Nepal Terminates Double Taxation Avoidance Agreement with Mauritius, Notifies Port Louis

The Government of Nepal has terminated the Double Taxation Avoidance Agreement (DTAA) signed with Mauritius 25 years ago and formally notified the Mauritian government through diplomatic channels, officials confirmed on Wednesday.

Nepal and the Republic of Mauritius signed the bilateral tax treaty on August 3, 1999. The agreement came under public scrutiny this year after the interim government granted tax exemption to Dolma Impact Fund — an investment vehicle registered in Mauritius — under the treaty’s provisions.

Following criticism, the Council of Ministers on December 8 decided to scrap the DTAA altogether. Under the treaty’s termination clause, either party must inform the other side before the agreement is withdrawn. The government has now sent the official notification accordingly.

Madan Dahal, Director General of the Inland Revenue Department (IRD), dispatched the notice on Wednesday, citing Article 29(1) of the DTAA, which outlines the termination process.

Why was the DTAA scrapped?

According to the IRD, the decision was taken to ensure uniformity in Nepal’s international tax framework, considering major changes in domestic laws and global tax standards.

 “This strategic decision was necessary to harmonise our international tax arrangements with significant developments in both domestic legislation and the global tax environment,” the department said in a press release.

Nepal’s Income Tax Act 2002 already incorporates modern anti–tax avoidance rules that affect treaty implementation, including a ‘limitation of benefits’ provision under Section 73(5).

The IRD noted that global tax governance has changed substantially since 1999, particularly with the introduction of the Organisation for Economic Cooperation and Development (OCED)’s Base Erosion and Profit Shifting (BEPS) project, which demands greater transparency and stronger measures against tax abuse.

Officials said companies registered in Mauritius had increasingly enjoyed the benefit of paying no tax in Mauritius and avoiding taxes in Nepal by using the treaty — a practice the government wanted to curb.

Although the notification has been sent, the termination will take effect only from the start of Nepal’s next fiscal year, on July 17, 2026 (FY 2026/27), the IRD said.

Future cooperation still open

Despite scrapping the treaty, Nepal will continue to pursue bilateral economic and tax cooperation with Mauritius. The IRD said Nepal remains open to negotiating a new, modern DTAA and a Bilateral Investment Promotion and Protection Agreement (BIPPA) in the future.

“Any future agreement will be based on mutual interests, greater transparency and consistency with the evolving domestic and global economic environment,” the statement added.

Nepal has already notified seven other DTAA partner countries about changes in its tax laws, but Mauritius is the only country with which Nepal has decided to terminate an existing agreement.

Nepal’s DTAA network

Nepal has signed DTAAs with 11 countries so far — India, Bangladesh, China, Qatar, South Korea, Thailand, Sri Lanka, Austria, Pakistan, Norway and Mauritius. With the termination of the Mauritius treaty, the number will drop to 10.

Nepal’s first tax treaty was signed with India in 1987, later replaced by a new agreement in 2011.

What happens to existing Mauritian investments?

According to the Nepal Rastra Bank’s Foreign Investment Report (FY 2023/24), Mauritius has Rs 4.59 billion in accumulated FDI stock in Nepal, accounting for about 1.4 percent of total foreign investment. Of this, Rs 3.96 billion is in industries and Rs 625 million in the service sector.

“All existing investments from Mauritius were made under the previous DTAA framework,” Dahal said. “Even though the treaty is now terminated, those investments will continue to receive the benefits originally provided.”

Once termination takes effect, however, new investments routed through Mauritius will be subject to normal income tax in Nepal.

Dahal noted that foreign investment can still enter Nepal from Mauritius even without a treaty. “We have not restricted investment from there. A new DTAA or a Bilateral Investment Promotion and Protection Agreement (BIPPA) could be negotiated in the future — we remain open and positive toward such discussions,” he added.

Tax treaties are often considered important tools for attracting foreign investment. But Mauritius’ reputation as a tax haven has allowed some investors to avoid paying taxes in both jurisdictions by routing funds through Mauritius.

“The intention is to deter those who use such jurisdictions to avoid taxes. This is not unique to Nepal — many countries have taken similar steps,” Dahal said. “Our goal is to attract honest taxpayers and genuine investors while strengthening foreign investment promotion.”