Hotels Resorts and Restaurants Taxation Payroll SSF and VAT Overview

Hotels, Resorts and Restaurants in Nepal

Fiscal Years 2082/83 and 2083/84

Chapter 1 — Executive Summary

Hotels, resorts and restaurants in Nepal are subject to a combination of corporate income tax, value added tax (“VAT”), withholding tax (“TDS”), payroll taxation, Social Security Fund (“SSF”) obligations, labour-related payments, luxury fee in specified cases, and excise/licensing requirements where alcoholic beverages are sold.

For an ordinary company, the general corporate income-tax rate is 25%. However, hotels and resorts have been expressly brought within the special concession provisions of Section 11 of the Income Tax Act. A qualifying hotel or resort operating fully throughout the income year is entitled to a 20% exemption from the income tax otherwise payable, producing an effective basic corporate income-tax rate of 20% where the underlying rate is 25%. Employment-based concessions can reduce this effective rate further, potentially as low as 12.60% where the highest employment threshold and the prescribed diversity requirement are both satisfied.

A stand-alone restaurant does not automatically qualify as a “hotel or resort” for this concession. Its income is normally subject to the ordinary corporate rate of 25%, subject to other provisions of the Act. A separate classification issue should also be examined where an entity materially carries on liquor or beer trading, because entities carrying on liquor/beer transactions fall within a 30% statutory category.

The standard VAT rate remains 13%. Hotels, restaurants and resorts should separately account for room revenue, restaurant and bar sales, banquet revenue, spa and wellness services, laundry, conference services, minibar, catering and other ancillary services. VAT registration should also be reviewed independently of the normal turnover threshold where the business operates a prescribed activity for which compulsory registration applies, such as a restaurant with a bar in specified areas, catering, party-palace or similar prescribed operations.

Use the operative Ministry or Department minimum-remuneration notice for the pay period and worker category. The general notice effective 1 Shrawan 2082 excludes tea-estate workers. Formal-sector SSF contributions use 11% of basic remuneration from the employee and 20% from the employer, a total of 31%.

The most significant differences between FY 2082/83 and FY 2083/84 for hospitality-sector payroll are the substantial restructuring of natural-person income-tax slabs in FY 2083/84 and certain new deductions available to employees.

Chapter 2 — Scope and Classification of the Business

Before determining the tax rate, the legal and operational nature of the business should be established.

Begin by identifying the business activity and the taxpayer:

For a hotel with restaurants, bar, banquet facilities, spa, laundry, conference facilities and other outlets under the same legal entity, management should maintain segment-wise revenue and direct-cost records even where a single income-tax return is filed.

This is particularly important when demonstrating that restaurant, banquet and ancillary income genuinely forms part of an integrated hotel operation rather than a separate unrelated activity.

Chapter 3 — General Corporate Income Tax

3.1 Standard rate

The normal corporate income-tax rate applicable to an ordinary resident entity is: 25% of taxable income.

Therefore, before applying any concession:

Taxable income × 25% = Gross corporate income tax.

The IRD publishes separate annual schedules for entity rates, natural-person rates, withholding rates and Section 11 concessions; corresponding FY 2083/84 schedules were published in Shrawan 2083.

3.2 Restaurant

An ordinary restaurant company, which does not independently qualify under another concession, is generally taxable at 25%.

However, where liquor and beer transactions become a material business activity, the tax classification should be specifically reviewed because the statutory 30% entity category includes an entity carrying on liquor and beer transactions. Accordingly, a restaurant or hotel with substantial bar operations should not assume that the liquor issue is irrelevant merely because its principal branding is “restaurant” or “hotel.”

For a hotel with incidental minibar/bar operations, the 30% rate should likewise not automatically be applied to the entire hotel without examining the statutory classification and actual facts. Separate liquor sales, purchase and gross-profit schedules should therefore be maintained.

Chapter 4 — Basic Income-Tax Concession for Hotel and Resort

Section 11(2ख) covers a special industry, hotel, resort or information-technology industry operating fully throughout the income year.

For an entity, the concession is:

20% exemption from the income tax otherwise leviable.

Accordingly:

The concession is an exemption from tax payable, not a deduction of 20% from taxable income.

4.1 Full-year operation requirement

The provision expressly refers to the hotel or resort operating fully throughout the income year.

Accordingly, a hotel commencing commercial operation part-way through an income year should not automatically apply the 20% concession for that incomplete first year.

