Value Added Tax in Nepal: VAT Rate, Exemptions and Registration Guide

Value added tax, commonly called VAT, is an indirect tax charged on taxable goods and services. VAT in Nepal applies as products move from import or production to wholesale, retail and final consumption. The standard VAT rate in Nepal is 13%.

Among the main forms of tax in Nepal, VAT has a direct effect on the amount customers pay. For a business, VAT also affects invoicing, pricing, cash flow and monthly tax reporting.

This guide explains how VAT works, how to calculate it, which transactions are exempt or zero-rated, and when a business must register with the Inland Revenue Department.

Last reviewed: August 2026, for FY 2083/84.

What Is Value Added Tax (VAT) in Nepal?

Value added tax is an indirect consumption tax. The business collects it from the customer, but the final financial burden normally falls on the consumer.

VAT is applied at different stages of the supply chain, including:

• Import or production
• Distribution
• Wholesale
• Retail
• Final sale to the consumer

A VAT-registered business charges VAT on taxable sales. This is called output VAT.

The same business may pay VAT when buying stock, raw materials or eligible services. This is called input VAT.

The business generally deposits the difference with the Inland Revenue Department.

VAT payable = Output VAT − Eligible input VAT

This mechanism prevents the same value from being taxed repeatedly at every stage.

A Simple VAT Supply-Chain Example

Suppose a wholesaler purchases taxable goods for NPR 100,000 before VAT.

The wholesaler later sells those goods for NPR 150,000 before VAT.

The wholesaler collected NPR 19,500 but had already paid NPR 13,000 on the purchase.

Therefore:

VAT payable = NPR 19,500 − NPR 13,000 = NPR 6,500

The NPR 19,500 collected from the customer is not the wholesaler’s income. It must be recorded separately from sales revenue.

From a practical cash-flow point of view, a business should not spend collected VAT as normal working capital. That creates payment pressure when the VAT return becomes due.

The Current VAT Rate in Nepal

The standard VAT rate in Nepal is 13%. It applies to most taxable goods and services unless the transaction is exempt, zero-rated or covered by a special rate.

The standard rate is established under Section 7 of the Value Added Tax Act, 2052.

Important FY 2083/84 Rate Update

Although 13% remains the standard rate, Nepal no longer has only one effective VAT rate.

The Economic Act, 2083 amended Section 7 and introduced a 5% VAT rate for specified transactions. These include certain transport or delivery services supplied through resident ride-sharing platforms and electricity supplied to final consumers.

Businesses dealing with these services should apply the legally prescribed rate instead of automatically charging 13%.

For normal goods and services that do not fall under an exemption, zero rate or special rate, the 13% standard rate continues to apply.

How to Add 13% VAT to a Price

If the quoted amount does not include VAT, use this formula:

VAT amount = VAT-exclusive price × 13%

VAT-inclusive price = VAT-exclusive price × 1.13

For example, if the price before VAT is NPR 10,000:

The seller should record NPR 10,000 as sales value and NPR 1,300 as output VAT.

How to Remove VAT From a VAT-Inclusive Amount

A common mistake is to calculate 13% of the VAT-inclusive total. That gives the wrong answer.

To extract VAT from a price that already includes 13% VAT, use:

VAT-exclusive value = VAT-inclusive amount ÷ 1.13

VAT amount = VAT-inclusive amount × 13 ÷ 113

For a VAT-inclusive bill of NPR 11,300:

You can use the VAT Calculator Nepal to add or remove standard 13% VAT. Use it only for standard-rated transactions. A special rate must be calculated separately.

VAT Exemptions and Zero-Rated Goods

VAT-exempt and zero-rated transactions are not the same. Both may result in no VAT being charged to the customer, but their treatment of input VAT is different.

This distinction matters when pricing products and preparing VAT returns.

VAT-Exempt Goods and Services

Schedule 1 of the VAT Act lists goods and services that are exempt from VAT. Common categories include:

• Specified basic agricultural products
• Selected essential food items
• Certain livestock and animal products
• Specified agricultural materials and inputs
• Listed medicines, treatment and health services
• Education services
• Books, newspapers and printed materials listed in the schedule
• Specified passenger transport services
• Certain land and building transactions
• Other goods and services specifically listed in Schedule 1

For example, Schedule 1 includes many fresh vegetables and basic agricultural products, such as potatoes, tomatoes, onions, garlic, carrots and selected pulses.

However, this does not mean that every food product is VAT-exempt. A processed, packaged or prepared product may have a different VAT classification from the raw agricultural product.

Businesses should check the exact product description and customs classification. A broad description such as “food,” “medicine” or “agricultural item” is not enough to confirm an exemption.

