Nepal Tax Residency Guide

Residency Rules

• 183-day rule: An individual is considered a resident of Nepal if they are present in Nepal for 183 days or more in any 12-month period that overlaps the tax year (mid-July to mid-July). The days of arrival and departure are both counted.
• Other criteria: Even if the 183-day test is not met, an individual may be considered resident if they have a permanent home in Nepal and maintain habitual abode. Government employees serving abroad are generally treated as residents. Company directors may be resident if the company's management and control is exercised in Nepal.
• Non-resident: An individual who does not meet the 183-day test and does not have a permanent home in Nepal is treated as a non-resident. Non-residents are taxed only on income sourced in Nepal (employment exercised in Nepal, property located in Nepal, dividends from Nepali companies, etc.).
• Resident but not ordinarily resident: Nepal's tax law distinguishes between residents and those who are resident but not ordinarily resident (RNOR) — typically NRIs returning after long absence or foreigners newly arrived. RNOR status may provide transitional relief on foreign income for a limited period.

Scope of Taxation

• Residents: Taxed on worldwide income — all income from any source, whether arising in Nepal or abroad. Foreign tax credits are available for taxes paid abroad under DTTs or unilateral relief.
• Non-residents: Taxed only on Nepal-source income — income derived from employment in Nepal, property located in Nepal, business carried on in Nepal, dividends from Nepali companies, interest from Nepali sources, and royalties paid by Nepali residents.
• Source rules: Employment income is Nepal-source if the employment is exercised in Nepal. Business income is Nepal-source if the business is carried on through a permanent establishment in Nepal. Dividends and interest are Nepal-source if paid by a resident of Nepal.

Double Taxation Treaties (DTTs)

• Over 15 treaties: Nepal has signed DTTs with more than 15 countries, including major partners: India, China, Norway, Austria, South Korea, Thailand, Bangladesh, Sri Lanka, Pakistan, Malaysia, Mauritius, Qatar, and ASEAN countries. Treaties generally follow the OECD Model Tax Convention.
• Treaty benefits: DTTs typically reduce withholding tax rates on dividends (generally 5-10%), interest (10-15%), and royalties (10-15%). They also provide for permanent establishment thresholds (typically 6-12 months for construction/services) and eliminate double taxation through the exemption or credit method.
• Claiming treaty benefits: To claim a reduced WHT rate under a DTT, the beneficial owner must provide a Tax Residency Certificate (TRC) from their home country and a self-declaration of beneficial ownership to the Nepali payer or the IRD.
• Most Favoured Nation (MFN) clauses: Some of Nepal's treaties contain MFN clauses that automatically apply lower rates if Nepal agrees to more favourable terms with another OECD country.

For cross-border withholding tax rates and transfer pricing, see our Cross-Border Guide →. For NRI-specific tax considerations, see our Tax Filing Guide →.