The commencement date, tourism-industry registration, hotel classification, operating licence and documentary evidence of actual commencement should therefore be retained in the permanent tax file.

Chapter 5 — Employment-Based Income-Tax Concessions

This is one of the most important concessions available to a hotel or resort.

Section 11(3)(क) expressly includes a hotel and resort, together with special industries and information-technology industries.

The qualifying employees must be Nepali citizens receiving direct employment throughout the year.

5.1 Employment thresholds

After considering the basic 20% hotel/resort concession, the following effective rates arise for an ordinary company whose starting rate is 25%:

These effective rates are also reflected in Nepal professional tax guidance for the hotel/resort concession.

Example — 300 qualifying employees

Taxable income: NPR 10,000,000

Normal corporate tax: NPR 10,000,000 × 25% = NPR 2,500,000

Basic hotel/resort concession: NPR 2,500,000 ×80% = NPR 2,000,000.

Employment concession for300 or more qualifying employees: NPR 2,000,000 ×80% = NPR 1,600,000.

Effective tax:

16% of taxable income

Chapter 6 — Additional Employment-Diversity Concession

Where the business gives direct employment throughout the year to more than 100 Nepali citizens, and at least 33% comprise women, Dalits or persons with disabilities, an additional 10% exemption from the tax payable is provided.

Consequently:

Example

Taxable income = NPR 10,000,000
Employees = 350 eligible Nepali employees throughout the year
Qualifying women/Dalit/persons with disability = at least 33%

Tax after basic hotel concession: NPR 2,500,000 × 80% = NPR 2,000,000

300-person employment concession: NPR 2,000,000 × 80% = NPR 1,600,000

Additional diversity concession: NPR 1,600,000 × 90% = NPR 1,440,000

Effective rate:

14.40%

6.1 Documentation required

For a hotel/resort claiming this concession, the annual tax file should contain sufficient evidence to demonstrate:

• Nepalese citizenship;

• direct employer–employee relationship;

• date of appointment;

• continued employment throughout the relevant income year;

• monthly payroll;

• attendance/biometric records;

• bank transfer of salary;

• SSF registration and monthly deposits;

• salary TDS/e-TDS;

• appointment letter/employment contract; and

• evidence supporting the qualifying diversity category where the additional concession is claimed.

Outsourced personnel, labour-supplier personnel, consultants and persons who joined or left during the year should not be casually included in the “throughout the year direct employment” count without establishing that the statutory condition is satisfied.

Chapter 7 — Other Major Tourism-Sector Income-Tax Concessions

7.1 Large investment with more than 500 employees

A special industry or tourism industry other than a casino established with capital investment exceeding NPR 1 billion and providing direct employment to more than 500 persons throughout the year is entitled to:

• full income-tax exemption for the first five years from commencement of transaction; and

• 50% exemption from the tax leviable for the following three years.

An existing qualifying industry that increases installed capacity by at least 25%, raises capital to NPR 2 billion and provides direct employment to more than 300 persons throughout the year can receive the corresponding relief on income generated from the increased capacity.

7.2 Tourism-industry investment concession

A separate provision for tourism-related industries and international airlines provides:

For a major hotel/resort development, both the industry registration and qualifying capital investment should be reconciled to the financial statements, fixed-asset register and regulatory approvals before claiming the concession.

7.3 Listed tourism entity

A qualifying tourism-service entity whose shares are listed on the securities market is entitled to a 15% exemption from the tax otherwise leviable, subject to the statutory conditions.

7.4 Capitalisation of accumulated profit

Where a tourism-related industry capitalises accumulated profit into shares for the purpose of expanding the capacity of the same industry, the Act provides 100% exemption from dividend tax on the qualifying capitalisation.

This concession should be distinguished from an ordinary bonus-share issue or dividend distribution where the statutory capacity-expansion condition is absent.

7.5 Conversion of qualifying private company to public company

Under section 11(3ड), a qualifying private company with paid-up capital of at least NPR 500 million that converts to a public company receives10% relief from tax payable for three years from conversion. The provision excludes a company legally required to be public under Companies Act section 12.

Chapter 8 — Interaction of Multiple Concessions

A hotel/resort should not simply multiply every concession appearing in Section 11.

The Act contains an interaction rule for income qualifying for more than one concession. The basic Section 11(2ख) hotel/resort concession may operate together with one otherwise qualifying additional concession, but multiple additional concessions should not automatically be stacked on the same income.

