VAT Deregistration in Nepal — Cancellation Procedure & Closing VAT

Section 11 contains circumstances including:

Company / Body Corporate

Where it:

• closes down;

• is sold/transferred; or

• otherwise ceases to exist.

Sole Proprietor

Where the proprietor dies.

Partnership

Where the partnership is dissolved or the statutory circumstance relating to partner death arises.

Taxable Activity Ends

Where the registered person ceases to carry on taxable transactions.

Long-term Inactive Filing Status

Section 11 also includes a cancellation circumstance where a registered taxpayer:

• submits zero VAT returns; or

• fails to submit returns

for the prescribed continuous period, currently reflected in the Act as 12 consecutive months.

Other statutory circumstances/procedures may also apply.

A VAT-registered taxpayer whose business subsequently falls below the prescribed turnover threshold may have a deregistration route under the Director General's prescribed procedure.

However:

Falling below the threshold does not by itself automatically cancel VAT registration.

The taxpayer must follow the prescribed cancellation process.

Rule 12 requires a taxpayer whose deregistration circumstance has arisen to file the application generally within: 30 days

using the prescribed: Schedule 11

return/application documentation and paying VAT due.

After applying for cancellation, the taxpayer must continue submitting VAT returns:

• until cancellation notice is received; or

• for up to three months

according to Rule 12.

Do not stop filing immediately after submitting the deregistration request.

The concerned Tax Officer should notify the applicant whether VAT registration is cancelled within: three months from the application under Rule 12.

IRD's FAQ further explains that tax examination documents should be provided within the required period and that the officer completes the deregistration decision following tax examination.

This is one of the most important deregistration rules.

Where Input VAT credit was previously claimed on:

• stock; and

• capital goods

remaining at deregistration, Section 11 deems those items to have been supplied at: market value

and VAT is assessed/recovered accordingly.

Therefore VAT deregistration can create a closing VAT liability even where no actual sale occurs.

Remaining inventory: Market value NPR 1,000,000

Input VAT had previously been claimed.

Indicative deemed Output VAT at 13%: NPR 130,000 subject to the precise statutory circumstances.

The business should budget for this closing liability before applying for deregistration.

Computer/equipment remains at cancellation.

Input VAT had previously been claimed.

The asset may need to be treated as a deemed supply at market value under Section 11.

Do not assume:

Capital asset not sold = no VAT on deregistration.

Deregistration should include reconciliation of:

• VAT payable;

• Input VAT credits;

• stock/capital-goods adjustment;

• outstanding returns;

• interest;

• additional fees;

• assessments;

• other VAT liabilities.

For non-resident digital-service registrations, IRD's current procedure similarly states that registration will not be cancelled until outstanding VAT liability is cleared.

Section 11 specifically provides that cancellation of VAT registration does not exempt the taxpayer from liabilities arising from transactions or omissions that occurred while the registration was active.

Therefore IRD can still examine:

• prior returns;

• Input VAT claims;

• sales suppression;

• invoices;

• assessments

after the registration has been cancelled.

These are separate steps.

For a company closing operations, the process can involve: VAT deregistration

Income Tax compliance

PAN status

OCR/company closure

Labour/SSF

local business registration and other regulatory requirements.

VAT deregistration alone does not legally dissolve the company.

A business that voluntarily registered for VAT but later has consistently low turnover should assess:

• whether the deregistration conditions are met;

• remaining Input VAT;

• closing stock;

• capital goods;

• customer requirements;

• future expected turnover.

Sometimes remaining VAT registered may still be commercially preferable.

• Identify statutory cancellation ground

• Record date ground arose

• File within applicable 30-day period

• Prepare Schedule 11

• File outstanding VAT returns

• Reconcile sales

• Reconcile purchases

• Reconcile Input VAT

• Count closing stock

• Identify capital goods

• Determine market value

• calculate closing VAT

• Pay tax/interest/fees

• Submit tax-audit documents

• Continue returns until cancellation/period limit

• Obtain cancellation notice

• retain complete VAT file

Stopping VAT returns immediately after applying

Assuming low turnover automatically cancels VAT

Ignoring closing stock

Ignoring capital goods with prior Input VAT

Deregistering VAT and assuming all old tax exposure disappears

Confusing VAT cancellation with company closure

VAT deregistration should be planned before business closure. Closing stock and capital assets on which Input VAT was previously claimed can create material VAT payable at cancellation.