Zero-Rated Goods and Services

Schedule 2 of the VAT Act covers transactions taxed at 0%.

The most common example is an export of goods from Nepal. Certain services supplied to a person outside Nepal may also qualify for zero-rating when the legal conditions are met.

Other zero-rated supplies can include:

• Qualifying exports of goods
• Qualifying services supplied to persons outside Nepal
• Certain supplies to diplomatic missions
• Supplies covered by eligible treaties or agreements
• Specified supplies to industries operating in special economic zones
• Other supplies specifically listed in Schedule 2

A zero-rated sale remains a taxable transaction. The rate is simply 0%.

This allows a qualifying business to claim or request a refund of eligible input VAT. An exempt business usually cannot claim input VAT connected to its exempt sales.

Why the Difference Matters

Assume an exporter pays NPR 130,000 as eligible input VAT while producing goods for export.

The exporter may charge 0% VAT on the qualifying export. However, because the export is zero-rated rather than exempt, the exporter may be able to claim the input VAT, subject to documentation and IRD verification.

If the same input cost was connected only to an exempt supply, the input VAT would generally not be recoverable.

A business making both taxable and exempt sales must separate its costs. Input VAT directly linked to exempt sales cannot normally be claimed. Shared costs may need to be allocated in proportion to taxable and exempt turnover.

When Is VAT Registration Mandatory?

VAT registration depends mainly on taxable turnover, not business profit.

Under the current thresholds published in the IRD’s official tax guidance, registration is generally mandatory when taxable turnover exceeds the following limits:

NPR 50 lakh means NPR 5,000,000. NPR 20 lakh means NPR 2,000,000.

The Threshold Is Based on Taxable Turnover

Turnover means the value of sales or supplies. It does not mean net profit.

For example, a trader may have:

• Annual taxable sales of NPR 55 lakh
• Business expenses of NPR 52 lakh
• Net profit of only NPR 3 lakh

The trader has still crossed the NPR 50 lakh goods threshold. Low profit does not remove the VAT registration requirement.

Use the Correct Period

Businesses should review taxable turnover for the previous 12 months. The IRD guidance also considers whether expected taxable turnover during the next three months will exceed the applicable threshold.

This means a new business should not always wait until the annual limit has already been crossed. A large confirmed contract may show that the business is expected to exceed the threshold shortly.

Mixed Businesses Use the Lower Threshold

A business selling both goods and services generally falls under the mixed-business threshold of NPR 20 lakh.

For example, an IT company may sell computers and also charge for installation, repair and support. It should not automatically apply the NPR 50 lakh goods threshold just because most of its revenue comes from hardware.

The nature of the full business activity must be reviewed.

Other Situations That Can Require Registration

Turnover is not the only registration trigger.

The IRD FAQ also identifies circumstances such as:

• A commercial import of taxable goods or services worth more than NPR 10,000 at one time
• An annual business loan above NPR 10 lakh from a bank
• Carrying on a business specifically required to register under the VAT Act
• Supplying goods or services under arrangements that require a VAT-registered vendor

Because these rules can depend on the business type and transaction, confirm the position with the relevant Inland Revenue Office before importing, signing a major contract or drawing down a business loan.

What If a Business Sells Only Exempt Goods?

A business dealing only in supplies listed as VAT-exempt is generally not required to register solely because its exempt turnover is high.

However, it may still need:

• Business registration
• A Business PAN
• Income tax registration
• Local or industry-specific licences
• Proper invoices and accounting records

VAT exemption does not mean exemption from every other tax in Nepal.

Can a Small Business Register Voluntarily?

A business below the mandatory threshold may apply for voluntary VAT registration.

This may be useful when most customers are VAT-registered businesses and expect valid VAT invoices. It can also help a business claim eligible input VAT on taxable operations.

Voluntary registration also creates ongoing responsibilities. The business must issue proper tax invoices, maintain records, file VAT returns and pay any VAT due. It should not register only for appearance without planning for the monthly workload.

How to Register for VAT in Nepal

VAT registration starts through the IRD Taxpayer Portal.

The general process is:

1. Open the IRD Taxpayer Portal.
2. Go to the registration section for PAN, VAT and excise.
3. Start or update the business registration application.
4. Enter the business, owner, address and activity details.
5. Select the relevant Inland Revenue Office or Taxpayer Service Office.
6. Upload the documents requested by the portal.
7. Save the submission number and login details.
8. Submit the application.
9. Visit or contact the selected tax office if physical verification is required.
10. Collect or download the updated registration certificate after approval.