Accordingly, management should prepare an annual “Concession Optimisation and Eligibility Schedule” comparing, where relevant:

• employment concession;

• diversity concession attached to employment;

• listed-company concession;

• major-investment concession;

• tourism-investment concession; and

• other specific incentives.

Where a full exemption applies under a major tourism-investment provision, applying an additional percentage reduction produces no further benefit during the full-exemption period.

Chapter 9 — Caution Regarding Location-Based Concession

Some FY 2082/83 budget and professional summaries described geographical concessions as extending to hotels and resorts. Certain professional material accordingly shows effective rates of 2%, 4% and 6% for hotels/resorts in specified undeveloped-area categories.

However, the current consolidated Section 11 provision reviewed for this guide describes the geographical concession under Section 11(3)(ख) in terms of a “special industry”, whereas “hotel and resort” are expressly named in the neighbouring employment provision. Current FY 2083/84 summaries similarly present the geographical relief as a special-industry concession.

Client recommendation: Do not claim the geographical concession for a hotel/resort merely on the basis of a budget summary. Where material, the exact enacted Finance Act/Gazette text applicable to the commencement year and the hotel's registration should be independently confirmed before filing the return.

Chapter 10 — Tax Depreciation and Capital Expenditure

Hotels and resorts are capital-intensive businesses and the difference between accounting depreciation and tax depreciation can be material.

Accounting depreciation is added back in the tax reconciliation, and depreciation under Schedule 2 of the Income Tax Act is claimed separately.

Typical tax classes include buildings and structures, computers/furniture/fixtures, motor vehicles, other plant and machinery, and intangible assets.

Schedule2 paragraph3(2) permits a one-third increase in the applicable depreciation rate for qualifying entities within sections 11(2ख),11(3च) or11(3थ). Establish that specific statutory eligibility before using the illustrative uplift below; receiving another Section 11 concession alone does not establish this rate increase.

For practical illustration:

The fixed-asset register should separately maintain accounting depreciation and income-tax depreciation.

Particular attention is required for major hotel refurbishment. Routine repair may be revenue expenditure, whereas structural alteration, substantial room renovation, extension, replacement creating a new enduring asset, new kitchen systems, lifts and major plant installation may require capitalisation.

Chapter 11 — Payroll and Employee Remuneration Framework

The hotel and restaurant sector employs permanent, seasonal, casual and part-time staff, trainees, chefs, housekeeping teams and management. Classify each worker correctly and coordinate income-tax withholding with Labour Act and SSF requirements.

Take the applicable minimum wage and its basic/allowance components from the operative responsible Ministry or Department notice for the actual pay period and worker category. Keep that notice in the payroll file. Minimum remuneration is separate from overtime, leave, grade, festival expense and social-security obligations.

Rule 77(3) generally treats 60% of remuneration as basic where basic remuneration has not been determined. For work-based employment, Rule 77(1) instead refers to 60% of average monthly remuneration for the preceding three months, subject to the prescribed minimum under subsection (2). The fallback does not authorise reducing an agreed or required basic wage to lower SSF contributions.

Chapter 12 — Social Security Fund (SSF)

12.1 Contribution base

SSF contribution for a formal-sector employee is based on the employee's basic remuneration, not merely on total gross remuneration. The Social Security Act defines contributory income by reference to basic remuneration before tax.

12.2 Contribution rate

The conventional components are: Employee — 11%

• Provident-fund component: 10%

• Social-security component: 1%

Employer — 20%

• Provident-fund component: 10%

• Gratuity component: 8.33%

• Additional social-security contribution: 1.67%

The employer is responsible for deducting the employee contribution and depositing the full contribution with SSF.

12.3 A worked SSF example

Assume, solely for illustration, an employee has agreed monthly basic remuneration of NPR 20,000 and other remuneration of NPR 10,000. This example is not a statement of the statutory minimum.

Employee SSF: NPR 20,000 × 11% = NPR 2,200. Employer SSF: NPR 20,000 × 20% = NPR 4,000. Total contribution is NPR 6,200.

The employer’s remuneration-plus-SSF cost is NPR 30,000 + NPR 4,000 = NPR 34,000 before other applicable benefits. The employee’s own NPR 2,200 contribution is deducted from pay; it is not an additional employer expense. Calculate income-tax withholding separately using the employee’s annual tax working.

12.4 Deposit deadline

SSF contributions must generally be remitted within 25 days after the end of the month in which the contributory remuneration became payable, under section 4(4) of the current Contribution-based Social Security Act. Apply any official extension only to the period it covers.

