Plan contractor hiring in Nepal

Engage the contractor under a written services contract and pay against accepted invoices in the name shown on the contractor's PAN record. The contract should identify whether the counterparty is the individual, a registered sole business or a private company, then state the deliverables, acceptance evidence, invoice trigger, currency, gross fee and due date. Nepal's Labour Act looks through the title used for the person, so procurement should review whether the working arrangement remains independent whenever supervision, role or continuity changes.

Sources: Nepal Law Commission, Labour Act 2074, Nepal Law Commission, National Civil Code 2074, Internal Revenue Department, PAN registration FAQ

If the line is crossed

If the facts establish employment, replace contractor invoicing with the employment arrangements that Nepal law requires for the relationship. The employer must have an employment agreement stating remuneration, benefits and employment conditions, and the Labour Office can determine a disputed status. For employment covered by the Social Security Fund, the monthly contribution package is 31 percent, allocated 11 percent to the worker and 20 percent to the employer. A foreign business with no Nepal establishment should resolve the local employer, registration and remittance setup before work continues under employee-like facts.

Sources: Nepal Law Commission, Labour Act 2074, Social Security Fund, Labour Department contribution notice

स्थायी लेखा नम्बर दर्ता प्रमाणपत्र

PAN registration certificate

The contractor's PAN registration certificate anchors both tax identity and the inward service-export file. Nepal Rastra Bank's current circular tells a licensed receiving bank to check a copy before crediting service-export proceeds to the Nepal exporter. Obtain the copy during onboarding and compare its name and number with the contract, invoice and receiving-account identity. A personal professional should provide the P-PAN record that matches the individual's invoice; a registered business or company should provide its Business PAN record.

Issued by: Internal Revenue Department; the contractor gives a copy to the licensed receiving bank and can share it with the foreign customer for onboarding.

Timing: Collect during onboarding and keep the current matching copy ready before the first service-export credit.

Sources: Nepal Rastra Bank, Unified Circular 2082/83

A qualifying exported service is zero-rated for Nepal VAT when a Nepal-resident supplier serves a person outside Nepal that has no business transaction, business representative or legally recognized agent in Nepal. The fixed customer's lack of a Nepal entity or permanent establishment is central, and onboarding should also confirm the representative and agent conditions. Zero-rating and registration are separate questions: a supplier above the service-turnover ceiling still registers and issues the prescribed tax invoice while applying the export rule.

Sources: Internal Revenue Department, VAT Act Schedule 2, Internal Revenue Department, VAT Rules through the twenty-seventh amendment

What an invoice has to show

• कर बिजक heading, seller PAN, dates, customer identity, value calculation and conditional NPR equivalent

  A VAT-registered supplier's invoice should visibly say कर बिजक and carry the invoice number, seller taxpayer registration number, transaction date, issue date, and seller name and address. The prescribed Schedule 5 layout also records the customer's name and address, the service description, quantity or service unit where relevant, unit price, total value, discount, taxable value, tax rate and amount, and grand total. If the supplier receives convertible foreign-currency consideration and issues a tax invoice, Rule 21 also requires the invoice to state the NPR equivalent at the Nepal Rastra Bank exchange rate for the transaction date. Show the export rate consistently with the Schedule 2 position. The foreign customer's Nepal taxpayer number should not be invented when none exists. Use a service description and period that tie directly to acceptance evidence, because the receiving bank also checks the invoice or purchase order.

  Sources: Internal Revenue Department, VAT Rules through the twenty-seventh amendment, Internal Revenue Department, Schedule 5 tax-invoice form, Internal Revenue Department, VAT Act Schedule 2, Nepal Rastra Bank, Unified Circular 2082/83

The contractor bills with an invoice or purchase order, and payment falls due on the date written into the service contract. State whether invoicing follows a milestone, monthly service period or accepted deliverable, and make the acceptance evidence easy to match to the invoice. Nepal-source service-fee withholding under Income Tax Act section 88 is assigned to a resident payer. On the fixed facts, the foreign customer has no Nepal entity or permanent establishment and sits outside that payer description, so it should pay the agreed gross fee without a Nepal deduction under that rule. The Nepal-resident contractor remains responsible for reporting the foreign service income in Nepal. For annual tax rates and relief, use the Economic Act 2083 rather than an earlier annual Finance Act.

