Digital Service Tax (DST) in Nepal

The regime concerns a nonresident person providing qualifying digital services to users in Nepal and specified sales of data collected from Nepal users. Identify the legal supplier, product, customer type and connection with Nepal. The fact that a charge arrives through a foreign card processor does not decide who supplies the service or where the relevant user is located. The current procedure describes internet services whose delivery needs information technology and involves minimal human intervention, with listed categories such as targeted online advertising, streaming, cloud services, gaming, applications, software supply or updates and online marketplaces. A professionally delivered consultancy should not be placed in the automated digital category solely because the consultant sends a document by email. Read the definition against the actual supply.

The procedure identifies indicators including service provision in Nepal, billing address, Nepal bank or approved payment instruments, Nepal-issued payment cards, Nepal IP address and the relevant Nepal telecom connection. Preserve the available evidence and the method used to classify transactions. A supplier operating internationally needs a reproducible Nepal transaction extract rather than an estimate based only on the nationality of account holders. Document refunds, cancellations and corrections with the original transaction. Keep currency conversion and the Nepal taxable-value computation consistent with the applicable procedure. Sales reports, bank receipts and deferred or accrued balances may differ; explain the reconciliation instead of using the bank total as the entire statutory base.

The tax is 2% of the qualifying transaction value, excluding Nepal indirect tax. Annual transactions up to NPR 3,000,000 are exempt under the stated rule. Once that threshold is exceeded, the procedure applies the charge to the whole relevant taxable turnover, rather than only the excess above NPR 3,000,000. For example, assume an independently classified taxable annual base of NPR 4,000,000. DST is NPR 80,000, calculated as 4,000,000×2%. It is not NPR 20,000 on only the amount above the threshold. The example assumes no excluded business-use transactions and a properly determined base.

The Act and procedure exclude the specified transactions through a digital interface for business use by users in Nepal. The procedure also addresses sales of Nepal-user data to Nepal business users. Keep customer classification and declarations supported; a label saying “B 2 B” cannot replace evidence of the relevant business-use conditions. That exclusion does not mean a Nepal business has no tax obligations on an imported service. Income-tax withholding, recipient-side imported-service VAT, foreign-exchange rules, PE and treaty questions can remain relevant. The supplier’s DST analysis and the customer’s payment compliance should therefore be documented separately.

The current procedure requires the taxable supplier to register and obtain the relevant PAN, with application generally within 30 days after crossing the threshold. It contemplates existing VAT registration rather than a duplicate PAN. Maintain registration acceptance, authorised-person information and current contact details. The annual return and payment are due within three months after the income year ends under Finance Act 2083 section 23. The procedure provides the corresponding annual reporting framework and electronic submission. Preserve the return, filing acknowledgement, payment evidence and annual turnover reconciliation. Late filing attracts the stated 0.1% annual-turnover charge per year, and late payment 15% annual interest under the statutory framework. An underreported or concealed tax amount also has separate consequences. Determine actual days, base and applicable provision before calculating a penalty; do not treat these summaries as a completed assessment.

DST is a direct tax and the procedure says it is not added to the sales price as a customer tax surcharge. Nonresident digital VAT uses its own 13% rate, threshold period, customer classification and return. A supplier liable for one regime must examine the other separately. The IRD clarification dated 3 Bhadra 2083 concerns negative VAT arising from credit notes and its carryforward. It does not suspend DST or the nonresident digital-VAT regime. Keep that clarification with the current VAT return format, while maintaining the annual DST working independently.