Late contribution may result in recovery together with 10% interest, subject to the statutory provisions concerning circumstances beyond the employer's control.

12.5 Registration and cessation

The employer is responsible for SSF registration of qualifying employees. Where employment terminates, the employer should notify SSF of cessation as prescribed; the Act requires notification where a contributor ceases employment.

12.6 SSF benefits

The SSF framework provides social-protection benefits through statutory schemes covering areas such as:

• medical, health and maternity;

• accident and disability;

• dependent-family protection; and

• old-age/retirement protection.

12.7 Income-tax benefit of SSF

SSF is an approved retirement fund for income-tax purposes.

A natural person can deduct qualifying approved-retirement-fund contributions subject to the statutory ceiling, presently the lowest of:

Actual qualifying contribution;
one-third of assessable income; or
NPR 500,000 per income year.

The NPR 500,000 ceiling now applies to the approved-retirement-fund framework, including qualifying SSF/PF/CIT contributions.

Both employee and qualifying employer retirement contributions should be appropriately considered in computing the actual contribution and employment assessable income.

Chapter 13 — Salary Income Tax: FY 2082/83

For FY 2082/83, separate individual and couple schedules continued.

13.1 Individual

13.2 Couple electing couple assessment

*The first 1% represents social-security tax. It does not apply to qualifying employment income of a person contributing to SSF. Accordingly, for an SSF-enrolled employee, the first slab is effectively taxed at zero for this purpose.

Chapter 14 — Salary Income Tax: FY 2083/84

FY 2083/84 introduced a substantially revised natural-person tax structure and removed the earlier separate single/couple slab distinction.

*The 1% first-slab social-security tax does not apply to qualifying SSF-contributing employment income.

The FY 2083/84 reform therefore produces a significant payroll-tax reduction for many hotel and restaurant employees compared with FY 2082/83.

Chapter 15 — What Is Included in Employee Assessable Remuneration?

Salary tax should not be calculated merely on “basic salary.”

Subject to specific exemptions and valuation rules, employment assessable income may include:

• basic salary;

• grade;

• dearness allowance;

• position/management allowance;

• overtime;

• Dashain/festival allowance;

• bonus;

• cash allowances;

• employer retirement/SSF contribution;

• taxable accommodation benefit;

• taxable vehicle benefit;

• concessional loan benefit;

• telephone or other private benefit where taxable;

• leave encashment;

• other benefits or perquisites.

A current FY 2083/84 employment-tax illustration specifically includes employer SSF contribution and taxable employment benefits in assessable income, followed by the allowable retirement deduction.

The payroll system should therefore maintain separate codes for cash remuneration, non-cash taxable benefits, exempt/reimbursed expenses, employer retirement contributions, employee deductions and tax credits.

Chapter 16 — Employee Deductions and Tax Benefits

16.1 Approved retirement contribution

For both FY 2082/83 and FY 2083/84, the allowable deduction is generally the lower of:

• actual qualifying contribution;

• one-third of assessable income; or

• NPR 500,000.

16.2 Life insurance

Deduction is limited to the lower of actual eligible premium and:

NPR 40,000

subject to the statutory requirements.

16.3 Health insurance

Deduction is limited to the lower of qualifying premium and:

NPR 20,000

16.4 Private building insurance

For FY 2082/83, the applicable ceiling should be applied at the rate prescribed for that year.

For FY 2083/84, the ceiling is:

lower of actual eligible premium or NPR 10,000.

16.5 Child tuition — FY 2083/84

FY 2083/84 introduced an additional deduction where a resident natural person pays qualifying tuition fees to a resident person for education of his or her descendant:

lower of 25% of eligible annual tuition fee or NPR 25,000.

16.6 Female employee rebate

A resident woman having only remuneration income can, subject to the statutory conditions, receive a 10% rebate from tax payable.

16.7 Remote-area reduction

Employees qualifying under the prescribed remote-area categories can receive the statutory income reduction according to the applicable area category, generally ranging from NPR 10,000 to NPR 50,000.

16.8 Medical tax credit

Qualifying medical expenditure may generate a tax credit subject to the prescribed limits, including the applicable percentage of eligible expenditure and statutory annual ceiling.

