First Things First
Section 78(4) of the Income Tax Act, 2058 requires every person who is making transactions as per the Act to obtain the Permanent Account Number (PAN). Obtaining PAN means registering for the purpose of taxes. Similarly, under Rule 23(1) of the Income Tax Rules, 2059 any person who intends to earn assessable income shall apply to obtain PAN. These provisions in both the Act and Rules clearly require people to make registration in taxes by obtaining PAN before making any transaction (by definition earning “assessable income”).
So, what is a transaction for the purpose of taxes? Under Section 2(ta1) of the Income Tax Act, 2058 the transaction means the amount included pursuant to Section 7, 8 or 9 for the purpose of calculation of income from employment, business or investment in any income year. Plainly, speaking anyone who earns income from employment, business or investment is required to obtain PAN – get registered for the tax purposes.
Who even is a “freelancer”?
Let’s go through the provisions of the income tax laws that taxes “freelancers” in Nepal and the changes that we saw in the tax laws over the years.
Firstly, there is no concept of “freelancer” in tax laws of Nepal. Under Income Tax Laws of Nepal – there is only the concept of employment, business and investment in Nepal, and by extension only the concept of employee, business person and investment.
A “freelancer” is an individual who offers their services to clients on a project basis, typically in fields such as writing, graphic design, programming, marketing, consulting, and more. Freelancers are self-employed and work independently, providing their expertise and skills to different clients or companies on a temporary or contract basis. They are not bound to any particular employer and have the flexibility to choose the projects they work on and the clients they collaborate with. So this makes a freelancer’s enterprise a “profession”. The term profession and business are used interchangeably in the income tax law of Nepal so – being a freelancer is essentially pursuing a business enterprise and this subject to taxation laws like any other business enterprise. For more refer this illustration provided by the Income Tax Directive: १८.२ व्यवसाय
So who are we talking about in this section of the post when we refer to them as “freelancers”? A misnomer alert: The freelancers that the Section 95Ka aims to cover aren’t exactly “freelancers” by definition. Let’s dissect this confusion.
On the one hand the tax laws require any person making a personal business enterprise to register as a business for the purpose of taxes (be it an individual enterprise or some other legal entity). On the other, Section 95Ka seems to be applicable to:
(i) resident natural person, and
(ii) who are not pursuing any business, and
(iii) earning foreign currency, and
(iv) making earning by:
- providing software or similar kind of other electronic service outside Nepal, or
- providing consulting service outside Nepal, or
- uploading audio-visual materials in social network
Seriously, who even is a “freelancer”?
The provision in Section 95Ka raises an important question: What defines a profession? Should individuals generating income in foreign currency through the aforementioned activities be exempt from registering as a business enterprise for tax purposes? While it may seem convenient for those earning foreign currency, as it relieves them from the burdensome formalities of the standard taxation system, it certainly doesn’t promote a level playing field for individuals earning in local currency while engaging in activities within Nepal.
By allowing such exemptions, we inadvertently create an imbalance that discourages local entrepreneurs and professionals from flourishing within their own country. It sends a message that their contributions are not valued as highly as those of individuals earning foreign currency. This disparity not only undermines the growth of local talent but also hampers the overall development of Nepal’s economy.
Shifting our focus from the critique, it is undeniably infuriating to navigate through the convoluted provisions of Section 95Ka. Does it really allow a so-called “professional” enterprise to conveniently skirt tax formalities? Or does it create an entirely new and perplexing “income category” that sits somewhere between “employment” and “profession/business”? The lack of clarity and consistency is exasperating.
Consider this scenario: I, for instance, cannot be considered an employee of YouTube, as my activity clearly falls under the category of a profession. However, this provision does not extend its benefits to individuals pursuing business activities. So, who on earth does this provision actually apply to? It seems to target “natural persons not pursuing business,” yet everyone availing these benefits happens to be freelancers—clearly engaged in a profession. Or are we required to transform our Section 95Ka enterprise into a “proper” business or profession once it achieves a certain level of economic dependence and regularity?
