VAT on Nonresident Digital Services in Nepal

The procedure applies to qualifying electronic services supplied by a nonresident person to users in Nepal. Establish the legal supplier, the product and the user's location and use. The definition and Nepal indicators matter: a foreign invoice or card payment does not alone settle the treatment. Keep billing address, relevant payment and telecom or internet-location evidence available for the classification. The automated electronic-service categories include software supply or updates, cloud services, applications, games, streaming and relevant marketplace or advertising services under the definition. A service involving substantial human professional work should be analysed against that definition rather than categorised as digital solely because it is delivered online.

The current third-amendment procedure uses 13% VAT and a threshold of taxable digital-service turnover exceeding NPR 3,000,000 in the previous 12 months. Track the rolling period rather than only the supplier's global financial year. Once the supplier has crossed the threshold and registered, the procedure requires collection despite a later period's lower turnover. Suppose qualifying Nepal-user taxable supplies are NPR 2,800,000 over the prior rolling period and a further NPR 400,000 takes the relevant total to NPR 3,200,000. Investigate the exact date the obligation arises and the applicable supplies from registration; do not borrow DST's whole-annual-turnover calculation for VAT. The two taxes have different threshold periods and charging mechanics. For an independently established VAT-exclusive standard-rated digital-service value of NPR 100,000, VAT at 13% is NPR 13,000 and gross charge NPR 113,000. A VAT-inclusive agreement needs the appropriate extraction rather than an extra 13% added to the inclusive price.

The procedure excludes specified digital-interface sales to Nepal business users for business purposes from the nonresident supplier's collection rule. It states that the business user must account for the purchased service under VAT Act section 8(2). A supplier's business-use exclusion therefore does not mean the imported service is free of Nepal VAT. Obtain supported customer classification and retain the declaration and transaction evidence. If a user misdeclares business use, the procedure addresses the user's responsibility. A company email address alone is not proof of the relevant business-use conditions. The Nepal customer's withholding and foreign-exchange obligations also need separate analysis.

The procedure requires application generally within 30 days after the obligation to collect arises and distinguishes a supplier already registered for DST from one without that registration. Use the prescribed current application and relevant existing identification; do not assume a second PAN is needed. The registration file includes the supplier's home-country business and tax identity, authorised-person details and supporting authorisation or identity documents under the procedure. Keep the accepted registration, effective date and contact information. Use the current government filing service and retain the accepted registration and filing evidence.

The procedure addresses invoice issue at the earlier of service provision or receipt of consideration. Its electronic-invoice arrangements and required details should be read with the current Act. Retain invoice sequence, customer classification, supply date, value, tax, adjustments and original transaction references. For convertible foreign-currency consideration, the procedure specifies the relevant currency records and Nepal-rupee conversion using the stated NRB-rate framework. Maintain a reproducible calculation rather than choose whichever bank settlement rate gives the lowest VAT. Reconcile invoices, credits, collections and the reported return total.

The procedure requires the prescribed online return by the 25th day of the following month under its section 7 framework. Retain the tax-period record, filing acknowledgement and matched payment evidence. This periodic VAT obligation is distinct from DST's annual return and three-month year-end deadline. A nil or negative period should be handled under the applicable return process, not omitted simply because no cash is due. Keep the version of Schedule 3 required by the subsequent clarification. Late return or payment has its own consequences under the VAT Act; determine the precise amount and dates before calculating a charge.

IRD's notice dated 3 Bhadra 2083 confirms that rule 20 applies to these nonresident digital suppliers and updates Schedule 3. Where credit notes exceed sales in a period and produce negative VAT, the amount can be carried forward and adjusted against later-period liabilities until fully used. This clarification resolves a return-format issue; it is not a suspension of the regime or an automatic cash-refund approval. Assume output VAT of NPR 13,000 and valid credit-note VAT of NPR 20,000 in a period. The illustrative negative balance is NPR 7,000. If a later period has NPR 15,000 liability before that adjustment, the remaining amount is NPR 8,000, assuming no other movements. Keep the original invoices and lawful credit-note evidence to support both periods.

Maintain separate DST and VAT bases, customer exclusions, periods, returns and payment records. A transaction can require separate consideration under both systems. Label the taxes distinctly so that 2% DST is not represented as VAT or added as a customer surcharge contrary to its procedure. Before an actual filing, confirm the supplied service, Nepal nexus, customer use, obligation date, current return format and adjustments. Core rates and procedures in this guide have been checked against primary sources; the supplier's transaction-specific application remains a professional review item.