VAT in Nepal: Rates, Registration, Filing, and Rules Explained [2081/82]

Understanding the Basics of VAT in Nepal

Value Added Tax (VAT) is a tax applied on the sale of goods and services at every stage of the supply chain—from production to the final sale. In simple terms, every time a business sells a product or service, VAT is added until it reaches the end user. This final consumer can be a person or a company using the product or service for consumption, not for resale.

In Nepal, VAT is regulated by the VAT Act, 2052 (also referred to as "the Act").

What is the VAT Rate in Nepal?

Nepal follows a single VAT rate of 13% for applicable goods and services. This 13% is calculated on the net selling price and added to the invoice provided to customers.

VAT Billing Format in Nepal

VAT is charged at each point in the supply chain—during manufacturing, distribution, and retail. This cascading tax increases the final cost to the consumer. To manage this and protect essential items, the Act introduces two key categories:

1. VAT Exempt Goods and Services

Items listed in Schedule 1 of the Act are VAT-exempt. These include essential goods and services such as:

• Agricultural products

• Food and basic needs

• Medicines and health services

• Educational services

• Air and passenger transportation

Businesses solely dealing in these goods and services are not required to register for VAT (e.g., hospitals, schools, farms).

2. Zero-Rated Transactions

Schedule 2 of the Act lists zero-rated transactions, which include:

• Export of goods and services

• Supplies to industries in Special Economic Zones (SEZs)

• Domestic machinery sold to hydropower projects

Although VAT applies to these transactions, the rate is 0%.

Summary Table

VAT on Imported Goods

VAT is also charged on imports, in addition to customs duties. If a domestically produced item is subject to VAT, a similar imported product is also taxed to maintain parity.

Who Needs to Register for VAT?

Businesses are required to register for VAT if they meet the following turnover thresholds:

Businesses not meeting these criteria may voluntarily choose to register for VAT.

Steps for VAT Registration in Nepal

1. Fill out the online VAT registration form at IRD’s official website.

2. Provide required information such as registration number, business address, director's details, and estimated turnover.

3. Submit the following documents to the IRD office:

   • Online VAT application

   • Copy of Business Registration Certificate

   • Address proof (e.g., rent agreement or land ownership document)

4. One of the business owners or directors must appear in person at IRD with original documents for biometric verification.

5. After verification, IRD issues the VAT Registration Certificate.

PAN vs VAT: What’s the Difference?

Though both PAN and VAT numbers appear similar, they serve different purposes. PAN registration is mandatory for all businesses. VAT registration becomes mandatory only after a business crosses the specified turnover threshold.

VAT Compliance for Registered Businesses

Once a business registers for VAT, it must:

A. Charge VAT on Sales and Pay the Government

• Add 13% VAT to all taxable sales

• File VAT returns by the 25th of the following month

• Pay the VAT liability based on returns filed

B. VAT Invoicing Requirements

• Every invoice must include the VAT number

• Invoice numbers should be sequential and dated correctly

• Clearly mention VAT rate and amount on each invoice

For high-volume retail businesses (e.g., restaurants, supermarkets), abbreviated invoices inclusive of VAT can be used. However, if requested by a customer, a full VAT invoice must be provided.

C. Maintain Records (Maskebari)

i. Kharid Khata (Purchase Register):

• Record all purchases, categorized as stock, assets, imports, or VAT-exempt items

• Returns should be entered as negative entries

ii. Bikri Khata (Sales Register):

• Track domestic and export sales

• Include returns and canceled invoices

If IRD-approved software is used for billing, physical copies of these registers are not mandatory.

VAT Filing and Payment in Nepal

The VAT period is typically one month. Businesses must:

• Calculate VAT liability monthly

• Pay by the 25th of the next month

VAT Liability Formula

VAT Payable = VAT Output (on Sales) - VAT Input (on Purchases) - VAT Credit Carried Forward

If VAT Input exceeds Output (i.e., more purchases than sales), the excess can be carried forward as VAT credit for future months.

Filing a VAT Return in Nepal

The VAT return is submitted online and includes:

• Net Sales and Output VAT

• Net Purchases and Input VAT

• Adjustments and carried forward credits

• High-value transaction details (if turnover exceeds Rs. 5 crores)

Note: Sales and purchase returns should be adjusted within the gross figures; they aren't listed separately in the form.

VAT Adjustment Process

If a business misses transactions or miscalculates VAT in a previous month, adjustments can be made in the following return cycle. This helps in correcting errors related to:

• Unreported invoices

• Incorrect VAT figures

• Prior period adjustments