It is utterly frustrating when lawmakers rewrite laws without even the slightest respect for definitions and clarity. Overwhelming sense of bewilderment !!
Provisions in Tax Laws and its Development
Before Finance Act, 2078
Before the provision of Section 6Kha, 6Ga and 6Gha were introduced by Finance Act, 2078 – any individuals who were pursuing the activity of earning foreign currency income by providing software or similar kind of other electronic service outside Nepal, consulting service outside Nepal, or uploading audio-visual materials in social network – were compulsorily required to get registered for the purpose of the income tax. Yes, many individuals pursuing such professions were not registered – but that’s just a practical inconsistency. The requirement was quite clear – if you earn professional income, you get registered.
And it’s not just that, even if such individuals were engaged as an employee and earning employment income in foreign currency, they still were required to get registered for tax purposes and file an income tax return – Section 97(1) read with Section 4(3). But with the addition brought by Finance Act 2078 in Section 95Ka – this was no longer required.
After Finance Act, 2078
Here is what Finance Act, 2078 introduced in Section 95Ka:
(6Kha) Any individual resident not involved in the operation of business receiving payment in foreign currency for providing software or similar kind of other electronic service outside Nepal, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of one percent of the amount received at the time of payment of such amount.
(6Ga) Any individual resident not involved in the operation of business receiving payment in foreign currency for providing consultancy service outside Nepal, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of one percent of the amount received at the time of payment of such amount.
(6Gha) Any individual resident not involved in the operation of business receiving payment in foreign currency for uploading audio- visual material in social network, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of one percent of the amount received at the time of payment of such amount.
Who does this provision of advance tax apply to?
(i) resident natural person, and
(ii) who are not pursuing any business, and
(iii) earning foreign currency, and
(iv) making earning by:
1. providing software or similar kind of other electronic service outside Nepal, or
2. providing consulting service outside Nepal, or
3. uploading audio-visual materials in social network
After Finance Act, 2079
Until Finance Act 2079 introduced some further changes, there were some important questions begging answers:
(i) Are the taxes withheld under Section 6Kha, 6Ga and 6Gha final withholding taxes?
(ii) Do such individuals have any further obligation to file tax returns?
These were unanswered by the Finance Act, 2079 and the provisions in Section 95Ka were not clear in this context.
So Finance Act, 2079 brought came with additional amendment, specifically regarding the finality of taxes:
Annexure 1 Section 1(4Ka):
Notwithstanding other provisions of this Section, the income of resident natural persons not engaged in operating business under Section 6Kha, 6Ga and 6Gha under Section 95Ka is taxed at the rate of one percent.
Similarly, regarding the requirement to file the income tax return, an addition was made to Section 97 of the Income Tax Act, 2058:
Section 97: Not required to file income tax return
(Ga1): Resident natural person who has earned income solely under subsections 6Kha, 6Ga and 6Gha of Section 95Ka for the income year.
After Finance Act, 2080
Finance Act, 2080 increased the tax rates applicable under Section 96Ka(6Kha), Section 96Ka(6Ga) and Section 96Ka(6Gha) from one percent to five percent.
Here is what Finance Act, 2080 changed in Section 95Ka:
(6Kha) Any individual resident not involved in the operation of business receiving payment in foreign currency for providing software or similar kind of other electronic service outside Nepal, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of five percent of the amount received at the time of payment of such amount.
(6Ga) Any individual resident not involved in the operation of business receiving payment in foreign currency for providing consultancy service outside Nepal, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of five percent of the amount received at the time of payment of such amount.
(6Gha) Any individual resident not involved in the operation of business receiving payment in foreign currency for uploading audio- visual material in social network, the concerned bank, financial institution or money transfer institution shall collect advance tax at the rate of five percent of the amount received at the time of payment of such amount.