Chapter 17 — Payroll Worked Example

Assume an employee has:

Monthly cash remuneration: NPR 100,000
Basic remuneration: NPR 60,000
No other deduction except SSF
Employee SSF: 11%
Employer SSF: 20%

Annual cash remuneration: NPR 100,000 × 12 = NPR 1,200,000

Employer SSF: NPR 60,000 × 20% × 12 = NPR 144,000

Employment assessable income:

NPR 1,344,000

Employee SSF: NPR 60,000 × 11% × 12 = NPR 79,200

Total eligible SSF contribution for illustration: NPR 79,200 + NPR 144,000 = NPR 223,200

This is below NPR 500,000 and one-third of assessable income.

Taxable income: NPR 1,344,000 – NPR 223,200 = NPR 1,120,800

FY 2082/83 — single SSF contributor

First NPR 500,000: no 1% SST
Next NPR 200,000 @10% = NPR 20,000
Next NPR 300,000 @20% = NPR 60,000
Balance NPR 120,800 @30% = NPR 36,240

Annual tax = NPR 116,240

FY 2083/84 — SSF contributor

First NPR 1,000,000: no 1% SST
Balance NPR 120,800 @10% = NPR 12,080

Annual tax = NPR 12,080

This simplified example illustrates the significance of the FY 2083/84 personal tax reform. Actual payroll calculations must incorporate festival allowance, bonus, taxable benefits, insurance deductions, employee-specific rebates and changes in salary during the year.

Chapter 18 — Salary TDS Administration

Salary TDS is governed by Section 87 and should be calculated using the applicable annual employment-income tax schedule.

The employer should:

1. estimate each employee's annual assessable remuneration;

2. include expected bonus, festival allowance and taxable benefits;

3. deduct allowable retirement contributions and other eligible deductions;

4. calculate annual tax;

5. deduct tax progressively from monthly payroll;

6. revise the estimate when salary changes;

7. perform a year-end true-up; and

8. reconcile payroll TDS with e-TDS and the general ledger.

The employee's monthly TDS should therefore not be calculated by simply taxing each month's salary in isolation.

Chapter 19 — TDS / Withholding Tax Applicable to Hotels, Resorts and Restaurants

The following are the principal withholding items encountered in hospitality businesses:

The current FY 2083/84 withholding schedule confirms, among others, 15% general service/commission withholding, 1.5% for qualifying VAT-registered resident service providers, 10% rent, 1.5% qualifying contracts and a new 20% rate for commission/service fee paid to a resident natural-person insurance agent.

TDS should generally be computed on value excluding VAT.

For example: Service fee = NPR 100,000
VAT @13% = NPR 13,000
Invoice = NPR 113,000

Where 1.5% TDS applies: TDS = NPR 100,000 × 1.5% = NPR 1,500

not NPR 113,000 × 1.5%.

Chapter 20 — TDS Compliance and Controls

Hotel-sector TDS commonly arises on:

• professional fees;

• audit and consultancy;

• legal fees;

• outsourced housekeeping;

• security services;

• repair/maintenance contractors;

• marketing agencies;

• commission agents;

• local booking agents;

• rent;

• vehicle hire;

• event contractors;

• technical services;

• interest;

• directors' or meeting-related payments where applicable;

• foreign service providers; and

• dividend.

The TDS ledger should be reconciled monthly to supplier ledgers and e-TDS.

As a general compliance control, tax withheld during a month should be deposited/filed within the statutory period, ordinarily within 25 days following the end of the relevant month.

Chapter 21 — Value Added Tax

21.1 Rate

The standard VAT rate applicable to taxable hotel, restaurant and resort supplies is:

13%

21.2 Registration

The normal service/mixed-business turnover threshold should be considered together with compulsory-registration provisions.

Check any separate mandatory-registration requirement before relying on the small-business threshold. Identify the actual supplies, place of business and current notification or IRD order governing the activity. Activity lists from older guidance must be reconciled with the currently operative rule and geographical scope.

Accordingly, a restaurant operating a bar should not rely solely on the general turnover threshold without checking the compulsory-registration provision.

Chapter 22 — VAT on Hotel and Resort Revenue

Unless a specific exemption applies, the following should ordinarily be treated as taxable supplies:

Care is particularly required with agricultural/basic food products. Some underlying food products may enjoy VAT exemptions in ordinary trade, but hospitality-sector supply rules can remove the exemption when specified products are supplied to or through hotels, restaurants, bars, guesthouses or cafeterias.

Chapter 23 — Input VAT Credit

The basic principle is:

Output VAT
less allowable input VAT
= net VAT payable / credit.

Input VAT should generally be claimed only where:

• the purchase relates to taxable business activity;

• the taxpayer holds a valid tax invoice/customs document;

• the invoice is recorded in the purchase register;

• the statutory claim period is met; and

• the expenditure is not subject to an input-credit restriction.

