1.1.     General

Gains derived from the transfer of the Non Business Taxable Assets (“NBTA”) are taxed under the Income Tax Act at rates specific to the capital gains. The Income Tax Act defines NBTA as any land, building or security or interest in an entity excluding the following:

  1. Business assets[1], depreciable assets or stock in trade;
  2. A private residence of an individual that has been;
    1. Owned continuously for 10 years or more;
    1. Used as abode by the individual continuously or intermittently for a total of 10 years or more;
  3. An interest of a beneficiary in a retirement fund;
  4. Land, land and building or private residence that is disposed of for less than NPR 3 million; or
  5. Assets of an individual that is disposed of by any way of transfer other than sales or purchase within the three generations of the family (e.g. by way of gift by father to son)

Gains derived from the disposal of business assets or liabilities are taxable as business income and are subject to regular corporate or PIT, as the case may be.

1.2.     Rates

The CGT is generally collected on withholding basis under the Income Tax Act. The rate of CGT applicable on different asset types and their respective withholding agent is summarized in the table below:

S.N. Type of asset being disposed/ alienated Rates Withholding Agent
1 Interest[2] in an entity (e.g. shares) listed in Securities Board of Nepal (“SEBON”), held by resident natural person 5% Security Broker
2 Interest in an entity, listed in SEBON, held by other than natural person 10% Security Broker
3 Interest in an entity, not listed in SEBON, held by resident natural person 10% Concerned Entity
4 Interest in an entity, not listed in SEBON, held by person other than resident natural person 15% Concerned Entity
5 NBTA in ownership of disposer for more than 5 years 2.5% Concerned Land Revenue Office
6 NBTA in ownership of disposer for less than 5 years 5% Concerned Land Revenue Office

1.3.     Indirect transfer of shares

It is still unclear whether Nepal taxes an indirect transfer of shares in Nepal subsidiary that is effectuated through an offshore transfer of shares in its foreign parent entity as there is no provision in the Income Tax Act to tax indirect transfer, apart from a general provision of anti-avoidance rule in section 35 of the Income Tax Act which can be used to crack down any tax avoidance scheme by ignoring the intermediary structuring framework used by foreign investors. Section 95A of the Income Tax Act deals with taxing of capital gains but the provision does not cover the share transfer in offshore company.

1.4.     Compliance

The withholding agent is required to file return of CGT withheld and accordingly deposit the applicable CGT within 25th day of next month in which the tax was withheld as per the Nepalese calendar.

[1] The Income Tax Act defines “business assets” as assets other than the depreciable assets and stock in trade, used in the business.

[2] Interest in an entity means a right, including a contingent right, to participate in the income or capital of an entity.

Categories: Taxation


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