses procuring B2B digital services should ensure VAT invoices are obtained.
- Evaluate Amnesty Schemes: Review eligibility for waivers on interest/penalties for late VAT or Excise Duty filings from previous years if compliant by January 2026.
Compliance Deadlines & Amnesty Opportunities
The Finance Bill continues several amnesty schemes but has revoked others. Timely action is critical[citation:7].
- Extended Amnesty for Late VAT Returns (Until FY 2024/25): Businesses that failed to register or file VAT returns can get a waiver of all fines and remaining interest by submitting returns and paying 25% of the applicable interest by January 2026.
- Extended Amnesty for Late Excise Duty (Until FY 2024/25): Similar relief is available for excise duty by paying 50% of delayed charges by January 2026.
- Important Change: The tax amnesty scheme for operating without a Permanent Account Number (PAN) has been discontinued.
- General Compliance: Maintain records for 7 years, file annual returns by mid-October, and pay advance tax in installments if liability exceeds NPR 40,000.
Conclusion
The 2025-26 fiscal year presents a dual landscape for Nepali businesses: enhanced incentives for strategic sectors and clearer, albeit strict, compliance rules. Proactive tax planning is no longer just about compliance but a significant competitive advantage. By leveraging new exemptions for IT, green energy, and tourism, utilizing extended amnesty windows for past filings, and correctly applying the revised digital tax rules, businesses can significantly optimize their tax outlay. It is imperative to consult with a tax professional to tailor these strategies to your specific business structure and transactions, ensuring you fully benefit from the available provisions while adhering to the Inland Revenue Department's consolidated regulations[citation:3][citation:7].
Disclaimer: This article provides a general overview of tax strategies based on the Finance Bill 2082 and related acts. Tax laws are complex and subject to interpretation and change. This information does not constitute legal or financial advice. Businesses should consult with qualified tax advisors or legal professionals for advice tailored to their specific circumstances before making any decisions.