Chapter 24 — Beverages and Alcohol: Important Restaurant Exception

VAT paid on beverages, alcohol and certain entertainment expenditure is generally restricted where the item is consumed by the business.

However, the VAT Rules contain an important exception where supplying those goods is itself the registered person's main business activity.

Thus, a restaurant purchasing alcohol for taxable resale to customers against VAT invoices may be eligible for the related input VAT, whereas alcohol purchased for internal entertainment or complimentary consumption does not automatically obtain the same credit. ICAN's tax material specifically uses a restaurant selling alcohol as an example of the distinction.

A hotel should therefore maintain separate stock records for: Alcohol for resale
versus
complimentary/promotional/internal consumption.

The same principle is relevant to beverages.

Chapter 25 — Motor Vehicles and Input VAT

For passenger automobiles used administratively by a VAT-registered business, the general Rule 41 restriction permits only 40% of the relevant VAT credit, subject to the statutory definition and exceptions.

This restriction applies to passenger vehicles with three or more wheels used on the road.

Accordingly, a hotel purchasing a management car should not automatically claim 100% input VAT.

A separate analysis should be made for tourist transportation vehicles where the nature of the business and use may differ.

Chapter 26 — VAT on Exempt and Taxable Inputs

A hotel or restaurant may purchase exempt commodities such as certain agricultural products.

If the supplier correctly charges no VAT, the buyer has no input VAT to claim.

This is different from a blocked input-credit item.

For example: Fresh vegetable purchase: NPR 100,000
VAT charged: Nil
Input VAT: Nil

Restaurant subsequently sells prepared meals: Selling value: NPR 200,000
Output VAT @13%: NPR 26,000

The absence of input VAT on the raw agricultural product does not make the restaurant meal VAT-exempt.

Chapter 27 — Capital Goods and Hotel Construction

VAT on qualifying machinery, furniture, kitchen equipment, computers, air-conditioning systems and other capital goods used in taxable business can generally be considered for input credit, subject to the specific restriction applicable to the asset.

Major hotel construction and renovation require additional care concerning:

• VAT-registered contractor status;

• tax invoices;

• works-contract accounting;

• imported machinery;

• owner-supplied material;

• advances;

• retention;

• capitalisation;

• withholding tax; and

• any reverse/deemed VAT provisions applicable to construction by an unregistered contractor.

The income-tax treatment is separate: even where input VAT is creditable, the net capital cost is ordinarily capitalised and tax depreciation is claimed under the Income Tax Act.

Chapter 28 — Foreign Booking Platforms and Imported Services

Hotels frequently transact with:

• Booking.com;

• Agoda;

• Expedia;

• foreign reservation platforms;

• international hotel-management companies;

• cloud/PMS software providers;

• foreign advertising platforms;

• foreign consultants; and

• overseas sales agents.

The net settlement received in the bank should not be recorded as hotel revenue where the platform has deducted commission.

Example: Gross room sale = NPR 100,000
OTA commission = NPR 15,000
Bank receipt = NPR 85,000

The hotel should normally record: Room revenue = NPR 100,000

OTA commission expense = NPR 15,000

Bank = NPR 85,000 subject to the applicable VAT, withholding and contractual treatment.

For foreign services, the hotel must separately test:

• Nepal-source income;

• non-resident withholding;

• applicable Double Taxation Avoidance Agreement;

• imported-service/reverse VAT;

• digital-service VAT mechanism where applicable;

• foreign-exchange documentation; and

• expense deductibility.

IRD recognises a VAT collection mechanism for services received from a person outside Nepal who is not ordinarily registered under the domestic VAT system.

A flat domestic 1.5% TDS rate should not be automatically applied to every foreign OTA invoice.

Chapter 29 — Five-Star Hotel and Luxury Resort: 2% Luxury Fee

A separate 2% Luxury Fee applies to services supplied for consumption in Nepal by:

five-star and above hotels; and
qualifying luxury resorts.

Finance Act 2083 section 13 and Schedule 5 impose 2% Luxury Fee on the prescribed services of five-star-and-above hotels and luxury resorts. IRD lists the Luxury Fee Procedure 2083 dated 13 Asoj 2083, together with the applicable invoice-format notice. Use those current documents for detailed invoicing and filing.

The levy is separate from:

• income tax;

• VAT; and

• service revenue.

