Software, Cloud and SaaS Taxation in Nepal

Identify the contracting parties, where the service is used, the delivery arrangement, currency and the rights granted. A hosted subscription giving access to functionality is not automatically the same as a licence allowing reproduction or commercial exploitation of software. Bundled development, support and rights should be described clearly in the contract and invoice.

Keep the statement of work, deliverables, licence terms, acceptance, invoice and payment records together. For related parties, retain evidence of the service received, allocation basis and pricing. The label “IT fee” is not enough to decide deductibility, royalty treatment or the applicable withholding provision.

An operating business or company should determine its business income, allowable deductions, tax adjustments and any properly established concession under the relevant year’s law. Do not apply a bank deduction on an overseas receipt as proof that the whole company’s final tax has been settled. Reconcile the gross contract amount, foreign withholding where present, fees, exchange differences and cash received.

A resident natural person not engaged in operating a business can fall within the specified foreign-currency software or equivalent electronic-service category in section 95A(6ख). The IRD FY 2083/84 notice describes 5% receiving-institution withholding for that narrow category, and Finance Act 2083 adds the specified receipts to final withholding under section 92. This is not a blanket rate for every software exporter or IT company.

For a cloud or software purchase from abroad, analyse the actual service and rights under the domestic withholding provisions, including section 88, then consider any applicable treaty and its conditions. The 5% foreign-receipt category for qualifying natural persons is not a default withholding rate on a Nepal company’s imported subscription.

Prepare the contract, invoice, supplier identity, business-use explanation, tax analysis and bank documents before remittance. If the agreement bundles licences, maintenance and consultancy, document the basis for separating them or treating them together. A treaty result on withholding does not independently decide imported-service VAT or expense deduction.

The non-resident digital-service procedure concerns qualifying supplies to Nepal consumers. Its business-use exclusion directs the Nepal business-user question to imported-service VAT under section 8(2). Establish the purchaser and actual business use rather than decide solely from whether a PAN appeared on the supplier’s invoice.

A supplier’s special registration should not be treated as proof that every purchaser has no imported-service VAT issue. Conversely, a Nepal business should not describe itself as a non-resident consumer supplier merely because it resells online. Examine invoicing, payment evidence and input-credit eligibility under the appropriate route.

Assume a Nepal company buys a one-year overseas cloud subscription for use by its staff. The file identifies the supplier, permitted use, term, invoice amount and business purpose. It then records separate conclusions on domestic withholding and any treaty claim, imported-service VAT, expense or prepaid-cost accounting and the bank’s documentary requirements.

If the payment covers periods on both sides of year-end, keep the service period and the accounting allocation. Do not infer the tax timing solely from the date the card was charged. Reconcile the gross foreign invoice, any tax deduction, bank charges, exchange conversion and the amount actually settled.

Retain the rights needed to use, distribute or modify the product and record restrictions on users, territory and transfer. Keep customer and employee data access within the arrangement actually authorised. Public marketing statements should match the service delivered and the contractual responsibility for support, cancellation and refunds.

Review a renewal, change in supplier, new licence right, price adjustment or related-party arrangement for its effect on the earlier analysis. Preserve the source version, working and payment evidence for each period. Obtain specialist review where rights, treaty eligibility, a tax concession or the purchaser’s VAT route remains uncertain.