Very energetic post, lots of knowledge, really helpful !!
My case is unique: I’m an Indian citizen. I’m working as a freelance consultant in Nepal from 1 February 2024. I do not have a Nepal PAN number. My income will come in a Nepalese Bank. My income will come from foreign clients in local currency account. What tax rate will apply to me under which provision? How will it get paid to the Nepal government?
Can you please link the document you’re referring to? I didn’t explicitly find the 5-percent mention.
It is effective from 2080.04.01 and you can find that in Finance Act, 2080.
I am earning through tourism, working as guide here in Nepal, foreign company pay through bank, My wages are not always same, depending on group. How can I pay my tax? I want to pay tax.
Sir How do we file tax for freelancer earning and get tax clearance certificate to show our income source so we can travel abroad. If you can guide me will be really helpful. Thank you
File D4 Return and verify the return from concerned tax office.
Well written dai
Thank you Bibek.
So freelancer need to pay 5% advance tax and then tax according to income tax slabs ? What if someone stay in india and do freelancing work and send money directly to Nepal bank, will it count as remittance income or freelancing income ? Because the individual is not using Nepal’s resource ?
Yes correct, 5% taxes are applicable. But If the income is earned in India and sent to Nepal – India’s taxes will be applicable, for Nepal, it is a remittance income so no additional taxes will be applicable in Nepal.
1) If the bank deducts 1% (final withholding for 2079/80) TDS, is it final withholding or do we still need to pay remaining amount based on income slab ? Is it final withholding for 2080/81 or 2078/79 or 2077/78 ?
2) What happens to income for previous years before 2079, may be from 2075 or earlier (before 1% TDS) (Say social media or freelancer income), how are they taxed ?
3) Will the tax office provide “Tax Clearance Certificate” alone based on TDS deducted or do we need to show any other info ?
Also kindly add links to Finance Act for all the years ( any may be page number). This would be big help for all the curious freelancers.
Thank you very much.
1) If the bank deducts 1% (final withholding for 2079/80) TDS, is it final withholding or do we still need to pay remaining amount based on income slab ? Is it final withholding for 2080/81 or 2078/79 or 2077/78 ?
Ans: It is final withholding taxes and no additional taxes needs to be paid – assuming that you do not have registered business for earning that income. You must ensure that you fulfill all the conditions under Section 95Ka.
2) What happens to income for previous years before 2079, may be from 2075 or earlier (before 1% TDS) (Say social media or freelancer income), how are they taxed ?
Ans: For income before 2078.03.31 (15-Jul-21) – one is supposed to have registered for tax purposes and paid taxes based on the slab rate basis. Practically, freelancers did not register and came into tax brackets so the unique provision was introduced under Section 95Ka exempting them the registration and compliances and allowed them to pay final flat 5% taxes.
3) Will the tax office provide “Tax Clearance Certificate” alone based on TDS deducted or do we need to show any other info ?
Ans: Yes it will be provided based on TDS deducted but make sure that your PAN is a individual PAN but not a business PAN.
“For income before 2078.03.31 (15-Jul-21) – one is supposed to have registered for tax purposes and paid taxes based on the slab rate basis. Practically, freelancers did not register and came into tax brackets so the unique provision was introduced under Section 95Ka exempting them the registration and compliances and allowed them to pay final flat 5% taxes. ”
Can you please share, where it says this in which year’s Finance Act (Sadly I could not find finance act online). And how do we communicate this to tax authorities ?
Also do freelancers need to file D-04 entry for income exceeding 40 lakhs per year ?
The general provision of the tax law is that anyone who earns taxable income is required to be registered, obtain PAN and pay taxes, so it is naturally understood that even freelancers need to abide by that. But since the introduction of Section 95Ka the flat tax was introduced which exempted the qualifying freelancers from that general rule.