Documents normally requested may include:

• Business registration certificate
• Citizenship or identity documents of the proprietor or responsible persons
• Business PAN details
• Partnership deed or company documents
• Office rent agreement or ownership evidence
• Photographs and contact information
• Additional licences related to the business activity

The tax office may ask for more documents based on the legal structure and business type.

A business must not collect VAT merely because it has submitted an application. It should charge VAT only after registration has been approved and the business is authorised to issue VAT invoices.

VAT Invoices and Input Tax Credit

Only a VAT-registered seller can issue a valid VAT tax invoice.

Mandatory Invoice Fields Under Rule 17

To be legally valid under Rule 17 of the VAT Rules, your tax invoice must clearly display the heading “Tax Invoice” (or “कर बीजक”) at the top and contain sequential, unique serial numbers. It must also explicitly state the 13% VAT rate on a separate line and include the supplier’s PAN and authorized signature.

A proper invoice should clearly show information such as:

• Seller’s name and address
• Seller’s PAN or VAT registration number
• Invoice number and date
• Buyer details where required
• Description and quantity of goods or services
• VAT-exclusive amount
• Applicable VAT rate
• VAT amount
• Total amount payable

A buyer should check the invoice before making payment. A document that only shows a total amount and says “VAT included” may not be enough to support an input VAT claim.

Input VAT is generally claimable only when:

• The buyer is VAT-registered
• The purchase relates to taxable business activity
• A valid tax invoice or import document is available
• The transaction is properly recorded
• The VAT is not restricted by law
• The purchase is not for personal use or an exempt activity

Payment evidence, purchase records and the VAT invoice should agree. Differences between invoices, inventory records and bank payments often create problems during tax verification.

VAT Return Filing and Payment

A VAT-registered taxpayer generally has to calculate VAT for each tax period and file a return.

Under Sections 18 and 19 of the VAT Act, the normal deadline is within 25 days after the end of the tax period. Some taxpayers may be assigned a different reporting period under prescribed rules.

A VAT return should report:

• Taxable sales
• Zero-rated sales
• Exempt sales
• Output VAT collected
• Eligible input VAT
• Adjustments and credit notes
• VAT payable or credit carried forward

A return is still required when there was no taxable transaction during the period. This is commonly called a nil return.

Registration responsibilities continue until the IRD formally cancels the VAT registration. Closing a shop or stopping sales does not automatically cancel the registration.

Penalties for Late Filing and Payment

The Inland Revenue Department strictly enforces the 25-day deadline. If you fail to file your VAT return on time, you will be fined 0.05% of the tax due per day, or a minimum of NPR 1,000 per tax period, whichever is higher. Furthermore, late payment of the actual VAT liability carries an additional 15% per annum interest charge.

Common VAT Mistakes to Avoid

Treating Collected VAT as Business Income

VAT collected from customers is a tax liability. Spending it on salaries, stock or loan instalments can leave the business short when payment is due.

Calculating 13% on a VAT-Inclusive Total

To extract VAT from a 13% VAT-inclusive price, multiply the gross amount by 13/113. Do not simply calculate 13% of the gross amount.

Using Profit to Test the Registration Threshold

The threshold is based on taxable turnover. A low profit margin does not prevent mandatory registration.

Treating Exempt and Zero-Rated Sales as the Same

Both may show no VAT on the customer’s bill, but input VAT treatment is different.

Assuming Every Essential Item Is Exempt

Only the goods and services specifically covered by Schedule 1 or another legal exemption qualify.

Claiming Personal Purchases as Input VAT

A VAT invoice alone does not create a valid claim. The expense must be connected with the taxable business activity and must not be restricted.

Charging VAT Before Registration

An unregistered business cannot legally collect VAT by presenting itself as a VAT-registered seller.

Ignoring Nil Returns

A registered taxpayer generally must file even when there are no sales. Repeated non-filing can lead to penalties and compliance restrictions.

VAT and Income Tax Are Different

VAT and income tax serve different purposes.

Depositing VAT does not normally count as paying the business’s income tax liability. A business may owe VAT even when it has made an accounting loss.

Frequently Asked Questions About VAT in Nepal

Final Advice for Businesses and Consumers

For consumers, VAT affects the final amount paid. Ask for a proper invoice and check whether the advertised price includes VAT.

For businesses, VAT is more than adding 13% to a bill. The correct treatment depends on the product, service, customer, turnover and supporting documents.

Keep separate records for sales value, output VAT, purchases and input VAT. Reconcile these records with invoices, inventory and bank transactions before filing each return.

Use the VAT Calculator Nepal for ordinary 13% VAT calculations. For exemptions, zero-rated exports, special rates or uncertain product classifications, check the current schedules of the VAT Act or confirm the treatment with the Inland Revenue Department or a qualified tax professional.