Nepal Double Taxation Avoidance Agreements — DTAA Guide

Nepal's DTAA with Mauritius ceased to apply in Nepal from 17 July 2026 / 1 Shrawan 2083.

The Mauritius Revenue Authority confirms that the treaty applied for the last time in Nepal for the fiscal year ending 16 July 2026.

Therefore Mauritius should not appear as an active DTAA country on CMA's FY 2083/84 treaty list.

What Does a DTAA Do?

A DTAA allocates taxing rights between Nepal and another country.

Depending on the type of income, it can:

• limit withholding tax;

• prevent duplicate taxation;

• determine Permanent Establishment thresholds;

• allocate business-profit taxation;

• provide tax credits;

• regulate capital gains;

• provide exchange of information;

• provide mutual-agreement procedures.

A DTAA does not mean:

“income is automatically tax-free.”

Domestic Law First, Treaty Second

A proper treaty analysis normally begins by determining tax under Nepal domestic law.

Then ask:

Does an applicable DTAA restrict or modify Nepal's domestic taxing right?

Section 73 authorises Nepal to enter international agreements to prevent double taxation and provide international tax assistance.

Treaty Residence

A person must generally be a qualifying resident of a treaty country before relying on that treaty.

For example, the Nepal–Bangladesh treaty defines treaty residence by reference to liability to tax because of criteria such as:

• domicile;

• residence;

• place of management;

• similar connecting factors.

Simply incorporating a shell company in a treaty jurisdiction may not be enough.

Permanent Establishment

One of the most important treaty protections concerns business profits.

Typically, a foreign enterprise's business profits are taxed in Nepal only where the enterprise has a Nepal Permanent Establishment, subject to the precise treaty wording.

Treaty PE thresholds can differ materially from Nepal's domestic: 90-day service/construction rules.

IRD's Permanent Establishment Directive expressly recognises these treaty-specific differences.

Therefore never use one PE day threshold for every treaty country.

Dividend

A treaty may restrict the source country's tax on dividends.

Before applying a treaty dividend rate, determine:

• shareholder residence;

• beneficial ownership;

• shareholding percentage where relevant;

• domestic rate;

• treaty rate;

• anti-abuse condition.

For many Nepal investors, the current domestic dividend rate of 5% can already be equal to or lower than a treaty ceiling, so the treaty may not produce a lower cash tax in every case.

Interest

Nepal's ordinary domestic withholding starting point on Nepal-source interest is generally: 15% subject to statutory exceptions.

A DTAA may cap Nepal's source-country interest tax at a lower percentage.

The exact treaty must be checked.

Do not use an “average treaty interest rate.”

Royalty

Domestic-law royalty withholding generally starts at: 15%.

Treaties can cap royalty taxation at different rates.

This makes treaty review particularly relevant for:

• trademark licence;

• software rights;

• know-how;

• patents;

• technology-transfer arrangements.

Service Fees

Service-fee treatment varies substantially among treaties.

Possible outcomes include:

• business profits taxable only if PE exists;

• service-PE rules;

• independent personal service rules;

• royalty/technical-service treatment depending on treaty wording.

Never assume a foreign consultancy fee is taxed identically under every Nepal treaty.

Construction Projects

Treaties often give foreign contractors a longer project threshold than Nepal's domestic 90-day construction PE test.

The actual treaty must be checked for:

• construction;

• assembly;

• installation;

• supervisory activities;

• aggregation periods.

Capital Gains

Treaty capital-gains provisions require particular care.

Different treaties can allocate taxing rights differently for:

• immovable property;

• shares;

• substantial ownership;

• movable property connected with PE;

• ships/aircraft.

Do not assume an offshore share sale automatically avoids Nepal tax merely because the seller is treaty-resident.

Foreign Tax Credit

Where both Nepal and the treaty partner tax the same income, the treaty normally includes a method to relieve double taxation.

Nepal domestic law also provides foreign-tax adjustment under Section 71 for Nepal residents.

A treaty credit should therefore be considered together with Nepal's domestic foreign-tax-credit mechanism.

Anti-Treaty-Shopping Rule

Section 73(5) restricts treaty relief for certain entities where:

• the entity claims treaty residence; but

• 50% or more of its vested ownership is ultimately held by persons/entities that are residents of neither Nepal nor the relevant treaty partner.

This is a domestic anti-treaty-shopping limitation.

Therefore:

Company incorporated in treaty country

does not necessarily equal:

Treaty benefit available.

