The Inland Revenue Department (IRD) has issued a public notice clarifying how Value Added Tax (VAT) rules apply to non-resident persons registered to provide electronic (digital) services in Nepal, and has amended Schedule-3 of the related procedure to introduce a revised VAT return format.
The clarification follows repeated queries received by the Department on whether the excess-credit adjustment provision available to ordinary taxpayers also extends to non-resident electronic service providers. The notice confirms that it does, and updates the prescribed return accordingly.
Key Highlights
Equal treatment confirmed. Rule 20 of the VAT Rules, 2053, applies to non-resident taxpayers providing electronic services in Nepal in the same manner as it applies to other taxpayers.
Negative VAT can be carried forward. Where a credit note issued in a tax period exceeds sales for that period and results in negative VAT, the excess may be carried forward and adjusted against the VAT liability of subsequent tax periods until fully set off.
Return format revised. Schedule-3 of the "Procedure Relating to VAT on Electronic Services Provided by Non-Resident Persons, 2079" (linked to Section 7(ka) of the Procedure) has been amended to reflect this treatment.
Background
Non-resident persons supplying electronic services to consumers in Nepal are required to register and account for VAT on their B2C supplies. Questions had arisen over whether such providers could carry forward a net negative VAT position, arising for example when refunds or cancellations (credit notes) in a period exceed sales in that same period. The IRD notice settles this point.
What the Notice Clarifies
The adjustment mechanism under Rule 20 of the VAT Rules, 2053, is available to non-resident electronic service providers on an equal footing with other taxpayers.
A negative VAT amount created in any tax period (through credit notes exceeding sales) is not lost. It is carried forward and matched in each following tax period until it is fully adjusted against later VAT liabilities.
To operationalise this, the VAT return in Schedule-3 now provides distinct lines for prior-period adjustments, debit or credit adjustments, and the amount payable or carried forward.
Revised VAT Return Format (Schedule-3)
The amended return, "VAT Return (for Non-Resident Persons)", captures the Nepali fiscal year and month, the taxpayer's PAN, name and address, with all amounts stated in Nepali Rupees. The core computation is set out below.
Table 1: VAT computation lines
Particulars | Transaction Amount | Tax Amount |
|---|---|---|
Total taxable sales (B2C) | XXX | XXX |
Other adjustments (adjustment of prior-period rebate or carried-forward amount) | (+/-) xx | (+/-) xx |
Debit or credit adjustment amount | (+/-) xx | (+/-) xx |
Tax payable / tax that can be carried forward | – | (+/-) xx |
Sales Details (may be uploaded in Excel format)
Supporting sales details are reported for the relevant year and month, and may be uploaded as an Excel file, using the following columns.
Table 2: Sales detail columns
S.No. | Invoice No. | User / Purchaser Name | PAN (if available) | Total Sales Amount | Taxable Sales | VAT Amount |
|---|---|---|---|---|---|---|
1 | … | … | … | … | … | … |
The return closes with a declaration that the information provided is true, correct and complete, signed by the authorised person along with their designation, place and address.
What This Means for Non-Resident Service Providers
Providers can now report and carry forward a net negative VAT position with certainty, improving cash-flow treatment where credit notes are significant in a period.
Filings should use the revised Schedule-3 format, ensuring prior-period adjustments and carried-forward amounts are correctly reflected across periods.
Maintaining period-by-period records of sales, credit notes and carried-forward balances will be important to support the adjustments claimed.
Read the official notice. The full public notice and the amended Schedule-3 issued by the Inland Revenue Department are available below.
Download the official IRD Notice (PDF)