Illustratively:

The Luxury Fee collected should be credited to a separate liability account such as:

Luxury Fee Payable

and not recognised as hotel operating revenue.

Ordinary restaurants and hotels below the prescribed star/luxury category do not become liable to this particular hotel Luxury Fee merely because they operate in the tourism sector.

Chapter 30 — Alcohol, Excise and Liquor Licensing

A hotel or restaurant selling alcohol should maintain valid licences required under excise/liquor laws.

IRD guidance confirms that production, import, export, sale, purchase, movement and storage of specified alcoholic products require the relevant licence before conducting the regulated activity.

A hotel/restaurant should therefore maintain:

• liquor licence and annual renewal;

• licensed premises information;

• supplier tax invoices;

• brand/item-wise inventory;

• opening stock;

• purchases;

• bar/minibar issues;

• sales;

• complimentary issues;

• breakage/wastage;

• physical closing stock; and

• reconciliation to POS sales.

Licence fees may change annually and should therefore be taken from the Finance Act applicable to the relevant year rather than copied forward from an old licence schedule.

Chapter 31 — VAT Returns and Reconciliation

The hotel should prepare a monthly VAT reconciliation broadly as follows:

Room revenue

• restaurant revenue

• bar revenue

• banquet revenue

• conference/hall revenue

• spa/wellness revenue

• laundry revenue

• minibar

• taxable ancillary revenue

• other taxable supplies
  = Total taxable sales per operating systems

This should reconcile to:

General ledger revenue
= Sales register
= VAT return
subject to documented reconciliation items.

The following systems should also reconcile:

• PMS;

• POS;

• banquet system;

• restaurant POS;

• bar POS;

• manual tax invoices;

• online booking reports;

• OTA statements;

• general ledger; and

• VAT sales register.

A hotel with a material difference between PMS/POS revenue and VAT sales is exposed to a significant tax-audit risk.

Chapter 32 — Complimentary Rooms, Staff Meals and Promotional Items

Separate transaction codes should be maintained for:

• complimentary rooms;

• management complimentary meals;

• staff meals;

• owner/director consumption;

• promotional meals;

• free event packages;

• travel-agent complimentary stays;

• damaged inventory;

• expired inventory; and

• breakage/wastage.

The business should not simply delete such transactions from the POS.

Each category should be reviewed separately for:

• VAT deemed-supply implications;

• input-tax adjustment;

• income-tax deductibility;

• entertainment restriction; and

• evidence of business purpose.

Chapter 33 — Advance Income Tax

A profitable hotel, resort or restaurant should monitor estimated income tax during the year instead of waiting until the annual return.

Section 94 requires payment of estimated tax in statutory instalments, and IRD specifically issued FY 2082/83 notices for payment of the estimated-tax instalments.

The tax forecast should consider:

• estimated annual taxable profit;

• tax depreciation;

• brought-forward losses;

• applicable Section 11 concession;

• TDS credits;

• prior advance tax; and

• changes in occupancy/profitability.

For a hotel claiming an employment concession, the projected qualifying employee count should also be reviewed before determining the estimated effective tax rate.

Chapter 34 — Hotel/Resort Employment Concession Control Schedule

For each month, management should maintain an employment-control schedule such as:

At year-end, the tax claim should be based on the statutory full-year direct-employment condition, not merely the closing headcount as at Ashadh end.

Chapter 35 — Recommended Monthly Compliance calendar — planning guide

Chapter 36 — Labour and Payroll Control Matters

Tax compliance should be integrated with labour compliance.

Particular attention should be given to: Employment contracts: employees should have written terms of employment.

Minimum remuneration: the statutory minimum effective from 1 Shrawan 2082 should be respected.

Basic remuneration: basic salary should not be artificially understated merely to reduce SSF contributions.

SSF: eligible employees should be registered and contributions deposited monthly.

Attendance and overtime: hospitality-sector shift work requires reliable attendance records.

Foreign employees: immigration/work-permit and non-resident/resident payroll tax status should be separately reviewed.

Outsourced labour: responsibility should not be assumed to disappear merely because cleaners/security workers are supplied by a contractor.

The Labour Rules provide important rules for determining basic remuneration, including the general 60% reference where basic remuneration has not otherwise been determined.

Chapter 37 — Major Year-on-Year Differences

Chapter 38 — Worked Corporate Tax Comparison

Assume taxable income of a hotel = NPR 50,000,000.