Mauritius — Important FY 2083/84 Change

Nepal formally notified termination of the Mauritius DTAA in late 2082. IRD published the formal notice in Mangsir 2082.

Under the treaty's termination mechanism, it applied for the last time in Nepal for the fiscal year ending: 16 July 2026.

Therefore, from: 17 July 2026 / 1 Shrawan 2083

Mauritius-source/resident transactions should generally be analysed under:

• Nepal domestic tax law;

• any other applicable international instrument;

rather than the old Mauritius DTAA.

This is a high-priority correction for older Nepal tax websites.

Bangladesh

Nepal also has a bilateral DTAA with Bangladesh.

IRD separately publishes the Nepal–Bangladesh agreement, covering matters including:

• residence;

• PE;

• business profits;

• dividends;

• interest;

• royalties;

• capital gains;

• elimination of double taxation.

The Bangladesh treaty should be included in any current Nepal treaty table.

SAARC Multilateral Agreement

IRD's treaty collection also contains the:

SAARC Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters.

This is separate from the bilateral DTAA network.

Do not count the SAARC agreement as another bilateral DTAA country.

Treaty Rates Must Be Stored by Country and Income Type

For a treaty comparison, do not rely on one field called:

“DTAA rate”.

Instead store:

• treaty country;

• treaty status;

• effective date;

• dividend rate;

• interest rate;

• royalty rate;

• capital-gain article;

• construction PE threshold;

• service PE threshold;

• employment article;

• elimination-of-double-tax article;

• limitation/anti-abuse notes;

• source document;

• last verified date.

These fields support an accurate:

Nepal DTAA Comparison Tool

for the period being reviewed.

Example — Interest

Nepal company pays interest to a lender resident in a treaty country.

Domestic Nepal rate: 15%.

Suppose the relevant treaty caps source-country tax at a lower rate.

Correct process: Check domestic rate

↓ verify treaty residence

↓ verify beneficial ownership/eligibility

↓ check treaty interest article

↓ apply lower treaty ceiling where legally available

↓ retain treaty documentation.

Example — Consultancy

Foreign consultant is resident in Country A.

The consultant works in Nepal for 60 days.

Do not immediately conclude:

“Below Nepal's 90-day rule, therefore no PE.”

If Country A has a DTAA: check the treaty.

If it does not: apply domestic law.

Conversely, a treaty may give more protection than the domestic statute.

Treaty Documentation

Before applying treaty relief, the Nepal payer should maintain appropriate evidence such as:

• Tax Residency Certificate;

• recipient legal identity;

• ownership structure;

• beneficial-owner evidence where relevant;

• agreement/invoice;

• nature of income;

• treaty article;

• PE declaration/support;

• withholding calculation.

Treaty relief should be audit-defensible.

Treaty vs FITTA

A tax treaty determines tax rights.

FITTA determines foreign-investment matters.

A foreign investor therefore may simultaneously need to comply with:

• DTAA;

• Income Tax Act;

• FITTA;

• DOI;

• NRB.

Treaty residence does not replace foreign-investment approval.

Active Nepal Bilateral DTAA Checklist — FY 2083/84

• Austria

• Bangladesh

• China

• India

• Republic of Korea

• Norway

• Pakistan

• Qatar

• Sri Lanka

• Thailand

• Mauritius — terminated for Nepal from 17 July 2026

Treaty Analysis Checklist

• Identify recipient country

• Confirm treaty is currently in force

• Obtain tax-residence evidence

• Check Section 73(5)

• Determine income character

• Determine domestic tax

• Review relevant treaty article

• Review PE

• Review beneficial ownership

• Determine treaty rate

• Determine final/creditable tax

• retain supporting documents

• Check foreign tax credit

• Reverify treaty before major transaction

Common Errors

Still listing Mauritius as an active treaty country for FY 2083/84

Omitting Bangladesh from the treaty list

Assuming every treaty has identical rates

Applying a treaty merely because the invoice comes from a treaty country

Ignoring Section 73(5) anti-treaty-shopping requirements

Using domestic 90-day PE rules without reading the treaty

Assuming a DTAA makes foreign income tax-free

Further guidance and practical checks

A treaty is an allocation and relief mechanism, not a blanket exemption. Every treaty claim should identify the taxpayer's residence, income character, relevant treaty article, PE position, domestic rate and treaty limitation before the reduced tax treatment is applied.