For example in this document : https://www.ird.gov.np/public/pdf/2049289650.pdf
आन्तरिक राजस्व विभाग आर्थिक विधेयक, २०७९ ले प्रदान गरेका छुट तथा सहुलियत
Page number 17, you can see IT freelancers only have to pay 1% tax for year 2079/80.
कुनै बासिन्दा ब्यक्तिले आय वर्ष २०७९/८० मा बिजनेश प्रोसेस आउटसोर्सिङ्ग, सफ्टवेयर प्रोग्रामिङ्ग, क्लाउड कम्पयुटिङ्ग लगायतका सुचना प्रविधिमा आधारित सेवा प्रदान गर्ने कारोबार गरी सो बापत बिदेशी मुद्रा आर्जन गरेमा त्यस्तो व्यक्तिलाई आय बर्ष २०७९ ८० मा बिदेशी मु्दरामा प्राप्त गेरको आयमा हदसम्म आयकर एन २०५८ बमोजिम करयोग्य आयमा एक प्रतिशन मा्तर कर लाग्नेछ ।
Is there a document where we can verify this ?
“For income before 2078.03.31 (15-Jul-21) – one is supposed to have registered for tax purposes and paid taxes based on the slab rate basis. Practically, freelancers did not register and came into tax brackets so the unique provision was introduced under Section 95Ka exempting them the registration and compliances and allowed them to pay final flat 5% taxes. “
You are correct – it has been discussed above.
I do not understand the second question – Income Tax Act, 2058 says anyone who earns taxable income is required to register for tax and about the market practice I am speaking from experience.
I mean, do you have any source (Document link) where it says (only 5% tax will be deducted for IT transactions before 2078/79) ?
“Section 95Ka exempting them the registration and compliances and allowed them to pay final flat 5% taxes.”
—
Also I found this : https://ird.gov.np/public/pdf/613136597.pdf (Page Number 3)
विजनेस प्रोसेस आउटसोगसषङ्ग,सफ्टवेयर प्रोग्रामिङ्ग , क्लाउड कम्प्युटिङ्ग लगायतका सूचना प्रविधिमा आधारित सेवा निर्यात गरी सो बापत विदेशि मु्द्रा आर्जन गरेमा त्यस्तो व्यक्तिलाई आर्थिक वर्ष २०८४/८५ सम्म विदेशी मुद्रामा प्राप्त गरेको आयको हदसम्म लाग्ने करमा पचास प्रतिशत ।
So from 2080/81 5% tax deducted for freelancers is not final withholding, but they will get 50% tax discount upto 2084/85
It became 5% after Finance Act 2080, it was 1% before that. Please see this section above https://sushilparajuli.com/freelancers-tax-in-nepal/#id-provisions-in-tax-laws-and-its-development
On your another question, this concession is available to registered businesses – but not to freelancers.
Please send queries to – contact@sushilparajuli.com
“Section 95Ka exempting them the registration and compliances and allowed them to pay final flat 5% taxes.”
तपाईले माथि भने अनुसार Freelancer लाई २०७८/७९ भन्दा अघिका अर्थिक बर्षहरुमा बिदेशी मुद्रा को कारोबारमा ५% मात्र कर लाग्छ, भनेर कुन एनमा लेखिएको छ ?
आर्थिक ऐन २०८० (राजपत्र अरि १४) मा भेटिएन
https://ird.gov.np/public/pdf/654944639.pdf
आर्थिक ऐन, २०७९ मा पनि भेटिएन
https://ird.gov.np/public/pdf/120980107.pdf
कुपया स्रोत देखाईदिनु होला ।
Raju Ji, Section 95Ka was first introduced with 1% tax by Finance Act 2078 which later was changed to 5% tax by Finance Act 2080. Please go through this section thoroughly – https://sushilparajuli.com/freelancers-tax-in-nepal/#id-after-finance-act-2078
What is the procedure to pay the freelancer tax? I already have a pan number
Freelancer tax is applicable only for those who earn foreign source income and it will be deducted by your recipient bank – so there’s no compliance needed on your part. But applicable only in foreign source income.
