IRD Circular on Advance Tax Deduction for Permanent Establishments (PEs) of International Companies (Issued on 28th Bhadra, 2079)

Summary

The Inland Revenue Department (IRD) has issued this circular to clarify the income tax treatment and advance tax deduction (withholding tax) applicable to Permanent Establishments (PEs) of international companies established in Nepal for projects involving the supply, installation, and construction of tangible property or infrastructure.

Key Points

• If an international company establishes a Permanent Establishment (PE) in Nepal for executing a project under a single procurement or contract, the PE is treated as a resident entity for tax purposes as per the Income Tax Act, 2058.

• The entire contract value (including supply, installation, construction, and related activities under the same contract) is considered the income of the Permanent Establishment.

• The PE is liable to pay income tax on the total business profit generated from that contract in accordance with the Income Tax Act, 2058.

• The person making payment under the contract must deduct advance tax (withholding tax) at the rate of 1.5% under Section 89(1) of the Income Tax Act.

• The deducted tax must be:

  • Deposited within the prescribed time,

  • Reported electronically through E-TDS, and

  • Submitted using the Permanent Account Number (PAN) of the taxpayer.