Foreign ICT Companies Selling Nepali User Data to Face 2% Tax

Foreign information and communication technology (ICT) companies, classified as non-resident entities, will now face a 2 percent tax if they sell data collected from users in Nepal while providing electronic services. This category includes companies such as Facebook and Google, which do not have offices in Nepal, as well as software providers, mobile gaming platforms, cloud services, and targeted advertising providers.

According to the Inland Revenue Department (IRD), the tax will only apply if the combined annual value of electronic services provided to Nepali users and the sale of their collected data exceeds Rs 3 million. The previous threshold was Rs 2 million. Under the government’s third amendment to the Digital Service Tax (DST) procedures, non-resident entities will be taxed at 2 percent on the value of both electronic services and user data sales.

Previously, the 2 percent DST applied only to electronic services provided by non-resident entities. Now, it has been extended to cover user data sales as well. However, transactions involving the sale of goods or services through a digital interface to business users in Nepal, or the sale of user data to business users in Nepal, will be exempt from this tax.

This means that for tax purposes, non-resident entities will not have to include the value of such business-related transactions in their taxable turnover. The revised procedures also define “online advertising” more precisely. The IRD’s updated guidelines classify both paid personal promotion services and targeted online advertising as distinct categories, whereas the 2081 procedures had included advertising services under electronic services in general terms.

The IRD has also raised the annual VAT registration threshold for non-resident entities providing taxable electronic services in Nepal to Rs 3 million from the previous Rs 2 million.

Under the Value Added Tax on Electronic Services Procedures, 2079 (third amendment, 2082), once a non-resident entity exceeds the threshold, it must register for VAT and collect it on all subsequent transactions, regardless of amount.

Non-resident entities exceeding Rs 3 million in taxable transactions over the past 12 months must register for VAT and begin collecting it from the date of registration. Entities expecting to surpass the Rs 3 million annual threshold may also voluntarily register in advance, after which they must collect VAT from the registration date.