Sources: Internal Revenue Department, Income Tax Directive on withholding, Internal Revenue Department, Income Tax Act provisions, Internal Revenue Department, Economic Act 2083, Nepal Rastra Bank, Unified Circular 2082/83

When invoices are settled

If Nepal's Civil Code governs, the payment time agreed in the contract controls. Where the contract states no time or method and the work does not inherently require a particular one, section 523 supplies a reasonable-time and reasonable-method fallback rather than a fixed number of days. That standard leaves room for dispute over what was reasonable, so the contract should name the due date, the event that starts the clock and the acceptance contact. Also state the correction process for a defective invoice. A different chosen governing law can supply another default, while the Nepal receiving-bank document check still applies to the contractor's inward service-export credit.

Sources: Nepal Law Commission, National Civil Code 2074

The currency on the invoice

Use the currency agreed in the service contract and repeat that currency and gross amount consistently on the invoice or purchase order and in the receiving-bank instructions. If the supplier receives convertible foreign-currency consideration and issues a tax invoice, VAT Rule 21 requires that invoice to state the NPR equivalent calculated at the Nepal Rastra Bank exchange rate for the transaction date. Nepal's service-export procedure otherwise creates no universal invoice currency for ordinary exported services. Agree in advance who bears any conversion difference and which amount satisfies the invoice if the receiving account is denominated differently. Keep taxes separate from conversion language, especially because the fixed no-presence foreign customer has no section 88 Nepal withholding duty and the contractor owns the Nepal income-tax calculation.

Sources: Nepal Rastra Bank, Unified Circular 2082/83, Nepal Law Commission, National Civil Code 2074, Internal Revenue Department, VAT Rules through the twenty-seventh amendment

Local currency rules

The receiving licensed bank checks a Nepal service-export file before crediting the proceeds. The current Nepal Rastra Bank circular names three core items: a copy of the exporter's PAN registration certificate, the invoice or purchase order for a service of that nature, and the exporter's declaration that applicable anti-money-laundering, counter-terrorist-financing and other national and international requirements are or will be followed. Put the contractor in contact with the receiving bank before the first invoice and match names, currency, amount, service description and customer across the file. If the service itself needs an approval, the relevant approval document also belongs in the file.

Sources: Nepal Rastra Bank, Unified Circular 2082/83

Deducting Nepal tax from the offshore payment

Do not subtract Nepal service-fee withholding merely because the contractor lives in Nepal. The Income Tax Directive says only a resident person's payment is subject to withholding and a nonresident cannot be the withholding agent under this rule. The fixed customer has no Nepal entity or permanent establishment, so the contractor should receive the agreed gross fee and report the service income in Nepal. Recheck the conclusion if the payer later opens a Nepal establishment, routes the obligation through a Nepal resident counterparty or changes the legal payer. Recording the payer identity beside each invoice prevents a domestic rule from being applied to the wrong party.

Sources: Internal Revenue Department, Income Tax Directive on withholding

Sending funds before the bank file matches

Do not wait for the first credit to discover that the PAN copy, invoice or purchase order, and exporter declaration use different names or amounts. Nepal Rastra Bank lets the licensed bank credit service-export proceeds after checking those documents, and the bank can ask for an approval where the underlying service requires one. Have the contractor confirm the receiving account name and bank checklist before billing. Procurement should then compare the customer name, service description, currency, gross amount and invoice reference against the contract. A clean commercial approval cannot cure a Nepal exporter file that identifies a different taxpayer or unexplained service.

Sources: Nepal Rastra Bank, Unified Circular 2082/83

Continuing invoices after the work becomes employment

Stop contractor billing when the working facts establish a श्रमिक and an employment relation. Nepal's definition covers physical or intellectual work for remuneration for an employer regardless of the designation used, and the relation can arise through agreement, an oral offer or commencement of casual service. At that point the employer needs the required employment agreement, while covered employment brings the Social Security Fund contribution split into view. Continuing to approve invoices hides the change from tax, labour and finance records. Re-document the relationship, identify who will act as the local employer, and settle the employment and contribution administration before further service.

Sources: Nepal Law Commission, Labour Act 2074, Social Security Fund, Labour Department contribution notice