Kathmandu. The government is preparing to rein in the tax exemption facilities provided to the citizens of 7 countries, including Sri Lanka, after the massive tax evasion under the cover of the bilateral trade agreement.
The government has amended the Tax Related Act to curb the tax exemption facilities provided to the citizens of Sri Lanka, China, Korea, Pakistan, Norway, Thailand and Austria after the tendency to invest or do business in Nepal only for the purpose of tax evasion under the cover of a trade treaty.
The treaty benefits such as concessions in tax rates or full tax exemption will be denied to any entity controlled by individuals or companies that own 50 per cent or more than 50 per cent or are not residents of the treaty partner country.
This is a direct measure to prevent residents of third countries from setting up shell companies in countries where tax exemption concessions are granted in order to take advantage of favorable tax exemptions offered in the agreement.
In a public notice issued by the Department of Internal Revenue, treaty party states have been informed of a major legislative change aimed at curbing “treaty purchases” — that some foreign entities have abused treaty purchases to unfairly reduce their tax burdens.
“Nepal is firmly committed to upholding the integrity of its bilateral tax agreements and ensuring that it benefits only genuine investors and taxpayers,” said Basudev Poudel, Director of the Inland Revenue Department at the Ministry of Finance. “
The Department has communicated amendments to domestic tax laws, particularly Section 73, sub-section 5 of the Income Tax Act, 2002 to the tax authorities of the concerned country.
According to the department, the decision of this amendment is not to discourage foreign investment but to ensure a transparent international tax environment.
The Government of Nepal is awaiting approval from the countries concerned to implement the new provisions.