I earn money by doing IT work for a company based outside of Nepal. When the company transfers my payment, the bank deducts a fee for the international transaction. Therefore, I believe I shouldn’t have to pay the 5% freelancing tax to the Nepalese government yes? Could you please clearfly on this?
International transaction fee is a private sector service fee, paying transaction fee doesn’t in any way relieve you from your tax liabilities. Taxes are applicable – hope this helps.
It looks like we need to file D4 if income exceeds 40 lakh annual. What’s your thoughts on that?
Yes, that is correct. If your annual income exceeds exceeds 4million annually, you are required to file D4 tax return under Section 97(2) of the Income Tax Act, 2058. When individual’s income exceeds 4mil annually the exemption under 97(1) doesn’t apply. However, you will not be required to pay additional taxes because the advance tax rates for freelancers under Section 95Ka is equal to the final tax rate provided under Annexure 1(1)(1)(4Ka) of the Act.
Hey. Great article. I had some questions. What is the process for personal tax filing if I receive an NPR payment from a US company? I contacted the bank about it and they said they cannot apply 5% at it because the amount that reaches the bank is in NPR. The company that I work for pays through Wise, which I believe does the dollar conversion and sends NPR to my NPR bank account. I tried personal tax filing while looking into the D-01, D-02, etc. forms but I found nothing really applicable in my case. I also thought if my income could count as remittance but since I work remotely while being a Nepali resident, it doesn’t count as remittance. Am I missing out on something or is there simply no tax law in Nepal that covers my case?
Hi Sumy, I am facing similar issue now. Were you able to resolve the issue you are facing? If yes, could you please guide me as well. I would really appreciate your help. Thank you!
In your situation, there are two possible options to consider.
Firstly, you could explore the possibility of discussing with your employer the option of directly transferring your earnings to your USD account held with your local bank. In this scenario, the bank would deduct the applicable 5% taxes in accordance with the legal provisions mentioned earlier.
However, if your bank is unable to facilitate the 5% tax deduction due to the fact that you receive your income in NPR through Wise/Payoneer, and given your employment status, you also have the option of filing your annual taxes using the D4 form separately. This would allow you to calculate and pay the taxes owed based on the applicable income tax slabs. It’s important to note that such income tax returns must be filed within three months from the end of the fiscal year. Additionally, the tax amount must be deposited by the 25th day following the conclusion of the specific fiscal year, especially in the case of employment-related income taxes.
Okay, a lot of discussions but back to square 1:
1) How do I pay my 5% tax through the taxpayer portal? Should I file a D4 return? Even if I earn less than 40 lakh a year, say?
2) I visited the tax office in Itahari today. The person who’s supposed to get you through this mess–a Section Officer–mulled over for an hour, but he’s got no idea of how to file my taxes. In regards to this, he said that I have to file my 5% taxes and then according to the slate in order to be able to get the tax clearance certificate. How do I convince him this 5% tax is the final pay?
Is there any written document that shows this?
3) Do you have anyone in the tax office or NRB who can validate what you’re saying is true?
I’m really concerned about my taxes because I’ve not been able to pay them.
How do we pay last year’s taxes?–1%?
1) How do I pay my 5% tax through the taxpayer portal? Should I file a D4 return? Even if I earn less than 40 lakh a year, say?
It is not possible for you to pay the 5% tax through taxpayer portal. This tax is applied in advance tax nature that is withheld by your bank when an individual freelancer who doesn’t have a registered business received foreign in foreign currency.
If you have only income of this nature you are not required to file the income tax return as per Section 97(1) of the Income Tax Act, 2058. However, if your annual income exceeds 4 million NRS then you will be compulsorily required to file D4 return. But you can file this return optionally as well even when your income is less than 4 million NRS annually.
