Updated for FY 2025/26 (2082/83)
Nepal’s IT sector continues to enjoy one of the most attractive tax regimes in South Asia. This comprehensive legal guide from Infinity & Partners explains everything software developers, BPO/KPO firms, data centers, and digital service providers need to know about taxation in Nepal in 2026.
Legal Definition of IT Industry in Nepal
The definition of “Information Technology Industry” differs slightly between the Industrial Enterprises Act and the Income Tax Act. Tax authorities primarily follow the Income Tax Act definition for incentives and exemptions.
IT Sectors Recognized under Income Tax Act (Finance Act 2025)
- Technology Park
- IT Park
- Biotech Park
- Software Development
- Digital Mapping
- Business Process Outsourcing (BPO)
- Data Mining
- Data Processing
- Cloud Computing
Note: Sectors like Computer & Related Services, Cyber Café, KPO, Data Centre, Digital Signature, Web Portal, Web Designing, Web Hosting, and Online Classified Advertising are recognized under the Industrial Enterprises Act but not explicitly under the Income Tax Act. Always verify eligibility with the Inland Revenue Department.
General Corporate Income Tax Regime in Nepal
Particular | Rate |
|---|---|
Standard Corporate Income Tax | 25% |
Dividend Withholding Tax | 5% (Final) |
General WHT (Interest, Royalty, Service Fee, Rent) | 15% |
Contract/Service Payment TDS (above NPR 50,000) | 1.5% |
Special Income Tax Regime for IT Companies
Particular | Rate / Benefit |
|---|---|
Corporate Tax Rate for Qualifying IT Industry | 20% |
IT Business in Government-notified IT/Tech/Biotech Park | 75% exemption on applicable income tax |
Export Income (Software, BPO, Cloud Services in foreign currency) | 50% tax exemption |
Startup Tax Holiday (Innovative Technology Enterprises) | 100% exemption for first 5 years (turnover up to NPR 100 million) |
Employment Generation Tax Rebates for IT Companies
- 100+ Nepali Employees → 10% rebate
- 300+ Nepali Employees → 20% rebate
- 500+ Nepali Employees → 25% rebate
- 1,000+ Nepali Employees → 30% rebate
Additional concessions apply if at least one-third of the workforce comprises women, Dalits, or persons with disabilities.
Regional & SEZ Incentives
IT enterprises in Karnali Province and specified remote districts can enjoy up to 100% income tax exemption for 15 years.
Special Economic Zone (SEZ) Benefits:
- Mountain/Specified Hilly SEZ: 100% exemption for 10 years + 50% rebate thereafter
- Other SEZs: 100% exemption for 5 years + 50% rebate thereafter
- Full dividend tax exemption for first 5 years in SEZ (50% rebate for next 3 years)
Withholding Tax (WHT) Obligations
- Salary (PAYE): As per individual tax slabs
- Investment Income (Interest, Royalty, Service Fees): 15%
- Contract Payments: 1.5%
- Dividends: 5% final tax
- Payments to Non-Residents: Generally 15% (final in most cases)
VAT Rules for IT Sector
- Standard VAT Rate: 13%
- Registration Threshold: NPR 3 million (services) / NPR 5 million (goods)
- Export of Software & Digital Services: Zero-Rated (full input VAT refund possible)
- Domestic IT Services: 13% VAT applicable
Digital Service Tax (DST) on Non-Residents
Non-resident digital service providers must pay 2% DST on turnover if annual transactions with Nepali users exceed NPR 3 million (B2C only).
Key Compliance Requirements
- Tax Year: Shrawan 1 to Ashad 31
- Return Filing Deadline: Within 3 months (extendable by 3 months)
- Quarterly Advance Tax Payments
- Annual Audit mandatory for companies
- PAN registration and proper bookkeeping essential
Conclusion
Nepal offers a highly competitive tax package for the IT sector — reduced corporate rates, generous export incentives, startup holidays, employment rebates, and SEZ benefits. Proper planning and compliance are essential to fully utilize these advantages.