Case A — no hotel concession available

NPR 50,000,000 × 25%
= NPR 12,500,000

Case B — qualifying hotel/resort basic concession

NPR 12,500,000 × 80%
= NPR 10,000,000

Effective rate = 20%

Case C — 100+ eligible employees

NPR 10,000,000 × 90%
= NPR 9,000,000

Effective rate = 18%

Case D — 300+ eligible employees

NPR 10,000,000 × 80%
= NPR 8,000,000

Effective rate = 16%

Case E — 500+ eligible employees

NPR 10,000,000 × 75%
= NPR 7,500,000

Effective rate = 15%

Case F — 1,000+ eligible employees

NPR 10,000,000 × 70%
= NPR 7,000,000

Effective rate = 14%

Case G — 1,000+ employees plus 33% prescribed diversity

NPR 7,000,000 × 90%
= NPR 6,300,000

Effective rate:

12.60%

This demonstrates why reliable employment documentation can have a significant direct monetary impact on a large hotel's annual tax liability.

Chapter 39 — Key Tax-Risk Areas for a Hotel/Resort/Restaurant

The principal matters that should receive focused review before annual tax filing are: 1. Hotel/resort Section 11 eligibility
Confirm full-year operation and correct registration/classification.

2. Employee concession
Verify direct Nepali employees satisfying the full-year condition.

3. 33% diversity concession
Verify both numerical and documentary conditions.

4. Stand-alone restaurant classification
Do not claim hotel concession without statutory eligibility.

5. Liquor-business rate issue
Review whether the 30% entity classification creates exposure.

6. Bar inventory and excise licensing
Maintain full stock trail.

7. VAT on restaurant sales
Do not treat meals as exempt merely because some ingredients are exempt.

8. Beverage/alcohol input VAT
Differentiate resale from internal consumption.

9. Passenger-vehicle VAT
Check the 40% restriction.

10. OTA accounting
Record gross revenue and commission separately.

11. Foreign-service payments
Review TDS, DTAA and reverse VAT individually.

12. SSF
Verify basic salary, 11% employee contribution, 20% employer contribution and timely deposit.

13. Payroll TDS
Calculate tax annually, not on isolated monthly salary.

14. Capital versus repair expenditure
Review major renovation and refurbishment.

15. Luxury Fee
Verify star/resort classification and prescribed invoice.

Chapter 40 — Recommended Year-End Tax File

For a professionally controlled annual tax file, the hotel/resort/restaurant should maintain:

Chapter 41 — Client Recommendations

The tax function of a hotel or resort should not be limited to calculating 25% tax at year-end. The Section 11 concessions mean that employment structure, investment structure, legal registration and operational documentation directly determine the effective tax rate.

For a qualifying hotel, the effective tax rate can fall from the ordinary 25% to 20%, 18%, 16%, 15%, 14% or, where the prescribed diversity condition is also satisfied, as low as 12.60%. Larger qualifying tourism investments may obtain substantially longer full or partial income-tax holidays.

At the same time, these concessions create a greater need for documentation. The client should therefore establish a formal annual Hotel Tax Incentive File containing regulatory registration, commencement evidence, monthly employee count, SSF evidence, payroll records, investment/capital records and tax-concession calculations.

For restaurants, the principal emphasis should be on correct VAT treatment, liquor and beverage control, TDS, payroll/SSF compliance and determination of the correct corporate rate. Hotel-specific Section 11 relief should not be claimed merely because the restaurant falls broadly within the tourism or hospitality sector.

Chapter 42 — Legal and Professional Qualification

This guide distinguishes FY 2082/83 from FY 2083/84 and uses the primary legislation and dated source checks identified below. Apply the law for the actual income year and transaction; the general guide does not determine an individual taxpayer’s eligibility.

The availability of a specific concession ultimately depends upon the facts of the taxpayer, including its legal registration, tourism-industry classification, star/category registration, date of commencement, capital investment, location, employment pattern and composition, nature of revenue and applicable Finance Act for the relevant income year.

Where there is inconsistency between a budget summary, explanatory publication and the enacted legislation/Gazette, the enacted legislation and applicable Gazette provision should prevail.

In particular, the geographical Section 11 concession for hotels/resorts should be independently verified against the exact enacted provision applicable to the client's commencement year before being claimed.

SSF remittance deadline

Under section 4(4) of the Contribution-based Social Security Act, the contribution must reach the Fund within 25 days after the month in which contribution-eligible income becomes payable, subject to any applicable official extension. Section 7 concerns determining contribution rates. Keep the payment acknowledgement with the payroll reconciliation.