2) I visited the tax office in Itahari today. The person who’s supposed to get you through this mess–a Section Officer–mulled over for an hour, but he’s got no idea of how to file my taxes. In regards to this, he said that I have to file my 5% taxes and then according to the slate in order to be able to get the tax clearance certificate. How do I convince him this 5% tax is the final pay?
Is there any written document that shows this?
Your frustration is understandable, but it is not possible for you to deposit the 5% taxes yourself – this is withheld and deposited by your bank on your foreign currency income.
Alternatively, if your bank is unable to facilitate the 5% tax deduction due to the fact that you receive your income in NPR through Wise/Payoneer, and assuming your contract is an “employment contract” with the foreign service recipient, you also have the option of filing your annual taxes using the D4 form separately. This would allow you to calculate and pay the taxes owed based on the applicable income tax slabs. It’s important to note that such income tax returns must be filed within three months from the end of the fiscal year. Additionally, the tax amount must be deposited by the 25th day following the conclusion of the specific fiscal year, especially in the case of employment-related income taxes.
3) Do you have anyone in the tax office or NRB who can validate what you’re saying is true?
I’ve included clear references to the provisions of the Income Tax Act, 2058, in the above post and comments section. These references should confirm the accuracy of the information I’ve shared. If you have any additional questions, please feel free to ask, and I’ll be glad to help further.
I pay 5% tax in advance.. if my income exceed 40 lakh, do i need to file d4? I mean i already paid the tax now again i need to file d4?
Yes it is only a filing requirement, you will not be liable for additional taxes.
hey! I am working in upwork for some project and there I have put my business pan no. So i have to pay taxes for my upwork payment also?
If you have business PAN you are not eligible for freelancers tax. You will have to file proper Income Tax Return and pay taxes according to your profit.
Sushil I have a question , I am going to work remotly and it is contract based work on a foreign company and they are gonna sent salary in my nepali bank account.
Do freelancers tax work here as well.
No normal taxes applies if you receive in NPR account. Please see above questions and replies – some of them are relevant in your case.
Hi Sushil, I’m not sure how applicable this situation is in this thread, but I have a question regarding freelancing/consulting work with a local business within Nepal. Suppose I have a dedicated job with one lakh monthly salary. Calculating the regular income tax with different tax brackets seems pretty straightforward. Now let’s say I do project-based freelancing work(software field) from time to time. How is the tax levied on this income from freelancing work calculated and how does it impact my taxes from regular salary?
how to make usd account in nepal ? for that we need employment agreement , but while working on upwork we do not get any instead we get certificate of earning ? so
You will need agreement with for the freelancing contract:
The contract should include the following details:
– full legal name,
– national identity number (such as Citizenship, Passport, PAN, or National ID),
– location of remote work (which must be within Nepal),
– details of the employer company (which must be a company, not an individual contract),
– amount that will be paid in USD, and the overall duration of the contract period.
Hi Sushil,
I am beginning a remote position with a US company and need some guidance on how to pay my taxes. Could you let me know the applicable tax rates for my income and the process involved?
Thank you.
So, in conclusion maa chahi if you are earning money from freelancing sites like upwork and fiverr, ki ta dollar account banayara directly tesbaata paisa nikalnu paryo jahaa 5% tax applicable huncha. Directly local bank maa nepalese rupees maa paisa nikalne ho vane afno taxable income anusaar kun tax slab maa parcha tei anusaar tax tirnu paryo. maile bujheko kura sahi ho ta?
Exactly !!
hello please help me aswell.
I have received money from upwork, wise, revolut and remetly while working as a freelancers. Bank deduct 5% tax on payments sent through wise. Other than that money directly deposited on my bank account . I don’t know if it’s consider as remittance or something. But bank didn’t deduct tax. Can you help me how to deal with that? I mean will there be any implication if I won’t pay taxes for those amount?