VAT registration in Nepal: thresholds, deadlines and penalties

Who has to register for VAT in Nepal?

There are three routes into the VAT system.

The first route is crossing the turnover threshold. The Value Added Tax Act 2052 sets a turnover figure. For a business supplying goods the threshold is NPR 50 lakh annual turnover for goods. For services, or a mixed supply of goods and services, the threshold is lower, at NPR 30 lakh annual turnover for services or mixed supply. Turnover here means the total value of your taxable sales, not your profit.

The second route is that your trade requires it. Certain businesses have to be registered from the first day, whatever the turnover. The classes are set out in the VAT Rules and in Department notices. They have historically included dealings such as liquor, tobacco, electronics, hardware, marble, and a range of professional and consultancy services. They have also included businesses operating in specified metropolitan and municipal areas. The list has changed over the years. Do not rely on a list you read on a website, including this one, for your own trade. Check the current rules with the IRD or your accountant.

The third route is voluntary registration. You may apply even when you are below the threshold. This makes business sense in two cases. One is when most of your customers are registered themselves and want a tax invoice. The other is when your purchases carry a lot of input VAT (the VAT you pay to suppliers) that you would otherwise have to bear yourself.

What is the 30-day rule?

When you become liable to register, you have 30 days to apply. The 30 days are counted from the date you became liable, not from a date that suits you.

This rule is behind many unwelcome tax assessments, where the Department works out tax it says you owe. If the Department decides you should have been registered from an earlier date, you still owe the tax on sales made since then, even though you did not charge it. Penalties and interest can be added on top. The simple way to avoid this is to watch your rolling turnover through the year, instead of finding out at Asar end (the end of the fiscal year).

A rolling total is your sales for the last twelve months, counted back from today. Check it once a month, not once a year. A good billing system can show that figure.

How do you register for VAT?

You register through the Inland Revenue Department. You start online on the taxpayer portal and then complete it at your own tax office. Offices usually ask for:

• The application form for VAT registration.
• Your permanent account number certificate.
• Business or company registration documents, and the memorandum where applicable.
• Citizenship document of the proprietor, or of directors for a company.
• Proof of business premises, such as a rent agreement, plus a sketch or photograph of the place in some offices.
• A passport-sized photograph.

Requirements vary a little between offices, so confirm the list with your own tax office before you travel. You then receive a VAT registration certificate with your number on it. You must display it at your place of business.

What changes on day one?

Five things start at once.

Your bill changes. Every taxable sale needs a tax invoice. It shows your name, address and registration number, the buyer’s details where required, a sequential invoice number, the date, and the items with quantity and rate. It also shows the VAT on its own line, not hidden inside the price. The rate is 13% VAT.

Input VAT becomes money you can claim. VAT you pay on purchases for the business can be set against VAT you collect on sales. The purchase must be supported by a valid tax invoice from a registered supplier. A missing or faulty supplier bill means money lost, so the purchase register is no longer optional paperwork.

A monthly return begins. Most registered businesses file monthly, by the 25th of the following month under the Nepali calendar, and pay any net VAT at the same time. A return is due even in a month with no sales.

You keep registers. You maintain a sales register and a purchase register that match your invoices. You also file the counterparty schedule (a list of the businesses you traded with) that goes with the return.

You keep records safe. Invoices, registers and supporting documents have to be kept for the retention period in the tax laws. If you bill electronically, the Electronic Billing Procedure 2074 adds its own rules about sequence, reprints, deletion and backups.

What are the penalties for late registration?

Finance Acts set and change the exact amounts, and they differ for each kind of failure. This guide names the categories, not the numbers. Expect a penalty for:

• Failing to register when liable, including tax assessed for the period you traded unregistered.
• Filing a return late, or not filing at all.
• Paying late, which attracts interest in addition to any fine.
• Failing to issue an invoice, or issuing one that does not meet the prescribed form.
• Failing to keep records or to produce them on inspection.

For the amount that would apply to your situation, confirm with the IRD or your accountant. Fines change more often than any other part of tax law, so do not guess them.

Decide it with numbers, not nerves

If you are close to the threshold, you will usually have to register. What you need to decide is when, and how much work registration adds. Two figures help you decide.

The first is your rolling twelve-month taxable turnover. If it is on track to cross the threshold within a quarter (three months), start the paperwork now so you are not under pressure later.

The second is the share of your customers who are registered. The higher it is, the less registration costs you in lost business. Those buyers claim back the VAT you charge, and they prefer your tax invoice to a simple bill.

What software can take off your hands

You do not need a large system for this, but you need one that records everything the same way every time. In Kuver Books, customer and supplier records hold their permanent account and registration numbers, so the right number appears on the right document. Invoices apply VAT per line and print the tax separately, in A4, A5 or thermal receipt widths. The VAT reports cover the sales register, the purchase register, both return registers, a VAT summary laid out by Nepali month, and the counterparty schedule. All of them export for filing. Dates work in Bikram Sambat as well as the Gregorian calendar, which helps because the return deadline follows the Nepali month. You can see the detail on the reports page, and work a figure through the VAT calculator before you issue anything.

The software does not decide whether you are liable to register. Ask the IRD or your accountant about that, ideally before the 30 days start running.