VAT on Imports and Exports in Nepal

VAT on Imports

When taxable goods are imported: VAT is generally collected through customs at importation.

The VAT base interacts with customs valuation and other applicable import charges according to the VAT/customs framework.

The importer should retain:

• customs declaration;

• supplier invoice;

• customs assessment;

• VAT payment evidence;

• transport/shipping records;

• banking/payment evidence.

Import VAT as Input VAT

A VAT-registered business can generally claim import VAT as Input VAT where:

• the imported goods/services relate to taxable business;

• valid customs evidence is available;

• the VAT has been paid;

• the purchase is not blocked/restricted.

Therefore: VAT paid at customs is not necessarily a permanent cost.

It may be recoverable through the VAT return.

Example — Taxable Import

Customs/VAT taxable base for illustration: NPR 1,000,000

VAT at 13%: NPR 130,000

If the importing VAT-registered business uses the goods entirely for taxable business and all Input VAT conditions are satisfied: Potential Input VAT:

NPR 130,000

This is then offset against Output VAT in the VAT return.

Imported Goods Used for Exempt Activity

If imported goods relate to VAT-exempt transactions, Input VAT recovery may be restricted.

Example:

Importer pays VAT at customs but uses the import in an activity whose output is VAT exempt.

The business should not assume that because VAT was paid at customs the full amount is automatically recoverable.

Exports of Goods — Zero Rate

Schedule 2 treats qualifying goods exported outside Nepal as zero-rated where the export can be established.

This means: Export selling price:

NPR 1,000,000

Output VAT: NPR 0

but eligible Input VAT incurred in producing/acquiring the exported goods can generally remain creditable.

International Flight Supplies

Schedule 2 also treats specified goods as zero-rated where they are:

• supplied for stores on an international flight;

• placed aboard qualifying international flights for retail sale, supply or consumption,

where the statutory conditions are met.

These are specialist zero-rate categories.

Export of Services

Schedule 2 provides zero-rating for qualifying services supplied to persons outside Nepal.

The statutory wording includes specified situations involving a Nepal-resident supplier providing services to a person outside Nepal who does not have the relevant Nepal business presence/representative contemplated by the provision.

Service-export classification should therefore consider:

• location/status of customer;

• Nepal business presence;

• nature of service;

• contractual counterparty;

• place/use of service;

• foreign-currency evidence where relevant;

• other statutory conditions.

Do not assume:

Foreign customer = automatically zero-rated service.

Example — IT Service Export

Nepal VAT-registered software company provides qualifying software-development service to an overseas company with no relevant Nepal presence.

Service value: NPR 2,000,000

Where Schedule 2 zero-rate conditions are satisfied: VAT:

0%

The Nepal company can nevertheless claim eligible Input VAT associated with the taxable/zero-rated business, subject to the Act.

This is one reason zero-rating differs materially from VAT exemption.

Exempt vs Zero-rated Export

Zero-rated

Output VAT rate = 0%.

Eligible Input VAT generally remains recoverable.

Exempt

No Output VAT, but related Input VAT may be restricted.

For exporters:

Correct Schedule 2 zero-rating is commercially important because Input VAT recovery can produce significant refunds.

Diplomatic / Treaty Zero-rate Transactions

Schedule 2 includes specified zero-rated supplies connected with:

• diplomatic missions/persons;

• treaty/project arrangements;

• qualifying Government recommendations.

These are evidence-driven concessions.

Do not issue a zero-rated invoice solely because the buyer verbally claims diplomatic status.

Special Economic Zone

Schedule 2 also includes specified zero-rate treatment relating to:

• raw materials supplied to qualifying SEZ industries; and

• specified goods manufactured under the relevant SEZ framework.

The transaction must satisfy the statutory conditions.

Export Documentation

For goods:

• export invoice;

• customs export declaration;

• transport/shipping documents;

• buyer agreement;

• bank/foreign-currency receipt;

• proof of export.

For services:

• contract;

• invoice;

• foreign customer details;

• evidence of customer residence/status;

• bank/foreign-currency receipt where relevant;

• evidence of service delivery;

• documentation showing Schedule 2 eligibility.

Export Refund

Where export sales are more than 40% of total monthly sales, a qualifying registered exporter can apply for refund of eligible excess input VAT under the special exporter route.

Therefore export documentation affects both:

• zero-rating; and

• Input VAT refund.

Imports and VAT Registration

The VAT Rules contain a separate registration trigger for specified taxable imports exceeding the prescribed amount in a single transaction.

Therefore a person should check VAT-registration status before significant taxable import activity, rather than assuming that the ordinary annual turnover thresholds are the only test.

Import Checklist

• Classify goods

• Check exemption

• Determine customs value

• Determine VAT base

• Pay customs VAT

• retain declaration

• Determine Input VAT eligibility

• Record in purchase/import book

• Reconcile customs data

Export Checklist

• Confirm Schedule 2 zero-rate category

• Verify foreign buyer

• Prepare export invoice

• Obtain customs evidence

• retain shipping/transport documents

• retain foreign-currency receipt

• Reconcile export sales

• Claim eligible Input VAT

• Calculate 40% exporter refund threshold

• retain zero-rating evidence

Common Errors

Treating exempt export-like activity as zero-rated without legal basis

Failing to retain customs export proof

Claiming Input VAT on import used for exempt activity

Assuming every foreign service customer creates a zero-rated service

Not reconciling export invoices to banking receipts

Further guidance and practical checks

VAT on cross-border transactions depends on both the nature of the supply and evidence that the statutory import/export conditions have been satisfied. Documentation should be built into the transaction process rather than assembled only during audit.

Current export-refund routes

Finance Act 2083 deletes former VAT Act section 25ग1. Do not use its earlier re-export advance-receipt route as a current entitlement. The ordinary and qualifying exporter refund routes under section 24 require their own conditions and documents. The exporter sales boundary is more than 40%, rather than 40% or more.