Business Income Tax Concessions in Nepal — Section 11 FY 2083/84

Agriculture

Finance Act 2083 broadens the definition of agricultural business to include:

• crop activity;

• horticulture;

• livestock rearing;

• fishery; and

• beekeeping.

This broadening affects access to the agricultural tax framework and related concessions.

The exact concession depends on:

• legal form;

• type of agricultural activity;

• registration;

• other statutory conditions.

Cooperative Sector

Section 11 contains special tax treatment for qualifying cooperatives, particularly certain:

• agricultural;

• forestry;

• rural;

• production;

• processing;

• savings/deposit-related

activities.

The result depends heavily on the cooperative's activity and location.

Review the cooperative’s activity and location against the annual:

Cooperative Tax Rates & Concessions

resource rather than treating all cooperatives as tax-exempt.

Hydropower and Renewable Energy

Section 11 provides significant time-bound concessions for qualifying electricity projects.

Current reference guidance continues to recognise full exemption followed by partial exemption for qualifying:

• hydropower;

• solar;

• wind;

• biological/renewable energy

projects commencing within the statutory deadlines.

Hydropower projects with reservoir/semi-reservoir characteristics can have separate concession periods where the specified financial-closure and capacity conditions are satisfied.

Because these benefits depend on dates and licensing, every project should maintain:

• licence date;

• commercial-operation date;

• financial-close date;

• capacity;

• technology;

• concession start/end date.

Export Income

Section 11 provides reductions in tax on qualifying Nepal-source export income.

Current guidance includes concessions for:

• resident natural persons;

• entities;

• manufacturing exports.

It also contains a particularly important concession for:

IT-based service exports earning foreign currency

including activities such as:

• BPO;

• software programming;

• cloud computing; and

• similar IT services,

with a 50% reduction in tax payable on qualifying foreign-currency income through FY 2084/85 under the current Section 11 framework.

Retain the service contract, foreign-currency receipts and evidence that the activity meets the relevant export-service conditions.

Infrastructure

Section 11 contains concessions for qualifying infrastructure activities such as:

• tram/trolley;

• ropeway/cable car;

• roads;

• bridges;

• tunnels;

• railways;

• airports.

The concession may be expressed as a percentage reduction in tax for a specified period from commencement of commercial operations.

Section 11क also protects certain tax facilities agreed with Government of Nepal for qualifying infrastructure agreements according to the statutory framework.

Large Special and Tourism Industries

The concession depends on the exact section 11 provision. Under section 11(3)(ग), the initial incentive for a qualifying special or tourism industry, excluding casino, requires capital investment exceeding NPR 1 billion and more than 500 direct employees throughout the year. Its expansion proviso has separate capacity, capital, employment and expansion-income conditions.

Section 11(3ट) separately provides capital-tier relief for qualifying tourism industries and international airlines. Its text sets investment thresholds and concession periods without the separate employee threshold stated in section 11(3)(ग). Identify the precise limb, commencement date and eligible income before choosing or combining concessions under section 11(5).

Employment-based Concessions

Section 11 includes reductions in tax for businesses employing specified numbers of Nepali citizens throughout the income year.

Current guidance identifies a sliding tax-payable percentage based on employment numbers, including thresholds such as:

• 100 employees;

• 300 employees;

• 500 employees;

• 1,000 employees.

Additional concessions can apply for qualifying employment of:

• women;

• persons with disabilities;

• specified disadvantaged groups,

under the current statutory framework.

The payroll/employment evidence therefore directly affects income-tax concessions.

Technology Parks / IT Industry

Separate incentives exist for qualifying industries operating within specified:

• technology parks;

• information-technology parks;

• biotech/science-related parks.

Current reference material identifies a significant percentage reduction in tax payable for qualifying software, data-processing, digital and related industries.

For a technology-park claim, check the legal eligibility conditions as well as the business activity described in:

IT & Software Business in Nepal

resource.

Start-up Businesses

Section 11 currently provides a substantial concession for qualifying start-up businesses.

Current reference guidance describes:

• innovative knowledge/idea/skill/technology/practice;

• specified annual turnover ceiling;

• full tax exemption for the prescribed initial period.

Eligibility depends on the statutory start-up criteria and IRD identification/requirements.

A new company should not assume:

“We are a start-up, therefore we pay no tax.”

The legal definition must be satisfied.

Industrial Area / Industrial Village

Section 11 provides time-bound concessions for qualifying special industries established and operated in an:

• industrial area; or

• industrial village.

Current guidance recognises an initial higher exemption followed by a lower exemption for a later period.

Relocation Outside Kathmandu Valley

Qualifying special industries relocating outside Kathmandu Valley can receive a time-bound tax concession.

Current guidance identifies:

• full exemption for the initial period;

• partial exemption thereafter.

The transaction must represent a qualifying relocation under the statutory provision rather than merely opening an additional branch.

Green / Environmental Industries

Section 11 includes incentives for activities such as:

• reuse of environmentally harmful used goods;

• green hydrogen;

• specified clean-energy technology;

• electric-vehicle related manufacturing/assembly;

• charging-machine manufacturing.

Some of these concessions depend on establishment deadlines and should therefore be tracked by income year.

New FY 2083/84 — Cinema Halls

Finance Act 2083 introduces a new concession for a qualifying cinema hall established outside:

• Metropolitan Cities; and

• Sub-Metropolitan Cities.

The amendment provides a tax exemption for up to ten years from commencement of commercial business, subject to the statutory provision.

Keep the location, establishment and commercial-operation records with the concession working.

Intellectual Property

Section 11 contains concessions for qualifying income earned from:

• royalty from export of intellectual property; and

• sale/transfer of intellectual property.

Current reference material identifies:

• 25% tax concession for qualifying royalty income;

• 50% concession for qualifying transfer/sale income.

These should be coordinated with:

• source rules;

• VAT;

• TDS;

• foreign-exchange rules.

Listing / Conversion to Public Company

Certain entities can obtain tax concessions where qualifying:

• entities are listed on the securities market; or

• sufficiently capitalised private companies convert to public companies.

The statutory conditions must be verified before applying these benefits.

How to Apply a Section 11 Concession

Step 1

Determine normal taxable income.

Step 2

Calculate normal tax payable.

Step 3

Identify the exact Section 11 subsection.

Step 4

Verify eligibility conditions.

Step 5

Determine commencement/effective dates.

Step 6

Determine exemption percentage and duration.

Step 7

Apply the concession.

Step 8

Maintain evidence.

Example

Taxable income: NPR 10,000,000

Normal tax rate: 25%

Normal tax: NPR 2,500,000

Assume qualifying concession: 50% of tax payable.

Concession: NPR 1,250,000

Net tax: NPR 1,250,000

The concession does not necessarily mean:

taxable income = NPR 5,000,000.

It may instead reduce the tax payable.

Concession Register

CMA recommends that eligible businesses maintain:

• Section 11 subsection;

• industry/activity;

• registration/licence;

• commercial-operation date;

• concession start date;

• concession end date;

• base tax rate;

• concession percentage;

• employment condition;

• investment threshold;

• location;

• annual evidence;

• tax return disclosure.

Common Errors

Assuming all agricultural businesses are automatically exempt

Applying Section 11 before calculating taxable income

Ignoring commencement/deadline conditions

Continuing a concession after its statutory period expires

Using concession available to one legal form for another

Ignoring employment or investment thresholds

Applying a start-up exemption simply because the company is newly incorporated

Further guidance and practical checks

Section 11 is one of the most frequently amended parts of Nepal's income-tax regime. Eligibility should be reviewed each income year against the current Act, Finance Act and IRD's annual concession notice.